Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`KeyCite Yellow Flag - Negative Treatment
` Declined to Follow by Schinzing v. Mid-States Stainless, Inc., 8th Cir.
`(Minn.), July 15, 2005
`
`
`
`112 F.3d 1561
`United States Court of Appeals,
`Federal Circuit.
`
`STUDIENGESELLSCHAFT KOHLE,
`M.B.H., Plaintiff–Appellant,
`v.
`SHELL OIL COMPANY,
`Defendant/Cross–Appellant.
`
`No. 96–1079.
`|
`May 5, 1997.
`|
`Rehearing Denied; Suggestion for
`Rehearing In Banc Declined June 27, 1997.
`
`Patentee brought action against licensee for unpaid
`royalties and infringement of patent for polymerization
`of members of ethylene series. The United States District
`Court for the Southern District of Texas, Vanessa D.
`Gilmore, J., found certain claims of patent to be invalid
`and ruled that patentee could recover damages for breach
`of license agreement. Parties appealed. The Court of
`Appeals, Rader, Circuit Judge, held that: (1) disclosures
`of two earlier filed applications could not be combined to
`acquire earlier filing date for patent, and thus patent had
`been anticipated by foreign patent; (2) patentee properly
`presented issue of infringement of certain claims; and (3)
`licensee was required to pay royalties incurred prior to
`date that licensee challenged validity of patent.
`
`Affirmed in part, reversed in part, and remanded.
`
`Attorneys and Law Firms
`
`*1562 Nathanial D. Kramer, Sprung Horn Kramer &
`Woods, Tarrytown, NY, argued, for plaintiff-appellant.
`With him on the brief was Arnold Sprung.
`
`John D. Norris, Arnold, White & Durkee, of Houston,
`TX, argued, for defendant/cross-appellant. With him on
`the brief were John D. Norris and Russell L. Sandidge. Of
`counsel on the brief were A.M.T. Finch, Jr. and Dean F.
`Vance, Shell Oil Company, Houston, TX.
`
`Before RADER, SCHALL, and BRYSON, Circuit
`Judges.
`
`Opinion
`
`RADER, Circuit Judge,
`
`The United States District Court for the Southern District
`of Texas determined that claims 1–6 and 14 of U.S.
`Patent No. 4,125,698 ('698 patent) are invalid, and that
`infringement of claim 13 by Shell Oil Company's (Shell)
`polypropylene operations and infringement of claims 7,
`9–12, and 15 by Shell's polybutylene operations were
`not properly before the court. Studiengesellschaft Kohle
`m.b.H. (SGK), the owner of the '698 patent, appeals these
`decisions. Further, the district court certified the following
`question under 28 U.S.C. § 1292(b) (1994):
`
`Where the Court has found the
`relevant patent claims invalid, may
`the Licensor recover damages for
`breach of contract for past royalties
`due on processes allegedly covered
`by such claims, from the date of the
`alleged breach until the date that the
`Licensee first challenged validity of
`the claims?
`
`Because an applicant cannot combine multiple prior
`applications to obtain an earlier filing date for an
`individual claim, this court affirms the district court's
`invalidity holding. Because infringement involving claim
`13 and Shell's polybutylene operations was properly
`before the district court, this court reverses and remands.
`Finally, this court answers the certified question in the
`affirmative.
`
`I.
`
`SGK is the licensing arm of a famous, non-profit
`research and educational organization
`in Germany
`—the Max–Planck Institute for Coal Research. The
`'698 patent is part of a family of patents filed by
`Professor Karl Ziegler, a Nobel laureate and past
`director of the Max–Planck Institute, and various co-
`*1563 inventors. Ziegler and his co-workers initially
`discovered that combinations of reducing agents (most
`notably organoaluminum compounds) and heavy metal
`compounds would polymerize ethylene to form high
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`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`molecular plastics. Ziegler extended this discovery to the
`polymerization of higher members of the ethylene series,
`such as propylene and butene. Ziegler, et al. filed the
`770,484 application, which matured into the '698 patent,
`on October 29, 1958.
`
`In another case, this court categorized the '698 patent as
`a continuation-in-part (CIP) because it was not limited
`to a single parent application. See Studiengesellschaft
`Kohle mbH v. Northern Petrochemical Co., 784 F.2d 351,
`352, 228 USPQ 837, 838 (Fed.Cir.1986). The 770,484
`CIP application, which was filed on October 29, 1958,
`combined Ziegler's 482,412 application, filed January 17,
`1955, with his 514,068 application, filed June 8, 1955.
`On December 6, 1955, over a year before the filing of
`the 770,484 application, Belgian Patent No. 538,782 (the
`Belgian Patent) issued. Claims 1–6 and 14 of the '698
`patent, both parties agree, cover a process disclosed in the
`Belgian Patent.
`
`Shell and SGK first entered into an agreement involving
`the Ziegler family of patents in 1974. Under that
`agreement, SGK licensed Shell to polymerize propylene
`under the Ziegler patents. When the '698 patent issued
`in 1978, the 1974 agreement already authorized Shell
`to practice the claimed process. In 1987, after several
`disputes over this license, Shell and SGK renegotiated the
`license only with regard to the '698 patent. The new terms
`provided Shell a paid-up license to produce 450 million
`pounds of polypropylene per year, with a 1.5% running
`royalty on any polypropylene sales in excess of 450 million
`pounds. Further, the amended agreement obligated Shell
`to give a yearly accounting of its entire polypropylene
`production. In that yearly accounting, Shell was to
`“specify the amount of Polypropylene produced which it
`considers as falling outside of the license and ... provide
`SGK, in confidence, with sufficient information to allow
`SGK to independently evaluate whether or not said
`production is, in fact, outside of the scope of the license.”
`
`In 1987, Shell also began producing polypropylene by
`an alleged new process in Seadrift, Texas (the Seadrift
`Process). Because Shell contended that the '698 patent did
`not cover the Seadrift Process, Shell did not pay royalties
`on polypropylene produced by that process. Moreover, in
`its yearly accountings to SGK, Shell did not disclose its
`production of polypropylene by the Seadrift Process.
`
`Ultimately, SGK terminated Shell's license and brought
`an action for unpaid royalties from 1987 through 1993.
`Additionally, SGK set forth claims for infringement of the
`'698 patent for the period 1993 through 1995. Shell moved
`for summary judgment of invalidity of claims 1–6 and 14
`of the '698 patent based on anticipation by the Belgium
`patent. SGK responded by arguing that the '698 patent
`is not anticipated because it is entitled to an earlier filing
`date than the Belgian patent. To arrive at this earlier filing
`date, SGK relied on 35 U.S.C. § 120 (1994) to combine
`the disclosures of the two earlier patent applications (the
`482,412 application and the 514,068 application).
`
`The district court held that section 120 does not permit
`the combination of two earlier disclosures to acquire an
`earlier filing date, because “an earlier application must
`comply with the requirements of § 112 for each claim
`that seeks the benefit of the filing date of that earlier
`application.” As none of the parent applications alone
`describes the invention recited in claims 1–6 and 14 of the
`'698 patent, the district court held that these claims were
`only entitled to the filing date of the continuation-in-part
`application (October 29, 1958). Thus, the district court
`determined that the Belgian Patent anticipated claims 1–6
`and 14 of the '698 patent, and, therefore, granted summary
`judgment of invalidity under 35 U.S.C. § 102(b).
`
`The district court further ruled that the only matter
`remaining before it was SGK's claim for royalties under
`the parties' license. In that regard, the district court held
`that a licensor could recover damages for breach of a
`license agreement where the validity of the underlying
`patent was not challenged until after the breach occurred.
`The district court certified the question of whether the
`invalidity determination on claims 1–6 and 14 would
`*1564 affect plaintiff's claim for unpaid royalties for the
`period before Shell challenged the validity of the patent.
`
`II.
`
` [2]
`[1]
` On appeal, SGK contends that the district court
`erred in concluding that the disclosures of two earlier filed
`applications cannot be combined to acquire an earlier
`filing date under 35 U.S.C. § 120, and in granting summary
`judgment of invalidity based on that ruling. This court
`reviews issues of statutory interpretation de novo. See In
`re Carlson, 983 F.2d 1032, 1035, 25 USPQ2d 1207, 1209
`(Fed.Cir.1992). Additionally, this court reviews a grant of
`
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`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`summary judgment de novo. See Winner Int'l Corp. v. Wolo
`Mfg. Corp., 905 F.2d 375, 376, 15 USPQ2d 1076, 1077
`(Fed.Cir.1990).
`
` [4]
`[3]
` Section 120 sets forth the requirements for a
`patent application to receive the benefit of the earlier filing
`date from a prior application:
`
`An application for patent for an
`invention disclosed in the manner
`provided by the first paragraph
`of section 112 of this title in an
`application previously filed in the
`United States ... which is filed by
`an inventor or inventors named in
`the previously filed application shall
`have the same effect, as to such
`invention, as though filed on the
`date of the prior application ... if it
`contains or is amended to contain a
`specific reference to the earlier filed
`application.
`
`35 U.S.C. § 120. To qualify for an earlier filing date,
`section 120 requires, inter alia, that the earlier-filed U.S.
`patent application contain a disclosure which complies
`with 35 U.S.C. § 112, ¶ 1 (1994) for each claim in the
`newly filed application. Thus, this benefit only applies
`to claims that recite subject matter adequately described
`in an earlier application, and does not extend to claims
`with subject matter outside the description in the earlier
`application. See Waldemar Link, GmbH & Co. v. Osteonics
`Corp., 32 F.3d 556, 558–59, 31 USPQ2d 1855, 1857
`(Fed.Cir.1994). In other words, a claim complies with 35
`U.S.C. § 120 and acquires an earlier filing date if, and
`only if, it could have been added to an earlier application
`without introducing new matter. See Mendenhall v.
`Cedarapids, Inc., 5 F.3d 1557, 1566, 28 USPQ2d 1081,
`1088–89 (Fed.Cir.1993).
`
` [6]
`[5]
` Under 35 U.S.C. § 112, ¶ 1, and consequently
`under 35 U.S.C. § 120 as well, an applicant must “convey
`with reasonable clarity to those skilled in the art that,
`as of the filing date sought, he or she was in possession
`of the invention.” Vas–Cath Inc. v. Mahurkar, 935 F.2d
`1555, 1563–64, 19 USPQ2d 1111, 1117 (Fed.Cir.1991).
`An applicant cannot show possession of an invention
`based upon a combination of several distinct previous
`applications unless he shows that one of the applications
`discloses the invention. See Application of Scheiber, 587
`
`F.2d 59, 199 USPQ 782, 785 (CCPA 1978) (Baldwin, J.,
`concurring). In other words, a claim that relies upon a
`combination of previously-filed applications is not to be
`entitled to an earlier filing date because the applicant has
`not demonstrated possession of the complete invention at
`the time of an earlier application. Id. 199 U.S.P.Q. at 785
`(“[A]ppellant is asking [the court] to make the decision
`that various bits of his claimed invention are supported in
`the parent applications.... The majority opinion properly
`rejects this approach.”). In sum, 35 U.S.C. § 120 requires
`an applicant to meet the disclosure requirement of § 112, ¶
`1 in a single parent application in order to obtain an earlier
`filing date for individual claims.
`
`[7]
` Appellant relies on Ex Parte Janin, 209 USPQ
`761 (PTO Bd.App.1980) for the proposition that parent
`applications may be combined to support a later claim. *
`In Janin, the Board allowed the appellant to rely
`*1565 on the combined disclosure of two parent
`applications to support a single claim in a later-filed
`application. The Board distinguished that case from the
`situation in Scheiber: “[H]ere, the basic process and
`claimed improvement is disclosed in each of the parent
`applications and it is only in considering the basic starting
`materials that we have to direct our attention to separate
`applications to find adequate support.” Janin, 209 USPQ
`at 764. Janin attempts to distinguish the situation where
`one patent application discloses most of the claimed
`invention and the other application only provides one
`small aspect to complete the claimed invention from a
`situation where both parent applications contain “various
`bits and pieces” of the claimed invention. Id. The
`application in Janin comes far closer to meeting the §
`112, ¶ 1 standard than did the application in Scheiber.
`Nevertheless, Janin's application did not satisfy that
`standard, despite the Board's allowance of an earlier filing
`date. The claims at issue in Janin were not completely
`supported by the disclosure of any one parent application,
`and, thus, could not meet the § 112, ¶ 1 requirement.
`Id. (“[W]e recognize support for the subject matter of
`claim 13 is dependent upon the combined disclosures of
`both parent applications.”). Accordingly, this court finds
`unpersuasive the Board's attempt in Janin to limit the
`holding of Scheiber and circumvent the § 112, ¶ 1 standard.
`Thus, this court affirms the district court's ruling that
`the disclosures of two earlier filed applications cannot be
`combined to acquire an earlier filing date under 35 U.S.C.
`§ 120.
`
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`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`*
`
`SGK additionally relies on Carusi v. Looker, 52
`C.C.P.A. 1093, 342 F.2d 112, 144 USPQ 670 (CCPA
`1965). Carusi, however, provides no support for this
`proposition. First, Carusi dealt with conception and
`reduction to practice in an interference case, rather
`than 35 U.S.C. § 120. The PTO had previously
`allowed Looker an earlier effective filing date, but
`that decision was not challenged on appeal. Second,
`the prosecution history shows that Looker had
`successfully added the claim at issue to one of
`his parent applications, prior to the filing of his
`CIP application, without raising a 35 U.S.C. § 112
`rejection. Thus, one of the parent applications alone
`must have contained sufficient disclosure to meet the
`35 U.S.C. § 112, ¶ 1 standard.
`
`SGK concedes that it could not add the '698 patent
`claims to either the 482,412 or the 514,068 applications
`without introducing new matter. Specifically, the 482,412
`application disclosed only the polymerization of ethylene
`olefins, while the '698 patent claims polymerization of
`a broader class of alpha-olefins. Similarly, the 514,068
`application disclosed the use of catalysts from a narrower
`group of metal compounds than the '698 patent. Neither
`the 482,412 nor the 514,068 application alone shows
`complete possession of the invention claimed in the
`'698 patent. Because individual claims of the '698 patent
`could not have been added to any single, previously-filed
`application, the '698 patent is not eligible for an earlier
`filing date. Based on its original filing date, the '698 patent
`is anticipated by the Belgian Patent.
`
`This court, consequently, affirms the district court's grant
`of summary judgment of invalidity under 35 U.S.C.
`§ 102(b) of claims 1–6 and 14 of the '698 patent.
`Additionally, because claims 1–6 and 14 are invalid, this
`court need not reach the issue of claim construction with
`regard to these claims.
`
`III.
`
`In its order holding claims 1–6 and 14 invalid, the district
`court stated:
`
`that
`The Court ORDERS
`Defendant Shell Oil Company's
`Motion for Summary Judgment
`That claims 1–6 and 14 of U.S.
`Patent No. 4,125,698 Are Invalid
`is GRANTED. Defendant Shell's
`
`Motion for Summary Judgment of
`Noninfringement of U.S. Patent No.
`4,125,698 is DENIED as moot.
`Trial will proceed on Plaintiff
`Studiengesellschraft Kohle's claim
`for breach of contract.
`
`The district court declined to rule on infringement of claim
`13 by Shell's polypropylene operations and infringement
`of claims 7, 9–12, and 15 by Shell's polybutylene
`operations.
`
`[8]
` Looking first at claim 13, SGK alleges infringement
`of the '698 patent in its complaint, without specifying any
`particular claims. The complaint states that SGK “elects
`to treat defendant's [Shell's] manufacture of polypropylene
`as an infringement of plaintiff's [SGK's] U.S. patent
`4,125,698.” At no point did SGK express an intent to drop
`its assertion that Shell infringed claim 13. Nevertheless,
`Shell alleges that SGK implicitly dropped claim 13 from
`the suit when it failed to reassert that claim after Shell's
`“dispositive” summary judgment motion.
`
`Shell's summary judgment motion sought a judgment of
`noninfringement of claims 1–6 and 14 of the '698 patent.
`Resolving this motion, the trial court stated: “Defendant's
`motion for summary judgment is granted. Shell Oil
`Company has not infringed U.S. Patent No. 4,125,698.”
`SGK, after Shell's *1566 motion, reasserted infringement
`of claims 7, 9–12, and 15 by Shell's polybutylene
`operations, but did not reassert infringement of claim 13
`by Shell's polypropylene operations. SGK, however, did
`not state that infringement of claims 7, 9–12, and 15 by the
`polybutylene operations were the only issues remaining in
`the suit. The record does not reveal, nor does the district
`court offer, any valid reason for declining to consider the
`claim 13 infringement question. This court determines that
`infringement of claim 13 remains before the district court.
`On remand, the district court will have an opportunity to
`address this claim.
`
`Next, this court considers the issue of infringement of
`claims 7, 9–12, and 15 by Shell's polybutylene operations.
`In its final judgment, the district court perceived “no claim
`before the Court raising the question of whether any of the
`defendant's polybutylene operations infringe U.S. Patent
`4,125,698.” SGK purports to have added infringement
`by Shell's polybutylene operations to the pleadings by
`operation of law.
`
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`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`[9]
` [11]
` [10]
` With regard to amendments by operation
`of law under Fed.R.Civ.P. 15(b), this court applies the
`law of the regional circuit. See Biodex Corp. v. Loredan
`Biomedical, Inc., 946 F.2d 850, 856, 20 USPQ2d 1252,
`1258 (Fed.Cir.1991). The Fifth Circuit reviews the denial
`of a motion to amend pleadings for an abuse of discretion.
`See Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th
`Cir.1994); Avatar Exploration, Inc. v. Chevron, U.S.A.,
`933 F.2d 314, 320–21 (5th Cir.1991). An appellate court,
`however, may set aside a discretionary decision which
`rests on an erroneous interpretation of law or on clearly
`erroneous factual underpinnings. See A.C. Aukerman Co.
`v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1039, 22
`USPQ2d 1321, 1333 (Fed.Cir.1992) (in banc).
`
`When declining to address infringement of the '698 patent
`by Shell's polybutylene operations, the district court stated
`that the claim involving polybutylene appears for the
`first time in the joint pretrial order. To the contrary, the
`record reveals that the polybutylene claim first appears
`in Plaintiff's Memorandum in Opposition to Defendant's
`Motion for Summary Judgment. In fact, Shell recognized
`and opposed SGK's introduction of the issue. Thus, the
`district court clearly erred in finding that SGK only
`introduced the polybutylene issue at the pretrial order
`stage.
`
`[12]
` Further, despite the district court's contrary
`statement, a plaintiff may—under some circumstances—
`introduce a new cause of action through its pretrial order.
`Fed.R.Civ.P. 15(b) permits, with the express or implied
`consent of the parties, the trial of issues not raised by the
`pleadings. Although this court is unaware of any Fifth
`Circuit Court of Appeals case law directly addressing
`introduction of a new cause of action through a pretrial
`order, but see Marsh Inv. Corp. v. Langford, 620 F.Supp.
`880, 883 (E.D.La.1985); Silver v. Nelson, 610 F.Supp.
`505, 520 (E.D.La.1985), the Fifth Circuit has advocated
`a liberal policy toward allowing such amendments, see
`Mineral Indus. & Heavy Const. Group v. Occupational
`Safety and Health Review Comm'n, 639 F.2d 1289, 1292
`(5th Cir.1981). Additionally, other circuits have permitted
`introduction of new causes of action through both
`stipulations and pretrial orders. See Blackwell v. Regal
`Cab Co., 316 F.2d 398, 399–400 (D.C.Cir.1963); Bucky v.
`Sebo, 208 F.2d 304, 305 (2d Cir.1953); see also 3 James
`Wm. Moore, Moore's Federal Practice, ¶ 15.13[2] (2d
`ed.1996). Because the district court erred in overlooking
`the Fed.R.Civ.P. 15(b) procedure, and clearly erred in
`
`finding that SGK delayed raising infringement by Shell's
`polybutylene operations until the pretrial order, this court
`reverses, and remands the issue of infringement of claims
`7, 9–12, and 15 for further consideration.
`
`IV.
`
`[13]
` The district court also certified a question
`concerning the effect of an invalidity finding on unpaid
`royalties. See 28 U.S.C. § 1292(b) (1994). According to
`the 1987 licensing agreement, Shell agreed to pay SGK a
`1.5% running royalty on the sale of any polypropylene,
`produced with a heavy metal catalyst as defined in claim
`1 of the '698 patent, in excess of 450 million pounds per
`*1567 year. Further, as discussed above, this agreement
`obligated Shell to give a yearly accounting of its entire
`polypropylene production, specifying “the amount of
`Polypropylene produced which it considers as falling
`outside of the license.” The agreement obligated Shell
`to provide SGK with sufficient information to allow
`independent evaluation of whether its production falls
`outside the scope of the license. The record shows that
`Shell breached this contract by producing polypropylene
`under the Seadrift Process, without either paying royalties
`or reporting the production as outside of the license.
`
`Nothing in this license made payment of royalties
`contingent upon the validity of the '698 patent. Setting
`aside momentarily both federal patent law and policy, this
`contract—regardless of the patent's validity—obligates
`Shell to pay royalties on polypropylene produced in
`accordance with claim 1 of the '698 patent. In other words,
`contract law governs the enforcement of the license.
`Enforcement of these contract terms is not contingent
`upon validity of the patent which defines the subject
`matter of the license. Assuming that the Seadrift Process
`infringes claim 1 of the '698 patent and thus fits within the
`terms of the license, Shell breached the license by failing
`to pay royalties. Enforcement of the license, if the Seadrift
`Process infringes the '698 patent, would require Shell to
`pay back royalties.
`
`With a patent licensing agreement at stake, this court
`examines the contract for rare, but potential, conflicts
`between state contract law and federal patent law. For
`example, in Lear v. Adkins, 395 U.S. 653, 89 S.Ct. 1902,
`23 L.Ed.2d 610 (1969), the Supreme Court prevented the
`enforcement of a valid royalty payment agreement to
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`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`facilitate a determination of patent validity. Specifically,
`the Supreme Court declined to estop a patent licensee from
`contesting the validity of the licensed patent. See id. at 674,
`89 S.Ct. at 1913; Cordis Corp. v. Medtronic, Inc., 780 F.2d
`991, 995, 228 USPQ 189, 191–92 (Fed.Cir.1985). In tones
`that echo from a past era of skepticism over intellectual
`property principles, the Court in Lear feared that
`
`the
`[l]icensees may often be
`only
`individuals with
`enough
`economic
`incentive to challenge
`the patentability of an inventor's
`discovery. If they are muzzled,
`the public may continually be
`required to pay tribute to would-
`be monopolists without need or
`justification. We think
`it plain
`that the technical requirements of
`contract doctrine must give way
`before the demands of the public
`interest....
`
`Lear, 395 U.S. at 670, 89 S.Ct. at 1911. Thus, in examining
`the interface between national patent policy and state
`contracts, the Supreme Court requires this court to
`consider “whether overriding federal policies would be
`significantly frustrated” by enforcing the license. Id.
`
`This court encountered the Lear test when an assignor-
`inventor and his company sought to defend against an
`infringement action by challenging the validity of the
`assigned patents. See Diamond Scientific Co. v. Ambico,
`Inc., 848 F.2d 1220, 6 USPQ2d 2028 (Fed.Cir.1988). With
`careful consideration of the Lear test and policies, this
`court nonetheless estopped the assignor from challenging
`the validity of the patent:
`
`To allow the assignor to make
`that representation [of the worth
`of the patent] at the time of the
`assignment (to his advantage) and
`later to repudiate it (again to his
`advantage) could work an injustice
`against the assignee.... [D]espite the
`public policy encouraging people
`to challenge potentially
`invalid
`patents, there are still circumstances
`in which
`the equities of
`the
`contractual relationships between
`the parties should deprive one
`
`party ... of the right to bring that
`challenge.
`
`Diamond Scientific, 848 F.2d at 1224–25. Indeed, in
`several other settings, this court has distinguished Lear.
`See, e.g., Foster v. Hallco Mfg. Co. 947 F.2d 469,
`476–77, 20 USPQ2d 1241, 1246–47 (Fed.Cir.1991) (Lear
`does not bar enforcement of settlement agreement and
`consent decree); Sun Studs, Inc. v. ATA Equip. Leasing,
`Inc., 872 F.2d 978, 991–93, 10 USPQ2d 1338, 1349–51
`(Fed.Cir.1989) (Lear does not bar enforcement of contract
`promise to share royalties); Hemstreet v. Spiegel, Inc., 851
`F.2d 348, 350–51, 7 USPQ2d 1502, 1504 (Fed.Cir.1988)
`(Lear does not bar enforcement of settlement *1568
`agreement to pay royalties even if patent later held
`invalid).
`
`As in Diamond Scientific, this court detects no significant
`frustration of federal patent policy by enforcing the 1987
`license agreement between Shell and SGK, to the extent
`of allowing SGK to recover royalties until the date
`Shell first challenged the validity of the claims. First,
`as in Diamond Scientific, Shell executed a contractual
`agreement which produced significant benefits for the
`corporation and attested to the worth of the patent.
`Under the agreement (with its provision for Shell to
`notify SGK of all polypropylene production), Shell had
`the benefits of producing polypropylene insulated from
`unlicensed competition, insulated from investigations of
`infringement, and even insulated from royalties (until
`SGK's discovery of the Seadrift Process). To these
`benefits, Shell now seeks to add the benefit of abrogating
`its agreement and avoiding its breach of the contract.
`Following the reasoning of Diamond Scientific, this court
`must prevent the injustice of allowing Shell to exploit
`the protection of the contract and patent rights and then
`later to abandon conveniently its obligations under those
`same rights. See Diamond Scientific, 848 F.2d at 1224–25;
`see also Cordis Corp., 780 F.2d at 995 (quoting Warner–
`Jenkinson Co. v. Allied Chem. Corp., 567 F.2d 184, 188,
`193 USPQ 753, 757 (2d Cir.1977) (“It would not be fair
`for the [licensee] to be allowed simultaneously to reap all
`the benefits of the licensing agreement and to deprive the
`licensor of all his royalties.”)).
`
`[14]
` Just as important, however, Shell's apparent breach
`of its duty to notify under the agreement is itself more
`likely to frustrate federal patent policy than enforcement
`of the contract. As already noted, Lear focused on the
`“full and free use of ideas in the public domain.” Lear, 395
`
` © 2017 Thomson Reuters. No claim to original U.S. Government Works.
`
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`6
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`

`

`Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (1997)
`65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`U.S. at 674, 89 S.Ct. at 1913. By abrogating its notification
`duty, Shell delayed a timely challenge to the validity of
`the '698 patent and postponed the public's full and free
`use of the invention of the '698 patent. Shell enjoyed the
`protection of the license from 1987 until SGK became
`aware of the Seadrift Process. Upon SGK's discovery of
`its Seadrift process, Shell suddenly seeks the protection
`of the Lear policies it flaunted for many years. However,
`a licensee, such as Shell, cannot invoke the protection of
`the Lear doctrine until it (i) actually ceases payment of
`royalties, and (ii) provides notice to the licensor that the
`reason for ceasing payment of royalties is because it has
`deemed the relevant claims to be invalid. Other circuits
`addressing this issue have arrived at the same conclusion.
`See, e.g., Rite–Nail Packaging Corp. v. Berryfast, Inc.,
`706 F.2d 933, 936–37 (9th Cir.1983); Hull v. Brunswick
`Corp., 704 F.2d 1195, 1203 (10th Cir.1983); American
`Sterilizer Co. v. Sybron Corp., 614 F.2d 890, 897–98 (3d
`Cir.1980);.PPG Indus., Inc. v. Westwood Chem., Inc., 530
`F.2d 700, 706, 708 (6th Cir.1976).
`
`In this factual setting, therefore, enforcement of the
`license according to its terms, even if this entails a
`determination of whether the Seadrift process infringes a
`now-invalidated patent, does not frustrate federal patent
`policy. Accordingly, this court remands this case to the
`district court for enforcement of the license (prior to the
`
`date Shell first challenged the validity of the claims) and,
`if necessary, computation of back royalties.
`
`V.
`
`In accordance with this opinion, this court affirms the
`district court holding that claims 1–6 and 14 are invalid
`under 35 U.S.C. § 102(b). This court, however, remands
`the case to the district court for proper consideration
`of infringement of claim 13, infringement by Shell's
`polybutylene operations, and infringement of the '698
`patent by the Seadrift Process—including a determination
`of back royalties if necessary.
`
`COSTS
`
`Each party shall bear its own costs.
`
`AFFIRMED–IN–PART, REVERSED–IN–PART, AND
`REMANDED.
`
`All Citations
`
`112 F.3d 1561, 65 USLW 2753, 42 U.S.P.Q.2d 1674
`
`End of Document
`
`© 2017 Thomson Reuters. No claim to original U.S. Government Works.
`
` © 2017 Thomson Reuters. No claim to original U.S. Government Works.
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