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September 1, 1996


The opinion of the court was delivered by: SEYBERT

 SEYBERT, District Judge:

 Pursuant to Rule 52 of the Federal Rules of Civil Procedure, the Court adopts the Findings of Fact and Conclusions of Law set forth below. To the extent that any of the Findings of Fact may be construed to constitute a Conclusion of Law or any Conclusion of Law may be construed to constitute a Finding of Fact, the same is hereby adopted by the Court in accordance with the proper characterization.


 A. Procedural Background

 1. Plaintiff Ted Geffner initiated this action on May 24, 1991 against defendants Linear Rotary Bearings, Inc. ("LRB") and Garnette S. Teass. In his Complaint, plaintiff charged the defendants with (1) infringement of claims 1-14 of Geffner's U.S. Patent No. 4,025,128 (the "'128 patent"), (2) breach of a license agreement dated August 3, 1977 between Geffner and LRB concerning the '128 patent, (3) palming off, and (4) unjust enrichment. See Compl. PP 1-27. Plaintiff sought recovery for unpaid royalties in the amount of $ 162,790 as of July 31, 1989, and royalties accrued subsequent to that date, the amount thereof to be determined through an accounting. See Pretrial Order, App. E.

 2. Defendants answered plaintiff's Complaint on July 19, 1991 denying the allegations set forth in the Complaint and asserting the defenses of (1) invalidity of the '128 patent, (2) non-infringement of the '128 patent, (3) non-enforceability of the '128 patent due to fraud or inequitable conduct allegedly committed by Geffner on the United States Patent and Trademark Office (the "PTO") in obtaining the '128 patent, (4) estoppel, (5) laches, and (6) failure to state a claim upon which relief can be granted. See Answer and Counterclaims PP 1-34.

 3. Additionally, defendants counterclaimed seeking declaratory judgments of (A) invalidity or unenforceability of the '128 patent, (B) unenforceability of the licensing agreement between Geffner and LRB, and (C) that LRB was lawfully marketing bearings without violating the '128 patent and/or contract rights. Moreover, defendants sought return of royalty payments of approximately $ 477,032.00 previously paid by LRB to Geffner under the licensing agreement as a result of Geffner's alleged acts of fraudulently inducing LRB to enter into the license agreement. See Answer and Counterclaims PP 35-46; Pretrial Order, App. D.

 4. In support of defendants' above indicated contentions, defendants attached as Exhibit A to the Answer and Counterclaims a letter from the defendants' prior attorneys to plaintiff dated November 29, 1989 concerning defendants' defenses and charges. As indicated in Attachment A, it is defendants' position that the claims of the '128 patent are anticipated and thus invalid under 35 U.S.C. § 102 in view of a prior published British Patent Specification No. 896,251 issued to Norman Manby (the "Manby patent"). Separately, defendants contend that the claims of the '128 patent are unenforceable in view of a number of fraudulent misrepresentations concerning the Manby patent that plaintiff made to the PTO. Further, as a result of plaintiff's failure to disclose material information concerning the foregoing to LRB in connection with its entry into the licensing agreement at issue, defendant LRB seeks a return of past royalties paid. See Attachment A to the Answer and Counterclaims, at 6.

 5. Defendants have requested from the Court (1) dismissal of plaintiff's Complaint with prejudice, (2) attorney fees and costs for defending against Geffner's Complaint, (3) a declaratory judgment that LRB's manufacture, use and sale of its bearings is fully lawful and does not violate any patent or contract rights of plaintiff Geffner, (4) compensation for damages suffered by LRB as a result of Geffner's improper inducement of LRB to enter into the licensing agreement for the '128 patent including the return of past royalties paid, (5) punitive damages as a result of Geffner's alleged acts of fraudulently obtaining the '128 patent and/or his fraudulent inducement of LRB to enter into the license agreement, (6) recovery of defendants' attorney fees and costs for the prosecution of the counterclaims, and (7) such other and further relief as this Court may deem just and proper. See Answer and Counterclaims, at 9-11.

 6. The allegations set forth in defendants' Counterclaims were denied by plaintiff in his Answer to Counterclaims filed on August 8, 1991. See Pl.'s Answer to Defs.' Counterclaims PP 35-46.

 7. A bench trial was held by this Court from September 28, 1995 through October 10, 1995. Upon the completion of plaintiff's case on the merits, defendants moved for dismissal of plaintiff's charges of infringement of claims 2, 4 and 6-8 of the '128 patent based upon an insufficient showing of evidence. In addition, defendants moved that codefendant Garnette S. Teass be dismissed from this action as a result of plaintiff's failure to present evidence establishing the involvement of Mrs. Teass in respect of any of the allegations set forth in the Complaint. Furthermore, defendants sought dismissal of plaintiff's allegations of palming off and unjust enrichment.

 8. In response to defendants' motions, plaintiff conceded his failure to establish any evidence during the presentation of his case concerning (i) the alleged infringement of claims 2, 4 and 6-8 of the '128 patent, Tr. 557; and (ii) the involvement of Mrs. Teass in respect of the allegations raised in the Complaint. Tr. 550. Consequently, plaintiff withdrew these charges from this litigation.

 9. With respect to defendants' request for dismissal of the palming off and unjust enrichment counts set forth in the Complaint, plaintiff continued to assert these allegations purportedly based upon defendant LRB's use of the '128 patent number on LRB's product literature. The Court requested briefing from the parties on this issue and such briefing was submitted by the defendants.

 11. For the reasons stated in defendants' letter dated November 3, 1995, the Court agrees with the defendants' contentions that it would be unduly prejudicial to the defendants to allow plaintiff to amend his pleadings subsequent to trial to assert the counterclaim defense of assignee estoppel. Accordingly, plaintiff's motion to add this counterclaim defense is DENIED. See Fed. R. Civ. P. 15(b).

 12. Accordingly, the outstanding issues in this case relate to (i) the validity or enforceability of the remaining claims of plaintiff's '128 patent (i.e., claims 1, 3, 5 and 9-14) in view of the Manby patent and Geffner's arguments and drawings submitted to the PTO in attempting to distinguish the teachings of Manby from the Geffner invention; and (ii) whether the license agreement between Geffner and LRB concerning the '128 patent is subject to rescission in light of Geffner's alleged breach of fiduciary duty in inducing LRB to enter into the agreement at issue.

 13. As more particularly discussed below, this Court finds that the remaining claims of the '128 patent (i.e., claims 1, 3, 5 and 9-14) are invalid and unenforceable in view of the prior art disclosures of Manby and Geffner's inequitable conduct before the PTO during the prosecution of the '128 patent.

 14. Further, this Court holds that the license agreement at issue is subject to rescission as a result of Geffner's breach of his fiduciary duty of loyalty to LRB through his failure to disclose to LRB's other directors various critical issues relating to the possible invalidity or unenforceability of the '128 patent. Accordingly, the patent agreement at issue having been rescinded, defendant LRB is entitled to restitution of all royalties paid under the license agreement and the legal fees that it incurred on plaintiff's behalf for the prosecution and maintenance of plaintiff's foreign patents.

 15. In addition, because the Court finds this to be an exceptional case, defendant LRB is entitled to reimbursement of its costs, attorney fees and expenses under 35 U.S.C. § 285.

 B. Factual Background

 1. Introduction

 16. Plaintiff Geffner is an engineer and has been engaged in the design, development and manufacturing of bearings for over forty years. Compl. P 3. In this regard, Geffner has worked in bearing research as a chief research and development engineer for a variety of leading bearing manufacturers including Thomson Industries and The Barden Corporation. Tr. 19-20. Plaintiff is the inventor of a number of rotary bearings including those claimed in U.S. Patent No. 3,446,540 (Defs.' Ex. B8), U.S. Patent No. 3,692,371 (Pl.'s Ex. 13) and U.S. Patent No. 3,751,121 (Defs.' Ex. B9). Tr. 22.

 17. Subsequent to his employment with The Barden Corporation as a consultant in bearing design, plaintiff alleges that he developed a new bearing having both linear and rotary features. This bearing was designed by Geffner in 1975. Tr. 24-25. Geffner then retained an attorney by the name of Jerome Bauer, a patent attorney with whom he previously had worked, for the purposes of preparing and filing a patent application directed to his new linear rotary bearing. Tr. 25.

 18. Bauer prepared a patent application directed to Geffner's linear rotary bearing and filed said application as Application Serial No. 631,035 at the PTO on November 12, 1975. Defs.' Ex. Al, at 2-24. This application was entitled "Antifriction Bearings" and it later issued as the '128 patent, which is the subject of the present action.

 19. After filing the "Antifriction Bearings" patent application, Geffner and Albert Adelmann formed Linear Rotary, Inc., the predecessor to defendant LRB. This company was formed in 1976 with Geffner becoming Vice President and receiving 24 shares and Adelmann becoming President and receiving 76 shares out of 200 total shares outstanding. Tr. 26-27. Later, William Mitschang became a shareholder of Linear Rotary, Inc., receiving 2 shares. Defs.' Ex. D9, at 3; Tr. 29, 34.

 20. During the prosecution of the "Antifriction Bearings" application before the PTO, Geffner first became aware of the Manby patent, when it was brought to his attention by a group of Japanese businessmen. Tr. 106-08. Although Geffner discussed the existence of the Manby patent with the other members of the Board of Directors of Linear Rotary, Inc., the Court finds Geffner's discussions with the other board members concerning this matter to have been vague, and to have knowingly, and materially, understated Geffner's own substantial concerns that Manby anticipated (or disclosed) the features of his invention and presented a significant problem with respect to the validity and enforceability of his patent. Tr. 177-78.

 21. After learning of the existence of Manby, plaintiff Geffner prepared some drawings and overlays (i.e., "Geffner graphics, A1-A2, B1-B2, C1-C4") which purportedly showed the distinguishing features of the Geffner bearing as compared to the linear rotary bearing disclosed in the Manby patent. Tr. 110-11. However, as more particularly reviewed below, these graphics and overlays were misleadingly drawn by Geffner in his attempt to distinguish the Geffner invention from the prior art.

 22. Geffner's graphics were then utilized by Bauer in an interview with the Examiner at the PTO and later submitted by Bauer in a "Supplemental Amendment" filed at the PTO. The Supplemental Amendment discussed the subject of the interview and the distinguishing features of the Geffner invention relative to the features of the Manby linear rotary bearing. As a result of the Supplemental Amendment and the attached Geffner graphics, the Geffner application was allowed to issue as a patent by the PTO.

 23. Furthermore, in addition to disclosing the existence of the Manby patent to the PTO, Bauer also made known the existence of the Manby patent to each of his foreign associates, providing the same with copies of the Geffner drawings and overlays. This occurred in November, 1976. At least two of his foreign associates, i.e., foreign associates in West Germany and the United Kingdom, responded quickly and indicated that the claims of the corresponding foreign Geffner applications were directly anticipated by Manby. In addition, the foreign associates brought to Bauer's attention a number of flaws in Geffner's arguments and drawings that he had presented to the PTO. However, notwithstanding this information, the contents of the foreign associates' positions concerning the Manby patent were never disclosed by Geffner to the other directors of Linear Rotary, Inc. Tr. 179.

 24. Approximately six months later, on May 24, 1977, the '128 patent was issued to Geffner by the PTO. During the prosecution of the Geffner application, neither Geffner nor Bauer informed the PTO of any deficiencies in their previously submitted drawings and arguments.

 25. On August 3, 1977, plaintiff Geffner licensed the '128 patent to Linear Rotary, Inc. At that time, Geffner was an officer, director and shareholder of Linear Rotary, Inc. The license agreement (the "Patent Agreement," Pl.'s Ex. 2) granted Linear Rotary, Inc. an exclusive license to make, use and sell bearings according to Geffner's '128 patent and required Linear Rotary, Inc. to pay Geffner a royalty. This royalty varied depending upon the amount of bearings sold. A ten percent royalty was payable on the first five million dollars of sales of all bearings manufactured and sold by Linear Rotary, Inc. embodying any of the features of the '128 patent. Thereafter, the royalty rate dropped to six percent. Pl.'s Ex. 2, at 3. In addition, minimum royalties, which were credited against royalties payable, were to be paid as follows: first year - $ 0; second year - $ 25,000; third year - $ 50,000; fourth and following years - $ 75,000. Pl.'s Ex. 2, at 16.

 26. The license agreement was for the full life of the '128 patent. In addition, a provision within the license agreement stated that Geffner did not represent or warrant the validity of the '128 patent or its foreign counterparts. Pl.'s Ex. 2, at 2-3.

 27. Further, with respect to the royalty provision, according to the agreement, the minimum royalties were not to accrue until one year after the end of the month in which Linear Rotary, Inc. received an aggregate of $ 300,000.00 in consideration for its issued shares of capital stock. Pl.'s Ex. 2, at 6. Once the license agreement was in place and stock had been issued, Horace A. Teass, Sr., an attorney and a friend of Geffner, purchased stock for himself, his friends and his associates. Tr. 30-31. The ...

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