Court Opinion

ID: 9473862
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:41:33.878294+00
Date Added: 2024-06-11T17:43:46.316140
License: Public Domain

EDWARD S. SMITH, Circuit Judge,
dissenting.
I respectfully dissent. I do not agree with the majority’s conclusion that the trial judge’s finding of exceptional circumstances to award attorney fees is clearly erroneous. Because I believe the award of attorney fees to ESM should be affirmed, I have also considered whether the trial judge abused her discretion by reopening discovery, and conclude that there was no abuse of discretion.
I.

Exceptional Circumstances

The majority states that a district judge must make a finding of exceptional circumstances upon which to exercise her discretion to award attorney fees, and that such an award must be reversed if the finding of exceptional circumstances is clearly erroneous. Furthermore, the majority requires that a party’s actions that establish exceptional circumstances must be supported by proof of wrongful intent or gross negligence by that party.1 I agree completely with this statement of the law. I disagree that the trial judge made any clear error in finding exceptional circumstances in this case.
I believe that the facts of this case do not show any clear error in the trial court’s finding that Reactive answered at least one interrogatory falsely and with wrongful intent. I accept' the majority’s statement of facts as accurate and complete with one exception: the majority does not mention one of Reactive’s internal memoranda that shows that Deoxsulf 3 and 3A were sold at market prices before the critical date. This memorandum shows clearly that some of Reactive’s shipments before the critical date were sales of Deoxsulf 3 and 3A. At the very least, the trial judge’s finding that Deoxsulf 3 was offered for sale before the critical date cannot be said to be clearly erroneous.
Reactive’s president, Joseph R. Jackman, answered interrogatory No. 1.0.(l)(i) that Deoxsulf 3 and 3A were “never offered for sale.” The majority interprets this answer to be Reactive’s denial of offering Deoxsulf 3 and 3A for sale before the critical date, in light of the answer to interrogatory 1.0.-(l)(iv). The answer to interrogatory 1.0.-(l)(iv) gives dates that trial use of the patented products occurred, but states that there was “no record of trial use” for Deoxsulf 3. The majority believes that Reactive’s production of a shipment summary corrected this erroneous statement 2 weeks later, and that the alleged sales were in fact trials, as the summary stated. That shipment summary, however, only shows information that would lead ESM to believe trials had been conducted. In no way does it suggest that Reactive sold Deoxsulf 3 and 3A for consideration and at market prices before the critical date, as the invoices show. Furthermore, the shipment summary is very misleading in an extremely subtle manner. The summary shows a “cost” item for each shipment, with “blanked out cost information.” In a trial or experimental setting, the cost of raw materials or cost of experimentation is very valuable business data and is entitled to confidentiality during litigation. Reactive’s invocation of such a right to maintain trade secrets, however, shielded unprotected information that ESM sought — the truth that Reactive had shipped the patented product for a market-based consideration before the critical date. No one looking at *1587this shipment summary or its cover letter would suppose that the blanked-out “cost ” data referred to the market pnces at which the products were sold. I conclude that the shipment summary could not have cured the alleged innocent errors in the interrogatories and given ESM enough information to deduce that Reactive had violated the on-sale bar of 35 U.S.C. § 102(b). At most, the shipment summary raises a conflict with the interrogatories as to whether any trials of Deoxsulf 3 occurred before the critical date. I cannot believe Jackman was so grossly incompetent that he did not know that Deoxsulf 3 and 3A were sold at market prices before the critical date. Even if he were, it would not change the result.2 I have no doubt that the intent requirement was satisfied. Because I do not believe that the trial judge’s finding of exceptional circumstances on the basis of falsely answered interrogatories was clearly erroneous, I would affirm.
The majority states that the applicant’s duty to disclose activities material to an on-sale bar to the PTO is not so broad as to include all use activities which occurred prior to the application date. I agree. However, 35 U.S.C. § 102(b) proscribes commercial exploitation of the patented subject matter more than 1 year before the application date such as to effect an extension of the exclusive term fixed by statute.3 In this case, Reactive sold the patented product at market prices before the critical date. What more would an applicant have to do to exploit the patented product commercially in order to face the duty of candor to disclose such sales to the PTO? How could Reactive reasonably have believed such sales to be trials? I think that the prospective patentee would have a heavy burden to carry in proving that such sales were actually trials. At any rate, the trial judge did not rely on inequitable conduct before the PTO by Reactive to establish exceptional circumstances. The majority’s position on this score is quite correct. Nevertheless, Reactive should have disclosed these sales to the PTO. Because I conclude that the trial judge’s finding of exceptional circumstances based on the falsely answered interrogatories is not clearly erroneous, I would affirm.
II.

Reopening of Discovery

In order to affirm, it is necessary to decide whether the trial judge exercised her discretion properly in reopening discovery. I conclude that she did not abuse her discretion.
Reactive dismissed its complaint voluntarily because the 1976 ads acted as an on-sale bar to validity of the ’887 patent under 35 U.S.C. § 102(b). Reactive characterizes this dismissal with prejudice as a “settlement.” However, this was not a voluntary dismissal by stipulation of the parties as provided for in FED.R.CIV.P. 41(a)(1) but rather a dismissal by order of the court pursuant to FED.R.CIV.P. 41(a)(2).4 Had Reactive and ESM wished to *1588use the former rule, they could have reached agreement (settlement) and filed a stipulation of dismissal without involving the trial court judge. However, Reactive followed the latter rule and obtained a dismissal by an order of the district court dated December 20, 1982. Such an order may be issued only “upon such terms and conditions as the court deems proper.” The language of the rule commits the terms and conditions of this category of voluntary dismissal to the court’s discretion. The trial judge reserved consideration of any claim for attorney fees and costs either party might advance as a condition for dismissal, and we cannot say that this was an abuse of discretion. The facts of this case disclose more an abuse of discovery than an abuse of discretion and are very different from those of the Larchmont case5 in which the trial judge refused to hold a hearing. The Second Circuit, however, used analysis equally applicable here. There, the Court of Appeals for the Second Circuit wrote,6
The question is peculiarly one within the discretion of the Nisi Prius judge who in this case was more familiar than we are with the claims and with the likelihood of defendants’ establishing bad faith. * *
Reactive relies on the legal standard announced by the Gore decision.7 In the event of dismissal before trial, the trial court in Gore required the defendant to satisfy a 2-pronged test to establish an exceptional case under 35 U.S.C. § 285 before a hearing could be held to develop evidence of bad faith. The defendant had to submit a prima facie case that (1) the patent was invalid and (2) the patentee had no reasonable belief that the patent was valid, so that an action for infringement could not be justified. I agree with this standard — in a dismissal before trial by order of the court, discovery may be reopened and new evidence submitted only if the party asking for attorney fees has established a prima facie case that the other party has prosecuted or defended in bad faith.
The trial court here based its decision to reopen discovery on the section 102(b) bar raised by the 1976 advertisements. The section 102(b) bar rendered the patent invalid, and the advertisements, with nothing more, facially suggested Reactive’s bad faith. The trial judge clearly reserved the issue of attorney fees in the order dismissing the rest of the action, as the majority shows. I believe that the advertisements and the arguably inconsistent shipment summary and interrogatories provide a basis for the trial judge to infer Reactive’s bad faith, which facts would warrant the reopening of discovery. While the issue is a close one, I think the trial judge was justified in allowing ESM to develop the facts showing Reactive’s sales. I would affirm.

. Hycor Corp. v. Schlueter Co., 740 F.2d 1529, 1540, 222 USPQ 553, 562 (Fed.Cir.1984).

. Id.

. 35 U.S.C. § 102(b) (1982).

. FED.R.CIV.P. 41(a)(1) and (2) read as follows: "Rule 41. Dismissal of Actions
"(a) Voluntary Dismissal: Effect Thereof.
"(1) By Plaintiff; by Stipulation. Subject to the provisions of Rule 23(e), of Rule 66, and of any statute of the United States, an action may be dismissed by the plaintiff without order of court (i) by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs, or (ii) by filing a stipulation of dismissal signed by all parties who have appeared in the action. Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice, except that a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court of the United States or of any state an action based on or including the same claim.
"(2) By Order of Court. Except as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against the defendant’s objection unless the counterclaim can remain pending for independent adjudication by the court. Unless *1588otherwise specified in the order, a dismissal under this paragraph is without prejudice.”

. Larchmont Eng'g, Inc. v. Toggenburg Ski Center, Inc., 444 F.2d 490, 170 USPQ 241 (2d Cir. 1971).

. Id. at 491, 170 USPQ at 242.

. W.L. Gore & Assocs. v. Oak Materials Group, Inc., 424 F.Supp. 700, 192 USPQ 687 (D.Del. 1976).