Free Response in Opposition to Motion - District Court of Arizona - Arizona

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Charles F. Hauff, Jr. (AZ Bar No. 014465) Douglas W. Seitz (AZ Bar No. 004258) Daniel R. Pote (AZ Bar No. 018570) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 Attorneys for Eberle Design, Inc. and Electronic Devices, Inc. UNITED STATES DISTRICT COURT

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DISTRICT OF ARIZONA
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Eberle Design, Inc., and Electronic Devices, Inc., Plaintiff/Counterdefendants,

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CIV 02 2575 PHX DGC (Lead) CIV 03 883 PHX DGC (Consolidated) PLAINTIFFS' OPPOSITION TO RENO A & E'S MOTION FOR JUDGMENT AS A MATTER OF LAW PURSUANT TO RULE 50 ON VALIDITY AND ENFORCEABILITY

v.
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Reno A&E,
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Defendant/Counterplaintiff.
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Eberle Design, Inc. and Electronic Devices, Inc. (collectively, "Eberle") hereby file their opposition to the motion filed by Reno A & E ("Reno") seeking judgment as a matter of law pursuant to Rule 50(a) of the Federal Rules of Civil Procedure as to validity and enforceability with respect to U.S. Patent No. 6,087,964 (the " '964 patent"). I. INTRODUCTION Reno's Motion for Judgment as a Matter of Law ("Reno's Motion") argues that Eberle has not introduced sufficient evidence such that a jury could find that: (1) the 964 patent is unenforceable due to inequitable conduct, (2) the '964 patent is rendered obvious by any combination of references, (3) the '964 patent is anticipated by the G-90 or Traficomp, or (4) the '964 patent is subject to the on-sale bar. Reno's first argument fails because, as in most cases of inequitable conduct, the requisite intent to deceive may be found by inferring intent via circumstantial evidence, and the threshold level of intent is very low in light of the materiality of the information

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that Mr. Potter did not disclose to the patent office. As a result, given the evidence presented by Eberle, a reasonable jury could find that the '964 patent is unenforceable due to inequitable conduct, based only on circumstantial evidence and an inference of intent. The second argument fails because, viewed in the light most favorable to Eberle, the evidence would allow a reasonable jury to make an assessment as to whether combination of references is appropriate and whether a person skilled in the art would find that such a combination rendered the claims of the '964 patent obvious. The third argument fails because it is based on a false premise (i.e., that a reference must anticipate all claims of a patent in order to anticipate any claim of that patent), and ignores the fact that Eberle has never argued that either of these references anticipate all claims of the '964 patent. The final argument fails because a vast array of testimonial and documentary evidence has been presented on Mr. Potter's early offer-for-sale of the Model C device. This evidence is more than enough for a reasonable jury to find clear and convincing evidence that the patent is invalid based on the on-sale bar.

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II.

A REASONABLE JURY COULD FIND THAT THE '964 PATENT IS UNENFORCEABLE DUE TO INEQUITABLE CONDUCT Inequitable conduct is a two step process wherein the jury first makes a

determination as to whether the withheld reference meets a threshold level of materiality
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and intent to mislead, and then performs a weighing of the materiality and intent in light
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of all the circumstances to determine whether the applicant's conduct is so culpable that
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the patent should be held unenforceable. Dayco Prods., Inc. v. Total Containment, Inc.,
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329 F.3d 1358, 1362 (Fed. Cir. 2003). Reno asserts in its Motion that Eberle has failed to
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come forward with sufficient evidence to carry its burden of proof with respect to this two
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step process for establishing inequitable conduct.
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The evidence introduced at trial,

however, demonstrates that Eberle has introduced more than sufficient evidence to support a jury verdict in its favor on the issue of inequitable conduct.
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Reno suggests in its Motion that Mr. Potter's inventor's oath and denials of any intent to mislead the Patent Office at trial necessarily bar a jury from finding that Reno had any intent to deceive the patent office with respect to prior art. As set forth below, this suggestion is erroneous as a matter of law. Numerous courts, including the Federal Circuit, have specifically rejected such claims, and have held that a jury may reject an inventor's denials of an intent to deceive the Patent Office and make a finding of inequitable conduct based upon circumstantial evidence. Here, Eberle has presented the jury with sufficient evidence for it to reasonably conclude that the Mr. Potter intended to deceive the Patent Office, despite his protestations to the contrary. A party moving to invalidate a patent on the grounds of inequitable conduct can establish the element of an intent to deceive the Patent Office through circumstantial evidence, even when the inventor has expressly denied any intent to deceive the Patent Office. For example, in Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256-57, 1260 (Fed. Cir. 1997), the Federal Circuit reversed a district court's ruling finding that a patent was enforceable, because the Federal Circuit concluded that the alleged infringer had come forward with enough circumstantial evidence to demonstrate that the patentee and his attorney had sufficient knowledge of the omitted material information to overcome the inventor's denials of an intent to deceive the Patent Office. In discussing the evidentiary burden concerning the inventor's intent, the Critikon court stated: Direct evidence of intent or proof of deliberate scheming is rarely available in instances of inequitable conduct, but intent may be inferred from the surrounding circumstances. For example intent may be inferred where a patent applicant knew, or should have known, that withheld information would be material to the PTO's consideration of the patent application. . . . No single factor or combination of factors can be said always to require an inference of intent to mislead; yet a patentee facing a high level of materiality and clear proof that it knew or should have known of that materiality can expect to find it difficult to establish "good faith" sufficient to prevent the drawing of an intent to mislead. A mere denial of intent to mislead (which would defeat every effort to establish inequitable conduct) will not suffice in such circumstances. 120 F.3d at 1256-57 (internal citations omitted); see also Isco Int'l, Inc. v. Conductus, Inc.,
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279 F. Supp. 2d 489, 502 (D. Del. 2003) ("Intent need not be proven by direct evidence; it is most often proven by a showing of acts, the natural consequences of which are presumably intended by the actor. Generally, intent must be inferred from the facts and circumstances surrounding the applicant's conduct.") (quoting Molins PLC v. Textron, Inc., 48 F.2d 1172, 1180 (Fed. Cir. 1995).) Similarly, in Isco Int'l, 279 F. Supp. 2d at 502, a patentee denied having knowledge of an omitted material report or an intent to deceive the PTO with respect to the omitted report. The court affirmed the jury's finding that the patentee had intended to deceive the PTO was reasonable and supported by the evidence, because the alleged infringer had presented a factual framework from which an intent to deceive could be inferred, and the jury was "quintessentially entitled" to reject the patentee's testimony to the contrary as incredible. Id. at 502-503; see also Baxter Int'l, Inc. v. McGaw, Inc. , 149 F.3d 1321, 1330 (Fed. Cir. 1998) (affirming the district court's finding of inequitable conduct because the undisclosed material device was relevant, the inventors had knowledge of it, and the court was free to reject the inventors' self-serving statements that were inconsistent with the circumstantial evidence); Unitherm Food Services, Inc. v. SwiftEckrich, Inc., 375 F.3d 1341, 1360 (Fed. Cir. 2004). Finally, intent is evaluated on a sliding scale depending on the level of materiality of the non-disclosure. The more material the omission, the less evidence of intent will be required in order to find that inequitable conduct has occurred. Baxter Int'l Inc. v. McGaw, Inc., 149 F.3d 1321, 1329 (Fed. Cir. 1998). Further, the Federal Circuit noted in Critikon that "It is axiomatic that `close cases should be resolved by disclosure, not unilaterally by applicant.'" 120 F.3d at 1257, quoting Labounty Mfg., Inc. v. United Staes Int'l Trade Comm'n, 958 F.2d 1066, 1076 (Fed. Cir. 1992). Eberle has come forward with sufficient evidence from a jury could reasonably conclude that Mr. Potter had an intent to deceive the PTO, despite his self-serving testimony to the contrary. The jury heard testimony about Reno's offer for sale of the patented product prior
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to the critical date that was not disclosed to the patent office. In this regard, evidence of a knowing failure to disclose sales that "bear all the earmarks of commercialization" may support an inference of intent to mislead. Paragon Podiatry Laboratory, Inc. v. KLM Laboratories, Inc., 984 F.2d 1182, 1193 (Fed. Cir. 1993). Furthermore, "[t]he

concealment of sales information can be particularly egregious because, unlike the applicant's failure to disclose, for example, a material patent reference, the examiner has no way of securing the information on his own." Paragon, 984 F.2d at 1193 (emphasis added). Testimony evidence by Mr. Potter indicates that he substituted his own judgment for that of the patent office. The jury also heard testimony regarding Mr. Potter's knowledge of the G-90 device, a vehicle detector that itself includes a display, and which is used in parking gate applications such as that mentioned in the background of Mr. Potter's own '964 patent. Mr. Potter did not disclose the G-90 device to the patent office. As this G-90 vehicle detector "itself" has a display, it is far more material than the display-less Canoga device that Reno cites as the most material piece of prior art. The evidence shows that Mr. Potter's own patent (the " '108 patent"), which includes a variable display, displays a parameter value, and provides diagnostic capabilities. And while Mr. Potter has testified that the Model C's diagnostic capabilities are a key feature, he chose not to disclose his prior diagnostic device to the Patent Office. The jury heard testimony regarding the startling similarity of the declarations filed with the patent office to overcome the patent examiner's finding of obviousness. The evidence showed that Mr. Potter and his patent attorney essentially drafted and blockcopied a document to produce a ready-made declaration. The jury also heard testimony from co-inventors Mr. Seabury and Mr. Allen about the '964 patent drafting process, a process that took place, secretively, in a conference room, with little input from one inventor, and none from the other. The evidence shows that Mr. Potter's declaration made in support of his argument of non-obviousness in front of the Patent Office is inconsistent with his knowledge of the
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prior art. For example, his declaration states that "[t]he only element in all such vehicle detectors which might be termed a "display element" was one or more LEDs (light emitting diodes) mounted on the front panel." Ex. 21-180. However, he has testified that he knew about the G-90 vehicle detector, which includes an LCD display, as well as his '108 patent, which includes a LED display capable of displaying frequency values. Given the high level of materiality of the prior art not disclosed to the Patent Office -- particularly the prior offer for sale and Mr. Potter's knowledge of the G-90 device -- the threshold of evidence necessary to find an intent to deceive is very low. Eberle has presented evidence that easily passes this threshold and would allow a reasonable jury to infer, via circumstantial evidence, that Mr. Potter clearly and convincingly had an intent to deceive the Patent Office.

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III.

A REASONABLE JURY COULD FIND THAT CLAIMS OF THE '964 PATENT ARE OBVIOUS IN LIGHT OF THE CITED PRIOR ART While the ultimate question of patent validity is one of law, obviousness is rooted

in several basic factual inquiries, including, inter alia, the scope and content of the prior
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art, the differences between the prior art and the claims at issue, and the level of ordinary
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skill in the art. Graham et al. v. John Deere Co. of Kansas City et al., 383 U.S. 1 (1966).
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To establish obviousness based on multiple references, the elements must be found
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in specific references, and there must be some motivation, suggestion or teaching to the
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desirability of making the specific combination. In re Rouffet, 149 F.3d 1350, 1370 (Fed.
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Cir. 1998).
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Reno argues that Eberle has not identified "any specific teaching or suggestion to
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combine" the references. Reno's Motion at 6. As has been observed, however, "[t]he
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extent to which such suggestion must be explicit in, or may be fairly inferred from, the
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references, is decided on the facts of each case, in light of the prior art and its relationship
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to the applicant's invention." In re Gorman, 933 F.2d 982, 986 (Fed. Cir. 1991). This
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suggestion may appear in the content of the public prior art, in the nature of the problem
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addressed by the invention, or in the knowledge of one of ordinary skill in the art. Princeton Biochemicals, Inc. v. Beckman Coulter, Inc., 411 F.3d 1332, 1338 (Fed. Cir. 2005). The suggestion to modify the art to produce the claimed invention need not be expressly stated in one or all the references used to show obviousness. In re Napier, 55 F.3d 610, 613 (Fed. Cir. 1995) (citing Cable Elec. Prods., Inc. v. Genmark, Inc., 770 F.2d 1015, 1025 (Fed. Cir. 1985)). Rather, the test is whether the combined teachings of the prior art, taken as a whole, would have rendered the invention obvious to one of ordinary skill in the art. Id. (citing In re Gorman, 933 F.2d at 986). In this regard, the jury will have at its disposal a significant number of documents relating to the prior art, including the G-90 manual, the patent-in-suit, the Traficomp manual, the ILT report, the '954 patent, and Potter's '108 (loop tester) patent. These documents, particularly the patent documents, discuss the technical field and the types of problems being solved. Features of the technology are discussed in the context of what has come before and the state of the art. Reading these materials, the jury will be wellequipped to determine, through inference or otherwise, whether these references contain a motivation or suggestion to combine. Determination of whether a new combination of known elements would have been obvious to one of ordinary skill depends on various factors, including whether the elements exist in "analogous art," that is, art that is reasonably pertinent to the problem with which the inventor is concerned. In re Gorman, 933 F.2d at 986. When the references are all in the same or analogous fields, knowledge thereof by the hypothetical person of ordinary skill is presumed. Id. In the instant case, the evidence shows that parking gate controllers, traffic counters, intersection vehicle detectors, loop diagnostic devices, and other traffic control components, are more than merely analogous art, they are the same art. The '964 patent explicitly states as much in the Background section when it notes that:

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Call signals are used in a wide variety of applications, including vehicle counting along a roadway or through a parking entrance or exit, vehicle speed between preselected points along a roadway, vehicle presence at an intersection controlled light system, or in a parking stall, and numerous other applications. '964 patent, Ex. 1, column lines 62-67. Furthermore, Mr. Potter's testimony as to the value of having diagnostic (or loop

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testing) capabilities built into his Model C clearly shows that both loop testers and vehicle
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detectors were concerned with the same problem -- i.e., how to make it easy to set up and
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maintain a vehicle detector.
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The evidence shows that the '964 patent is a combination of well-known vehicle
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detection technology with well-known diagnostic and display capabilities. As it relates to
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the vehicle detection technology, there was nothing new described or claimed in the '964
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patent. All of the modes of operation (function states), parameters, and parameter values
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were well-known. Mr. Potter did not invent anything new.
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The evidence also shows that all of the display technologies were well-known and
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available. Diagnostic tools existed at the time the application was filed that were capable
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of displaying all of the well-known vehicle detection technology. As the Examiner
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pointed out in connection with the prosecution of the '964 patent:
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pertinent to the apparatus of Fedde, therefore it would have been obvious to an artisan of ordinary skill at the time of the invention to provide the claimed display means . . . in order to display the specific plurality information to facilitate the operator in a convenient way. Ex. 21-158. Furthermore, utilizing the display means to display the specific information is merely a matter of design choice and an obvious modification . . . Ex. 21-156. With up to date technology to accommodate the claimed display device in the
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vehicle detector instead of making it a separate unit is doable. Whether or not it is done is merely a matter of design choice based on the cost and marketing reasons of such vehicle detector. Ex. 21-159.

These positions of the Examiner were never specifically challenged by Reno. It
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reflects the level of skill in the art and what would have been obvious to one of skill in the
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art.
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With respect to the broadest claims of the '964 patent, while those claims are
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obvious, inasmuch as the invention set forth therein was an obvious combination of well10

known teachings, the broadest claims, namely claims 1 and 31, are in fact anticipated.
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Anticipation requires no suggestion to combine, as there is nothing to combine. The G-90
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and Traficomp products, and associated manuals, all prior art, meet each and every
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limitation of those claims (and others).
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As has been observed, "anticipation is the epitome of obviousness." Johns Hopkins
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Univ. v. Cellpro, Inc., 152 F.3d 1342, 1357 (Fed. Cir. 1998). That is, when these well16

known technologies are in fact combined, as they were in these prior art devices, we need
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not look for any suggestion to combine the technologies, because they were already
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combined. The suggestion -- which is not needed for anticipation -- for the obviousness
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position comes from the fact that it had been done.
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Various dependent claims are likewise anticipated, as described in section IV
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below, because the G-90 and Traficomp also meet each and every limitation of those
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claims. With respect to the remaining claims that relate simply to the display of well23

known traffic intersection control modes of operation, parameter, parameter values and/or
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ways of displaying the same (e.g., through use of a bar-graph), the differences are so small
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that it would have been, as the Examiner suggested during prosecution, merely a matter of
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design choice -- an obvious modification. The technology existed to display any of those
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parameters, and the selection of what to display was not itself inventive. In fact, as Mr.
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Foderberg testified, adding the function states not specifically disclosed was a "minor change in the software." Reno has also argued that Eberle has not presented evidence as to the definition of a person of ordinary skill in the art. In this regard, the level of skill in the art is a factual determination. Al Site Corp. v. VSI Intl., Inc., 174 F.3d 1308 (Fed. Cir. 1999)(citing Graham, 383 U.S. at 17). Factors that may be considered in determining the level of ordinary skill in the art include: (1) the educational level of the inventor; (2) type of problems encountered in the art; (3) prior art solutions to those problems; (4) rapidity with which innovations are made; (5) sophistication of the technology; and (6) educational level of active works in the field. With respect to the these factors, the jury has heard testimony from Dennis Foderberg, Bill Russell, and Tom Potter as to their educational levels, the sorts of challenges that the person of ordinary skill in the art would confront on a day-to-day basis, prior art solutions to these problems, as well as the sorts of tools that that person would bring to bear on those problems. The jury has heard testimony about how the technology for LCD displays, dip switches, controllers, and conflict monitors have evolved over time, and they are by this able to assess the sophistication of the technology, having seen the expert testimony. Thus, the jury has been educated as to the issues related to setting up loops, tuning the loops so that they can correctly detect vehicles of different sizes, fitting components in an intersection control box, adjusting frequency, diagnosing problems with the loops, placement of loops at an intersection, what to do when equipment malfunctions at an intersection, how to count the number of cars going by on the highway, how to vend tickets in parking structures, and other such issues. As a result, the jury will be well acquainted with what a person of ordinary skill in the art would consider obvious. Furthermore, it is noted that the Federal Circuit will not necessary reverse or vacate a district court's ruling solely due to its failure to make a specific, or correct, finding on level of skill. Custom Accessories, Inc. v. Jeffrey-Allan Industries, Inc., 807 F.2d 955, 963 (Fed. Cir. 1986).
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Accordingly, viewed in the light most favorable to Eberle, the evidence is such that a reasonable jury could find particular combinations of references that render the patent obvious, could find a suggestion to combine those references, and could identify a person of ordinary skill in the art. IV. A REASONABLE JURY COULD FIND THAT CERTAIN CLAIMS OF THE '964 PATENT ARE ANTICIPATED BY THE G-90 AND/OR TRAFICOMP With respect to anticipation, Reno appears to argue that, because Eberle never argued that all claims are anticipated by these references, then it follows that none of the claims can be anticipated by these references. In order to untangle this false syllogism, one need only look at the last sentences of Sections V and VI of Reno's Motion. There, respectively, we see statements that "the G-90 does not anticipate the '964 patent" and "the Traficomp does not anticipate the '964 patent." Neither of these statements is coherent: a reference is said to anticipate individual claims of a patent, not the patent itself. Furthermore, Eberle has never argued that all claims of the '964 patent are anticipated by the G-90, or that all claims are anticipated by the Traficomp. The pretrial order makes that clear. Some claims are anticipated, and others are obvious in light of the prior art. Issue #2 presents the question of whether G-90 anticipates claims 1-5, 31-33, and 36. Issue #3 presents the question of whether the Traficomp anticipates claims 1-4, 610, 31-33, and 37-41. In sections V and VI, Reno also argues that "Mr. Foderberg only testified as to the dependent limitations." If by "dependent limitations" Reno means "dependent claims," then Eberle cannot agree, because Foderberg clearly testified as to independent claims 1, 14, and 31. Finally, Reno argues that the G-90 is not a vehicle detector, even though their own expert has testified that it detects vehicles. It is clear from the testimony that Reno has attempted to get around this problem in two ways: (1) by surreptitiously adding limitations to the claims by referring to a "stand-alone" vehicle detector or "traffic intersection" vehicle detector, phrases that are nowhere in the claims of the patent, and (2)
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by arguing that the G-90 vehicle detector is somehow not a vehicle detector because it "does more" than a traffic intersection vehicle detector. Notwithstanding the above, the evidence has clearly shown, and the jury could reasonably find, that the G-90 device is a vehicle detector with a display and function switches and which includes all the remaining elements of the claims cited in Issues #2 and #3 of the pretrial order. In accordance with the above, Reno's argument with respect to anticipation should be dismissed outright.

V.

A REASONABLE JURY COULD FIND THAT THE '964 PATENT IS INVALID BASED ON THE ON-SALE BAR There can be no doubt that Eberle has presented clear and convincing evidence that

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the Model C was the subject of a definite offer for sale prior to the critical date of April
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24, 1996, and that the invention of the '964 patent was ready for patenting.
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Eberle has shown a compelling series of faxes and letters between Mr. Lamoureux
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of Electromega and Mr. Potter of Reno A&E that clearly indicate, on their face, that Mr.
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Lamoureux made a serious offer to buy product from Mr. Potter prior to the critical date,
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and that Mr. Potter made a serious offer to sell his LCD detector in return. The language
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of this correspondence, including, for example, Mr. Potter's statements about what he
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could promise, and when, indicates that Mr. Potter had an intent to be bound by his offer.
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Furthermore -- and while not even necessary for the purposes of finding an offer
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for sale -- Eberle has shown that Model C detectors were indeed ultimately shipped in
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response to the original purchase orders received from Electromega.
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Reno's characterization of the evidence in their Motion does not seem to track the
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testimony and evidence presented during the first four days of trial. In their Motion, for
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example, Reno argues that there was no commercial offer because the purchase orders
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quoted no price, but Mr. Potter testified that he had a course of conduct where he shipped
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against to-be-announced ("TBA") prices.
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Reno says that the purchase orders quoted no quantity, but the quantity of 200 detectors is clearly spelled out in the documents. Reno argues that Reno quoted no delivery date, but the February 21, 1996 letter in evidence shows that Mr. Potter promised delivery of "production quantities" in the mid-July timeframe. Reno argues that it did not have a product, and that the device was not ready for patenting, but the correspondence shows that Potter knew exactly what he was selling: an LCD detector for which drawings had been released and for which detailed specifications had been written. The testimony of co-inventors Mr. Seabury and Mr. Allen further supports Eberle's contention that the Model C was ready for patenting. Accordingly, there is sufficient evidence for a reasonable jury to find the '964 patent invalid based on the on-sale bar.

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VI.

CONCLUSION For any and all of the foregoing reasons, Eberle respectfully requests that the Court

deny Reno's Motion for Judgment as a Matter of Law Pursuant to Rule 50 on Validity and Enforceability. RESPECTFULLY SUBMITTED this 2d day of September, 2005. SNELL & WILMER L.L.P.

By

s/Daniel R. Pote. Charles F. Hauff, Jr. Douglas W. Seitz Daniel R. Pote Attorneys for Plaintiff, Eberle Design, Inc.

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CERTIFICATE OF SERVICE Pursuant to Fed. R. Civ. P. 5(b), I certify that I am an employee of the law offices of Snell & Wilmer, and that on this date I deposited for mailing and/or hand delivery, with first-class postage thereupon prepaid, a true and correct copy of the foregoing Opposition, addressed as follows: The Honorable David G. Campbell (Hand-Delivered) United States District Judge District of Arizona Sandra Day O'Connor U.S. Courthouse, Suite 623 401 W. Washington Street SPC 58 Phoenix, Arizona 85003-2156 Michael D. Rounds, Esq. WATSON & ROUNDS 5371 Kietzke Lane Reno, Nevada 89511 Henry C. Bunsow HOWREY, SIMON, ARNOLD & WHITE 525 Market Street Suite 3600 San Francisco, CA 94105 George C. Chen (Hand-Delivered) BRYAN CAVE Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406

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Dated: September 2, 2005 s/Deborah Giancaterin An Employee of Snell & Wilmer L.L.P.

1719867.4

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