Opinion
Case No. C 00-1030 SI, C 99-5464 SI, C 00-3291 SI, C 02-1426 SI
July 30, 2003
Now before the Court are defendants` counterclaims for inequitable conduct during the prosecution of the `827, `832, `725, `388, `489 and `706 patents and defendants` motion for attorney`s fees under 35 U.S.C. § 285 and the California Uniform Trade Secrets Act. This Court finds the motions appropriate for determination without oral argument in accordance with Local Rule 7-1(b). Having carefully considered the arguments of the parties and the papers submitted, the Court finds inequitable conduct on the part of plaintiffs during the prosecution of the `827, `388, `489, and `706 patents; finds no inequitable conduct on the part of plaintiffs during the prosecution of the `832 and `725 patents; DENIES defendants` motion for attorney`s fees under 35 U.S.C. § 285; and DENIES defendants` motion for attorney`s fees under the California Uniform Trade Secrets Act.
BACKGROUND
This order follows the resolution of several consolidated cases in which the plaintiffs Mentor Graphics and Meta Systems brought claims against Quickturn Design Systems and Cadence Design Systems for misappropriation of trade secrets and infringement of a number of patents. This order Graphics and Meta Systems brought claims against Quickturn Design Systems and Cadence Design Systems for misappropriation of trade secrets and infringement of a number of patents. This order concerns the defendants` counterclaims of inequitable conduct in the prosecution history of six patents: the `388, `489, `706, `725, `827, and `832 patents. Prior to the jury trial, the Court granted summary judgment for the plaintiffs on the issue of infringement of certain claims of the `388, `725 and `827 patents. The Court also granted summary judgment to the defendants on the issue of the validity of the `388, `489 and `706 patents, finding that they were invalid under the on-sale bar. The found the remaining patents invalid.
Now before the Court are Defendants` Counterclaims of Inequitable Conduct re: the `827 Patent; Defendants` Counterclaims of Inequitable Conduct re: the `832 and `725 Patents; Defendants` Counterclaims for Inequitable Conduct re: the `388, `489 and `706 patents; Defendants` Motion for Attorney`s Fees and Expenses Under 35 U.S.C. § 285; and Defendants` Motion for Attorney`s Fees Under the California Uniform Trade Secret Act, Cal. Civ. Code § 3426.6.
LEGAL STANDARDS
I. Inequitable Conduct
Inequitable conduct is a question of law. See Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1255 (Fed. Cir. 1997). The elements of a claim for inequitable conduct based on failure to disclose prior art are: (1) existence of undisclosed material prior art; (2) knowledge of the prior art that is chargeable to the applicant; and (3) failure to disclose the prior art resulting from an intent to mislead the PTO. See Elk Corp. v. GAF Building Materials Corp., 168 F.3d 28, 30 (Fed. Cir. 1999). Proof of inequitable conduct may be rebutted by a showing that: (a) the prior art was not material; (b) if the prior art was material, a showing that the applicant did not know of that art; (c) if the applicant did know of that art a showing that the applicant did not know of its materiality; or (d) a showing that the applicant's failure to disclose the art did not result from an intent to mislead the patent and trademark office." Id.
The duty to disclose prior art is based on 37 C.F.R. § 1.56, under which "every individual associated with the filing and prosecution of a patent" has a duty of candor and good faith toward the patent office, which includes the duty to disclose "all information known to that individual material to patentability." That duty includes a duty to disclose all information that becomes available during the patent prosecution period. Fox Industries v. Structural Preservation Systems, Inc., 922 F.2d 801, 803 (Fed. Cir. 1990). Information is material to patentability when "it is not cumulative to information already of record or being made of record in the application, and (1) [i]t establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or (2) [i]t refutes, or is inconsistent with, a position the applicant takes in: (i) [o]pposing an argument of unpatentability relied on by the Office, or (ii) [a]sserting an argument of patentability." Molins PLC v. Textron, Inc., 48 F.3d 1172, 1179 n. 8 (Fed. Cir. 1995) (quoting 37 C.F.R. ¶ 1.56(b) as amended in 1992); see, e.g. Dayco Prods., Inc. v. Total Containment, Inc., 329 F.3d 1358 (Fed. Cir. May 23, 2003) (explaining the effect of the changed rule on determinations of inequitable conduct).
Determining inequitable conduct involves a balancing of materiality and intent to determine "whether the scales tilt to a conclusion that inequitable conduct occurred." Critikon, 120 F.3d at 1256. The more material the omission of prior art, the less the degree of intent that must be shown. Elk Corp., 168 F.3d at 30. The effect of a finding of inequitable conduct, as to one or more claims of a patent, is that the entire patent is unenforceable. See J.P. Stevens Co., Inc. v. Lex Tex Ltd., Inc., 747 F.2d 1553, 1561 (Fed. Cir. 1984);Weatherchem Corp. v. J.L. Clark, Inc., 163 F.3d 1326, 1336 (Fed. Cir. 1998).
II. Attorneys' Fee Awards Under 35 U.S.C. § 285 35 U.S.C. § 285 states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." The prevailing party must prove that the fees are justified by exceptional circumstances. Hoffmann-LaRoche, Inc. v. Invamed, Inc., 213 F.3d 1359, 1365 (Fed. Cir. 2000). "Exceptional cases are normally those involving bad faith litigation or those involving inequitable conduct by the patentee in procuring the patent." Brasseler, U.S.A. L, L.P., v. Stryker Sales Corp., 267 F.3d 1370, 1380 (Fed. Cir. 2001). "Deciding a motion for attorney's fees under 35 U.S.C. § 285 requires a two-step analysis. The district court must determine if the case is exceptional; if it is, then it is within the court's discretion to award attorney's fees to the prevailing party." J.P. Stevens Co. v. Lex Tex Ltd., 822 F.2d 1047, 1050 (Fed. Cir. 1987).
III. Attorney's Fee Awards Under the California Uniform Trade Secrets Act Based on Bad Faith Assertion of Misappropriation
Under the California Uniform Trade Secret Act (UTSA) "[i]f a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney's fees to the prevailing party." Cal. Civ. Code § 3426.4. "Bad faith" for purposes of Cal. Civ. Code ¶ 3426.4 requires objective speciousness of the plaintiff's claim, as opposed to frivolousness, and its subjective bad faith in bringing or maintaining the claim. Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1262 (2002).
DISCUSSION
I. Inequitable Conduct During Prosecution of the `827 Patent
As noted above, claim 1 of the `827 patent was invalidated by the jury's verdict at trial. Jury Verdict, Questions 9-11. Defendants allege that the plaintiffs committed inequitable conduct by intentionally withholding material prior art references from the PTO when prosecuting the `827 patent. Defs' Br. In Supp. Of J. On Countercl. That Pls. Committed Inequitable Conduct During Their Prosecution of the `827 Patent ("Defs.' `827 Br."), at 1. In particular, defendants cite plaintiffs' failure to disclose: 1) their own sales brochure regarding their emulator product; 2) an article that appeared in Electronique magazine in April of 1994 describing their product; and 3) the HP Teramac emulator. Id., at 2. Defendants state that "[t]he fact that these withheld references were found by the jury . . . to be invalidating prior art confirms that they were each `highly material' to the patentability of the `827 patent, and should have been disclosed by plaintiffs to the Patent Office." Id. Defendants ask the Court to infer an intent to mislead the patent office based on the materiality of the references, the jury's verdict, the plaintiffs' knowledge of the existence of the references, and an alleged strategy to "Secure Patent Portfolio and Counterattack Quickturn." Id., at 2-3; Trial Ex. 4160 (documentation of alleged strategy). In light of the alleged inequitable conduct, defendants argue that this Court should find the case "exceptional" under 35 U.S.C. § 282 and award attorney's fees.
The Court notes here that defendants were not permitted to include the sale of the Meta-128 chips in 1992 as an additional undisclosed reference upon which to base a claim of inequitable conduct with respect to the `827 patent. See Order of Jan. 3, 2003.
Plaintiffs reply that defendants have failed to prove any of the elements of the claim. Pls.` Mem. Of P. A. in Opp'n to Defendants` Brief Re: `827 Patent ("Pls.` `827 Opp`n"), at 1-2. Plaintiffs dispute the materiality of the three references and correctly note that the jury was not required to specify the prior art references upon which it relied in reaching its verdict. Id., at 6, 10-11. Plaintiffs also dispute the extent to which the defendants proved that plaintiffs` representatives had knowledge of the materiality of the prior art references. Id., at 7-9.
The Court rejects plaintiffs` arguments regarding the materiality of the three references and finds that defendants have proven that the references were material. The evidence at trial showed that the Meta sales brochure was more than simply "general information," and to be "material prior art," it need not have been as enabling as the patent specification. It is enough that the two references were publicly available descriptions in some detail of the device that the inventors sought to patent. The evidence at trial showed that the Meta-128 sales brochure and the Electronique article disclosed technology in the `827 patent at least to the extent that there was "a prima facie case of unpatentability." 37 C.F.R. § 1.56. Similarly, the Court finds that evidence at trial showed that the Teramac was also "material prior art."
Plaintiffs also dispute defendants' contention that the inventors knew of the materiality of the references. Pls.' `827 Opp'n, at 7-9. Plaintiffs contend that the evidence at trial showed only that Mr. Reblewski had read a single article describing the Teramac and that Mr. LePape had "heard the name Teramac' but did not have any information regarding what the system was or how it worked." Pls.' `827 Opp'n, at 8. Plaintiffs also emphasize that it was the defendants who "pursued an investigation" of the Teramac. Id., at 1. In their reply, defendants point to a 1996 publication of a symposium presentation in which Mr. Reblewski directly compared parts of the Meta emulator with the Teramac emulator and cited a 1995 publication about the Teramac. Defs.' Reply, at 5-6, Tr. Ex. 3466. Although the symposium presentation does not provide a specific date and was after the filing date of the patent, it is inconsistent with Mr. Reblewski' s testimony at trial regarding his prior knowledge of the materiality of the Teramac to his patents. The Court finds that the evidence showed that the inventors knew of the materiality of the Meta-128 and Teramac references.
The Court also finds that plaintiffs withheld the Meta-128 and Teramac references with the intent of misleading the patent office. The Meta-128 sales brochure and Electronique article were public disclosures, to some extent, of their own product, and were detailed enough that candor and good faith would have required their disclosure. Additionally, contrary to Mr. Reblewski's testimony, it appears from his presentation at a 1996 symposium that he was familiar enough with the Teramac article, the Teramac device, and the materiality of the Teramac that his failure to disclose the Teramac references cannot be said to have been in good faith.
Accordingly, the Court finds that inequitable conduct was committed in the prosecution of the `827 patent and attorney's fees may be awarded.
II. Inequitable Conduct During Prosecution of the `388,`489 and `706 Patents
On summary judgment prior to trial, the `388, `489 and `706 patents were found invalid under the on-sale bar ( 35 U.S.C. § 102 (b)), due to the commercial sale of the Meta-128 chip in 1992. The defendants argue that the plaintiffs' failure to disclose the commercial sales to the PTO during patent prosecution constituted inequitable conduct. Defs.' Br. In Supp. Of J. on Countercl that Pls. Committed Inequitable Conduct During their Prosecution of the `388, `489 and `706 Patents (Defs.' `388 Br.), at 1-2. The defendants also claim that the plaintiffs committed inequitable conduct in their failure to disclose an April 1994 Electronique magazine article describing their emulator, the existence of the Teramac and articles describing it, the published French language patent application, and the Butts `473 patent. Id., at 2.
Defendants argue that although this Court's summary judgment order found the patent invalid, inequitable-conduct is an extant issue which this Court must resolve to determine whether an award of attorneys' fees is warranted under the "exceptional circumstances" referred to in 35 U.S.C. § 285. Id., at 1. Defendants maintain, "had plaintiffs complied with their duty of candor and disclosed the withheld references, none of these three patents would have issued."Id., at 2. Defendants argue that in light of plaintiffs' failure to disclose highly material prior art references to the patent office, the law permits this Court to infer that plaintiffs had the requisite intent to defraud the patent office which is required for a finding of inequitable conduct. Paragon Podiatry Laboratory, Inc. v. KLM Laboratories, Inc., 984 F.2d 1182, 1189-90 (Fed. Cir. 1993).
In opposition to defendants' motion for a Rule 52 judgment, plaintiffs argue that because the inequitable conduct claims based on the `388, `489 and `706 patents were not part of the trial, these inequitable conduct claims are not among those issues to be decided by the Court post-trial. PIs.` Mem. of P. A. in Opp'n to Defs' Mot. For J. On Countercls. Re: the `388, `489 and `706 Patents ("Pls.' `388 Opp `n"), at 2-4. Plaintiffs additionally argue that if this Court permits a Rule 52 judgment to proceed, it should hold a separate evidentiary hearing on these counterclaims. Id.
Alternatively, plaintiffs argue that this Court should treat defendants' present motion as a belated summary judgment motion that should have been filed before May 17, 2002, in accordance with this Court's scheduling order. Id. Plaintiffs urge the Court not to proceed on the merits, but instead to treat defendants' brief as a procedurally defective motion for summary judgment and strike it from the record. Id. Plaintiffs argue that because defendants failed to include these claims as issues which should be tried in their Pretrial Conference statement, defendants may not now raise them. Id. Plaintiffs maintain that defendants only raised the issue of inequitable conduct with respect to the `827, `832 and `725 patents, but never mentioned it with respect to the `388, `489, and `706 patents.Id.
In the event that this Court chooses to proceed on the merits, plaintiffs argue that defendants have failed to establish that the Meta inventors (1) knew that the sale affected the patentability of the `388, `489 and `706 patents; or (2) made a deliberate decision to withhold the Orbit sale from the PTO. Plaintiffs argue that § 102(b) [on-sale bar] was not applicable to manufacturer-to-inventor sales until Pfaff was decided by the United State Supreme Court in 1998. Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998). "Simply put, prior to the issuance of the `388, `489, and `706 patents (and prior to Pfaff and its progeny), it would have been impossible for a U.S. patent attorney — let alone French lay person inventors — to reasonably conclude that the Orbit sale constituted an `on-sale` bar.`"Id., at 10.
Defendants` Reply argues that having conceded that the Meta-128 sales were prior art, plaintiffs have submitted no evidence to support their claim that the prior art was not disclosed because plaintiffs believed that had no duty to disclose the prior art under existing case law. Defs.` Reply in Supp. Of J. on Countercls. That Pls. Committed Inequitable Conduct during their Prosecution of the `388, `489 and `706 Patents ("Defs.' `388 Reply"), at 1. Defendants argue that based on plaintiff`s knowledge of the 1992 sales, this Court should infer that plaintiffs knew they had a duty to disclose these sales in their applications to the patent office and that their failure to disclose these sales was willful. Id., at 4.
Defendants argue that there can be no real dispute that plaintiffs should have known that the 1992 sale of Meta-128 chips between Meta and Orbit was the type of sales activity which triggered the on-sale bar, and that this requirement has been a part of the common law of patents since long before the Pfaff decision. `"Plaintiffs are therefore wrong in asserting that it was not until after the Pfaff case that Section 102(b) was recognized as potentially applicable to `manufacturer to inventor' sales (i.e., here, supplier (Orbit) sales to a marketer (Meta))." Id., at 8.
Intent may be inferred from a failure to disclose a material prior art reference and a failure to make a showing of subjective good faith.See e.g., Paragon, 984 F.2d at 1193. This Court has found that the Meta-128 sales were commercial sales that triggered the on-sale bar and thus invalidated the `388, `489 and `706 patents. The Court rejects plaintiffs` contention that before Pfaff was decided it would have been "impossible for a U.S. patent attorney — let alone French lay person inventors — to reasonably conclude that the Orbit sale constituted an `on-sale' bar.'" Pfaff did not cancel a preexisting manufacturer-supplier exception to the on-sale bar. The Supreme Court and the Federal Circuit both explained in thePfaff cases that the reason for the dispute was that the invention had not yet been reduced to practice when it was allegedly "sold," which is not an argument that plaintiffs have advanced.See Pfaff, 535 U.S. at 55, 60 ("We granted certiorari to determine whether the commercial marketing of a newly invented product may mark the beginning of the 1 — year period even though the invention has not yet been reduced to practice."); Pfaff v. Wells Electronics, Inc., 124 F.3d 1429, 1433 (Fed. Cir. 1997) ("Although the invention was commercialized, it had not been reduced to practice at the time of sale because there was no physical embodiment of the invention. It was for this reason alone that the district court did not apply the on-sale bar."). Although the cases to which plaintiffs cite note that the Supreme Court's ruling changed the "on-sale" bar test from a "totality of the circumstances" test to a two-factor test, both cases state unambiguously that the Federal Circuit has never recognized a manufacturer-supplier or joint developer exception to the on-sale bar.See Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1355-56 (Fed. Cir. 2001); Brasseler, U.S.A. L.L.P., v. Stryker Sales Corp., 182 F.3d 888, 890 (Fed. Cir. 2001). Plaintiffs quoteMicro Chemical Inc. v. Great Plains Chemical Co., as stating that the pre-Pfaff test for the on-sale bar required that "all of the circumstances surrounding the sale or offer to sell, including the stage of development of the invention and the nature of the invention, must be considered and weighed against the policies underlying sec; 102(b)." 103 F.3d 1538, 1544 (emphasis added). Special Devices, to which plaintiffs also cite, notes that its explicit rejection of a supplier exception to the on-sale bar "comports with theprimary policy of the on-sale bar; namely, the policy of encouraging an inventor to enter the patent system promptly." 270 F.3d at 1357 (emphasis added, citations omitted). Plaintiffs' situation was not the issue resolved in Pfaff, and in any event their device would have triggered the on-sale bar under the admittedly less precise pre-Pfaff "totality of the circumstances" test.
The sale of the Meta-128 was clearly material, as it invalidated the `388, `489 and `706 patents. Plaintiffs have presented no evidence that the legal standard applicable to the on-sale bar was part of their decision not to disclose. Plaintiffs have not shown that the pre-Pfaff case law was clearly in their favor, or even that it was ambiguous. The duty of candor and good faith under 37 C.F.R. § 1.56 requires that "[w]hen a question of materiality is close, a patent applicant should err on the side of disclosure." LNP Eng'g Plastics, Inc. v. Miller Waste Mills, Inc., 275 F.3d 1347, 1361 (Fed. Cir. 2001) (citing LaBounty Mfg. v. United States Int'l Trade Comm'n, 958 F.2d 1066, 1076 (Fed. Cir. 1992)): see alsoCritikoru supra, 120 F.3d at 1257; Brasseler, supra, 267 F.3d at 1386; GFL Inc. v. Franklin Corp., 265 F.3d 1268, 1274 (Fed. Cir. 2001).
As the level of materiality of the evidence withheld increases, the quantam of evidence which must be introduced to show intent decreases. Due to the materiality of the sales and plaintiffs' failure to advance evidence of their subjective good faith that the sales were not invalidating, the Court finds that the balance tips toward the inference that plaintiffs failed to disclose the commercial sales of the Meta-128 chip with the intent to mislead the United States Patent and Trademark Office. Their failure to do so constituted inequitable conduct.
Accordingly, the Court finds that inequitable conduct was committed and attorneys' fees may be awarded with respect to the `388, `489 and `706 patents.
III. Inequitable Conduct During Prosecution of the `832 and `725 Patents
As noted above, various claims of the `832 and `725 patents were invalidated during the pretrial phase and by the jury at trial. Defendants request a judgment of inequitable conduct regarding these patents because of their concurrently filed request that the case be found "exceptional" under 35 U.S.C. § 282. Defs.' `832 Br., at 1. Defendants allege that plaintiffs committed inequitable conduct by intentionally withholding material prior art references from the PTO when prosecuting the `832 and `725 patents. Id. In particular, defendants cite plaintiffs` failure to disclose the existence of the HP Teramac emulator and two related published articles, and the Xilinx DataBook. Id., at 1-2. Defendants maintain that "[H]ad plaintiffs complied with their duty of candor and cited any of these [prior art references] these patents would not have issued." Defs` Br., at 2. Defendants argue that the jury's verdict at trial demonstrates the materiality of the four references, and that the plaintiffs' knowledge of the references and their alleged strategy to "Secure Patent Portfolio and Counterattack Quickturn" demonstrate an intent to deceive the patent office. Defs.' Br., at 2-3; see Tr. Ex. 4160 (documentation of alleged strategy).
To support their contentions, defendants present the deposition testimony of plaintiff's inventor Reblewski who, when asked at deposition why he did not disclose the Teramac article during the prosecution of the `832 patent stated, "As I explained earlier, I didn't see anything interesting in that article. So now that I have seen that, now I would do something different, but at that time, I didn't see that." Tr. 1930:16-1931:3 (quoted in Defs.` Brief at 8:23-25). Defendants characterize Mr. Reblewski's testimony as conceding the materiality of the Teramac article and as a "weak attempt to explain away his previous failure to cite the article." Def's. `832 Br., at 9. Defendants briefly note that the other references may also be considered "highly material" and maintain that in light of the materiality of the evidence which plaintiffs withheld, the showing of intent which defendants must establish is quite low. Because the Four prior art references withheld by plaintiffs are each highly material invalidating prior art, very little other proof of plaintiffs` intent to deceive is required." Defs. `832 Br. at 9.
Plaintiffs counter that the jury verdict does not justify a finding of inequitable conduct. Plaintiffs note that the jury found the `832 and `725 patents invalid in light of prior art references, but did not state which references were invalidating. Pls.' `832 Opp'n, at 1. Furthermore, plaintiffs note, defendants argued at trial that several other prior art references were invalidating and now asks the Court to presume that the subset of references presented in the defendants' brief is the group of references upon which the jury relied in reaching its verdict.Id., at 1. Plaintiffs argue that other than the jury verdict, "defendants offer virtually no evidence to establish the necessary elements of their half-hearted charge that the Barbier inventor committed fraud on the PTO." Id., at 2.
Plaintiffs further contend that inequitable conduct charges are highly disfavored by the Federal Circuit, and that once a patent has been invalidated, inequitable conduct claims are generally rendered moot.Id., at 2-3 (citing Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) (lamenting the frequency of inequitable conduct claims) and Nobelpharma AB v. Implant Innovations, Inc., 875 F. Supp. 481, 483 (N.D. III. 1995) (stating that once a patent is invalidated, inequitable conduct claims are generally moot)). Plaintiffs also argue that defendants misstate the legal standard for "material" references within the meaning of 37 C.F.R. § 1.56 and dispute the defendants' allegations of materiality, knowledge, and intent to mislead the PTO.
The Court rejects plaintiffs' contention that the inequitable conduct claim is moot because some of the claims of the patents have been invalidated. The Nobelpharma AB case to which plaintiffs cite is not binding authority for this Court, having been decided in another jurisdiction, nor does it support plaintiffs' argument. TheNobelpharma court noted that the Federal Circuit has outlined an exception to the general rule that an invalidity determination may moot an enforceability determination. 875 F. Supp. at 483. The exception to the rule is where the conduct in procurement of the patent is still relevant to a request for attorney's fees and may bear on the question of whether the case is "exceptional." See Id., at 483-484. TheNobelpharma court declined to determine the issue of inequitable conduct because the jury had already concluded that Nobelpharma had acted fraudulently and the Court was therefore able to decide without further inquiry that the case was "exceptional." See Id., at 484. That is not the case here, and the Court declines to dismiss the claim for inequitable conduct on the basis of Nobelpharma. Defendants note that an additional reason to decide a claim of inequitable conduct on the merits is that a determination of inequitable conduct as to any of the patent claims renders all claims of the patent unenforceable and is therefore not redundant with a finding that some of the claims are invalid. See J.P. Stevens, supra, 747 F.2d at 1561; Weatherchem 163 F.3d at 1336.
The dispute between the parties as to the legal standard to apply for materiality does not affect the Court's analysis in this case. Defendants contend that the rule is the "reasonable examiner" standard from the Federal Circuit's caselaw, while plaintiffs insist that the Court is to use the literal language of 37 C.F.R. § 1.56, as amended in 1992. See Defs.' Br., at 2 (citing Molins, supra, 48 F.3d at 1179); Pls.' Opp'n, at 4 n. 3 (citing Molins, 48 F.3d at 1179). A Federal Circuit panel heard a nearly identical dispute in May of this year, and the Court finds the Federal Circuit's explanation and disposition applicable to this case. See Dayco Prods., supra, 329 F.3d 1358 (Fed. Cir. 2003). As the Dayco panel explained, the new rule "was not intended to constitute a significant substantive break in the previous standard." Id (quoting Hoffmann-LaRoche, Inc. v. Promega Corp., 323 F.3d 1354, 1366 n. 2 (Fed Cir. 2003)) Rather, the rule was meant to clarify and provide a more objective articulation of the standard for materiality. See id. The panel explained that the Federal Circuit "has not decided whether it should adhere to the preexisting standard for inequitable conduct in prosecutions occurring after the effective date of the new rule," and has applied the reasonable examiner standard "only as to cases that were prosecuted under the earlier version of Rule 56." Id. In effect, the 1992 amended language does little more than to clarify when a "reasonable patent examiner" may consider a reference to be "important in deciding whether to allow the application to issue as a patent."
Because the panel concluded that the outcome would be the same for either materiality standard, they wrote "we leave for another day the final disposition of this issue." Id. Similarly, the Court finds here that the difference in the standards does not affect the disposition of the issue of inequitable conduct. While the parties dispute what the proper standard is, neither argues how, or if, the difference in asserted standards affects the outcome or the determination of materiality of any of the references. The Court finds that it does not.
The Court finds that defendants have not shown, by clear and convincing evidence, that the plaintiffs failure to disclose the references cited was done with intent to mislead the patent office. The defendants offer some evidence of the materiality of the references, and ask the Court to infer intent to mislead the patent office from Mr. Reblewski's testimony and an alleged strategy to "counterattack Quickturn." The Court declines to do so. Although the case law on inequitable conduct describes something of a sliding scale between materiality and intent, the Federal Circuit has repeatedly emphasized that intent is a separate element of a claim for inequitable conduct and must be proven by clear and convincing evidence. See Ruiz v. A.B. Chance Co., 234 F.3d 654 (Fed. Cir. 2000); Braun, Inc. v. Dynamics Corp. of America, 975 F.2d 815, 822 (Fed. Cir. 1992). To be guilty of inequitable conduct, one must have intended to act inequitably. FMC Corp. v. Manitowoc Co., Inc., 835 F.2d 1411, 1415 (Fed. Cir. 1987). Mr. Reblewski's conditional hindsight testimony and a document that is not by itself incriminating, do not persuade the Court that the plaintiffs intended to mislead the PTO. Plaintiffs have introduced reasonable bases for their decision not to disclose many of the prior art references — that the references were cumulative, that plaintiffs did not know about the references, that plaintiffs did not recognize the references as material, or that plaintiffs did not withhold the references with an intent to mislead the PTO.
Accordingly, the Court declines to find that plaintiffs committed inequitable conduct in the prosecution of the `725 and `832 patents.
IV. Attorney's Fees Under 35 U.S.C. § 285
As discussed above, the Court found that plaintiffs committed inequitable conduct during the prosecution of the `827, `388, `489, and `706 patents, and that plaintiffs did not commit inequitable conduct during the prosecution of the `832 and `725 patents. Having ruled on defendants` inequitable conduct counterclaims, the Court now turns to the question of whether this case is "exceptional" under 35 U.S.C. § 285 such that defendants are entitled to attorney's fees. In their motion, defendants argue that the following are all sufficient independent bases for an award of attorney`s fees under 35 U.S.C. § 285: (1) inequitable conduct in procuring the patents described above in this order; (2) knowingly filing and maintaining baseless claims against Quickturn; and (3) bad faith litigation tactics. See Defs.' Mot. For Attorney's Fees and Expenses Under 35 U.S.C. § 285 ("Defs.' 285 Mot."). Defendants also request attorney's fees related to the non-patent causes of action, and further request additional litigation expenses such as expert witness fees, fees connected with the present motion, and other miscellaneous expenses. Id. at 18-19.
Regarding inequitable conduct, both parties essentially restate the arguments made above in their submissions for defendants` counterclaims of inequitable conduct. As to filing and maintaining baseless lawsuits, defendants argue that plaintiffs knew that their patents were invalid or unenforceable in light of prior art, prior sales, and inequitable conduct in procuring the patents. Defs.` 285 Mot. at 7-14. Defendants also argue that, in any event, once the Court ruled on May 17, 2002 that the 1992 transaction between Meta and Orbit was a "sale" for the purpose of the "on-sale bar," plaintiffs should not have continued to litigate patents that were anticipated by the sale. Id. at 9. Defendants also allege that plaintiffs filed claims without investigating their merits, and cite as additional examples of baseless litigation a "fraudulent non-disclosure" claim that was dismissed pursuant to Fed.R.Civ.Pro. 12(b)(6), and a request for a preliminary injunction that was denied. Id., at 12-14. Plaintiffs reply that the results were not a foregone conclusion, and that the fact that defendants prevailed on certain issues does not mean that the issues should not have been litigated in the first place.
Defendants cite plaintiffs' alleged bad faith litigation tactics as a final basis for awarding attorney's fees. Defs.' 285 Mot., at 14. Defendants allege that plaintiffs submitted inconsistent infringement testimony and positions, obstructed discovery, and "vexatiously" opposed defendants' motions for summary judgment. Id., at 14-17. Defendants cite inconsistencies in the testimony of plaintiffs' expert Dr. Hayes, an order from the Court compelling submission of certain materials for discovery, and an improperly submitted opposition to one of defendants' summary judgment motions. Id. Plaintiffs respond that witnesses who later refined or changed their positions were encouraged to be straightforward with the Court rather than adhering blindly to their original positions, and that changed testimony was an indication of candor rather than an attempt to thwart Quickturn's efforts to prepare its defense. Pls.`285 Opp'n, at 18-19.
"The purpose of section 285 is to provide discretion where it would be grossly unjust that the winner be left to bear the burden of his own counsel which prevailing litigants normally bear." Badalamenti v. Dunhams, Inc., 896 F.2d 1359, 1364 (Fed. Cir. 1990) (quotingJ.P. Stevens, supra, 822 F.2d at 1052) (emphasis in original). The Court does not find that defendants have demonstrated that this case is exceptional. Although the Court finds inequitable conduct with respect to four of plaintiffs' S patents for failure to disclose the Teramac and the Meta-128 sale, the Court does not find the pattern alleged by defendants or that the Court's finding of inequitable conduct necessitates a finding that the case is "exceptional." "[I]t has not been held that every case of proven inequitable conduct must result in an automatic attorney fee award, or that every instance of inequitable conduct mandates an evaluation of the case as `exceptional.`" Gardco Mfg., Inc. v. Herst Lighting Co., 820 F.2d 1209, 1215 (Fed. Cir. 1986). The American rule is that attorneys' fees are not awarded except in exceptional circumstances, there is a statute that allows the courts to do so. See generally Alyeska Pipeline Serv. v Wilderness Soc'y, 421 U.S. 240 (1975). Although 35 U.S.C. § 285 provides such an allowance, the decision to award fees is at the court's discretion, to prevent a gross injustice. See Invamed supra, 213 F.3d at 1365. The Court further finds that defendants have not sufficiently demonstrated that the Court should find this case exceptional on any other grounds. While this litigation was certainly protracted and acrimonious, the Court does not view plaintiffs' litigation conduct as sufficient to make the case exceptional Defendants prevailed decisively on some issues during the litigation, but the Court finds that plaintiffs have adequately rebutted defendants' contention that the litigation was brought in bad faith.
Accordingly, the Court does not find that this case is "exceptional," and declines to award fees under 35 U.S.C. § 285. The motion for fees pursuant to 35 U.S.C. § 285 is DENIED.
V. Attorney's Fees Under the California Uniform Trade Secrets Act
Defendants have also brought a motion for attorney's fees under the California Uniform Trade Secrets Act (UTSA). As stated above, under the (UTSA) "[i]f a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney's fees to the prevailing party." Cal. Civ. Code § 3426.4. "Bad faith" for purposes of Cal. Civ. Code § 3426.4 requires objective speciousness of the plaintiff's claim, as opposed to frivolousness, and its subjective bad faith in bringing or maintaining the claim. Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 CaL App. 4th 1249, 1262 (2002).
The Court finds that defendants have failed to demonstrate that plaintiffs' action for trade secret misappropriation was brought in bad faith within the meaning of the UTSA. Plaintiffs' opposition outlines a plausible claim for trade secret misappropriation. Although defendants note that plaintiffs tried to minimize the effect of particularly unfavorable pieces of evidence at trial and point out various other problems with plaintiffs' case, defendants have not shown that plaintiffs acted in bad faith in making a claim for misappropriation of trade secrets.
Accordingly, defendants' motion for attorney's fees under the Cal. Civ. Code § 3426.4 is DENIED.
CONCLUSION
For the foregoing reasons, the Court finds: (1) inequitable conduct on the part of plaintiffs in their prosecution of the `827, `388, `489, and `706 patents; (2) no inequitable conduct in their prosecution. Further, defendants` motions for attorney's fees under 35 U.S.C. § 285 and Cal. Civ. Code § 3426.4 are both DENIED.