APTIX CORPORATION, Plaintiff/Counterclaim Defendant-Appellant,
and
META SYSTEMS, INC., Plaintiff/Counterclaim Defendant-Appellant,
and
MENTOR GRAPHICS CORPORATION, Counterclaim Defendant,
v.
QUICKTURN DESIGN SYSTEMS, INC., Defendant/Counterclaimant-Appellee.
00-1468, -1469
United States Court of Appeals for the Federal Circuit
DECIDED: November 5, 2001
Appealed from: United States District Court for the Northern District of California, Judge William H. Alsup[Copyrighted Material Omitted]
Raphael V. Lupo, McDermott, Will & Emery, of Washington, DC, argued for plaintiff/counterclaim defendant-appellant Aptix Corporation. With him on the brief were Donna M. Tanguay, Mark G. Davis, and M. Miller Baker. Of counsel on the brief were Robert P. Taylor, Edwin H. Wheeler, and Erik K. Moller, Howrey Simon Arnold & White, LLP, of Menlo Park, California.
Charles S. Crompton, Latham & Watkins, of Menlo Park, California, argued for plaintiff/counterclaim defendant-appellant Meta Systems, Inc. With him on the brief were David A. York, Rita A. Hao, and James L. Day.
J. Donald McCarthy, Lyon & Lyon LLP, of Los Angeles, California argued for defendant/counterclaimant-appellee Quickturn Design Systems, Inc. With him on the brief was James C. Brooks. Of counsel on the brief were James W. Geriak, Lyon & Lyon LLP, of Irvine, California; and Jeffrey A. Miller, Lyon & Lyon LLP, of San Jose, California.
Before MAYER, Chief Judge, RADER, and LINN, Circuit Judges.
Opinion for the court filed by Circuit Judge RADER. Chief Judge MAYER dissents-in-part.
RADER, Circuit Judge.
On June 14, 2000, the United States District Court for the Northern District of California dismissed the patent infringement complaint of Aptix Corporation and Meta Systems, Inc., after ruling that Aptix's United States Patent No. 5,544,069 ('069 patent) is unenforceable. The trial court refused to enforce the '069 patent because Aptix submitted falsified engineering notebooks to the court.
Because substantial evidence supports the district court's finding of unclean hands, this court affirms the district court's dismissal of Aptix from the suit. Furthermore, because Meta, as Aptix's non-exclusive licensee, lacks standing to enforce the patent without Aptix, this court also affirms the district court's dismissal of Meta's complaint. However, because the district court exceeded its discretion by declaring the '069 patent unenforceable due to litigation misconduct, this court vacates that judgment.
I.
Dr. Amr Mohsen, the founder, chairman, and chief executive officer of Aptix, is the sole inventor of the '069 patent. The '069 patent discloses and claims "field programmable" circuit boards that permit computer programmers to reconfigure the electronic components of an integrated circuit. Dr. Mohsen filed a patent application on September 20, 1989. The United Stated Patent Office issued the '069 patent on August 6, 1996.
Aptix licensed the '069 patent to Meta and Mentor Graphics Corporation, granting Meta the right to sue to enforce the patent in San Jose, California, where Quickturn Design Systems, Inc. is located. Under the agreement, Mentor agreed to advance Aptix the cost of enforcing the '069 patent against Quickturn. On February 26, 1998, Aptix and Meta jointly sued Quickturn for infringement of the '069 patent. Quickturn asserted counterclaims and added Mentor as a counterclaim defendant.
The local rules for the Northern District of California require patentees to disclose a date of conception for each asserted claim. N.D. Cal. Civ. L.R. 16-7(b)(3) (1998). On April 13, 1998, Aptix submitted to the court seventeen pages of Dr. Mohsen's alleged 1989 notebook as an initial proffer of a conception date. On April 18, 1998, Dr. Mohsen advised Aptix's counsel that he found another of his engineering notebooks, allegedly started in 1988. Relying on the 1988 notebook, Aptix and Meta listed July 31, 1988, as the date of conception for all asserted claims. Without this earlier notebook, Aptix later conceded, it would "have a hard row to hoe to avoid invalidating prior art." Aptix Corp. v. Quickturn Design Sys., No. 98-00762,
During discovery, Quickturn obtained a copy of a number of pages from a 1989 notebook that Dr. Mohsen had provided to Skjerven, Morrill, MacPherson, Franklin & Friel, patent counsel during prosecution of the '069 patent. Quickturn noticed substantial differences between this copy and the purported 1989 notebook Dr. Mohsen first supplied the court. The submission to the court contained extensive text and diagram additions not found in the version of the 1989 notebook obtained from Skjerven. When asked about these discrepancies in his deposition, Dr. Mohsen conceded that he added material to his notebooks after they had been signed.
During discovery, Aptix produced still another notebook, the "Ink-On-Photocopy" version of the 1989 notebook. This version of the 1989 notebook contained Dr. Mohsen's handwritten additions to the photocopied entries of an earlier version of the 1989 notebook. The trial court determined that the Ink-On-Photocopy version was a "dry run" for Dr. Mohsen's fabrications. Id. at *24. Once Dr. Mohsen had inked new material onto the rudimentary photocopied version, according to the district court, he inserted pages of the Ink-On-Photocopy version underneath the corresponding pages of the 1989 notebook to assist as a copying template. Id. Forensic evidence showed that the Ink-On-Photocopy version retained the impressions of Dr. Mohsen's pen as he copied the newly inked material into the evolving 1989 notebook. The Ink-On-Photocopy version was the source for the seventeen-page production to the court.
Thus, the record before the district court included four different notebook submissions: the seventeen pages originally submitted to the court from Mohsen's purported 1989 notebook, another notebook allegedly started in 1988, an original copy of the 1989 notebook that was used to prosecute the '069 patent (containing discrepancies from the seventeen-pagesubmission), and the Ink-On-Photocopy version of the 1989 notebook, which apparently served as the template for Dr. Mohsen's elaborations.
On November 24, 1998, Quickturn moved to compel production of the original notebooks for forensic testing. Dr. Mohsen had been insistent upon personally keeping the notebooks, locking them in a safe in his house. However, on December 14, 1998, Dr. Mohsen took the notebooks to work and left them in his car the entire day. That night, he purportedly found his car window broken and the notebooks gone. The trial court found that the "circumstances of the 'theft' strongly suggest that Amr Mohsen staged the incident." Id. at *26.
After the disappearance of the notebooks, Dr. Mohsen produced additional evidence to corroborate his asserted conception date. His 1989 Daytimer, for example, included various entries referring to the engineering notebooks. However, forensic evidence showed that these entries were written with an ink that was not manufactured until 1994, five years after the supposed entries.
Shortly before the scheduled date of an evidentiary hearing on spoliation of the notebooks (at which time Aptix would have had to demonstrate under Fed. R. Evid. 1004 that the original notebooks were not destroyed in bad faith), Dr. Mohsen purportedly received a priority mail package containing fragments of the missing notebooks. The package, which bore Dr. Mohsen's correct mailing address, had no return address but contained an anonymous note from "FL" stating: "These were discovered lately in our backyard. These look like important documents for you." The package contained invoices with Dr. Mohsen's address, which apparently provided the basis for "FL" to address the envelope. Significantly, however, those invoices had either the wrong zip code, or no zip code at all, even though the address on the package from "FL" included the proper zip code. The trial court found that "[i]t seems plain that Amr Mohsen addressed the envelope, or instructed someone else to address it, and simply slipped up in using the correct zip code." Id. at *27.
Referring to the 1988 notebook, the trial court noted that in five instances, Dr. Mohsen had first written "1998," and then overwritten the date to read "1988." Moreover, although Dr. Mohsen's brother, Aly Mohsen, had witnessed many pages of the notebook by writing "read and understood," the court noted that many of these pages were blank with nothing but a large "X," suggesting that Aly had witnessed a blank notebook, and that his brother later filled in text and diagrams. Indeed, all of Aly's signatures were written in the same ink, despite their purported dates on occasions 22 days apart. Furthermore, the court noted that none of Dr. Mohsen's colleagues, including his trial attorneys, patent prosecutors, and fellow executives, knew about the 1988 notebook until 1998. The trial court concluded that the 1988 notebook was a "complete fraud from bark to core, a notebook without a single genuine entry." Id. at *24.
On May 9-10, 2000, the trial court held an evidentiary hearing concerning the authenticity of the notebooks. Dr. Mohsen took the stand and asserted his Fifth Amendment privilege against self-incrimination in response to all questions. Thereafter, the trial court concluded that Aptix had attempted "to defraud the Court and to strengthen its patent through a premeditated and sustained campaign of lies and forgery." Id. at *27. The trial court determined that the '069 patent was unenforceable and dismissed the complaint, invoking the unclean hands doctrine as set forth in Keystone Driller Co. v. General Excavator Co.,
On appeal to this court, Aptix challenges the finding of litigation misconduct and the award of attorney fees. Aptix contends that "the record . . . does [not] reveal that Aptix submitted false information to the court, material or otherwise." Arguing that the record does not support findings of fraud, Aptix seeks reversal of the court's finding of unclean hands. Moreover, Aptix and Meta challenge the determination that misconduct during the enforcement of a patent can render the patent unenforceable. This court has jurisdiction under 28 U.S.C. 1295(a)(1) (1994).
II.
Both this court and the Ninth Circuit review a court's dismissal of a complaint for litigation misconduct for abuse of discretion. Gen. Electro Music Corp. v. Samick Music Corp.,
The record amply supports the district court's finding that Dr. Mohsen submitted the seventeen pages of his 1989 notebook to the court after adding new material to the signed and dated pages. Indeed, the Ink-On-Photocopy version retained the impressions of his pen as he added material to his purported 1989 notebook. Moreover, after Dr. Mohsen invoked his Fifth Amendment privilege and refused to testify about the forgery, disappearance, and reappearance of the notebooks, the trial court was free to make adverse inferences against him. Baxter v. Palmigiano,
Aptix nonetheless urges that the evidence of falsification of the 1988 notebook (its primary evidence to corroborate its asserted conception date) is not so utterly compelling as with the 1989 notebook. Therefore, Aptix seeks a determination that the trial court lacked clear and convincing evidence to find unclean hands. Contrary to Aptix's assertions, however, rarely, if ever, will litigation misconduct be so thoroughly documented. The record clearly and convincingly supports the district court's conclusion of extreme litigation misconduct.
The district court's finding of litigation misconduct fully justified its decision to invoke the unclean hands doctrine and dismiss Aptix from suit. This case is reminiscent of Keystone I,
Moreover, the district court possessed ample discretion to award Quickturn attorney fees and costs. Without question, fraud and misconduct make this case exceptional under 35 U.S.C. 285 (1994) and warrant a full compensation of Quickturn's reasonable attorney fees and costs.
Upon dismissal of Aptix, Meta lost standing to sue in its own right. Only a patentee may bring an action for patent infringement. 35 U.S.C. 281 (1994). Unless it holds "all substantial rights" under the patent, a licensee may not enforce a patent without the patentee. Textile Prods., Inc. v. Mead Corp.,
III.
As further relief, the trial court declared the '069 patent unenforceable. Litigation misconduct, while serving as a basis to dismiss the wrongful litigant, does not infect, or even affect, the original grant of the property right. The doctrine of unclean hands does not reach out to extinguish a property right based on misconduct during litigation to enforce the right. Indeed neither the Supreme Court nor this court has ever declared a patent unenforceable due to litigation misbehavior. The Supreme Court's decision in Keystone I, upon which the district court primarily relied, illustrates that litigation misconduct does not affect the viability of the property right itself: "The governing principle is 'that whenever a party who, as actor, seeks to set the judicial machinery in motion and obtain some remedy, has violated conscience, or good faith, or other equitable principle, in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf, to acknowledge his right, or to award him any remedy.'"
This court's doctrines of inequitable conduct render the patent itself unenforceable to prevent "the enforcement of patents secured by fraud." Smith Int'l, Inc. v. Hughes Tool Co.,
Thus, the remedies for litigation misconduct differ from the remedies for misconduct in acquisition of a property right. While inequitable conduct before the PTO renders the patent unenforceable by any party, the unclean hands doctrine bars only the offending party. See Keystone I,
The entire chain of Keystone cases also shows that the relief for unclean hands targets specifically the misconduct, without reference to the property right that is the subject of the litigation. The United States Court of Appeals for the Sixth Circuit, whose judgment the Supreme Court reviewed in Keystone I, directed the district court to dismiss Keystone's complaint without prejudice. Gen. Excavator Co. v. Keystone Driller Co.,
The plaintiff is repelled as of the date of the filing of the bill and in respect of the maintenance of the action then instituted . . . . The fact that delay is thereby occasioned, or that the plaintiff has thereby suffered a loss of time and expense, is immaterial. The court has simply said: 'We will not hear you in this action although, not being a general avenger of the wrongs of humanity, it may be that you will not be in the future, and would not have been in thepast, repelled on account of your conduct.
Gen. Excavator v. Keystone Driller Co.,
Only two years after issuing Keystone I, the Court again heard an infringement suit by Keystone asserting many of the same patents against other defendants. Keystone Driller Co. v. Northwest Eng'g Corp.,
This court notes its own characterization of Keystone I in previous dictum: "In Keystone Driller, the Supreme Court affirmed the Sixth Circuit's ruling that all five patents-in-suit were unenforceable due to unclean hands." Consolidated Aluminum Corp. v. FOSECO Int'l Ltd.,
IV.
For reasons discussed above, if Aptix had procured its patent by inequitable conduct before the PTO, the trial court would have full discretion to declare the '069 patent unenforceable. Hazel-Atlas,
In the present case, however, the record discloses no misconduct in acquisition of the patent right. Moreover, Meta and Mentor licensed the '069 patent from Aptix before the present litigation. The record does not show that either company participated in any wrongful conduct during litigation or before the PTO. Indeed, the trial court noted: "Meta may be a victim."
In the absence of any showing of misconduct before the PTO, the '069 patent remains a presumptively valid grant of personal property. See 35 U.S.C. 261 (1994) ("Subject to the provisions of this title, patents shall have the attributes of personal property."). No case law from the Supreme Court or this court provides a basis for nullifying property rights granted by the United States when such property rights did not themselves accrue through inequitable conduct.
Despite this lack of authority, however, the trial court declared the '069 patent unenforceable as a form of relief. Thecourt called this relief a "penalty," necessary for deterring Aptix and other parties from engaging in future misconduct. Aptix,
V.
Within the limits discussed above, courts are free to sanction bad faith conduct that arises during the course of litigation. These "inherent powers" to punish bad faith conduct during litigation are "necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Chambers v. NASCO, Inc.,
CONCLUSION
The trial court had broad discretionary power to fashion appropriate relief in this case, including denying any and all relief to Aptix, and ordering Aptix to compensate Quickturn for its reasonable attorney fees and costs. Indeed, this relief was entirely fitting. However, the record does not support a judgment rendering the '069 patent unenforceable. Keystone I and the doctrine of unclean hands do not provide a basis for punishing Aptix by nullifying the grant of a property right. Accordingly, this court affirms the district court's dismissal of the complaint and its award of attorney fees, and vacates the judgment of unenforceability.
COSTS
Each party shall bear its own costs.
AFFIRMED-IN-PART and VACATED-IN-PART
MAYER, Chief Judge, dissenting-in-part.
Because a fraud upon the court is no less grave than a fraud on the Patent and Trademark Office, I would affirm the district court's holding that the '069 patent is unenforceable.
The maxim of unclean hands is applied broadly, giving substantial discretion to the officer of the court in its application. See Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co.,
Had Mohsen's deception occurred in the Patent and Trademark Office ("PTO") rather than before the court, everyone agrees that the '069 patent would be unenforceable. There is no reason to reach a different result here. The duty of candor to the court is entitled to at least as much honor as that to the PTO. The courts have no greater resources to uncover fraud than the PTO. Although patent prosecutions are ex parte and judicial proceedings are adversarial, the PTO has the benefit of hundreds of experts in the relevant arts to make independent inquiries. The rationale of Hazel-Atlas Glass Co. v. Hartford-Empire Co.,
There is no limit inherent in the doctrine of unclean hands that prevents declaring a patent unenforceable based on the post-issuance conduct of the party seeking relief. The governing principle of the doctrine is that "'whenever a party who, as actor, seeks to set the judicial machinery in motion and obtain some remedy, has violated conscience, or good faith, or other equitable principle, in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf, to acknowledge his right, or to award him any remedy.'" Keystone I,
Indeed, the unclean hands doctrine is the source of our ability to declare a patent unenforceable, for the well-recognized defense of inequitable conduct in the PTO. See Hazel-Atlas,
The Supreme Court's development of the doctrine makes this flexibility clear. Keystone I first permitted an accused infringer to assert unclean hands as a defense to infringement.
At the time Keystone I was decided, the Court was limited by the rule that only the government had the ability to move to vacate a patent for fraud in its inception; private parties could not. See Hazel-Atlas,
However, Hazel-Atlas,
Here, the district court held that the only way to protect the judicial proceedings from Mohsen's deceptions was to declare the '069 patent unenforceable. His forgery was pervasive, long-standing, and wanton. It was committed in the context of a series of inter-related patent litigations among the parties concerning related technology in courts in many jurisdictions, as well as an antitrust action and a takeover attempt. Closing the door to one courtroom would merely lead to prompt refiling in another, and would be of little deterrence to subsequent attempts to undermine the integrity of the judicial process.
That Mohsen's forged documents infected the evidence of the conception and reduction to practice of the invention bolsters the conclusion that the patent should not be enforced. Although the record does not fully develop the issue, it appears that he was seeking to avoid potentially invalidating prior art with his forgery, intending to swear behind the date of his patent application. Thus, the fraud concerns the validity of an issued patent, a matter of public concern. See Fraige,
Had Mohsen succeeded, he might unjustly have retained or enlarged the scope of his property right, avoided a finding of obviousness or anticipation, and thus remained the owner of valid patent claims where he should have none. As the district court observed, the patent would be strengthened through its testing in litigation and in reliance upon the fraudulent documentation and testimony. Aptix would likely be able to command a higher price for it (in license or assignment), and would more readily be able to obtain settlements from potential infringers than if it had not survived a challenge to its validity. This strengthened patent could be helpful in obtaining infringement verdicts in subsequent litigation, resulting in a chain of judgments based on the same fraud. See Donald S. Chisum, Chisum on Patents, 19.02[2][a] at 19-51 (2000) ("A prior judgment of validity cannot bind non-parties to a suit. Nevertheless, under the doctrine of comity, a court will give some weight to prior adjudications . . . based on the same evidence."). Permitting the possibility of such a chain of judgments tainted with deception is precisely what the Supreme Court sought to avoid in Keystone I, Hazel-Atlas, and Precision Instrument.
This type of deception taints the patent itself. The documentary record of the invention has been permanently blotched. The forgery is sufficiently pervasive that it is difficult to tell if any of the purported engineering notebooks and supporting documents are authentic. Thus, the effects of Mohsen's conduct before the court would not necessarily be eradicated in an action brought by another party. If the patent is not held unenforceable, a subsequent owner may attempt in litigation to establish a date of conception and reasonable diligence in reduction to practice before the date of the patent's application. To permit this possibility is to countenance the continued involvement of the courts in sorting through the muddy morass of Mohsen's forgeries and dishonest testimony. The unclean hands doctrine does not permit this boon to the forger and stain on the courts. See Precision Instrument,
In other contexts, we have not been so quick to confine the consequences of a patentee's fraud. For example, even if inequitable conduct in a patent's prosecution only directly concerns one of the claims, we hold that it is fatal to the entire patent. See Kingsdown Med. Consultants,
With respect to Meta, as the patent's licensee, it derives its rights in the '069 patent entirely through Aptix and has no standing to sue in its own right. See 35 U.S.C. 281 (1994). To the extent that Meta would be harmed by our refusal to recognize Aptix's right to the patent, its action is against Aptix. Had Aptix's deception initially been before the PTO, the patent would be unenforceable, and Meta would lose all its rights in the patent even if it had no knowledge of the misconduct. Besides, as the driving force behind the Aptix patent litigation, Meta had ample notice of the alleged fraud and ample opportunity to require the testing of the veracity of the documents that it and Aptix continued to rely on. The district court made no findings about whether Meta itself had clean hands. However, willful blindness to another's wrongful acts and continued reliance upon them could rise to the level of intentional or unconscionable conduct.