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A defendant’s failure to participate in settlement talks after its inventor and expert witness disclosed adverse information in depositions wasn’t ground for sanctions, the U.S. Court of Appeals for the Federal Circuit has ruled. The court’s unanimous panel ruling on March 16 in Old Reliable Wholesale Inc. v. Cornell Corp. reversed Northern District of Ohio Judge David D. Dowd Jr.’s award for Cornell. In February 2010, Dowd awarded Cornell nearly $184,000 in attorney fees and $13,000 in costs. Notwithstanding the weakness of its litigation position, Old Reliable’s failure to talk settlement was not the type of litigation misconduct “worthy of sanctions” under the U.S. Patent Code, Senior Judge Haldane Robert Mayer wrote. “Because Old Reliable had an objectively reasonable basis for maintaining an infringement suit, the refusal to make or accept an offer of settlement is not, in and of itself, sufficient to establish litigation misconduct,” he said. Old Reliable sued roof maker Cornell in October 2006 on the ground that one of its products infringed Old Reliable’s patent for a type of composite insulated roof board structure. Cornell argued that Old Reliable’s patent was invalid because one of Cornell’s other products had anticipated the invention. Cornell also claimed that the patent had been anticipated or rendered obvious by “prior art” — published information about the claimed invention’s subject matter, including issued patents. In particular, Cornell cited insulated roofing panels made by another manufacturer, Branch River Foam Plastics Inc. Old Reliable rebutted both arguments, but during a September 2007 deposition, company founder Anthony Crookston Jr., who invented the disputed patent, declared that all three inventions at issue did “exactly the same thing.” Then, during a March 2008 deposition, Old Reliable expert James Rice acknowledged that had Branch River’s product been manufactured with cross-channels, it would have been the same as the invention claimed by Old Reliable. In March 2009, Dowd granted Cornell’s motion for summary judgment for patent invalidity. Dowd ruled that one of the Cornell products amounted to anticipatory prior art for Old Reliable’s invention, and that Branch River’s product also anticipated Old Reliable’s technology. Old Reliable appealed and the Federal Circuit upheld Dowd in December 2009. In weighing the attorneys’ fees sanction, Mayer considered that during the course of the litigation the U.S. Patent and Trademark Office upheld the validity of Old Reliable’s patent — only to reverse itself two weeks later. Mayer cited earlier Federal Circuit case law in ruling that Old Reliable’s litigation was not “objectively baseless” under the circumstances. “Because Old Reliable pointed to alleged structural differences between [the product Cornell claimed was prior art] and the commercial embodiment of [its own] patent, it was not required to concede that its patent was anticipated even following inventor testimony that the two products were functionally equivalent,” Mayer wrote. Old Reliable lawyer Shannon McCue, of counsel at Cleveland, Ohio-based Hahn Loeser & Parks, declined to comment. Cornell was disappointed at the Federal Circuit ruling but was gratified to have prevailed at summary judgment, said Matt Schaap, an associate at Apple Valley, Minn.-based Severson, Sheldon, Dougherty & Molenda, who argued for the company before the Federal Circuit. “That was the most important part of the case,” Schaap said. “Invalidating the patent was our client’s focus and goal.” Schaap said the Federal Circuit’s reliance on the PTO’s notice of its intent to issue the ex parte re-examination certificate was improper because the PTO later withdrew its erroneous notice. “It was a notice that issued by the patent office in error and was subsequently withdrawn,” Schaap said. “Our perspective was it shouldn’t have been relied on by the Federal Circuit in reaching the decision it reached.” Sheri Qualters can be contacted at [email protected].

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