Appeal from the United States District Court for the Southern District of New York in case no. 98-CV-7766, Judge Paul A. Crotty.
The opinion of the court was delivered by: Gajarsa, Circuit Judge.
Before RADER, Chief Judge,*fn1 ARCHER and GAJARSA, Circuit Judges.
Opinion for the court filed by Circuit Judge GAJARSA.
Concurring opinion filed by Chief Judge RADER.
Advanced Magnetic Closures, Inc. ("AMC") brought an action against Rome Fastener Corp., Rome Fastener Sales Corp., Romag Fasteners Inc., and Rings Wire, Inc. (collectively "Romag") for allegedly infringing U.S. Patent No. 5,572,773 (the "'773 patent"). After AMC finished presenting its case in chief, the U.S. District for the Southern District of New York (the "district court") granted Romag's Rule 50(a) motion for judgment as a matter of law ("JMOL"). The district court subsequently assessed attorney's fees and costs against AMC under 35 U.S.C. § 285 based on (1) the '773 patent applicants' inequitable conduct before the U.S. Patent and Trademark Office (the "PTO") and (2) AMC's litigation misconduct. Pursuant to 28 U.S.C. § 1927, the court also held AMC's attorneys jointly and severally liable for a portion of Romag's attorney's fees, including the law firm Abelman, Frayne & Schwab ("Abelman") and David Jaroslawicz-the sole member of Jaroslawicz & Jaros, LLC. AMC, Abelman, and Mr. Jaroslawicz all appealed the judgment to this court. But Abelman subsequently settled with Romag, and this court dismissed Abelman's appeal. Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., 331 F. App'x 732, 733 (Fed. Cir. 2009). We affirm the district court's holding that the '773 patent is unenforceable based on inequitable conduct and its award of 35 U.S.C. § 285 attorney's fees and costs against AMC, but we reverse its 28 U.S.C. § 1927 sanction against Mr. Jaroslawicz.
AMC owns the '773 patent, which discloses a magnetic snap fastener commonly used in women's handbags. Magnetic snap fasteners typically consist of two halves-a male and female half. Both halves contain a rivet in the center. In one of the '773 patent preferred embodiments, the female half contains a magnetic rivet positioned just below a plate, creating an opening into which the male rivet can insert or "snap" into place. '773 patent col.4 ll.38--41. Once the male half has snapped inside the female half, claim 1 of the '773 patent states that the two create a magnetic circuit that "passes at least through a periphery of [the] first rivet of [the] female member." Id. at col.8 ll.17--19. The last element of claim 1 requires a "small hole" in at least one of the "rivets increasing the magnetic attraction of [the] magnetic member [in the female half] by modifying a resistance to said magnetic circuit at said first and second rivets." Id. at col.8 ll.19-- 23. Figure 1 from the '773 patent below shows holes running through both the female and male halves, numbered as 32 and 35 respectively.
On October 30, 1998, AMC filed suit against Romag, alleging, among other things, that Romag's magnetic snap fasteners infringed claim 1 of the '773 patent. Romag holds U.S. Patent No. 5,722,126 (the "'126 patent") for a magnetic snap fastener and marks all of its fasteners with the '126 patent number. To determine whether Romag's fasteners infringed, the district court construed the last element of the '773 patent's claim 1 to cover a magnetic snap fastener "in which the magnet causes lines of magnetic flux to pass through at least the outer sides of the rivet in the female half, and the small hole(s) in one or both rivets modifies their resistance to the flux and thereby increases the magnetic attraction." Advanced Magnetic Closures, Inc. v. Rome Fastener Corp. ("AMC I"), No. 98 Civ. 7766, 2005 WL 1241896, at *6 (S.D.N.Y. May 24, 2005). Accordingly, claim 1 only covers fasteners with rivet holes that increase magnetic attraction, but not rivet holes that do not increase magnetic attraction. Neither party disputes the district court's claim construction.
In an attempt to prove its claims, AMC submitted reconstructed evidence, presented contradictory testimony, and engaged in evasive litigation tactics. AMC submitted an expert report from Dr. Dev Ratnum in support of its claim for infringement. Dr. Ratnum opined that the '773 patent covered Romag's fasteners. As part of his analysis, Dr. Ratnum purportedly performed a magnetic finite element analysis that produced images showing the magnetic flux of magnetic rivets with and without a hole. Based on these images, he concluded that "[t]he pictures obtained from the well established [finite element] analysis do not lie and it appears, the hole has a dramatic effect of increasing the flux in the center rivet." J.A. 2784. However, Dr. Ratnum failed to disclose in his report that he had not performed the finite element analysis. Subsequently, Dr. Ratnum identified Brian Bell as the person who had performed the analysis, causing Romag to request that AMC produce Mr. Bell's communications with Dr. Ratnum. As a result, AMC's trial counsel, Mr. Jaroslawicz, withdrew Dr. Ratnum as an expert based on "[i]rreconcilable differences" and refused Romag's request to produce Mr. Bell's reports. J.A. 2762. The district court, therefore, ordered AMC to produce Mr. Bell's reports. One of Mr. Bell's memorandums to Dr. Ratnum directly contradicted the expert's report. Mr. Bell wrote, "The results were the same, the no hole part had the most force. . . . This does not help your case." J.A. 2217.
Before trial, AMC moved for summary judgment, attempting to remove several of Romag's defenses, including an "unclean hands" defense. Advanced Magnetic Closures, Inc. v. Rome Fastener Corp. ("AMC II"), No. 98 Civ. 7766, 2006 WL 3342655, at *1 (S.D.N.Y. Nov. 16, 2006). The defense had been advanced by Romag on the basis that Irving Bauer, AMC's president, had misrepresented to the PTO that he was the only inventor of the '773 patent's fastener. Id. at *1--2. Although Mr. Bauer is the named inventor, both he and his former employee, Robert Riceman, claim to have invented the '773 patent's fastener. The district court, however, deferred on ruling on Romag's defense of unclean hands because Mr. Rice-man could not testify against Mr. Bauer. Id. at *4. In a previous lawsuit, Mr. Riceman had settled his claims to inventorship and agreed not to voluntarily assist anyone in litigating against Mr. Bauer. Id.Because of this restriction, the district court directed Romag to subpoena Mr. Riceman and depose him. Id.
At the deposition, Mr. Riceman contradicted Mr. Bauer's explanation of how he had invented the '773 patent's fastener. Mr. Bauer testified that he became interested in magnetic snap fasteners when an acquaintance, Alexander Fischer, solicited him in the summer of 1992 about investing in the magnetic snap fastener business. Advanced Magnetic Closures, Inc. v. Rome Fastener Corp. ("AMC IV"), No. 98 Civ. 7766, 2008 WL 2787981, at *6 (S.D.N.Y. July 17, 2008). According to Mr. Bauer, Mr. Fischer planned to acquire U.S. Patent Nos. 4,021,891 (the "'891 patent") and 4,453,294 (the "'294 patent"), both of which also cover magnetic snap fasteners. Id. Mr. Bauer further testified that before he invested, he experimented with some fasteners at home in an attempt to design around the '294 patent. Id. at *7. Although "he initially did not understand the magnetic snap patents," id., Mr. Bauer testified that he was able to design around the '294 patent through a series of magnetic strength experiments, such as comparing the magnetic attraction of solid magnets to magnets with holes,id. at *7--8. In one of his more "difficult-to-follow" strength experiments, he claimed that a nail through which he drilled a hole adhered to a magnetic plate, allowing the nail to carry more weight than another nail without a hole. Id.*fn2
On approximately October 2, 1993, Mssrs. Bauer and Fischer formed the Randolph-Rand Corporation of New York ("RRNY") and acquired the '294 patent. Id. at *6; Advanced Magnetic Closures, Inc. v. Rome Fastener Corp. ("AMC III"), No. 98 Civ. 7766, 2007 WL 1552395, at *1 (S.D.N.Y. May 29, 2007). By the time the two had formed RRNY, Mr. Fischer's previous company, Amsco Products, Inc. ("Amsco"), had acquired the '891 patent. Id. But Amsco subsequently assigned the '891 patent to RRNY. Id. Having an ownership interest in two magnetic snap fastener patents, Mr. Bauer waited approximately three years after conceiving of his magnetic snap fastener to file the '773 patent application. See '773 patent at  (listing a filing date of Feb. 15, 1995).
Contrary to Mr. Bauer's version of events, Mr. Rice-man testified that he invented the magnetic snap fastener described by the '773 patent. Mr. Riceman became an employee at RRNY after Mr. Fischer acquired the Randolph-Rand Corporation ("RRC"). AMC IV, 2008 WL 2787981, at *6.Mr. Riceman testified that Mssrs. Bauer and Fischer became alarmed when the law firm Darby & Darby announced that it was aiding the handbag industry to design around the '294 patent. Id. at *7. Upon hearing of these efforts, Mr. Riceman claimed that he informed Mssrs. Bauer and Fischer that a 1992 design he had developed would avoid the '294 patent and predate the design-around attempts. Id. at *7. To protect their investment in the snap industry, Mr. Riceman claims that Mssrs. Bauer and Fischer decided to patent Mr. Rice-man's design. Id. However, Mr. Bauer did not list Mr. Riceman's name on the '773 patent application because the terms of Mr. Riceman's 1992 consulting agreement with RRC, his former employer, would have caused the invention to be assigned to RRC's former owner, Mitchell Medina. Id. at *6--7; see also AMC III, 2007 WL 1552395, at *1.
Although Mr. Riceman believed his status of inventor would strip RRNY of its claim to the '773 patent invention, he wrote a letter dated July 22, 1994, to the attorney prosecuting the '773 patent. See AMC III, 2007 WL 1552395, at *2. In that letter, Mr. Riceman advised the prosecuting attorney that he, not Mr. Bauer, should be listed as the inventor. Id. Shortly thereafter, however, Mssrs. Bauer and Riceman jointly wrote the prosecuting attorney, directing him to list Mr. Bauer as the sole inventor. Id.Mr. Riceman testified that he signed the joint letter under duress because RRNY threatened to terminate his employment if he claimed to be the inventor.
In response to Romag's claim that Mr. Riceman was the '773 patent inventor, AMC submitted two documents in an attempt to corroborate Mr. Bauer's claim of inventorship. First, AMC submitted a 1993 invoice from a machine parts manufacturer that demanded payment for several magnetic snap fastener prototypes. AMC IV, 2008 WL 2787981, at *9. After Romag challenged the authenticity of the manufacturer's invoice, Mr. Bauer admitted at trial that this invoice was not the original, but one that he personally drafted and reconstructed. Id. Second, AMC submitted an invoice from a law firm for patent prosecution services of the '773 patent. Id.AMC later conceded that this invoice was also reconstructed, but "only after Romag identified the [proferred] document's defect in its summary judgment reply brief." Id. Despite this dispute over inventorship and falsified evidence, the district court deferred ruling on AMC's motion for summary judgment on inventorship and allowed the case to proceed to trial.
At trial, AMC submitted more "reconstructed" evidence to demonstrate that Mr. Bauer was the inventor. AMC submitted some "very poor, essentially illegible" copies of sketches that Mr. Bauer allegedly made of the invention for Mr. Fischer in 1992. Id. at *8. Unfortunately, Mr. Bauer's notations on the sketch were illegible. To clarify these notations, AMC submitted "a copy of the copy of the original sketch on which additional notations were made, most of them apparently restating, in clearer block letters, the original notations." Id. Although AMC never submitted the original sketch, "[Mr.] Bauer testified [at trial] that he created the enhanced, legible copy in 2004 after the original was partially destroyed in a flood." Id.
Mr. Bauer's notation, however, conflicted with his testimony. On this "enhanced" copy, Mr. Bauer wrote, "HOLE IN MIDDLE RIVIT [SIC] DON'T PAY FOR 294 TO MITCH." Id. at *9 (internal quotation marks omitted). "MITCH" refers to Mitchell Medina, whom Mr. Bauer apparently believed owned the '294 patent when he made the sketch. Id. Mr. Bauer, however, testified that he purchased the '294 patent from Tamoa Morita, not Mr. Medina, but failed to submit evidence documenting the purchase. Id. at *5, *9. Finally, Mr. Bauer's notation suggested that purchasing the '294 patent was unnecessary, but Mssrs. Bauer and Fischer proceeded to acquire the '294 patent in spite of the notation. Id. at *6.
At trial, AMC also sought to establish patent infringement without the testimony of its discredited expert witness. As part of its case in chief, AMC presented three pieces of circumstantial evidence: (1) the '126 patent summary of invention, (2) a Romag advertisement, and (3) some of the '126 patent prosecution history. At the completion of AMC's case in chief, the court granted Romag's Rule 50(a) motion for JMOL because AMC failed to present any evidence on which a reasonable jury could conclude that Romag's fastener's had a rivet hole that increased magnetic attraction. Romag moved for ...