Precision Co. v. Automotive Co.

Supreme Court of United States
324 U.S. 806 (1945)

ELI5:

Rule of Law:

A party seeking equitable relief to enforce a patent is barred by the 'unclean hands' doctrine if they knew of, but failed to disclose to the Patent Office, fraud or perjury underlying the patent's application. This 'uncompromising duty' to report such misconduct exists because of the public interest in ensuring that patent monopolies are free from fraud.

Facts:

In 1937, Automotive Maintenance Machinery Company (Automotive) employee George B. Thomasma secretly collaborated with Kenneth R. Larson to develop a new torque wrench based on ideas from another Automotive employee, Herman W. Zimmerman.
In 1938, Larson applied for a patent on the new wrench and, with Thomasma, formed Precision Instrument Manufacturing Company (Precision) to produce the wrenches for Snap-On Tools Corporation, taking business away from Automotive.
The U.S. Patent Office declared an 'interference' proceeding to determine whether Larson or Zimmerman was the first inventor of the technology.
During the interference proceeding, Larson submitted a preliminary statement containing false dates and testimony to make it appear he had invented the wrench before Zimmerman.
Automotive's attorney, suspecting fraud, investigated and obtained a sworn affidavit from Thomasma detailing that Larson's application and testimony were a 'frame-up' and based on perjury.
After being confronted with this information, Larson admitted to his own attorney that 'my testimony is false and the whole case is false,' leading his attorney to withdraw.
Instead of reporting the known perjury to the Patent Office, Automotive entered into a private settlement agreement with Precision and Larson.
Under the settlement, Larson conceded priority to Zimmerman and assigned his fraudulent patent application to Automotive, which then secured a patent on it and sought to enforce it.

Procedural Posture:

Automotive Maintenance Machinery Company sued Precision Instrument Manufacturing Company and others in federal District Court for patent infringement and breach of contract.
The defendants raised the equitable defense of 'unclean hands,' arguing Automotive's own conduct barred it from receiving relief.
The District Court, after a trial solely on the 'unclean hands' issue, found for the defendants and dismissed Automotive's complaints 'for want of equity.'
Automotive, as appellant, appealed to the U.S. Circuit Court of Appeals.
The Circuit Court of Appeals reversed the District Court's judgment, finding the evidence insufficient to support the finding of unclean hands.
The Supreme Court granted certiorari to review the decision of the Circuit Court of Appeals.

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Issue:

Does a party who acquires a patent application with knowledge that it was based on perjury, and who fails to disclose that misconduct to the Patent Office, have 'unclean hands' that bar it from enforcing the resulting patent in a court of equity?

Opinions:

Majority - Mr. Justice Murphy

Yes. A party that has knowledge of fraud and perjury in a Patent Office proceeding but chooses to suppress that information and benefit from it by acquiring the fraudulent application has 'unclean hands' and is barred from seeking relief in a court of equity. The equitable maxim 'he who comes into equity must come with clean hands' is of paramount importance in patent litigation due to the strong public interest in ensuring that patent monopolies, which are an exception to free market principles, are not tainted by fraud. Automotive had 'moral and actual certainty' that Larson's application was based on perjury. Instead of fulfilling its 'uncompromising duty' to report this fraud to the Patent Office, Automotive suppressed the facts, entered into a settlement to acquire the perjured application, and then attempted to enforce the resulting patent. This conduct transgressed the minimum ethical standards required to seek relief from a court of equity.

Dissenting - Mr. Justice Roberts

No position on the issue, but the judgment of the Circuit Court of Appeals should be affirmed or the writ dismissed. The case merely involves the application of acknowledged legal principles to a specific set of facts. It is not the function of the Supreme Court to weigh the facts for a third time simply to choose between litigants, as such a decision settles no important legal questions.

Dissenting - Mr. Justice Jackson

No. The judgment of the court below should be affirmed. This implies agreement with the Circuit Court of Appeals' view that the facts did not support a finding of 'unclean hands' against Automotive.

Analysis:

This case is foundational for the modern doctrine of 'inequitable conduct' in patent law. It establishes that the duty of candor before the Patent Office is not limited to the applicant who commits fraud but extends to other parties who become aware of it. The decision elevates the public interest in the integrity of the patent system over the private interests of litigants, making it clear that a court of equity will not be a party to the enforcement of a patent 'infected with fraud.' This precedent created a powerful defense in infringement litigation and imposed a significant ethical burden on patent applicants and attorneys to disclose material information to the Patent Office.

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