Opinion ID: 148411
Heading Depth: 3
Heading Rank: 4

Heading: Inequitable Conduct on the Merits

Text: AMC also challenges the merits of the district court’s inequitable conduct finding. According to AMC, the district court erred by relying on Mr. Riceman’s “uncorADVANCED MAGNETIC v. ROME FASTENER 16 roborated and hearsay testimony” to infer Mr. Bauer’s intent to deceive. Appellant AMC’s Br. 45. “We review the district court’s inequitable conduct determination under a two-tier standard; we review the underlying factual determination for clear error, but we review the ultimate decision as to inequitable conduct for an abuse of discretion.” Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008). Because we find that the evidence AMC proffered independently supports the district court’s findings on materiality and intent, we hold that the district court did not clearly err in its factual determinations. We further hold that the district court did not abuse its discretion in finding the ’773 patent unenforceable based on Mr. Bauer’s inequitable conduct. Patent applicants “have a duty to prosecute patent applications in the [PTO] with candor, good faith, and honesty.” Honeywell Int’l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 999 (Fed. Cir. 2007) (alteration added); see also 37 C.F.R. § 1.56(a) (2009). A party asserting inequitable conduct must prove by clear and convincing evidence that a patent applicant breached that duty by (1) “fail[ing] to disclose material information or submit[ting] materially false information to the PTO” with (2) “intent to mislead or deceive the examiner.” McKesson Info. Solutions, Inc. v. Bridge Med., Inc., 487 F.3d 897, 913 (Fed. Cir. 2007) (internal quotation marks omitted) (alterations added). “The required showings of materiality and intent are separate, and a showing of materiality alone does not give rise to a presumption of intent to deceive.” Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1313 (Fed. Cir. 2008). Under the materiality prong, information is material when a reasonable examiner would “likely consider [the 17 ADVANCED MAGNETIC v. ROME FASTENER information] important in deciding whether to allow an application to issue as a patent.” McKesson, 487 F.3d at 913 (internal quotation marks omitted) (alteration added); see also Symantec Corp. v. Computer Assocs. Int’l, Inc., 522 F.3d 1279, 1297 (Fed. Cir. 2008). Under the intent prong, a party can prove intent to deceive the PTO based on direct evidence or on circumstantial evidence “with the collection of inferences permitting a confident judgment that deceit has occurred.” McKesson, 487 F.3d at 913 (internal quotation marks omitted); see also Merck & Co., Inc. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1422 (Fed. Cir. 1989) (“Intent need not, and rarely can, be proven by direct evidence.”). In evaluating intent, the district court must consider evidence that the patent applicants withheld information from the PTO in good faith. See Purdue Pharma L.P. v. Endo Pharm. Inc., 438 F.3d 1123, 1134 (Fed. Cir. 2006). A district court may not draw an inference of bad faith when a party has plausible reasons for withholding information: mere intent to withhold does not support an inference of intent to deceive. McKesson, 487 F.3d at 913. In short, a court should only infer intent to deceive when the evidence is clear and convincing. “[T]he inference [of intent to deceive] must not only be based on sufficient evidence and be reasonable in light of that evidence, but it must also be the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard.” Star Scientific, 537 F.3d at 1366 (alterations added). After the accused infringer has made this threshold showing of materiality and intent to deceive, “the district court must balance the substance of those now-proven facts and all the equities of the case to determine whether the severe penalty of unenforceability should be imposed.” Id. at 1367. If the court finds on the balance that the ADVANCED MAGNETIC v. ROME FASTENER 18 applicants committed inequitable conduct, the patent is unenforceable. Monsanto, 514 F.3d at 1242. In this case, the district court did not commit clear error in its materiality and intent findings. First, the district court did not clearly err in finding that Mr. Bauer withheld highly material information when he “concealed the most critical information: he was not the inventor he claimed to be.” AMC IV, 2008 WL 2787981, at . “As a critical requirement for obtaining a patent, inventorship is material.” PerSeptive Biosystems, Inc. v. Pharmacia Biotech, Inc., 225 F.3d 1315, 1321 (Fed. Cir. 2000). Second, the district court did not clearly err in finding that Mr. Bauer intended to deceive the PTO by claiming that he invented the ’773 patent’s fastener. While the district court could have restated all of its relevant factual findings before explicitly inferring intent, AMC IV, 2008 WL 2787981, at , we believe that the district court’s findings showing that Mr. Bauer was not the true inventor support its finding of intent to deceive. For example, the district court found (1) that Mr. Bauer was either “unable or unwilling to articulate [his] claimed invention” during his deposition, directing opposing counsel to read the patent, id. at ; (2) that Mr. Bauer offered difficult-tofollow explanations of the magnetic strength experiments he performed when he claimed to have conceived of the invention, id. at –8; (3) that Mr. Bauer submitted multiple sketches of his invention that he was forced to later admit were “reconstructed” after Romag challenged their authenticity, id. at ; (4) that Mr. Bauer could not offer any “scientific or technical explanation” of his own patent, even though the “only allegedly patentable” claim is based on scientific principles of magnetism, id.; and (5) that Mr. Bauer offered an evasive, argumentative, and at times contradictory testimony on his status as inventor, id. at –9. Based on these facts, we cannot fault the 19 ADVANCED MAGNETIC v. ROME FASTENER court for finding that Mr. Bauer’s testimony “bore clear indicia of fabrication.” Id. at . Especially when Mr. Bauer fabricated evidence to support his claim of inventorship, we find it difficult to fault a district court in finding that “the single most reasonable inference able to be drawn from the evidence” is that Mr. Bauer intended to deceive the PTO. Star Scientific, 537 F.3d at 1366. We recognize that in analyzing intent to deceive, the district court did not explicitly weigh the letter Mssrs. Bauer and Riceman sent to the prosecuting attorney claiming to have resolved the inventorship dispute. In evaluating intent, a district court must weigh all the evidence, including evidence of good faith. See Purdue Pharma, 438 F.3d at 1134. In this case, the district court was unquestionably aware of the letter as shown in its previous opinion. AMC III, 2007 WL 1552395, at . Moreover, the district court clearly understood the background of Mssrs. Bauer and Riceman’s inventorship dispute when it addressed inequitable conduct. In explaining Romag’s position on inequitable conduct, the district court implicitly referred to the letters Mr. Riceman sent to the prosecuting attorney. The court wrote, “Romag alleges that those charged under the patent laws with the duty of candor before the PTO in connection with the ’773 application failed to disclose . . . a dispute concerning the inventorship of the ’773 snap . . . .” AMC IV, 2008 WL 2787981, at . Accordingly, the district court considered Mssrs. Bauer and Riceman’s inventorship dispute as resolved in their letters, but did not count it as evidence of Mr. Bauer’s good faith. The district court might have explicitly stated as much, but it did not commit clear error by failing to state that it did not consider Mr. Riceman’s second letter as evidence of good faith. This court only requires the district court to consider all the evidence, not to count a specific piece of evidence as ADVANCED MAGNETIC v. ROME FASTENER 20 good faith. Because we review factual findings for clear error, Star Scientific, 537 F.3d at 1365, it would be contrary to our standard of review to second guess how the district court weighed the evidence here. Although some would consider the joint letter as resolving the inventorship dispute, it is clear from the record that the district court considered the letter as not only detracting from Mr. Bauer’s good faith, but as adding to the weight of the evidence in support of Mr. Bauer’s deceit. Given all the other evidence of Mr. Bauer’s deceit, the district court could have easily considered the letters as further evidence of Mr. Bauer’s deceptive intent. A remand in this case to explicitly consider the letters would produce the same result based on Mr. Bauer’s testimony and fabricated evidence. In upholding the district court’s findings on intent, however, we decline to place any weight on the portions of Mr. Riceman’s testimony explaining Mr. Bauer’s financial motives for designing around the ’294 patent. See AMC IV, 2008 WL 2787981, at , . AMC claims that the district court erred in placing weight on Mr. Riceman’s testimony because the court never admitted the hearsay testimony into evidence and because Mr. Riceman’s testimony is unreliable. As for admitting the testimony as evidence, AMC fails to recognize that in the Second Circuit, as in other federal courts of appeals, the Federal Rules of Evidence do not generally apply when the judge is acting as a fact-finder because a judge can presumably exclude improper inferences. See BIC Corp. v. Far E. Source Corp., 23 F. App’x 36, 39 (2d Cir. 2001) (“[T]he admission of evidence in a bench trial is rarely ground for reversal, for the trial judge is presumed to be able to exclude improper inferences from his or her own decisional analysis.”); 11 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure 21 ADVANCED MAGNETIC v. ROME FASTENER § 2885, at 454–55 (2d ed. 1995) (“In nonjury cases the district court can commit reversible error by excluding evidence but it is almost impossible for it to do so by admitting evidence. The appellate court will disregard the inadmissible evidence and hold that its admission was harmless if there was competent evidence to sustain the findings of the court.”). Even though the district court was well within its discretion to consider Mr. Riceman’s testimony, we think that his testimony concerning Mr. Bauer’s financial motivations is unreliable and cannot serve as a basis to infer intent to deceive. For example, Mr. Riceman testified “that [Mr.] Bauer did not want him to be named as an inventor because, by the terms of [Mr.] Riceman’s consulting agreement with RRC, the invention would be owned by [Mr.] Medina.” AMC IV, 2008 WL 2787981, at  (alterations added). Neither Mr. Riceman nor the district court explained why Amsco, Mr. Fischer’s previous company, would not have acquired those rights from RRC when Amsco “acquired the magnetic snap business . . . from RRC.” Id. at . Mr. Bauer and RRNY presumably would have held an interest in any inventions Mr. Riceman developed while employed at RRC because Amsco transferred its property rights to RRNY. Although we agree with AMC that Mr. Riceman’s tes- timony is not totally reliable, we disagree on the extent to which the district court relied on his testimony to infer intent. The district court never credited Mr. Riceman’s claim that he invented the ’773 patent. At best, the district court relied on Mr. Riceman’s testimony to find (1) that Mr. Bauer was prompted to claim he invented the ’773 patent’s fastener because Darby & Darby was attempting to design around the ’294 patent and (2) that Mr. Bauer excluded Mr. Riceman as the inventor because of Mr. Riceman’s consulting agreement with RRC. Id. at ADVANCED MAGNETIC v. ROME FASTENER 22 –7 (citing to Mr. Riceman’s deposition). In its brief analysis of intent, the district court only referred to Mr. Bauer’s interest in “fend[ing] off looming competition in the market by claiming the ’773 design for himself.” Id. at  (alteration added). To the extent that the district court relied on Mr. Riceman’s testimony to explain Mr. Bauer’s motives for listing himself as the ’773 patent inventor, the district court erred. However, we find this error harmless because AMC’s own evidence, including fabricated drawings and contradictory testimony, provided a sufficient basis on which to infer that Mr. Bauer intended to deceive the PTO. See Praxair, 543 F.3d at 1318 (finding a district court’s erroneous reliance on a fact with limited relevance to intent harmless error). Although we disagree with the district court on the reliability of Mr. Riceman’s testimony, the court needed to weigh conflicting testimony and based its finding of inequitable conduct in part on the witnesses’ credibility. As an appellate court, we cannot reweigh witnesses’ credibility. See Liquid Dynamics Corp. v. Vaughan Co., Inc., 449 F.3d 1209, 1227 (Fed. Cir. 2006) (refusing to reweigh a district court’s credibility findings in an inequitable conduct appeal); LNP Eng’g Plastics, Inc. v. Miller Waste Mills, Inc., 275 F.3d 1347, 1361 (Fed. Cir. 2001) (same). We review a district court’s materiality and intent findings for clear error, and we find no clear error here. Star Scientific, 537 F.3d at 1365. In addition to upholding the district court’s materiality and intent findings, we hold that the district court did not abuse its discretion in finding that Mr. Bauer’s deceit justified holding the ’773 patent unenforceable. When an applicant falsely claims that he has invented a device, he can hardly claim the right to enforce a patent to which he was never entitled. We have upheld district court holdings of unenforceability when the named inventors acted 23 ADVANCED MAGNETIC v. ROME FASTENER with deceptive intent to exclude a true inventor. See Frank’s Casing, 292 F.3d at 1375–77 (holding a patent unenforceable when two named inventors deliberately excluded a true inventor from the patent application and concealed the true inventor’s participation from the prosecuting attorneys); PerSeptive, 225 F.3d at 1321–23 (holding patents unenforceable when a group of named inventors misrepresented their relationship with a laboratory to conceal that other people may have participated in inventing the technology). If district courts do not abuse their discretion in holding patents unenforceable when true inventors deliberately exclude co-inventors, a district court can, a fortiori, exercise its discretion to hold a patent unenforceable when a person falsely swears that he invented a device before the PTO. Because AMC and Mr. Bauer attempted to defraud the PTO, the district court was correct in holding the ’773 patent unenforceable. II. Litigation Misconduct as an Independent Basis for Attorney’s Fees AMC further argues that the district court erred in finding that this was an exceptional case under 35 U.S.C. § 285 justifying an award of attorney’s fees. AMC does not argue, however, that the award of attorney’s fees under 35 U.S.C. § 285 was improper based on litigation misconduct. In response, Romag asserts that AMC has waived any argument that the district court improperly awarded attorney’s fees based on the independent ground of litigation misconduct and that this court must affirm the district court’s award of attorney’s fees. This court has consistently held that a party waives an argument not raised in its opening brief. SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1319 (Fed. Cir. 2006); Becton Dickinson & Co. v. C.R. Bard, Inc., 922 ADVANCED MAGNETIC v. ROME FASTENER 24 F.2d 792, 800 (Fed. Cir. 1990). However, the court maintains discretion to address an argument not properly raised in the opening brief if disregarding the argument would result in an unfair procedure. SmithKline Beecham, 439 F.3d at 1320 n.9; Becton Dickinson, 922 F.2d at 800. AMC indeed did not argue in its opening brief or even in its reply brief that the district court erred in awarding attorney’s fees under 35 U.S.C. § 285 based on litigation misconduct. Moreover, AMC’s failure does not present a case in which this court should address the issue to remedy an unfair procedure. AMC clearly understood the issue, but simply never made the argument. In its reply brief, AMC admitted that “the district court did state that the finding of litigation misconduct constituted an independent basis for finding the case exceptional and awarding attorneys fees.” Appellant AMC’s Reply Br. 1 (emphasis added). Moreover, the district court made clear that AMC itself was responsible for some of the litigation misconduct. The court stated, “Even if the inequitable conduct ruling is set aside, however, several litigation decisions made by AMC and its counsel compel the determination that this case is extraordinary and attorney fees are merited.” AMC IV, 2008 WL 2787981, at  (emphasis added). Because AMC never argued that that the district court improperly awarded attorney’s fees based on litigation misconduct and the district court relied on litigation misconduct as an independent ground, we affirm the district court’s award of attorney’s fees against AMC for $1,509,976.16 plus interest.