United States District Court, S.D. New York
February 9, 2004.
AT&T CORP., Plaintiff -against- MICROSOFT CORPORATION, Defendant
The opinion of the court was delivered by: WILLIAM PAULEY, District Judge
MEMORANDUM AND ORDER
Plaintiff AT&T Corp. ("AT&T") brings this patent infringement
action against Microsoft Corporation ("Microsoft"), alleging that certain
of Microsoft's products containing speech codecs*fn1 infringe its United
States Patent No. Reissue 32,580 (the "580 patent"). Microsoft denies
infringement of the 580 patent and seeks dismissal of the complaint
together with a declaratory judgment of noninfringment, invalidity and
unenforceability of the 580 patent. See AT&T Corp. v. Microsoft
Corp., 01 Civ. 4872 (WHP), 2003 WL 21459573 (S.D.N.Y. June 24,
2003). Familiarity with this Court's prior Memoranda and Orders is
Currently before this Court is AT&T's motion for partial summary
judgment on Microsoft's affirmative defense and counterclaim of
inequitable conduct. For the reasons set forth below, AT&T's motion
for partial summary judgment is granted.
Microsoft's inequitable conduct defense and counterclaim concerns
whether the inventors of the 580 patent, Dr. Bishnu S. Atal and Mr. Joel
R. Remde, and the in-house patent attorney who prosecuted that
application, Jack S. Cubert, Esq., intentionally failed to disclose
material prior art to the United States Patent and Trademark Office (the
"PTO") during prosecution of the 580 patent. Specifically, Microsoft
claims that AT&T should have disclosed to the PTO a 1980 paper
co-authored by Dr. Atal and Dr. Manfred R. Schroeder entitled "Improved
Quantizer for Adaptive Coding of Speech Signals at Low Bit Rates" (the
"1980 Paper").*fn3 (AT&T Ex. 1, Ex. 3 at 35-36.) Microsoft contends
that the 1980 Paper anticipated one or more of the 580 patent
claims, making it material, and raising an inference of intent to deceive
the PTO. The facts underlying this motion are not in dispute.*fn4
A. Prosecution History of AT&T's 580 and 832
The 580 patent at issue in this litigation is a reissue of U.S. Patent
No. 4,472,832 (the "832 patent"). The 832 patent contains 39 claims.
See AT&T, 2003 WL 21459573, at *1. On December 1,
1981, AT&T filed an application for the 832 patent on behalf of the
inventors, Dr. Atal and Mr. Remde. (AT&T 56.1 Stmt. ¶ 1; AT&T
Ex. 4 at ATT 161-ID.) Jack S. Cubert, Esq. prosecuted the 832 patent and
PTO Examiner E.S. Matt Kemeny ("Examiner Kemeny") examined that
application. (AT&T 56.1 Stmt. ¶¶ 2, 3; AT&T Ex. 4 at ATT
161-ID, 211-ID.) AT&T did not disclose the 1980 Paper to the PTO
during the prosecution of the 832 patent, and the PTO did not cite to the
1980 Paper during the prosecution of the 832 patent. (AT&T 56.1 Stmt.
¶¶ 4-5; AT&T Ex. 4 at ATT 227-ID.) The PTO issued the 832 patent
on September 18, 1984. (AT&T Ex. 4 at ATT 161-ID.)
On September 18, 1986, AT&T filed a reissue application, which was
also prosecuted by Cubert and examined by Examiner Kemeny. (AT&T Ex.
6 at ATT3-ID.) The 580 patent left the original 39 claims unaltered and
added claims 40-43. See AT&T, 2003 WL 21459573, at *1.
AT&T did not disclose, and the PTO did not cite to any additional
references other than the ones disclosed during prosecution of the 832
patent. (AT&T Ex. 6 at ATT 3-ID; AT&T 56.1 Stmt. at ¶ 11.)
The PTO issued the 580 patent on January 19, 1988. (AT&T Ex. 6 at ATT
B. The 1980 Paper and the 057 and 124 Patents
In 1980, Drs. Atal and Schroeder co-authored the 1980 Paper, which they
presented at the Institute of Electrical and Electronics Engineers,
Acoustics, Speech and Signal Society conference on April 9-11, 1980.
(AT&T Ex. 1 at MSATT 34539; Deposition of Bishnu S. Atal, Ph.D.,
dated March 5, 2003 ("Atal Dep.") at 226-28.) On April 8, 1980, one day
before the conference, AT&T filed a patent application on behalf of
Dr. Atal based on the subject matter of the 1980 Paper. (AT&T Exs. 1,
8; Atal Dep. at 226-28.) On October 12, 1982, the PTO approved this
application and issued U.S. Patent No. 4,354,057 (the "057 patent"). Like
the 832 and 580 patents, Cubert prosecuted the 057 patent for AT&T
and Examiner Kemeny examined the application for the PTO. (AT&T Ex.
On October 12, 1984, AT&T filed a reissue application for the 057
patent. That application was also prosecuted by Cubert and examined by
Examiner Kemeny. The PTO issued U.S. Patent No. Reissue 32,124 (the "124
patent") on April 22, 1986, five months before AT&T filed its 580
reissue application. The parties refer to the 124 and 057 patents as the
"Center Clipping Patents."
Thus, Cubert shepherded all four of the AT&T applications through
prosecution on behalf of AT&T and PTO Examiner Kemeny examined each
of the patent applications on an ongoing basis from April 1980 through
I. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that
summary judgment "shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories and admissions on file, together
with the affidavits, if any, show there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law." Fed.R.Civ.P. 56(c); accord Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247 (1986). The burden of demonstrating the
absence of any genuine dispute as to a material fact rests with the
moving party. See,
e.g., Adickes v. S.H. Kress & Co.,
398 U.S. 144, 157 (1970); Grady v. Affiliated Cent., Inc., 130 F.3d 553,
559 (2d Cir. 1997). The movant may meet this burden by demonstrating a
lack of evidence to support the nonmovant's case on a material issue on
which the nonmovant has the burden of proof. Celotex, 477 U.S.
To defeat a summary judgment motion, the nonmoving party must do "more
than simply show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). Indeed, the nonmoving party must "set forth
specific facts showing that there is a genuine issue for trial."
Fed.R.Civ.P. 56(e); accord Matsushita Elec., 475 U.S. at 587. In
evaluating the record to determine whether there is a genuine issue as to
any material fact, the "evidence of the nonmovant is to be believed and
all justifiable inferences are to be drawn in his favor." Liberty
Lobby, 477 U.S. at 255.
"Although the premises of inequitable conduct require findings based on
all the evidence, a procedure that may preclude summary determination, a
motion for summary judgment may be granted when, drawing all reasonable
factual inferences in favor of the non-movant, the evidence is such that
the non-movant can not prevail." ATD Corp. v. Lydall, Inc.,
159 F.3d 534, 547 (Fed. Cir. 1998) (citation omitted); accord Paragon
Podiatry Lab., Inc.
v. KLM Labs., Inc., 984 F.2d 1182, 1189-90 (Fed. Cir.
1993) (noting that inequitable conduct defense is not amenable to summary
judgment if "the facts of materiality or intent are reasonably
II. Applicable Legal Standards
Patent applicants are required to prosecute applications with "candor,
good faith, and honesty." Bristol-Myers Squibb Co. v. Rhone-Poulenc
Rorer, Inc., 326 F.3d 1226, 1233 (Fed. Cir. 2003); see
also 37 C.F.R. § 1.175(a)(7) (1986) (duty of candor applies
throughout the prosecution of the patent). An otherwise valid patent may
be rendered unenforceable by virtue of inequitable conduct committed
during the prosecution of the patent application before the PTO.
Glaverbel Societe Anonyme v. Northlake Marketing & Supply,
Inc., 45 F.3d 1550, 1556 (Fed. Cir. 1995). To establish a defense of
inequitable conduct, Microsoft must prove: (1) that the "applicant failed
to disclose material information to the PTO"; and (2) that the applicant
"intended thereby to mislead or deceive the patent examiner into granting
the patent." ATD Corp., 159 F.3d at 546; accord Key Pharm.
v. Hercon Labs. Corp., 161 F.3d 709, 719 (Fed. Cir. 1998). The
burden is on Microsoft to establish materiality and inequitable conduct
by clear and convincing evidence. Life Techs v. Clontech Labs.,
Inc., 224 F.3d 1320, 1326-27 (Fed. Cir. 2000);
see also Abbott Labs, v. TorPharm, Inc., 300 F.3d 1367,
1379 (Fed. Cir. 2002) (affirming district court's grant of summary
judgment of no inequitable conduct where accused infringer could not
prove materiality and intent by clear and convincing evidence).
Inequitable conduct must be determined by this Court at trial, unless the
parties otherwise consent to submit it to the jury. Kingsdown Med.
Consultants v. Hollister Inc., 863 F.2d 867, 876 (Fed Cir. 1988) (en
banc). AT&T does not consent to submit this issue to the jury.
(AT&T Br. at 11.)
A document is material "if there is a substantial likelihood that a
reasonable examiner would consider it important in deciding whether to
allow the application to issue as a patent." Baxter Int'l, Inc. v.
McGaw, Inc., 149 F.3d 1321, 1327 (Fed. Cir. 1998) (internal
quotations omitted). A document is immaterial when it is "merely
cumulative of references that were already before the examiner."
Mentor H/S, Inc. v. Med. Device Alliance, Inc., 224 F.3d 1365,
1378 (Fed. Cir. 2001); accord Baxter Int'l, 149 F.3d at 1327.
Although the legal standard for determining whether a prior art reference
is "material" was amended in 1992, the Federal Circuit continues to apply
the "reasonable examiner" standard of 37 C.F.R. § 1.56, in effect
from 1977 through 1992, to patent applications prosecuted within that
time period. Dayco Prods., Inc. v. Total Containment, Inc.,
329 F.3d 1358, 1363 (Fed. Cir. 2003); Li Second Family Ltd. Pshp.
v. Toshiba Corp., 231 F.3d 1373, 1379-80, 1380 n.4 (Fed.
Cir. 2000); see also Purdue Pharma L.P. v. Endo Pharms. Inc.,
No. 00 Civ. 8029 (SHS), 2004 WL 26523, at *20 (S.D.N.Y. Jan. 5, 2004)
(providing a comprehensive history of the materiality standard). This
Court notes that the 1992 amendment "was not intended to constitute a
significant substantive break with the previous standard." Hoffman
La-Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1368 n.2 (Fed. Cir.
"Materiality does not presume intent," however, and Microsoft must
separately prove deceptive intent by clear and convincing evidence.
Braun Inc. v. Dynamics Corp. of Am., 975 F.2d 815, 822 (Fed.
Cir. 1992) (quotation omitted); accord Amgen Inc. v. Hoechst Marion
Roussel, Inc., 314 F.3d 1313, 1358 (Fed. Cir. 2003) (affirming
finding of no inequitable conduct where record "was bereft of evidence of
intentional deception"); Gambro Lundia AB v. Baxter Healthcare
Corp., 110 F.3d 1573, 1581-82 (Fed. Cir. 1997). Indeed, "a mere
showing that references having some degree of materiality were not
disclosed does not establish inequitable conduct." Halliburton Co.
v. Schlumberger Tech. Corp., 925 F.2d 1435, 1442 (Fed. Cir. 1991).
As direct evidence of intent is "rarely available in instances of
inequitable conduct," intent may be inferred from circumstantial
evidence. Critikon, Inc. v. Becton Dickinson Vascular Access,
Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997); accord LaBounty
Mfg., Inc. v.
United States Int'l Trade Comm'n, 958 F.2d 1066, 1076
(Fed. Cir. 1992). However, negligence in failing to disclose a reference
"can support an inference of intent only when, `viewed in the light of
all the evidence, including evidence of good faith,' the conduct is
culpable enough `to require a finding of intent to deceive.'"
Halliburton, 925 F.2d at 1443 (quoting Kincrsdown,
863 F.2d at 876).
Second, "[a]fter threshold findings of materiality and intent have been
established by clear and convincing evidence, the court must weigh them
to determine" "whether the applicant's conduct is so culpable
that the patent should be held unenforceable." Ulead Sys., Inc. v.
Lex Computer & Mgm't Corp., 351 F.3d 1139, 1144 (Fed. Cir.
2003); Dayco Prods., Inc. v. Total Containment, Inc.,
329 F.3d 1358, 1363 (Fed. Cir. 2003) (emphasis in original); accord Glaverbel
Societe Anonyme, 45 F.3d at 1558 ("All of the evidence, including
evidence tending to show good faith, must establish sufficient
culpability to establish both materiality and intent."). "As a general
principle, materiality and intent are balanced a lesser quantum
of evidence is necessary when the omission or misrepresentation is highly
material, and vice versa. At the same time, however, there must be some
showing of intent to be balanced." Amqen, 314 F.3d at 1358
(citing GFI, 265 F.3d at 1273). Indeed, a court cannot find "inequitable
conduct on an evidentiary record that is completely
devoid of evidence of the patentee's intent to deceive the PTO."
Amcren, 314 F.3d at 1358 (citing Alien Eng' g Corp. v.
Bartell Indus., Inc., 299 F.3d 1336, 1352 (Fed. Cir. 2002)).
Finally, this Court notes that "[t]he Federal Circuit has long decried
the use of charging inequitable conduct in patent litigation." TM
Patents, L.P. v. Int'l Bus. Mach. Corp., 121 F. Supp.2d 349, 372
(S.D.N.Y. 2000); accord Burlington Indus., Inc. v. Dayco Corp.,
849 F.2d 1418, 1422 (Fed. Cir. 1988) ("[T]he habit of charging
inequitable conduct in almost every major patent case has become an
absolute plague."); FMC Corp. v. Manitowoc Co., 835 F.2d 1411,
1415 (Fed. Cir. 1987) ("Inequitable conduct is not, or should not be, a
magic incantation to be asserted against every patentee."); Chiron
Corp. v. Abbott Labs., 156 F.R.D. 219, 221 (N.D. Cal. 1994) (finding
inequitable conduct is often used as a delay tactic, a tactic to
obfuscate the issues before the court, or a settlement tactic).
AT&T argues that it is entitled to partial summary judgment on
Microsoft's inequitable conduct defense and counterclaim because
Microsoft cannot prove by clear and convincing evidence that 1980 Paper
was material or withheld from the PTO Examiner with intentional
deception. This Court agrees.
Even if Microsoft could show that the 1980 Paper was material to the
prosecution of the 580 patent, it cannot show an
intent to deceive by clear and convincing evidence. See
Amgen, 314 F.3d at 1358 (affirming finding of no inequitable conduct
where defendant could not prove intent by clear and convincing evidence);
GFI, 265 F.3d at 1273 ("[M]ateriality does not presume intent, which is a
separate and essential component of inequitable conduct.");
Halliburton, 925 F.2d at 1442 ("Materiality of an undisclosed
reference does not presume an intent to deceive."). At most, Microsoft
can show by clear and convincing evidence that Dr. Atal, the author of
over forty articles at the time AT&T prosecuted the 580 patent, was
negligent in not disclosing the 1980 Paper to the Examiner. It is
well-established, however, that negligence, and even gross negligence, is
insufficient to support a finding of intent to deceive, especially when
rebutted by evidence of good faith. See, e.g., Ulead Sys., 351
F.3d at 1145-46; CFMT, Inc. v. Yieldup Int'l Corp.,
349 F.3d 1333, 1342-43 (Fed. Cir. 2003); Kingsdown, 863 F.2d at 876.
Microsoft relies solely on Dr. Atal's knowledge of his own article, the
1980 Paper, to establish his intent to deceive the PTO. Specifically,
Microsoft argues that the 1980 Paper was so material that its
nondisclosure justifies an inference of intent to deceive. (MS Opp. at
15.) The Federal Circuit has expressly rejected Microsoft's argument.
See, e.g., Alien Eng'g, 299 F.3d at 1351-52; Braun,
975 F.2d at 822. Indeed, "[i]ntent
to deceive can not be inferred solely from the fact that
information was not disclosed; there must be a factual basis for a
finding of deceptive intent." Union Pacific Resources Co. v.
Chesapeake Energy Corp., 236 F.3d 684, 694 (Fed. Cir. 2001)
(affirming finding of no intent to deceive where defendant argued that
inventors failed to disclose highly relevant prior art articles) (citing
Hebert v. Lisle Corp., 99 F.3d 1109, 1116 (Fed. Cir. 1996));
accord Glaverbel Societe Anonvme, 45 F.3d at 1557-58 (Fed. Cir.
1995) (affirming finding of no intent to deceive where patentee failed to
disclose allegedly material prior art, but believed such prior art
related to a different process than the patent in suit);
Halliburton, 925 F.2d at 1442 ("[A] mere showing that
references having some degree of materiality were not disclosed does not
establish inequitable conduct."). Indeed, the undisputed evidence shows
that the patentees acted in good faith and unequivocally believed that
the 1980 Paper was irrelevant to the prosecution of the 580 patent.
See Halliburton, 925 F.2d at 1443 (holding that good faith must
be taken into account in determining whether nondisclosure constitutes
conduct culpable enough to require a finding of intent to deceive);
Glaverbel Societe Anonyme, 45 F.3d at 1558 ("All of the
evidence, including evidence tending to show good faith, must establish
sufficient culpability to establish both materiality and intent."). Dr.
Atal repeatedly testified at his deposition that he was aware of
the 1980 Paper, but did not disclose it because it was "completely
unconnected" and involved "an entirely different topic" than the 832 and
580 patents. (Atal Dep. at 268, 291-92.) Additionally, Remde testified
that he was not aware of any relevant prior art to give to the PTO.
(Deposition of Joel Remde, dated August 13, 2002 ("Remde Dep.") at 79 ("I
was not aware of any relevant material, so I didn't produce any
material").) Further, Cubert, who left AT&T in 1990, also testified
that he had no recollection of prosecuting the 580, 832, or the Center
Clipping patents approximately two decades ago. (Deposition of Jack
Cubert, Esq., dated October 29, 2003 ("Cubert Dep.") at 40-42, 53-54.)
Cubert ceased working for AT&T's speech processing group in 1987 and
took on responsibilities involving a "completely different subject
matter." (Cubert Dep. at 54.)
It is well-established that a patent applicant's mere awareness of
nondisclosed prior art does not alone establish an intent to deceive.
See, e.g., Halliburton, 925 F.2d at 1443 (finding patentee's
assertion of no intent to deceive "objectively reasonable" despite
awareness of the nondisclosed references, where patentee did not consider
the references material); Glaverbel Societe Anonyme, 45 F.3d at
1557-58 (same); Braun, 975 F.2d at 822 (lack of knowledge of
materiality can rebut an inequitable conduct allegation). Accordingly,
Microsoft cannot establish an intent to deceive the PTO by clear and
convincing evidence based solely on the patentee's awareness of the
Notably, the facts surrounding this dispute support the veracity of the
patentee's belief of non-materiality, as well as the notion that AT&T
was not attempting to dupe the PTO. AT&T prosecuted the 580 patent
nearly contemporaneously with its prosecution of the Center Clipping
patents, which are based on the subject matter of the 1980 Paper.*fn5
AT&T knew that PTO Examiner Kemeny was examining both the 580 and the
Center Clipping patents. (AT&T 56.1 Stmt. § 16.) Because the
patentees knew that Examiner Kemeny had actual knowledge of the 1980
Paper's subject matter, there was a disincentive to deceive the PTO
through nondisclosure during the prosecution of the 580 patent. "[A]
patentee has no obligation to disclose an otherwise material reference if
the reference is cumulative or less material than those already before
the examiner." Halliburton, 925 F.2d at 1440 (reversing finding
of inequitable conduct where patentee acknowledged that it was aware of
withheld references but did not consider them material); accord
Mentor H/S, 244 F.3d at 1365 ("[M]ere knowledge of [an undisclosed,
cumulative] reference . . . is not an indication of an intent to
Besides its argument that intent may be inferred from materiality,
Microsoft submits no other basis or evidence supporting an inference that
the patentees had an intent to deceive the PTO by nondisclosure of the
1980 Paper. (MS Opp. 13-16.)
Finally, Microsoft advances a meritless argument that AT&T
"continues to hide behind the attorney-client privilege with respect to
communications between the inventor and his patent attorney." (MS Br. at
17.) On September 23, 2003, this Court denied Microsoft's request to
discover privileged documents concerning Dr. Atal's 1986 reissue
declaration, including certain documents that Microsoft contends might
have "confirmed or refuted Dr. Atal's . . . good faith in failing to
submit the 1980 paper." (MS Br. at 17; Transcript of Order, dated
September 23, 2003 ("9/23 Tr.") at 1-7.) Microsoft attempts to use this
Court's Order as a vehicle to argue that "the record is devoid of any
evidence of good faith." (MS Br. at 17-18.) First, the burden is on
Microsoft to prove deceptive intent by clear and convincing evidence, and
not on AT&T to prove good faith. See Mentor H/S, 244 F.3d
at 1377 (noting that the burden is on the defendant to prove the defense
of inequitable conduct by clear and convincing evidence); CMFT, 349 F.3d
at 1342-43 (same, holding that the patentee's conduct must indicate
sufficient culpability to require a finding of intent to deceive, even
when taking into account all good faith evidence).
Second, Microsoft's argument implicitly suggests that AT&T has
asserted the attorney-client privilege to shield evidence of bad faith
an assertion that is completely devoid of any support. It is
still the case today, as it was when this Court issued its September 23,
2003 ruling (9/23 Tr. at 6-7), that Microsoft has not submitted any
evidence even hinting at the patentees' fraudulent intent.
In conclusion, based on the undisputed facts, Microsoft cannot
establish inequitable conduct by clear and convincing evidence because it
failed to show that the patentees withheld the 1980 Paper with an intent
to deceive the PTO, or that their conduct was "so culpable" as to warrant
application of the defense.
For the reasons set forth above, AT&T's motion for partial summary
judgment on Microsoft's affirmative defense and counterclaim of
inequitable conduct is granted and Microsoft is prohibited from asserting
it at trial.