Opinion ID: 748589
Heading Depth: 2
Heading Rank: 2

Heading: Antitrust Counterclaim

Text: 26 After the jury returned its verdict in favor of 3I on its counterclaim that NP violated the antitrust laws by bringing suit against 3I, the court denied NP's motion for JMOL or, in the alternative, for a new trial under Fed.R.Civ.P. 50(b). In denying NP's motion, the district court held that the verdict was supported, inter alia, by the jury's factual findings that the patent was obtained through NP's knowing fraud upon, or intentional misrepresentations to, the [PTO] and that NP maintained and enforced the patent with knowledge of the patent's fraudulent derivation and with the intent of interfering directly with 3I's ability to compete in the relevant market. 930 F.Supp. at 1257. The court further held, based on these findings, that the jury need not have considered whether NP's suit was objectively baseless. Id. at 1264. 27 In support of its position that the court erred in denying its renewed motion for JMOL, NP argues that there was a lack of substantial evidence to support the jury's finding that the patent was obtained through fraud and its finding that NP was aware of that conduct when it brought suit against 3I. NP also argues that these findings, even if supported by substantial evidence, do not provide a legal basis for the imposition of antitrust liability. Finally, NP argues that it is entitled to a new trial because the court failed to instruct the jury that bringing a lawsuit cannot be the basis for antitrust liability if that suit is not objectively baseless. 28 3I responds that the jury's explicit findings that the patent was procured through fraudulent conduct and that NP knew of that conduct when it brought suit were supported by substantial evidence, and that these findings provide a sound basis for imposing antitrust liability on NP. Responding to NP's arguments for a new trial, 3I argues that an objectively reasonable or objectively baseless jury instruction was not necessary because the district court required that 3I prove that NP had actual knowledge of the inequitable conduct when it brought suit and that even if such an instruction was necessary, NP waived this argument by failing to propose a jury instruction relating to an objectively baseless standard. 29 We agree with NP that the court erred in denying its motion for JMOL; therefore we need not directly address the arguments concerning NP's motion for a new trial. We review a district court's denial of a post-trial motion for JMOL under Fed.R.Civ.P. 50(b) de novo by reapplying the standard applicable at the district court. Thus, this court 30 must determine whether there exists evidence of record upon which a jury might properly have returned a verdict in [the non-movant's] favor when the correct legal standard is applied. If there is not, [the movant] was entitled to have the question removed from the jury and decided as a matter of law. 31 Markman v. Westview Instruments, Inc., 52 F.3d 967, 975, 34 USPQ2d 1321, 1326 (Fed.Cir.1995) (in banc), aff'd, 517 U.S. 370, 116 S.Ct. 1384, 134 L.Ed.2d 577, 38 USPQ2d 1461 (1996) (quoting Jamesbury Corp. v. Litton Indus. Prods., Inc., 756 F.2d 1556, 1560, 225 USPQ 253, 257 (Fed.Cir.1985)); see also Deimer v. Cincinnati Sub-Zero Prods., Inc., 58 F.3d 341, 343 (7th Cir.1995); Shearing v. Iolab Corp., 975 F.2d 1541, 1544, 24 USPQ2d 1133, 1136 (Fed.Cir.1992) (On appeal after denial of a motion for JNOV, the appellant must prove that the record lacks substantial evidence to support the jury's verdict.). In applying this standard, we must also view the evidence in the light most favorable to the nonmoving party, which in this case is 3I. Deimer, 58 F.3d at 343. 32 When reviewing a district court's judgment involving federal antitrust law, we apply the law of the regional circuit in which that district court sits. See Loctite Corp. v. Ultraseal, 781 F.2d 861, 875, 228 USPQ 90, 99 (Fed.Cir.1985) (We must approach a federal antitrust claim as would a court of appeal in the circuit of the district court whose judgment we review.). Accordingly, we would apply Seventh Circuit antitrust law were it clear. However, since the Seventh Circuit has not clarified the conditions under which a patentee may incur antitrust liability for enforcing its patent, we must also turn to Supreme Court precedent and to the law of the other regional circuits to determine how the Seventh Circuit would likely decide this issue. 33 A patentee who brings an infringement suit may be subject to antitrust liability for the anti-competitive effects of that suit if the alleged infringer (the antitrust plaintiff) proves (1) that the asserted patent was obtained through knowing and willful fraud within the meaning of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 350, 147 USPQ 404, 407 (1965), or (2) that the infringement suit was a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor, Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144, 81 S.Ct. 523, 533, 5 L.Ed.2d 464 (1961); California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510, 92 S.Ct. 609, 611-12, 30 L.Ed.2d 642 (1972) (holding that Noerr governs the approach of citizens or groups of them ... to courts, the third branch of Government). See Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 61 n. 6, 113 S.Ct. 1920, 1929 n. 6, 123 L.Ed.2d 611 (1993) (PRE ) (declining to decide whether and, if so, to what extent Noerr permits the imposition of antitrust liability for a litigant's fraud or other misrepresentations). 34 In Walker Process, the Supreme Court held that in order to strip [the patentee] of its exemption from the antitrust laws when attempting to enforce its patent monopoly, an antitrust plaintiff is required to prove that the patentee obtained the patent by knowingly and willfully misrepresenting facts 3 to the [PTO]. 382 U.S. at 177, 86 S.Ct. at 350, 147 USPQ at 407. The Court also cited two of its prior decisions which involved knowing and willful misrepresentation of facts to the Patent Office, which the Court described as fraudulent procurement: Precision Instrument Manufacturing v. Automotive Maintenance Machinery Co., 324 U.S. 806, 65 S.Ct. 993, 89 L.Ed. 1381, 65 USPQ 133, 138 (1945), and Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250, 61 USPQ 241 (1944). 4 In Precision Instrument, the patentee submitted false dates of conception and reduction to practice, and fabricated evidence in support of these dates, to ensure priority in an interference proceeding. Similarly, in Hartford-Empire, the patentee's attorney ensured that a patent would issue by falsely stating that an article he had authored praising the invention was actually written by a well-known expert in the field. 35 Justice Harlan, in a concurring opinion, emphasized that to achiev[e] a suitable accommodation in this area between the differing policies of the patent and antitrust laws, a distinction must be maintained between patents procured by deliberate fraud and those rendered invalid or unenforceable for other reasons. Walker Process, 382 U.S. at 179-80, 86 S.Ct. at 351-52, 15 L.Ed.2d 247, 147 USPQ at 408. He then stated: 36 [T]o hold, as we do not, that private antitrust suits might also reach monopolies practiced under patents that for one reason or another may turn out to be voidable under one or more of the numerous technicalities attending the issuance of a patent, might well chill the disclosure of inventions through the obtaining of a patent because of fear of the vexations or punitive consequences of treble-damage suits. Hence, this private antitrust remedy should not be deemed available to reach [Sherman Act] § 2 monopolies carried on under a nonfraudulently procured patent. 37 Id. at 180, 86 S.Ct. at 351, 147 USPQ at 408. 38 The district court observed that the Supreme Court, in footnote six of its PRE opinion, left unresolved the issue of how 'Noerr applies to the ex parte application process,' and in particular, how it applies to the Walker Process claim. 930 F.Supp. at 1253 (quoting James B. Kobak, Jr., Professional Real Estate Investors and the Future of Patent-Antitrust Litigation, 63 Antitrust L.J. 185, 186 (1994)). The court also accurately pointed out that we have twice declined to resolve this issue. See FilmTec Corp. v. Hydranautics, 67 F.3d 931, 939 n. 2, 36 USPQ2d 1410, 1415 n. 2 (Fed.Cir.1995), cert. denied, --- U.S. ----, 117 S.Ct. 62, 136 L.Ed.2d 24 (1996); Carroll Touch, Inc. v. Electro Mechanical Sys., Inc., 15 F.3d 1573, 1583 n. 10, 27 USPQ2d 1836, 1845 n. 10 (Fed.Cir.1993). Therefore, after reviewing three opinions from the Ninth and District of Columbia Circuit Courts of Appeals, see Hydranautics v. FilmTec Corp., 70 F.3d 533, 537-38, 36 USPQ2d 1773, 1777 (9th Cir.1995); Whelan v. Abell, 48 F.3d 1247, 1255 (D.C.Cir.1995); Liberty Lake Invs., Inc. v. Magnuson, 12 F.3d 155, 158-60 (9th Cir.1993), the district court made its own determination that PRE's two-part test for a sham is inapplicable to an antitrust claim based on the assertion of a patent obtained by knowing and willful fraud. 930 F.Supp. at 1253. We do not agree with that determination. PRE and Walker Process provide alternative legal grounds on which a patentee may be stripped of its immunity from the antitrust laws; both legal theories may be applied to the same conduct. Moreover, we need not find a way to merge these decisions. Each provides its own basis for depriving a patent owner of immunity from the antitrust laws. The Supreme Court saw no need to merge these separate lines of cases and neither do we. 39 If the elements for a finding of fraud within the meaning of Walker Process, as well as the other criteria for antitrust liability, are met, such liability can be imposed without an additional sham inquiry. Alternatively, when an antitrust claim is based on a PRE allegation that a suit is baseless, in order to prove that a suit is within Noerr's sham exception to immunity, an antitrust plaintiff must prove that the suit was both objectively baseless and subjectively motivated by a desire to impose collateral, anti-competitive injury rather to obtain a justifiable legal remedy. PRE, 508 U.S. at 60-61, 113 S.Ct. at 1928-29. As the Supreme Court stated: 40 First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and the antitrust claim premised on the sham exception must fail. Only if the challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under the second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor, through the use [of] the governmental process-as opposed to the outcome of that process-as an anticompetitive weapon. ... Of course, even a plaintiff who defeats the defendant's claim to Noerr immunity by demonstrating both the objective and the subjective components of a sham must still prove a substantive antitrust violation. Proof of a sham merely deprives the defendant of immunity; it does not relieve the plaintiff of the obligation to establish all other elements of his claim. 41 Id. (footnotes and internal citations omitted). Thus, under PRE, a sham suit is one that is both objectively baseless and subjectively brought in bad faith. If a suit is not objectively baseless, an antitrust defendant's subjective motivation is immaterial. Id. 42 We conclude that 3I has proven no set of facts upon which a fact finder could strip NP of its immunity from antitrust liability. First, there exists no evidence to support the jury's finding that the patent was obtained by fraud within the meaning of a Walker Process counterclaim. Walker Process requires a showing that the patent was obtained through deliberate, affirmative misrepresentations, i.e., knowingly false statements, not mere omissions. See, e.g., Potters Med. Ctr. v. City Hospital Assoc., 800 F.2d 568, 581 (6th Cir.1986) (stating that [o]nly known falsity supports an antitrust offense and relying on an uncontested affidavit which attested that [the antitrust defendant] knowingly made no false statements.) (emphasis added); Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1261 (9th Cir.1982) (holding that under Walker Process the fraudulent furnishing of false information to an agency in connection with the adjudicatory proceeding can be the basis for antitrust liability, if the requisite predatory intent is present and the other elements of an antitrust claim are proven.) (emphasis added); Kearney & Trecker, Corp. v. Giddings & Lewis, Inc., 452 F.2d 579, 594, 171 USPQ 650, 662 (7th Cir.1971) (characterizing the conduct at issue in Walker Process as fraud involving the willful misrepresentation of facts to the Patent Office.); Bendix Corp. v. Balax, Inc., 421 F.2d 809, 819, 164 USPQ 485, 493 (7th Cir.1970) (Thus, to prevail here, defendants must prove ... that any misstatements by plaintiff in its patent applications were the product of intentional fraud and not good faith mistake.) (emphasis added). The jury's verdict was based in part on its finding of fraud, but there exists no evidence of any affirmative misrepresentation that would constitute such fraud. Pursuant to then-existing PTO regulations, Branemark was required to aver, inter alia, that the invention has not been ... described in any printed publication in any country before his invention or more than one year prior to his application. 37 C.F.R. § 1.65 (1990). The evidence does not support a finding that this statement, or any other statement to the PTO made by or attributable to Branemark, was knowingly false. For, even if we accept 3I's and the dissent's unsupported assertion that Barnieske knew that the 1977 Book was material, knowledge that a reference is material is not the same as knowledge that a reference describes an invention and hence renders it unpatentable. 43 While there may have been substantial evidence to support a finding of inequitable conduct consisting of withholding the 1977 Book with the intent to deceive the PTO, 5 under Walker Process such evidence will not support antitrust liability. As we have previously stated, inequitable conduct that will render a patent unenforceable is a broader, more inclusive concept than the fraud needed to support a Walker Process counterclaim. See, e.g., Hewlett-Packard Co. v. Bausch & Lomb Inc., 882 F.2d 1556, 1563, 11 USPQ2d 1750, 1756 (Fed.Cir.1989); FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1417-18, 5 USPQ2d 1112, 1117 (Fed.Cir.1987); Argus Chem. Corp. v. Fibre Glass-Evercoat Co., 812 F.2d 1381, 1384-85, 1 USPQ2d 1971, 1973-74 (Fed.Cir.1987); J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559, 223 USPQ 1089, 1092 (Fed.Cir.1984) (Conduct before the PTO that may render a patent unenforceable is broader than common law fraud.). Thus, inequitable conduct can include both an intentional failure to disclose material prior art as well as an intentional misrepresentation. See 37 C.F.R. § 1.56 (1996) (Duty to disclose information material to patentability); see also Kingsdown Med. Consultants Ltd. v. Hollister Inc., 863 F.2d 867, 872, 9 USPQ2d 1384, 1389 (Fed.Cir.1988). However, as noted above, only affirmative misrepresentations come within the definition of Walker Process fraud. See Potters Med. Ctr., 800 F.2d at 581; see also Argus Chem. Corp., 812 F.2d at 1384-85, 1 USPQ2d at 1973-74 (stating that  'knowing and willful fraud,' as the term is used in Walker, can mean no less than clear, convincing proof of intentional fraud involving affirmative dishonesty) (quoting Cataphote Corp. v. DeSoto Chem. Coatings, Inc., 450 F.2d 769, 772, 171 USPQ 736, 738 (9th Cir.1971)); Bendix Corp., 421 F.2d at 819, 164 USPQ at 493. The Supreme Court in Walker Process was quite explicit in premising antitrust liability on knowing and willful misrepresentations, but not on other types of misconduct that might render a patent unenforceable such as the failure to disclose material prior art. The Court expressly discussed only knowing and willful misrepresentations, contrasted with good faith or honest mistakes, or mere technical fraud; it did not deal with inequitable conduct involving even a knowing failure to disclose a material reference. Accordingly, the inventors' failure to disclose the 1977 Book, even if that failure was known by NP, cannot support the imposition of antitrust liability on NP based on Walker Process fraud. 44 The dissent asserts that a finding of antitrust liability under Walker Process may be premised on an omission coupled with a duty of disclosure. We disagree. It is of course true that an applicant for a patent owes a duty of candor to the PTO, see 37 C.F.R. § 1.56 (1996), and that breach of a duty can constitute common law fraud. However, Walker Process and its progeny, which are applicable to a broad array of administrative contexts, see, e.g., Clipper Exxpress, 690 F.2d at 1260-61 (extending Walker Process doctrine to cases not arising in a patent context), draw a line between omissions and affirmative misrepresentations. We choose not to breach that line. Allegations of inequitable conduct are a staple these days in pleadings attacking patents or defending against charges of patent infringement. Alleged failure to disclose prior art, whether or not material or intentional, is the basis for many of these charges. Were we to hold that failure to cite prior art provides a basis for Walker Process antitrust liability, most patent infringement actions would be converted into antitrust cases, the shield of inequitable conduct into the sword of antitrust liability. See Korody-Colyer Corp. v. General Motors Corp., 828 F.2d 1572, 1578, 4 USPQ2d 1203, 1207 (Fed.Cir.1987). We do not believe that the Supreme Court intended Walker Process to effect that result. Failure to cite prior art is not Walker Process fraud. 45 The evidence also indicates that NP's suit could not be found to be objectively baseless and therefore was not a sham. The jury's finding that NP knew that the patent was either invalid or unenforceable when it brought suit is insufficient to support antitrust liability. The evidence, especially Dr. Green's testimony that he was told that if the Patent Office did not receive a copy of [the 1977 Book], and if that were true, then we would have a larger problem and that was fraud, may support a conclusion that NP subjectively believed that the suit would be baseless or brought the suit in bad faith. However, the evidence would not support a jury verdict that such a suit was objectively baseless. See Creek v. Village of Westhaven, 80 F.3d 186, 192 (7th Cir.1996) (citing PRE for the proposition that [s]uits that are objectively baseless, that is, frivolous suits, as distinct from colorable suits brought in bad faith, are not constitutionally protected.). 46 The conduct in question was a failure to cite possibly relevant prior art, which relates to inequitable conduct. A conclusion of inequitable conduct requires an equitable weighing by the court of the factual issues of intent to deceive and materiality of alleged omissions or misrepresentations in view of the totality of circumstances. See Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178-79, 33 USPQ2d 1823, 1826-27 (Fed.Cir.1995); Akzo N.V. v. United States Int'l Trade Comm'n, 808 F.2d 1471, 1481-82, 1 USPQ2d 1241, 1247 (Fed.Cir.1986). Thus, by its very nature, a court's ultimate conclusion of inequitable conduct is not predictable. Therefore, an omission that might later be found to constitute inequitable conduct, such as the failure to disclose the 1977 Book in this case, cannot as a matter of law be the basis for finding that an infringement suit was objectively baseless. 47 Furthermore, contrary to the dissent's assertion, the 1977 Book did not essentially describe and illustrate the invention. Rather its disclosure of micropits having the claimed diameter and spacing was not explicit and was only made apparent after 3I, during litigation, measured highly enlarged copies of the SEMs depicted in the 1977 Book. Based on this limited disclosure, NP raised bona fide arguments that the 1977 Book did not render the patent invalid and that the failure to disclose the 1977 Book did not render the patent unenforceable. Thus, NP could have had an objectively reasonable expectation that it could prevail on the merits. Also, significantly, NP had asserted the '891 patent against two other parties, and apparently overcame motions for summary judgment of invalidity and unenforceability in those suits. Cf. PRE, 508 U.S. at 64-65, 113 S.Ct. at 1930-31 (Even though it did not survive PRE's motion for summary judgment, Columbia's copyright action was arguably 'warranted by existing law' or at the very least was based on an objective 'good faith argument for the extension, modification, or reversal of existing law.' Fed. Rule Civ. Proc. 11.). These facts belie a conclusion that a reasonable litigant in NP's position would have known that the patent would inevitably be held invalid or unenforceable. As this court and others have cautioned, a patentee must be allowed to test the validity or enforceability of its patent, even if it fears that the patent may be invalid or unenforceable. See Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 876-77, 228 USPQ 90, 101 (Fed.Cir.1985) (noting the public policy of erecting a barrier against thwarting patentees from asserting legitimate patent rights); Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986, 993, 202 USPQ 342, 348 (9th Cir.1979) (Patentees must be permitted to test the validity of their patents in court through actions against alleged infringers.). The imposition of antitrust liability on NP in this case would thwart its entitlement to test the validity and scope of its patent. 48 As the Supreme Court admonished in PRE, a court must 'resist the understandable temptation to engage in post hoc reasoning by concluding' that an ultimately unsuccessful 'action must have been unreasonable or without foundation.'  508 U.S. at 61 n. 5, 113 S.Ct. at 1928 n. 5 (citing Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422, 98 S.Ct. 694, 701, 54 L.Ed.2d 648 (1978) (Even when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit.)). The dissent has fallen prey to this understandable temptation. NP may have lost its suit, but the record indicates that a similarly situated reasonable litigant could have perceived some likelihood of success. PRE, 508 at 62-65, 113 S.Ct. at 1929-31. That is all that is needed to provide Noerr immunity. See PRE, 508 U.S. at 60, 113 S.Ct. at 1928 (stating that to support antitrust liability, a suit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits [or] could conclude that the suit is reasonably calculated to elicit a favorable outcome.); id. at 69, 113 S.Ct. at 1932-33 (Stevens & O'Connor, JJ., concurring) (stating that no antitrust liability should arise from a suit in which the plaintiffs invoked the federal court's jurisdiction to determine whether they could lawfully restrain competition from competitors). Accordingly, because NP's suit was reasonably calculated to elicit a favorable outcome, not merely to impose collateral harm on 3I, the suit was not a sham and was thus entitled to Noerr immunity. 49 Because the evidence cannot support a verdict that the patent was obtained by Walker Process fraud, or that NP's infringement suit was objectively baseless, we reverse the district court's decision denying NP's motion for JMOL on 3I's antitrust counterclaim and instruct the court to grant the motion.