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A verdict that a patent was anticipated by a single prior art patent was reversed by the U.S. Court of Appeals for the Federal Circuit May 18 because the trial judge instructed the jury to determine what material had been incorporated by reference into the prior art patent and because anticipation hinged on what was incorporated ( Advanced Display Systems Inc. v. Kent State University, Fed. Cir., Nos. 99-1012 and 99-1013, 5/18/00). LCDs Since 1965, scientists at Kent State University’s Liquid Crystal Institute have been researching liquid crystal displays. Traditionally, LCDs were formed by combining liquid crystal materials and various polymers. These methods, however, were expensive and complex. In early 1992, Kent State started developing polymer-free LCDs that used cholestric visible materials. Cholestric visible materials, also referred to as chiral nematic materials, have the ability to align parallel to an applied field created by an electrical driver and to reflect light when so aligned. The invention led to U.S. Patent No. 5,453,863. COVER-UP Around the same time, Dr. Bao Gang Wu, a former student at Kent State’s Liquid Crystal Institute, formed Advanced Display Systems Inc. ADS, however, was unable to replicate Kent State’s LCD. Finally, in 1994 Dr. Zvi Yaniv, the president of a licensee of the ’863 patent, visited ADS. He brought with him a prototype of the new Kent State LCD. While Yaniv was at lunch with Wu, the vice president of ADS, Jiamini Gao, ordered a group of ADS engineers, including Victor Zhou, to quickly disassemble the prototype and photograph it. Within a month, ADS replicated Kent State’s LCD. Shortly thereafter, ADS filed a patent application which, after being narrowed to get around the ’863 patent, matured into U.S. Patent No. 5,625,477. After Kent State’s patent issued, ADS filed a declaratory action in the U.S. District Court for the Northern District of Texas. Kent State then filed suit against ADS for patent infringement, and the cases were consolidated into the instant case. At about the same time, ADS filed suit in Texas state court against another company for trade secret misappropriation. During discovery in that suit, Zhou’s deposition was taken and he testified forthrightly about the events surrounding Yaniv’s lunch and ADS’s attempt to replicate Kent State’s invention. ADS’s attorney, of the firm McKool Smith P.C., attempted to terminate the deposition and telephoned the judge to request a protective order, which the judge denied. The attorney then instructed the court reporter not to prepare a transcript of the deposition, and ADS quickly abandoned the suit. During discovery in the instant case, Kent State requested “all documents that refer to or relate to any evaluation, analysis, examination, testing, performance, or investigation of any light-modulating reflective device comprising [cholestric material] or any compound thereof made by KDS, the [Kent State Liquid Crystal Institute], or any third party.” ADS and its attorneys (again of McKool Smith P.C.) nevertheless failed to disclose Zhou’s deposition. They also failed to produce the photograph of Kent State’s prototype on the ground that it was attorney work product because, ADS later argued, it was a copy of the original photograph that was made by an attorney. DEPOSITION UNCOVERED In the middle of the trial, Kent State was apprised, through its own efforts, of the Zhou deposition and the photograph. Before having a chance to view the deposition, however, it called Zhou to the stand to testify about how ADS disassembled Kent’s prototype. The jury nevertheless held that Kent State’s patent was not infringed. It also held, after a long deadlock on the issue, that the patent was invalid as anticipated and obvious in light of the “Haas patent” in conjunction with documents incorporated therein by reference. Though Kent State objected, the magistrate judge provided the jury with only a general definition of “incorporation by reference” and did not tell the jury what had been incorporated. At no time did Kent State move for judgment as a matter of law. However, after obtaining the deposition transcript, it moved for a new trial based on the newly discovered evidence and ADS’s withholding of evidence. It also moved for sanctions against ADS’s attorneys, in the form of a new trial. The magistrate judge who presided over the trial denied Kent State’s motion for new trial. The magistrate judge found that Zhou’s deposition was merely cumulative to his testimony at trial and that Kent State was not prejudiced by the late discovery of evidence regarding disassembly of the prototype because Kent State was able to present that evidence to the jury. The magistrate judge also denied sanctions, but remarked that he was “deeply concerned” with the conduct of ADS’s attorneys and might consider disciplinary action. Kent State appealed. ANTICIPATION Kent State’s failure to move for a JMOL precluded the Federal Circuit from disturbing the jury’s factual findings, said Judge Arthur Gajarsa, writing for the court. Kent State, however, contended that the magistrate judge committed legal error by instructing the jury to determine what was incorporated by reference into the Haas patent. Anticipation, the court explained, requires that a single reference contain every element of the claimed invention. But material not explicitly contained in a single reference may still be considered for purposes of anticipation if it is incorporated by reference. To incorporate by reference, the host document must identify with detailed particularity what specific material it incorporates and clearly indicate where that material is found in the referenced document. Although anticipation is a question of fact, the court continued, incorporation by reference is a question of law. The factfinder’s role is to determine whether a single reference describes the claimed invention. If incorporation comes into play, the court’s role is to determine, with reference to the ordinary person of skill in the art standard, what material in addition to the host document constitutes the single reference. Here, the court said, the magistrate judge charged the jury with the task of determining what material was incorporated by reference. That error was prejudicial because ADS never contended that what was explicitly present in the Haas patent would alone anticipate Kent State’s patent. Anticipation hinged on the combination of the Haas patent and the material allegedly incorporated therein. The court thus remanded for a new trial on anticipation. OBVIOUSNESS Kent State also moved for a new trial on the basis of newly discovered evidence, namely, the Zhou deposition. Whether newly discovered evidence warrants a new trial, the Federal Circuit said, entails the following three-pronged analysis: (1) the probability that the evidence would have changed the outcome of the trial; (2) whether the evidence could have been discovered earlier through the moving party’s due diligence; and (3) whether the evidence is merely cumulative or impeaching. As for changing the outcome, the court said, this newly discovered evidence must be evaluated with reference to obviousness jurisprudence, i.e., the Graham factors and objective considerations. In that regard, Zhou’s deposition furnishes persuasive evidence that Kent State’s patent is nonobvious by describing ADS’s repeated failures to design the claimed invention until it obtained photographs of the prototype. Furthermore, Zhou stated that, even after obtaining the photographs, ADS was unable to design around Kent State’s invention. Failed attempts by others and wholesale copying of the invention by others are relevant to obviousness, the court held. This is especially true here where the jury was in equipoise on the issue of obviousness�this evidence could have been the tipping factor. The court went on to hold that Zhou’s deposition could not have been discovered earlier. (ADS failed to list Zhou as a person having knowledge.) It also held that the evidence was not merely cumulative or impeaching. Thus, it remanded for a new trial on obviousness. INFRINGEMENT Zhou’s deposition was also potentially outcome-determinative on the issue of infringement, the court held. Zhou, who possessed an intimate understanding of the similarities between ADS’s device and the claimed invention, stated in several different ways that the ADS device was based on Kent State’s. “Although not itself evidence of infringement, Zhou’s deposition is compelling evidence relating to infringement,” the court said. At the least, the evidence of copying supports infringement under the doctrine of equivalents. Furthermore, the court said, if Kent State possessed the Zhou deposition before trial, it “could have developed a different theory of the case and presented a more persuasive story at trial.” The court remanded for a new trial on infringement. SANCTIONS Kent State also appealed the magistrate judge’s denial of sanctions against ADS. The Federal Circuit reversed the denial and lambasted ADS and its attorneys:
From the record below, it appears to this court that ADS’s development of its LCD technology consisted of deceitful and conniving machinations that amounted to nothing short of corporate espionage of a competitor’s valuable technology. Regretfully, the conduct of ADS’s counsel in defending such actions was equally egregious. Indeed, to say that counsel’s conduct during discovery raises the collective eyebrow of this court would be to understate the severity of their transgressions.

In what may have been its most egregious discovery ploy, the court said, ADS’s counsel characterized the photograph of Kent State’s prototype as attorney work product, even though the photograph was taken by an ADS employee years before this litigation. When asked to justify listing the photograph on the privilege log, the court continued, ADS’s counsel responded that the original photograph was photocopied by an attorney. “This court, however, is unable to find any legal principle that even remotely supports the notion that an otherwise discoverable document alchemically metamorphisizes into privileged work product simply because an attorney photocopies it.” The court encouraged the magistrate judge to follow through on his concern about ADS’s counsel’s conduct and consider imposing sanctions beyond granting a new trial.

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