Molins Plc, and John Coventry Smith, Jr. v. Textron, Inc., Kearney & Trecker Corporation, and Avco Corporation

NIES, Circuit Judge,

dissenting-in-part.

I would affirm the judgment of the district court in its entirety. The appellants are guilty of a pattern of misconduct during the prosecution of the ’563 patent, the subsequent reexamination of that patent, and the litigation below, during which documents were destroyed. These acts are interrelated and cannot in this case be isolated from each other.

The majority affirms inequitable conduct by Whitson, but creates a Chinese Wall between Whitson, Hirsh (Whitson’s replacement), and Smith, Molins’ local counsel. Subsequent counsel carry a heavy burden to overcome known culpable acts of prior counsel. The district , court found that further concealment of Whitson’s actions ran afoul of Hirsh’s and Smith’s duty of candor. We are not at liberty to overturn the district court’s finding that counsel lack credibility and acted in bad faith. Under the clearly erroneous and abuse of discretion standards applicable here, the district court’s findings and conclusions regarding inequitable conduct and the exceptional nature of this case must be sustained.

I. Inequitable Conduct

Hirsh’s and Smith’s Failure To Disclose The Wagenseil References

The court found that the manner in which Hirsh and Smith disclosed the Wagenseil references during reexamination of the ’563 patent was tantamount to failing to • disclose them at all, and that Hirsh and Smith thereby intentionally deceived the PTO.1 The majority, however, concludes the court clearly erred in finding that Hirsh and Smith intended to deceive the PTO. In support of Hirsh and Smith, the majority notes:

Hirsh and Smith discovered a multitude of uneited references in related foreign files after the ’563 patent issued. They disclosed the references within a relatively short time under Rule 501 and subsequently cited the references in the reexamination and ’410 patent prosecution. Putting aside for now Whitson’s impropriety in not citing the prior art earlier, Hirsh and Smith did make an attempt to repair the situation. The examiner initialed each reference, indicating his consideration of the same, and stated that he had considered all of the cited prior art_ These circumstances therefore do not present clear and convincing evidence of intent on the part of Hirsh and Smith to conceal Wagenseil from the PTO during the reexamination.

I respectfully disagree. True, Hirsh and Smith did file a prior art list purportedly under 37 C.F.R. § 1.501, but that filing can*1188not realistically be characterized as a “disclosure.” According to the MPEP, such a prior art list is not considered by an Examiner in the case of an already-issued patent but, rather^ is simply placed in the patent’s file. See MPEP § 2202 (5th ed., Aug. 1983)2 (“Prior art in the form of patents or printed publications may be cited to the Patent and Trademark Office for placement into the patent .files The basic purpose for citing prior art in patent files is to inform the patent owner and the public in general that such patents or printed publications are in existence and should be - considered when evaluating validity of the patent claims.”) (Emphasis added.) There is no indication that the Examiner reviewed the list at the time Hirsh and Smith submitted it in September of 1984. The filing of the list, if anything, supports the district court’s finding that Hirsh and Smith were aware of the materiality of the Wagenseil references.

I also note that Molins’ prior art list, as originally submitted, did not comply with the requirements of 35 U.S.C- § 301, the statutory provision authorizing inclusion of the list as part of the patent’s official file.3 Molins’ original submission did not include any explanation of any of the cited art, let alone the requisite explanation of both the pertinency - and application of the cited art to particular claims. The list was 11 pages in length, and identified over 90 pieces of prior art. Aside from the bald entry of the Wagenseil references on page 4 of the list, Hirsh and Smith did nothing to bring Wagenseil to the attention of the PTO. For example, Molins could have requested reexamination when the list was filed. Molins did not, however, request the reexamination, and there were no explanatory statements accompanying the list. The undisputed fact is that Molins knew Wagen-seil was more relevant than the other art — if not the most relevant prior art.on the list. The court noted that “[a]s a result of reviewing the files, Hirsh saw Whitson’s comments, actions, beliefs, and knowledge regarding Wagenseil.”

Cross & Trecker requested, and the PTO granted, the reexamination on the basis of six IBM publications. Molins then filed a 238 page response to those references. It is true, as the majority notes, that Hirsh and Smith did subsequently cite the listed art in the reexamination. The candor of this act, however, is severely diminished by the manner of that disclosure — as noted by the district court. The citation was made as part of a massive 783-page response to an Office Action. The Examiner was literally put to finding a needle in a haystack. Furthermore, the description of the Wagenseil references provided by Molins in their response (i.e., “Transfer comprising tape-controlled machine tools”), was cryptic, and Molins failed to identify any claims the patentability of which might be affected by the Wagenseil references.

After the Examiner contacted Molins regarding the inadequacy of its explanation, Molins answered with a Supplemental Response in which they reiterated the same cryptic description of Wagenseil given before. Regarding the application of the Wag-enseil references to the claims, Molins’ response merely stated: “This may be considered applicable to at least the plurality of numerically controlled machine tools recited in the claims as, for example, claim 1.” (Emphasis added.) Given Molins’ knowledge of the undisputed materiality of the Wagenseil references, the use of the word “may” and the reference to only one claim (out of the 294 then pending) render this statement both disingenuous and unsatisfactory. Equally disingenuous was the following statement in the Supplemental Response which prefaced the description of the cited art, including Wagenseil: “None of the references, taken individually or in combination, is pertinent *1189nor can it be applied to any of the claimed combinations which define the inventive subject matter as a whole.” (Emphasis added.) Molins simply could not, in good faith, make such a statement, given the devastating effect the Wagenseil references had already wrought on Molins’ worldwide prosecution efforts.4

Although the majority states that “[t]he examiner initialed each reference, indicating his consideration of the same, and stated that he had considered all of the cited prior art,” this provides an insufficient basis for reversal. Upon completion of the reexamination, all of the cited references were not listed on the reexamination certificate. Indeed, Mo-lins filed a request for a Certificate of Correction to ensure the cited prior art, including the Wagenseil references, appeared on the face of the reexamination certificate. Moreover, entry # 19 on page 4 of the list (Wagenseil’s “America’s First Tape-Controlled Production Line” publication) has a line drawn therethrough, indicating that the reference was not considered by the Examiner. Furthermore, there are no Examiner initials indicating his consideration of that reference. Inasmuch as Hirsh and Smith never provided a separate description of that Wagenseil reference, this is not surprising.5 Having failed to supply us with the Certificate of Correction, we do not know what art must be deemed considered.

Despite Molins’ knowledge of the significance of Wagenseil, the reexamination file history, which spanned almost 1800 pages in the Appendix, clearly indicates that the focus of the communications between the PTO and Molins was the IBM art, not Wagenseil. For example, all of the claim rejections contained in both Office Actions are based solely on the IBM art. The summaries of both Examiner Interviews reveal that only the IBM articles were discussed with the Examiner during the interviews. There is simply no indication-that Hirsh and/or Smith did anything to ensure meaningful consideration of the Wag-enseil references during reexamination.

Molins’ Failure To Disclose The Lemelson Patents and Application

The district court found that Whitson and Smith withheld several Lemelson patents from the PTO during prosecution of the ’563 patent application. The district court found that Whitson and Smith knew of the patents, knew the patents were highly material to the pending application, and did not disclose them with an intent to deceive the PTO. The court also found that the ’357 Lemelson patent application was “highly material” to the prosecution of the ’563 patent application, and that Smith’s nondisclosure of the ’357 application resulted from an intent to deceive the PTO. The court concluded that Whitson and Smith had, by their actions, committed inequitable conduct. The majority disagrees because the Examiner independently found and considered the patents.

To absolve Whitson and Smith for their failure to disclose the Lemelson patents, the majority relies on Scripps Clinic & Research Found, v. Genentech, Inc., 927 F.2d 1565, 1582, 18 USPQ2d 1001, 1015 (Fed.Cir.1991), for the proposition that “[w]hen a reference was before the examiner, whether through the examiner’s search or the applicant’s disclosure, it cannot be deemed to have been withheld from the examiner.” Not only is the statement relied on overly broad dicta,6 it conflicts with an earlier decision of this court.7

*1190Respecting the Lemelson application, Smith’s representation • of clients with conflicting interests provides no justification for deceiving the PTO. Ethics required him to withdraw. The record amply supports the district court’s finding of a pattern of conduct by appellants that reflects a concerted, ongoing effort to withhold material prior art from the PTO with an intent to deceive.

I cannot help but agree with the district court that the undisputed evidence. of the series of actions by appellants, as carefully and fully articulated by the district court in two opinions totalling almost 90 pages, presents clear and convincing evidence of intent to deceive on the part of Whitson, Hirsh and Smith, even in the absence of a “smoking gun”. See Braun Inc. v. Dynamics Corp. of America, 975 F.2d 815, 822, 24 USPQ2d 1121, 1127 (Fed.Cir.1992) (intent element must be proved by clear and convincing evidence). See also Paragon Podiatry Lab., Inc. v. ELM Lab., Inc., 984 F.2d 1182, 1189-90, 25 USPQ2d 1561, 1567 (Fed.Cir.1993) (“[S]moldng gun evidence is not required in order to establish an intent to deceive.... Rather, this element of inequitable conduct, must generally be inferred from the facts and circumstances surrounding the applicant’s overall conduct.”); LaBounty Mfg., Inc. v. United States Int’l Trade Comm’n, 958 F.2d 1066, 1076, 22 USPQ2d 1025, 1032 (Fed.Cir.1992) (“Direct proof of wrongful intent is rarely available but may be inferred from clear and convincing evidence of the surrounding circumstances.”).

The actions of Hirsh and Smith characterized by the majority as an “attempt to repair” — the filing of the prior art list and the subsequent citation of that list in the reexamination — were, if an attempt at all, a feeble attempt, and unacceptable given their knowledge of the high materiality of the Wagenseil references. Molins was presented with ample opportunities to ensure, or at least increase the likelihood, that the Wagenseil references would be given the attention due such critical art during the reexamination. At each such opportunity, however, Molins’ actions operated to do just the opposite, almost guaranteeing that the Wagenseil references would be lost in a sea of obviously far less relevant art. Molins was simply not forthcoming with information in its possession.

The district court’s findings of materiality and intent are subject to the clearly erroneous standard of Rule 52(a) of the Federal Rules of Civil Procedure. J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1562, 223 USPQ 1089, 1094 (Fed.Cir.1984), cert. denied, 474 U.S. 822, 106 S.Ct. 73, 88 L.Ed.2d 60 (1985). The district court did not clearly err when it found, in light of all of the circumstances, that Whitson, Hirsh, and Smith acted with intent to deceive the PTO! The undisputed materiality of the Wagenseil and Lemelson references, when balanced with the cumulative nature of their actions evidencing an intent to deceive, compelled the district court’s equitable determinations that Whitson', Hirsh, and Smith violated then-duties of candor and committed inequitable conduct. In so concluding, the court did not misapply law, or abuse its discretion, and this court should therefore affirm.

II. Exceptional Case

I would also affirm the court’s finding that this case is exceptional and the court’s discretionary award of costs, fees, interest and expenses. The findings made by the court are not clearly erroneous, L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1128, 25 USPQ2d 1913, 1921 (Fed.Cir.) (whether a ease is exceptional is a factual determination, and is reviewed for clear error), cert. denied, — U.S. -, 114 S.Ct. 291, 126 L.Ed.2d 240 (1993), and there was no abuse of discretion. Shatterproof Glass Corp. v. Libbey-Owens Ford Co., 758 F.2d 613, 629, 225 USPQ 634, 644 (Fed.Cir.) (awarding attorney’s fees is within the discretion of the trial court), cert. dismissed, 474 U.S. 976, 106 S.Ct. 340, 88 L.Ed.2d 326 (1985).

*1191The majority unnecessarily orders a remand “because the court also partly based its finding that the case was exceptional on the ‘pattern of repeated instances of inequitable conduct on the part of Smith, Whitson, and Hirsh.’ ” Even removing from consideration the instances of inequitable conduct reversed by the majority, there remains clear and convincing evidence that this ease was exceptional. Advance Transformer Co. v. Levinson, 837 F.2d 1081, 1085, 5 USPQ2d 1600, 1603 (Fed.Cir.1988) (“An exceptional case must be established by clear and convincing evidence.”). Indeed, as the judge noted, “this case is the exceptional case among exceptional eases.”

Exceptional circumstances justifying an award of fees noted in our precedent, such as Bayer Aktiengesellschaft v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242, 222 USPQ 649, 652 (Fed.Cir.1984), include unfairness, bad faith, inequitable conduct, vexatious or unjustified litigation, and misconduct during litigation. This list is not exhaustive, and the existence of any one circumstance may make a case exceptional. Read Corp. v. Portec, Inc., 970 F.2d 816, 831, 23 USPQ2d 1426, 1438 (Fed.Cir.1992) (“[Ljitigation misconduct may in itself make a case ‘exceptional.’”); Spectra-Physics Inc. v. Coherent, Inc., 827 F.2d 1524, 1537, 3 USPQ2d 1737, 1746 (Fed. Cir.) (bad faith conduct during litigation may make a case exceptional under § 285), cert. denied, 484 U.S. 954, 108 S.Ct. 346, 98 L.Ed.2d 372 (1987). Regarding the exceptional nature of this case, the district court stated:

The Court is persuaded that this is an exceptional case. Hirsh and Smith systematically reviewed all of Molins’ files relating to the prosecution of the System 24 invention. Hirsh selected out some records, and eventually destroyed the remainder. The files were destroyed after Molins began contemplating litigation. At a minimum, Hirsh’s destruction of the files is evidence of “unfairness”. The destruction precluded any potential defendant from conducting full and fair discovery. When Hirsh’s actions are considered in light of the other evidence of inequitable conduct on the part of Molins, the destruction of the files constitutes bad faith. It is this evidence of unfairness and bad faith on the part of Molins that convinces the Court that this is an exceptional ease.

The majority’s remand is unnecessary because the unfairness, bad faith, and inequitable conduct cited by the court as the basis for its finding that this case was exceptional remain despite the majority’s reversals on some instances of inequitable conduct.- The unfairness was based on Hirsh’s destruction of documents, which the district court noted “was the sort of bad faith litigation misconduct that would warrant an attorneys .fee award.” The court’s finding of bad faith was based on Hirsh’s destruction of documents coupled with inequitable conduct on the part of Molins. The majority’s reversal does not exonerate Molins. Molins’ inequitable conduct included Whitson’s conduct in not disclosing Wagenseil, which the majority affirmed. Thus, there remains a basis for the court’s bad faith finding. The court’s finding that this case was exceptional is not clearly erroneous.

Nor is a remand necessary regarding the award of fees. The court did not abuse its discretion in making the award. The court chose three appropriate factors — closeness of the case, tactics of counsel, and the conduct of the plaintiff — from a list of factors delineated in our precedent. See Delta-X Corp. v. Baker Hughes Prod. Tools, Inc., 984 F.2d 410, 25 USPQ2d 1447 (Fed.Cir.1993); J.P. Stevens Co. v. Lex Tex Ltd., 822 F.2d 1047, 1051, 3 USPQ2d 1235, 1238 (Fed.Cir.1987); S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201, 228 USPQ 367, 369 (Fed.Cir.1986). Of the three factors listed, it is clear that the court was most influenced by Molins’ bad faith, stating “[i]n light of the scope and significance of Plaintiffs bad faith, the Court will exercise its discretion and award Defendants reasonable attorneys fees....”

In particular, the district court made numerous findings regarding Smith’s conduct which were “persuasive on the issue of attorneys fees but which were not considered as relevant to the Court’s conclusions” respecting inequitable conduct. In light of this statement, it seems clear that the majority’s *1192reversals, at least regarding Smith’s inequitable conduct, will have little, if any, bearing on the judge’s decision to award attorneys fees on remand. Furthermore, this court has stated that “judgments of a district court concerning good and bad faith are not easily overturned.” Spectral-Physics, 827 F.2d at 1537, 3 USPQ2d at 1746, citing Western Marine Elecs, v. Furuno Elec. Co., 764 F.2d 840, 847, 226 USPQ 334, 339 (Fed.Cir.1985).

The district court went on to identify in particular Hirsh’s destruction of documents and Smith’s failure to identify and produce documents as further instances of bad faith. The court also noted three instances of inconsistencies in Smith’s testimony during the litigation. Additionally, the district court’s opinions in this case are replete with references to Smith’s lack of credibility and overall veracity. The court specifically stated that Smith’s testimony throughout the litigation, and particularly at trial was, at best, “less than truthful.”

Hirsh’s destruction of documents, which outright precluded full and fair discovery, and Smith’s failure to identify and produce documents, which certainly obstructed discovery, are by themselves the kinds of actions warranting an award of attorneys fees in the interests of justice and the fair allocation of the burdens of litigation. See Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1582, 24 USPQ2d 1401, 1420 (Fed.Cir.1992) (“The statutory purpose of [an attorney fee] award is to reach cases where the interest of justice warrants fee-shifting.”); L.A. Gear, 988 F.2d at 1128, 25 USPQ2d at 1921 (trial judge weighs factors that may contribute to a fair allocation of litigation burdens in light of the totality of litigation circumstances). The district court awarded fees to the defendants to prevent a gross injustice, and the majority’s remand is unjustified — there is abundant evidence to support the findings of the district court regarding the actions of Molins and Smith individually that remain untouched by the majority’s reversals. As we have stated:

A remand, with its accompanying expenditure of additional judicial resources in a case thought to be completed, is a step not lightly taken and one that should be limited to cases in which further action must be taken by the district court in which the appellate court has no way open to it to affirm or reverse the district court’s action under review.

Consolidated Aluminum Corp. v. Foseco Int'l Ltd., 910 F.2d 804, 814, 15 USPQ2d 1481, 1488 (Fed.Cir.1990). Here, no further aetion should be required by the district court.

If the majority wishes to reheve Smith from liability individually, it could so hold without a remand.

PAULINE NEWMAN, Circuit Judge, concurring in the judgment, joining the court’s opinion except as to part A4.

I concur in the court’s judgment and join the court’s opinion except as to part A4. In view of the following concerns I do not join in the court’s reasoning in part A4 as to attorney Smith’s obligation to disclose to the PTO the confidential information of an unrelated client.

The majority appears to assume that Smith was required to disclose information concerning Lemelsoris pending application to the PTO, but for the fact that this subject matter was cumulative to prior art already before the examiner and that Smith did not really take the inconsistent positions asserted by Textron. I do not see that Smith had such an obligation. Indeed, his obligation to preserve the confidentiality of his client Le-melson was absolute. Smith had neither authority nor obligation to breach the confidentiality of that chent’s pending application, on behalf of a different client.

Section 2001.06(b) of the Manual of Patent Examining Procedure requires an applicant, and his or her attorney, to bring to the attention of the examiner information “as to other copending United States applications which are ‘material to patentability’ of the application in question.” The authority cited in M.P.E.P. § 2001.06(b), Armour & Co. v. Swift & Co., 466 F.2d 767, 779, 175 USPQ 70, 79 (7th Cir.1972), involved copending applications owned by the same corporation. However, § 2001.06(b) does not reach the confidential patent application that an entirely *1193unrelated client happened to entrust to the same lawyer. An attorney’s ethical obligations to each client are not erased when a possible conflict occurs in the PTO.1 That privilege is the client’s, not the lawyer’s. The PTO rules can not be interpreted to require otherwise.

I am concerned lest we appear to accept the possibility that Mr. Smith was required to disclose client Lemelson’s pending application to the PTO, on behalf of client Molins. Indeed, such behavior is contrary to the PTO code of professional responsibility. Canon 4: “A practitioner should preserve the confidences and secrets of a client.” 37 C.F.R. § 10.56. The disciplinary rules implementing Canon 4 require that

a practitioner shall not knowingly:

(1) Reveal a confidence or secret of a client.
(2) Use a confidence or secret of a client to the disadvantage of the client.
(3) Use a confidence or secret of a client for the advantage of the practitioner or of a third person, unless the client consents after full disclosure.

37 C.F.R. § 10.57(b). The American Bar Association Model Rules of Professional Conduct impose a similar duty:

Confidentiality of Information
(a) A lawyer shall not reveal information relating to the representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraph (b).2

A.B.A. Rule 1.6 (1983).

The facts as to Lemelson’s application appear to have been before the trial court. Considering this appeal on the basis on which it reaches us, I share this court’s conclusion that this subject matter was cumulative to the references of record and that inconsistent positions in prosecution were not taken. However, I stress that regulations in the M.P.E.P. can not override an attorney’s obligation to preserve the confidences of the client. Thus although I share the conclusion that there was no breach of Smith’s duty to the PTO, I reach that conclusion not because of the substantive differences between the Lemelson and Molins subject matter, but because Smith and Molins could not have been charged with improper behavior and the consequences thereof, simply because Smith respected Lemelson’s confidences.

. The Duty of Candor owed by applicants to the PTO during reexamination is set forth in 37 C.F.R. § 1.555.

. The Fifth Edition of the MPEP was promulgated in August of 1983. The first revisions to that edition did not occur until October of 1985.

. Section 301 recites, in pertinent part: "Any person at any time may cite to the Office in writing prior art consisting of patents or printed publications which that person believes to have a bearing on the patentability of any claim of a particular patent. If the person explains in writing the pertinency and manner of applying such prior art to at least one claim of the patent, the citation of such prior art and the explanation thereof will become a part of the official file of the patent." 35 U.S.C. § 301 (1988) [Emphasis added.]

. The differences in U.S. and foreign law does not affect materiality of the Wagenseil disclosures.

. The prior art list submitted by Hirsh and Smith identified two Wagenseil publications, listed as entry # 16 and entry # 19 under “Other Documents.” However, both time Molins provided a description of the cited art, they provided only a description of the entry #16 publication.

. Prior to making that statement, the Scripps court addressed and resolved the issue of inequitable conduct by concluding the withheld reference was cumulative. Thus, the court's discussion on whether or not the reference was withheld — -i.e., the court's discussion of how the manner in which a reference comes before an Examiner affects an inequitable conduct analysis — was not necessaty to the resolution of the issue and is, therefore, dicta. '

.Prior to our decision in Scripps, this court found inequitable conduct based on a failure to disclose art that eventually was independently discovered by the Examiner and made of record. A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 230 USPQ 849 (Fed.Cir.1986) (concluding non*1190disclosure of known prior art references to an Examiner who, after independently discovering the references, rejected previously allowed claims which were then allowed again after amendment, constituted inequitable conduct). Thus, prior to Scripps, this court concluded that a reference not disclosed to the Examiner but which is later discovered by the Examiner can be deemed to be withheld from the PTO, on facts similar in nature to those of the present case.

. Whether Smith had a conflict of interest and if so how he handled it is not an issue in this case. There is no warrant for the serious ethical charge and conviction levelled by the dissent.

. Paragraph (b) provides for unconsented revelation of information necessary to prevent the client from committing a criminal act likely to result in imminent death or substantial bodily harm, or to establish a claim or defense on behalf of the lawyer in an action arising out of the representation. It has no application here.