United States District Court, D. Nevada
FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING APC'S INEQUITABLE CONDUCT COUNTERCLAIM
LARRY R. HICKS, District Judge.
This order addresses defendant American Power Conversion Corporation's ("APC") inequitable conduct counterclaim in this action. It follows both a two-week jury trial covering plaintiff Server Technology, Inc's ("STI") patent infringement claims and APC's invalidity contentions, as well as a two-day bench trial addressing APC's inequitable conduct counterclaim. The court has considered all of the evidence presented at both trials, including the recently filed deposition testimony designations (Doc. #593) and the parties' post-trial briefs on the issue of inequitable conduct (Doc. ##609, 611).
FINDINGS OF FACT
1. As both an affirmative defense and counterclaim, APC has asserted that STI committed inequitable conduct during the prosecution of the applications for U.S. Patent Nos. 7, 043, 543 B2 ("the 543 patent") and 7, 702, 771 ("the 771 patent"). Inequitable Conduct Counterclaim at ¶¶ 6, 8-36 (Doc. 208). Specifically, APC has asserted that the Carrel Ewing (now deceased) and STI's patent counsel, Robert C. Ryan, each committed inequitable conduct. Pretrial Order at 11 (Doc. 490).
2. As to Mr. Ewing, APC accuses him of failing to disclose to the U.S. Patent and Trademark Office ("PTO") "information regarding APC's MasterSwitch VM or BayTech's RPC-7 or RPC-21 vertical products" in connection with the prosecution of the 543 patent. Inequitable Conduct Counterclaim at ¶¶ 53, 73, 100 (Doc. 208). See Pretrial Order at 11 (Doc. 490). APC also claims that Mr. Ewing intentionally withheld information concerning the RPC-7 and/or RPC-21 during the prosecution of the 771 patent. Inequitable Conduct Counterclaim at ¶ 124 (Doc. 208).
3. As to Mr. Ryan, APC alleges that he breached the duty of candor required of all patent attorneys in prosecuting patents before the PTO. Specifically, APC alleges that Mr. Ryan breached his duty of candor in responding to a request for information made by the PTO during the prosecution of the 771 patent application. Inequitable Conduct Counterclaim at ¶ 116 (Doc. 208).
The APC MasterSwitch VM:
4. The MasterSwitch VM was a two-piece power distribution unit ("PDU") that included a number of power outlets that could be monitored and controlled over a network. The VM was designed to be attached to one of the vertical rails of an equipment rack. The VM also included a separate horizontal controller that was necessary to connect the MasterSwitch VM to a network. Once connected, the VM could be monitored and controlled remotely over the network. The separate horizontal component was connected to the vertical section of the product via a cable. (Inequitable Conduct Counterclaim at ¶¶ 18, 19, 22 (Doc. 208).)
5. APC first offered the MasterSwitch VM for sale to one of its customers, Exodus Communications, Inc. in July, 1999. (D1083.) However, it appears that the MasterSwitch VM was not offered for sale to the general public until December 19, 2000 at the earliest. (P312.)
6. Two STI sales and marketing employees recall seeing a non-functional mock-up of the MasterSwitch VM at a trade show in October 1999. One of them, Paul Montalvo, wrote an email on November 4, 1999, which was forwarded to Carrel Ewing, and which described certain attributes of the product. (D1215.) In addition, APC placed advertisements for the MasterSwitch VM in various publications during 2000, but it is not clear if anyone at STI saw them. (D1020; D1021.)
7. In the fall of 2000, STI personnel tried but failed to purchase a MasterSwitch VM.
8. U.S. Patent No. 5, 949, 974 ("the 974 patent"), which is related to the patents-insuit, issued to STI on September 7, 1999. (P9.) Shortly thereafter, Mr. Ewing became concerned that the APC MasterSwitch products potentially infringed the 974 patent. Carrel Ewing 03/03/2011 Dep. at 263:22-24; 265:1-10. As a result, STI purchased a MasterSwitch Plus product, which was a horizontal version of the MasterSwitch VM, in October 2000. The documentation for the MasterSwitch Plus included a CD that contained a copy of the User's Manual for the MasterSwitch VM. (Carrel Ewing 03/03/2011 Dep. at 228:20-22; 229:19-24; P302; P315.)
9. STI did not obtain the MasterSwitch VM itself (as opposed to the manual) until May, 2001. (P109; P317; P1233.)
The BayTech RPC-7 and RPC-21:
10. Like the MasterSwitch VM, the BayTech RPC-21 was a two-piece PDU. The outlet receptacle was intended to be mounted vertically on an equipment rack, and a separate horizontal controller enabled the RPC-21 to be monitored and controlled over a network. (Inequitable Conduct Counterclaim at ¶ 31 (Doc. 208).) There were no differences between the MasterSwitch VM and the RPC-21 that are material to the validity of the patents-in-suit.
11. In May 2000, STI purchased a RPC-21. One of the inventors on the STI patents, Brian Auclair, wrote a memo in July 2000 to Carrel Ewing, which compared the features of the RPC-21 to the Power Tower, which was then under development at STI. (D1219; D1220; P178.)
12. The BayTech RPC-7 was a vertical PDU in which the networking feature was integrated into the vertical housing. (Inequitable Conduct Counterclaim at ¶ 31 (Doc. 208).) Around May, 2000, Carrel Ewing became aware that a device called the RPC-7 existed, but he did not see or obtain one. STI tried without success to purchase one at the same time they obtained the RPC-21. (D1219.) STI was never able to obtain a BayTech RPC-7. (Carrel Ewing 05/10/2011 Dep. at 33:19-23.)
13. Mr. Ewing did not have any significant knowledge about the RPC-7. (P341 at ¶¶ 26-27.) While product information about the RPC-7 was contained in a competitive products binder created and maintained by the marketing department of STI, there is no evidence that it was contained in the binder when Mr. Ewing reviewed it.
Prosecution of the 543 Patent:
14. STI filed the application that ultimately issued as the 543 patent on August 15, 2001. The named inventors are Carrel W. Ewing, Brian P. Auclair, Andrew J. Cleveland, James P. Maskaly, Dennis W. McGlumphy, and Mark J. Bigler. (P1.) Richard Main was the patent attorney who filed and prosecuted the application until mid-2003. At that time, STI hired a different patent attorney, Robert C. Ryan, to take over responsibility of the 543 patent application, and Mr. Main ceased taking an active role in the application. (P2 at APCC037441-443.)
15. Mr. Main transferred his files related to STI to Mr. Ryan's firm. Mr. Main's files appeared poorly organized and incomplete when transferred to Mr. Ryan's firm. Mr. Ryan's firm inquired about the completeness of the files and Mr. Main indicated that he had given them all of his files for STI matters. However, it appears that a number of documents and copies of product literature were lost. Specifically, the files as delivered to Mr. Ryan's firm did not contain the MasterSwitch Plus product, the CD containing the MasterSwitch VM manual, or a paper copy of the MasterSwitch VM manual. As a result, Mr. Ryan had no knowledge of the MasterSwitch VM until he read APC's preliminary invalidity contentions in 2007, after which the MasterSwitch VM information was disclosed to the PTO.
16. STI filed the application as a continuation-in-part application ("CIP") and claimed priority to the filing date of the 974 patent, July 23, 1996. (P9 at 1.) The claimed priority date of an application is used to determine the effective filing date of the application, which in turn determines what publications and other things can be considered "material prior art" to the pending application by the examiner. See Manual of Patent Examining Procedure § 706.02(a) ("MPEP"). As explained more fully below, patent applicants and their attorneys are only required to disclose material prior art to the PTO.
17. The examiner first questioned whether July 23, 1996, was the proper priority date for the 543 patent application on October 22, 2004. On that date, the examiner expressed his view that the user display claimed in the 543 application was not described in the 974 application. Instead, the examiner concluded that the display was first described in the application for U.S. Patent Nos. 7, 099, 934 B1 ("the 934 patent"), which STI filed on December 8, 2000. Therefore, on October 22, 2004, the examiner established December 8, 2000, as the priority date for the 543 patent. (P2 at APCC037474.)
18. The 543 patent issued on May 9, 2006. (P1 at 1.)
Prosecution of the 771 Patent:
19. STI filed the application that ultimately issued as the 771 Patent on October 11, 2006. The named inventors are Carrel W. Ewing, Brian P. Auclair, Andrew J. Cleveland, James P. Maskaly, Dennis W. McGlumphy, and Mark J. Bigler. (P3.) The Patent Examiner at the PTO assigned to the 771 patent application was Ashok B. Patel.
20. STI also filed the 771 patent application as a continuation application off of the 543 patent, and claimed priority back to July 23, 1996. (P4 at APCC038490.)
21. This lawsuit was filed on December 18, 2006. Complaint (Doc. 1). On October 12, 2007, APC served its preliminary invalidity contentions, which asserted, in part, that the 543 patent was invalid in light of the MasterSwitch VM. (D1470.) The evidence cited by APC in support of its invalidity contentions included the "MasterSwitch VM Power Distribution Unit User Guide, " the "MasterSwitch VM Power Distribution Unit Installation and Quick Start Manual, " the "PowerNet SNMP Management Information Base v3.1.0 Reference Guide" (collectively, "MasterSwitch VM manuals"). (D1470 at Ex. A, p. 1.) The preliminary invalidity contentions did not cite or rely upon any of the BayTech products.
22. Also on September 29, 2007, STI served its fifth amended preliminary infringement contentions, which identified a number of APC products that STI contended infringed the 543 patent. The list of infringing products did not include the MasterSwitch VM. (P4 at APCC039595-96.)
23. On October 20, 2008, in the prosecution of the 771 patent, STI filed a Supplemental Information Disclosure Statement ("Supplemental IDS"). The second, third, and fourth items listed on the Supplemental IDS were the MasterSwitch VM manuals. APC's preliminary invalidity contentions, which identified the MasterSwitch VM and included detailed claim charts showing how APC believed the MasterSwitch VM ...