M. Eagles Tool Warehouse, Inc. (Doing Business as S & G Tool Aid Corp.), Plaintiff-Cross v. Fisher Tooling Company, Inc. (Doing Business as Astro Pneumatic Tool Co.), and Stephen Fisher

Citation: 439 F.3d 1335Docket: 05-1224

Court: Court of Appeals for the Federal Circuit; March 21, 2006; Federal Appellate Court

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Fisher Tool Company, Inc., operating as Astro Pneumatic Tool Company, appeals a summary judgment from the U.S. District Court for the District of New Jersey, which favored M. Eagles Tool Warehouse, Inc., doing business as S. G Tool Aid Corp. The district court ruled that U.S. Patent 5,259,914 ('914 patent) is unenforceable due to inequitable conduct, and that Astro violated the Lanham Act, engaged in unfair competition under state common law and the New Jersey Fair Trade Act, and committed tortious interference with prospective economic advantage. The court awarded compensatory and punitive damages, along with attorney fees. 

In its cross-appeal, M. Eagles argues that the '914 patent is invalid due to obviousness, failure to name the true inventor, and is unenforceable for patent misuse, as well as not infringed by them. The appellate court found insufficient evidence for inequitable conduct, reversing the district court's summary judgment on that basis and vacating the related findings under the Lanham Act, tortious interference, unfair competition, and the attorney fee award. The issues raised in the cross-appeal concerning the patent's validity, misuse, and infringement remain unresolved, as they were not addressed by the district court and may be revisited upon remand.

The '914 patent, issued to Irving Fisher and assigned to Fisher Tool Company, pertains to a "Portable Vehicle Adhesive Remover" that utilizes a pneumatic driver and an eraser wheel to effectively remove decals from vehicles by applying heat through friction to weaken adhesive bonds.

Irving Fisher, founder and former president of Astro, filed the '914 patent application without conducting a novelty search or identifying relevant prior art. After his death, his son, Stephen Fisher, managed the patent's prosecution. The patent examiner allowed claims 1-3 of the patent, noting that existing prior art did not encompass the detailed internal components described in those claims. Astro subsequently marketed its patented device both as a combination tool and as individual components, labeling the individual eraser wheel with "patent pending" and the '914 patent number. In 1996, Astro accused S. G of infringing the '914 patent, claiming that S. G's rubber eraser pads contributed to or induced others to infringe under 35 U.S.C. 271(b) and (c). Astro threatened litigation if S. G continued its sales. S. G denied infringement, asserting that its eraser wheel could be used with various pneumatic drivers, not exclusively Astro's. Following continued disputes, Astro sent infringement letters to S. G's distributors, warning that customers using S. G's wheels with non-Astro tools would infringe the patent and providing options that led to the cessation of sales by those distributors. In response, S. G filed a lawsuit against Astro on March 27, 1997, in the District Court for the District of New Jersey, alleging unfair competition, tortious interference, false marking, and violations of the Lanham Act and New Jersey Fair Trade Act, while seeking a judgment of non-infringement and damages. Astro counterclaimed for contributory infringement and sought an injunction against S. G's continued infringement and damages.

On November 18, 1998, S. G filed a motion seeking summary judgment to declare the '914 patent invalid and unenforceable, and alternatively, to assert noninfringement. In M. Eagles I, the district court denied S. G's motion regarding invalidity, as S. G failed to provide clear and convincing evidence for obviousness or improper inventorship. However, the court granted summary judgment on inequitable conduct, finding clear and convincing evidence of materiality and intent to deceive the PTO. The court identified the Model 220, a die grinder that Astro had marketed for twenty years, as material prior art that was not disclosed to the PTO. The Model 220 contained several elements found in the pneumatic driver of the '914 patent, which the examiner had failed to locate in prior art, making its omission significant to the examiner's review.

The court deduced that Astro intended to mislead the PTO based on its nondisclosure of the Model 220, noting that key individuals at Astro were aware of the similarities between the two devices. The failure to disclose the Model 220, despite the examiner's inquiry, led the court to conclude that Astro intended to deceive, resulting in a determination of unenforceability for the patent. Consequently, the court did not address S. G's arguments concerning patent misuse and infringement, deeming them moot.

Furthermore, the district court rejected S. G's claim about a violation of the false marking statute, 35 U.S.C. 292, due to insufficient evidence of intent to deceive the public. The court then found that Astro violated the Lanham Act by falsely marking its eraser wheels with the '914 patent number and "patent pending," which misled customers and diverted sales from S. G to Astro. Finally, the court concluded the case was not exceptional, denying S. G's request for attorney fees under 35 U.S.C. 285 due to a lack of clear and convincing evidence of exceptional circumstances.

On March 20, 2001, Astro filed a motion for summary judgment concerning unfair competition and tortious interference claims, referencing the ruling in Zenith Electronics Corp. v. Exzec Inc. In response, S. G filed a cross-motion for summary judgment on its Lanham Act, state unfair competition, and tortious interference claims, seeking attorney fees under 35 U.S.C. § 285. In 2002, the district court reassessed its prior Lanham Act ruling in light of Zenith Electronics, which necessitated proof of bad faith for violations. The court identified evidence of bad faith in Astro's conduct and granted S. G's motion for summary judgment regarding the Lanham Act and state law unfair competition claims.

The court also upheld S. G's tortious interference claim by establishing malice linked to Astro's inequitable conduct in procuring its '914 patent. Astro's actions, which included sending letters to S. G's customers concerning an unenforceable patent instead of initiating a lawsuit, were deemed to violate standards of common morality. The district court revisited its earlier denial of S. G's attorney fees claim, ultimately awarding them based on findings of exceptional circumstances due to Astro's inequitable conduct before the PTO.

Following the findings of Lanham Act, state law unfair competition, and tortious interference violations, a two-day damages hearing was held in 2004, resulting in an award to S. G. Astro subsequently appealed, and the court maintained jurisdiction under 28 U.S.C. § 1295(a)(1). The appellate review of the summary judgment is conducted de novo, adhering to the standard that summary judgment is warranted when there are no genuine material facts in dispute, favoring the nonmovant's evidence and justifiable inferences.

Patent applicants and those involved in patent application processes must adhere to a "duty of candor and good faith" towards the PTO, as outlined in 37 C.F.R. 1.56(a). Breach of this duty can lead to claims of inequitable conduct, which requires proving two elements: materiality and intent to deceive, both by clear and convincing evidence. Materiality alone does not imply intent, which must be established through factual evidence rather than mere omission of information. Courts advise caution in granting summary judgment on inequitable conduct claims.

Astro claims the district court erred in deeming the '914 patent unenforceable due to inequitable conduct, arguing there was insufficient evidence of intent to deceive. Astro contends that the court wrongly assumed intent based solely on the failure to disclose the Model 220, without direct or circumstantial evidence of deliberate withholding. They assert ignorance of the Model 220's relevance, arguing that differences between the claims and the Model 220 negate assumptions of intent, and that mere gross negligence cannot equate to intent to deceive.

Conversely, S. G argues the district court reasonably inferred intent from the circumstances, asserting that Astro should have recognized the Model 220's materiality based on the examiner's comments, as the Model contained limitations present in the claims. S. G points to Astro's executives’ familiarity with the Model 220 and claims that their failure to disclose it indicates a culpable mindset. Additionally, S. G emphasizes that Astro did not provide evidence of inadvertence or a good faith explanation for the omission, further supporting the inference of deceptive intent.

The case revolves around whether the absence of a good faith explanation for nondisclosure of prior art can serve as clear and convincing evidence of intent to deceive. The court concurs with Astro, asserting that simply failing to disclose a prior art device without any good faith explanation does not suffice to establish culpable intent. To prove intent to deceive in cases of inequitable conduct, the overall conduct must indicate sufficient culpability, taking into account all evidence, including any good faith explanations. While intent can be inferred from the circumstances, a factual basis for such a finding is necessary. The district court’s determination that Astro intended to deceive was based solely on its lack of a good faith explanation for not disclosing the Model 220, which the court concluded is inadequate on its own for establishing clear intent. 

Furthermore, S.G. contends that the examiner's statement regarding the allowance of claims due to the absence of certain limitations in prior art implied Astro’s awareness of the Model 220’s relevance. However, the court noted significant differences between the claims and the Model 220, questioning whether Astro could have reasonably recognized its materiality. The district court's conclusion that Astro was aware of the Model 220's relevance was deemed unsupported, as the differences between the patent claims and the Model 220 prevented a definitive finding of knowledge regarding its materiality.

Sufficient factual evidence suggests that claim 1 of the '914 patent significantly differs from the Model 220, indicating that Astro may not have recognized its relevance based solely on the examiner's statement. Claim 1 is a detailed "picture claim" describing an invention with a geared pneumatic driver, an extending shank, and an eraser wheel, including various internal components. The Model 220, an existing tool driver, lacks key elements such as the extending shank and eraser wheel and operates at a higher speed, failing to meet multiple limitations outlined in claim 1.

The examiner acknowledged that the prior art did not disclose all the detailed components of claim 1, specifically noting that the list provided was not exhaustive. Consequently, the differences between the Model 220 and claim 1 imply that the examiner's reasons for allowance do not conclusively indicate that Astro was aware of the Model 220's relevance. A reasonable fact-finder could conclude that Astro did not intend to mislead.

Additionally, the case of Bruno Independent Living Aids, Inc., which established that a lack of good faith explanation for nondisclosure could indicate intent to deceive, does not support the district court’s conclusion in this context. Unlike Bruno, where there were additional circumstances suggesting intent, this case lacks evidence beyond the absence of a good faith explanation. The inventor's death shortly after the application filing further complicates the matter, as there is no evidence of a deliberate choice to disclose information to one agency while withholding it from another. Thus, without further evidence of intent, the absence of a good faith explanation alone does not constitute clear and convincing evidence of culpable intent to deceive the PTO.

Astro's conduct during prosecution does not demonstrate culpable intent, as intent to deceive must be assessed within the context of patent practice rather than strict liability. The district court's finding of inequitable conduct based on Astro's nondisclosure of the Model 220 effectively imposed strict liability, which is inconsistent with legal standards. Even gross negligence in nondisclosure does not automatically equate to inequitable conduct. Due to insufficient evidence of intent and the district court's erroneous assumptions regarding Astro's knowledge, the summary judgment of inequitable conduct is reversed.

Consequently, the rulings concerning the Lanham Act, tortious interference, and state law unfair competition claims are vacated, as they relied on the inequitable conduct determination. The district court had established that a violation of the Lanham Act requires a finding of bad faith, which was improperly based on its inequitable conduct finding. Similarly, the tortious interference and unfair competition claims were deemed malicious based on the same flawed inequitable conduct conclusion, leading to their vacatur.

The district court's designation of the case as exceptional and the award of attorney fees must also be vacated, as these conclusions stemmed from the inequitable conduct finding. Without evidence of such conduct, the attorney fees claim is unsupported.

Lastly, S.G.'s cross-appeal regarding the invalidity of the '914 patent for obviousness and other grounds is not addressed, as the court previously denied S.G.'s motion for summary judgment on invalidity due to insufficient proof. Denials of summary judgment are generally not appealable, and the record does not provide adequate development of this issue for determination.

The district court's ruling on inequitable conduct was found to be in error due to insufficient evidence to support an inference of intent to deceive the PTO, leading to the reversal of the court's summary judgment on this issue. Consequently, the decisions regarding the Lanham Act, state law unfair competition, tortious interference, and attorney fees have been vacated. The court did not address matters of patent validity, infringement, or patent misuse, as these issues were not properly before them due to their moot status after the inequitable conduct finding. The case has been partially reversed and vacated, and it has been remanded for possible further proceedings on the outstanding issues. No costs have been awarded. Additional notes clarify that claims in the '914 patent application were originally claims 4-6, now claims 1-3, and that the "patent pending" designation referred to the application that resulted in U.S. Patent 5,624,990. The Model 220's materiality was not discussed as the ruling focused on intent, upholding the district court's findings that the nondisclosure was not intentional and rendering the materiality finding unnecessary.