Cravens L. Wanlass, Energystics, Inc. And Wanlass International, Inc. v. General Electric Company

148 F.3d 1334

• Court: Court of Appeals for the Federal Circuit
• Decided: August 10, 1998
• Docket: 97-1425
• Status: Published

Opinions

Opinion for the court filed by Chief Judge MAYER. Dissenting opinion filed by Circuit Judge RADER.

MAYER, Chief Judge.

Cravens L. Wanlass, Energystics, Inc., and Wanlass International, Inc. (appellants) appeal the judgment of the United States District Court for the District of Utah, Case No. 2:95-CV-0320-S (consolidated with 2:95-CV-0909-S), which granted General Electric (“GE”) summary judgment on the grounds of laches and estoppel. Because the court-correctly determined that appellants impermis-sibly delayed filing suit against GE, we affirm.

Background

U.S. patent No. 4,063,135 issued on December 13, 1977, and covers a single-phase, alternating current, electric motor that uses a capacitor during the run operation (“single-phase, run capacitor motor”). Craven L. Wanlass is the patent’s named inventor and owner. He is also chairman of Energystics, Inc., the exclusive licensee in the United States, and Wanlass International, Inc., the exclusive'licensee abroad. In'1977, Wanlass offered GE a license, but GE declined and informed Wanlass by letter dated December 9,1977, that it did not think his invention was new. GE stated: “We continue to feel positive on the use of run capacitors in appropriate circumstances to raise motor efficiency. We have been doing that for some time and we are. for it. It is a good idea. Mr. Wan-lass is right in being for it also. What we do not have an answer for is why anyone would think that this is a new idea.” GE also published reports characterizing Wanlass’ motor design as neither new nor advantageous, which Wanlass claims caused other manufacturers to dismiss his idea.

Following these rejections, Wanlass focused his efforts on three-phase motors and neglected the claimed single-phase motor. Wanlass discussed the three-phase motor application with GE until 1979, at which time GE informed him that it was not interested in his invention. GE and Wanlass had no further relevant contact until 1995, when Wanlass sued GE for infringement. Meanwhile, GE openly made, sold, and marketed single-phase, run capacitor motors whose circuit configuration was the same as that of the allegedly infringing motors in GE’s 15 frame Carry Cool® ah’ conditioners. After some initial testing between 1977 and 1982, Wan-lass did not test a GE product until April 1992. Appellants rely on these later tests to support the claim of infringement. According to appellants, not all run capacitor motors infringe the patent. The only way to determine whether one does is to test it directly with electrical equipment and study the waveforms with an oscilloscope because the circuit diagram or electrical schematics of the motor alone do not provide adequate information. Testing products for infringement, however, is both easy and inexpensive. The products themselves cost approximately two hundred dollars, the tests require no special equipment, and they take less than two hours.

The court found that no genuine issue of material fact precluded its granting summary judgment for GE on the basis of laches. It concluded that appellants knew or should have known of GE’s potential infringement before March 1989 (six years before they filed suit — the “critical date”). Therefore, the court applied the presumption that this delay was unreasonable and prejudicial to GE. Challenging the propriety of the presumption, appellants argued that the court should measure the period of delay from Wanlass’ actual knowledge of GE’s alleged infringement because after his initial tests showed no infringement, he had no reason to test products again. The court ruled this excuse, as well as the others — poverty, disappointment over his lack of success, GE’s disparagement of his invention, and fear of bringing suit — did not justify the delay. Appellants also argued that GE suffered no economic or evidentiary prejudice. The court determined that GE suffered economic prejudice as a result of GE’s significant investments in its single-phase motors, and evidentiary prejudice as a result of unavailable or deceased witnesses and lost or destroyed documents and prototypes. The court also granted summary judgment for GE on the basis of equitable estoppel.

** This appeal followed.

Discussion

We review a district court’s decision to grant summary judgment de novo. See Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp., 60 F.3d 770, 773, 34 U.S.P.Q.2d 1822, 1824 (Fed.Cir.1995). If there is no genuine issue of material fact and the court correctly allocated the burden of proof and considered all pertinent factors, we will not overturn the court’s grant of summary judgment on the basis of laches unless it is unreasonable or based on an erroneous legal interpretation. See AC. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1039, 22 U.S.P.Q.2d 1321, 1333 (Fed.Cir.1992) (in banc).

To prove laches, a defendant must show that “the plaintiff delayed filing suit an unreasonable and inexcusable length of time after the plaintiff knew or reasonably should have known of its claim against the defendant; and ... the delay resulted in material prejudice or injury to the defendant.” Gasser Chair, 60 F.3d at 773, 34 U.S.P.Q.2d at 1824. To meet the latter prong, a defendant may establish either evidentiary or economic prejudice. See Aukerman, 960 F.2d at 1033, 22 U.S.P.Q.2d at 1328; Cornetta v. United States, 851 F.2d 1372, 1378 (Fed.Cir.1988) (in banc).

Evidentiary, or “defense” prejudice, may arise by reason of a defendant’s inability to present a full and fair defense on the merits due to the loss of records, the death of a witness, or the unreliability of memories of long past events, thereby undermining the court’s ability to judge the facts. Economic prejudice may arise where a defendant and possibly others will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit.

Aukerman, 960 F.2d at 1033, 22 U.S.P.Q.2d at 1328-29 (citations and paragraphing omitted); see also Cornetta, 851 F.2d at 1378. When raising the laches defense in the summary judgment context, the defendant also must establish that there was no genuine issue of material fact about the delay or the prejudice. See Gasser Chair, 60 F.3d at 773, 34 U.S.P.Q.2d at 1824.

A delay of more than six years raises a presumption that it is unreasonable, inexcusable, and prejudicial. See Aukerman, 960 F.2d at 1035-36, 22 U.S.P.Q.2d at 1331. This presumption shifts to the patentee the burden of producing evidence, which if believed, would show that either the patentee’s delay was reasonable or excusable under the circumstances or the defendant suffered neither economic nor evidentiary prejudice. Whenever the presumption arises, including in the summary judgment context, the patentee’s evidence must be sufficient to raise a genuine issue of material fact about either the excuse for or reasonableness of the delay, or the existence of the prejudice. See id. at 1037-38, 960 F.2d 1020, 22 U.S.P.Q.2d at 1332-33.

The period of delay begins at the time the patentee has actual or constructive knowledge of the defendant’s potentially infringing activities. See Eastman Kodak Co. v. Goodyear Tire & Rubber Co., 114 F.3d 1547, 1559, 42 U.S.P.Q.2d 1737, 1745 (Fed. Cir.1997) (“[D]elay begins when the plaintiff knew, or in the exercise of reasonable diligence should have known, of the defendant’s allegedly infringing activity.”); Aukerman, 960 F.2d at 1032, 22 U.S.P.Q.2d at 1328. The availability of delay based on constructive knowledge of the alleged infringer’s activities imposes on patentees the duty to police their rights. “[T]he law is well settled that where the question of laches is in issue the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known by him were such as to put upon a man of ordinary intelligence the duty of inquiry.” Johnston v. Standard Mining Co., 148 U.S. 360, 370, 13 S.Ct. 585, 37 L.Ed. 480 (1893). Although laches will not bar a patentee whose ignorance is justifiable, ignorance will not insulate him from constructive knowledge of infringement in appropriate circumstances. See Advanced Cardiovascular Sys., Inc. v. Scimed Life Sys., Inc., 988 F.2d 1157, 1162, 26 U.S.P.Q.2d 1038, 1042 (Fed.Cir.1993) (“Absent actual knowledge, the facts must support a duty of inquiry.”); see also Wetzel v. Minnesota Ry. Transfer Co., 169 U.S. 237, 241, 18 S.Ct. 307, 42 L.Ed. 730 (1898) (“The interests of public . order and tranquillity demand that parties shall acquaint themselves with their rights within a reasonable time, and, although this time may be extended by their actual ignorance, or want of means, it is by no means illimitable.”); Potash Co. of Am. v. International Minerals & Chem. Corp., 213 F.2d 153, 155, 101 U.S.P.Q. 264, 265 (10th Cir.1954) (In patent cases, like others, “[ljaches will not be imputed to one who has been justifiably ignorant of facts which create his right or cause of action. But ignorance will not of itself excuse delay. The party must be diligent and make such inquiry and investigation as the circumstances reasonably suggest, and the means of knowledge are generally equivalent to actual knowledge.”) (citations omitted).

These circumstances include “pervasive, open, and notorious activities” that a reasonable patentee would suspect were infringing. See Hall v. Aqua Queen Mfg., Inc., 93 F.3d 1548, 1553, 39 U.S.P.Q.2d 1925, 1928 (Fed.Cir.1996). For example, sales, marketing, publication, or public use of a product similar to or embodying technology similar to the patented invention, or published descriptions of the defendant’s potentially infringing activities, give rise to a duty to investigate whether there is infringement. See id. (constructive knowledge where defendant sold and marketed allegedly infringing products through print advertisements and trade shows); Pearson v. Central Ill. Light Co., 210 F.2d 352, 356, 100 U.S.P.Q. 285, 288 (7th Cir.1954) (constructive knowledge where defendant published a product brochure, which it distributed to the trade); A.R. Mosler & Co. v. Lurie, 209 F. 364, 371 (2d Cir.1913) (barring infringement suit “[wjhere owners have remained ... supine for many years, shutting their eyes to what was going on in the art to which the patent belonged”). See generally Jean F. Rydstrom, Annotation, Laches as defense in patent infringement suit, 35 A.L.R. Fed. 551, 577-79 (1977) (examining cases in which constructive knowledge was imputed to the patentee).

Furthermore, constructive knowledge of the infringement may be imputed to the patentee even where he has no actual knowledge of the sales, marketing, publication, public use, .or other conspicuous activities of potential infringement if these activities are sufficiently prevalent in the inventor’s field of endeavor. The patentee who is negligently or willfully oblivious to these types of activities cannot later claim his lack of knowledge as justification for escaping the application of laches because

the law imputes knowledge when opportunity and interest, combined with reasonable care, would necessarily impart it. Not to improve such opportunity, under the stimulus of self-interest, with reasonable diligence, constitutes laches which in equity disables the party who seeks to revive a right which he has allowed to lie . unclaimed from enforcing it, to the detriment of those who have, in consequence, been led to act as though it were abandoned.

Wollensak v. Reiher, 115 U.S. 96, 99, 5 S.Ct. 1137, 29 L.Ed. 350 (1885). The Supreme Court has consistently imputed to parties who failed to examine readily available information the knowledge contained in it and the results of inquiries that the knowledge would have motivated a reasonable man to conduct. See, e.g., Wetzel, 169 U.S. at 240-41, 18 S.Ct. 307 (finding a duty to inform oneself of ownership of land in light of readily apparent facts in the public records that suggested the transfer of the land to another was improper); Foster v. Mansfield, C. & L.M. R.R. Co., 146 U.S. 88, 99-100, 13 S.Ct. 28, 36 L.Ed. 899 (1892) (imputing knowledge of fraud where party, with reasonable diligence, could have learned of the facts suggesting fraud by questioning people readily available to him); Norris v. Haggin, 136 U.S. 386, 392, 10 S.Ct. 942, 34 L.Ed. 424 (1890) (imputing knowledge where “the facts out of which [the party] was bound to know th[e] fraud ... were open, were patent, and could not fail to be discovered by any sort of inquiry or investigation”); Burke v. Smith, 16 Wall. 390, 83 U.S. 390, 401, 21 L.Ed. 361 (1872) (imputing knowledge of fraud where records that suggested the fraud were open to inspection and party failed to review them). The Court of Customs and Patent Appeals also emphasized that “[s]elf-interest and the proper attention ... owed as a reasonable man in the management of such a valuable property right as a patent require[s] ... [patentees to] exercise ... [their] own careful judgment in” matters relating to their patents. In Re Dufault, 41 C.C.P.A. 971, 214 F.2d 181, 183, 102 U.S.P.Q. 253, 254 (1954) (referring to the duty to study and appraise the scope of an issued patent promptly); see also Wollensak, 115 U.S. at 99, 5 S.Ct. 1137 (imputing knowledge of insufficient claim scope where paten-tee failed to examine the issued patent).

Open and notorious potentially infringing conduct gives patentees the opportunity to recover damages based on their exclusive rights. Therefore, a reasonable patentee, motivated by his interest in recovering for and preventing infringement, keeps abreast of the activities of those in his field of endeavor. Allocating the burden to patentees to seek out infringers is proper, furthermore, because compared to potential infringers, they are in the best position to know the scope of their patent protection and, therefore, also to know likely places to find infringement. This superior knowledge generally allows them to incur comparatively lower costs in investigating potentially infringing activities than competitors would incur conducting patent searches on every aspect of their products and notifying the patentee of their results.

Viewing the evidence in the light most favorable to appellants, we agree that Wanlass and his licensees should have known of GE’s infringement before the critical date of March 1989.*** Although appellants allege that GE began infringing the patent in 1986, Wanlass did not test ah accused product until 1992. GE’s open and notorious sale of easily testable products gave him the opportunity to discover the alleged infringement earlier. Determining that GE was not infringing his patent in the late 1970’s did not absolve Wanlass of his duty to conduct future investigations.

Appellants argue that it would have been too burdensome to test GE’s products after Wanlass’ initial tests because eight or nine hundred GE products contain run capacitor motors and not all run capacitor motors infringe the patent. Further, because GE never informed Wanlass that it began using run capacitors pursuant to his patent’s teachings, he did not know which GE products to test. If Wanlass believed that only some uses of run capacitors infringed his patent, then the natúral course of action would have been to examine GE motors from time to time to determine whether they had begun to use run capacitors in an infringing way. The frequency with which these types of investigations should have occurred is a function of their cost and difficulty. Cf. Potash, 213 F.2d at 159-60, 101 U.S.P.Q. at 269 (applying laches where the inspection necessary to determine infringement “was a comparatively simple matter,” but the patentee delayed the inspection for six years and the suit an additional three years). It certainly is not reasonable, however, to conduct no investigation for over ten years, when testing products is as easy and inexpensive as it is here. Moreover, because Wanlass was able to find an allegedly infringing GE motor quickly once he actually tried, we doubt that identifying potentially infringing products- is as difficult as appellants argue.

Wanlass’ failure to investigate GE’s products is especially egregious in light of his past dealings with GE. After offering GE a license on the patent at issue, and being told that GE considered the patent invalid and intended to continue to use run capacitors “to raise motor efficiency,” Wanlass was on notice that GE was a potential infringer because his invention used run capacitors to improve motor efficiency. The facts in this case, therefore, overwhelmingly give rise to a duty to investigate GE’s possibly infringing activities, which Wanlass failed to discharge. If he had complied with this duty, he would have known of GE’s infringement in 1986 or 1987, and certainly before the critical date of 1989. Therefore, the presumption of laches applies.

Appellants argue that even if they should have known of the infringement, Wanlass’ prior dealings with GE justified the delay. They argue that GE’s hostility and the entire industry’s misunderstanding of the invention caused Wanlass to believe that neither GE nor anyone else would use his invention. Widespread misunderstanding of an invention serves only to heighten a reasonable patentee’s suspicion that competitors are infringing his patent, because their lack of understanding prevents them from taking steps to avoid infringement. Furthermore, GE’s clear intention tó employ run capacitors to improve motor efficiency renders Wanlass’ inference that GE would not infringe his patent unreasonable.

Appellants also fail to rebut the presumption of prejudice because they did not offer credible evidence that GE suffered no prejudice. Although appellants bore the burden of showing a lack of both evidentiary and economic prejudice, their brief speaks primarily of GE’s failure to offer proof. We do not reach the issue of whether appellants raised a genuine issue of material fact over whether GE suffered economic prejudice because GE undoubtedly suffered evidentiary prejudice as a direct result of the delay. Aside from the deceased and unavailable witnesses, and the fading memories of available witnesses, including Wanlass himself, GE no longer .has 10 frame Carry Cool® air conditioners, which were on the market from 1976 to 1984. GE claims these models operated exactly like the accused 15 frame Carry Cool® models and had the same circuit configuration and capacitors of similar size. Appellants, dispute this assertion and maintain that the circuit diagram alone cannot show infringement; only oscilloscope readings taken directly from an actual motor provide sufficient information. Appellants argue further that because GE’s destruction policy required their disposal before 1986, it would not have had a 10 frame model to test even if they had brought suit earlier. To the contrary, if Wanlass had notified GE of his claim when he should have known of the possible infringement by the 10 frame air conditioners, GE may not have discarded these models. Moreover, if Wanlass had fulfilled his duty to police his rights, he would, himself, have the evidence pertaining to the 10 frame models. Because he knew that the only way to determine whether a motor infringes is through actual testing, he was on notice that failure to test motors would likely result in evidentiary prejudice. Appellants have not rebutted the presumption of prejudice.

Conclusion

Accordingly, the judgment of United States District Court for the District of Utah is affirmed.

AFFIRMED.

Because we affirm summary judgment on the basis of laches, we do not reach equitable estop-pel.

Indeed, while we need not rely on it, the evidence shows that Wanlass had actual knowledge of GE’s infringement in 1987. Wanlass sent L.E. Potempa an undated letter explaining that after his contact with GE in the late 1970’s, GE "proceeded to use [his] patented technology in their single phase air conditioning compressor motors. Since these motors [were] for OEM applications only, [he] didn’t discover this until about 8 years later.” Notwithstanding appellants’ tortured interpretation of this letter as meaning that Wan-lass discovered the infringement in 1992 and deduced that it had begun in the 1980's, the only reasonable one is as an admission that he actually knew of the infringement in 1987 (eight years after 1979, when GE and Wanlass ceased negotiations). The only contrary evidence is Wanlass' own self-serving statements about this letter, which he admits not remembering. These statements do not raise a genuine issue of material fact concerning the otherwise blatant admission. See Sinskey v. Pharmacia Ophthalmics, Inc., 982 F.2d 494, 498, 25 U.S.P.Q.2d 1290, 1293 (Fed.Cir.1992) (“To allow [a party] to preclude summary judgment simply by contradicting his own prior statements would seriously impair the utility of Federal Rule of Civil Procedure 56.”).