author: BEER, District Judge.

text:
    The DOW CHEMICAL COMPANY, A Delaware Corporation v. AMERICAN CYANAMID COMPANY.
    Civ. A. No. 82-2355.
    United States District Court, E.D. Louisiana.
    Aug. 15, 1985.

      F. Frank Fontento, New Orleans, La., Bernd W. Sandt, Dow Chemical Co. Patent Dept., Midland, Mich., for plaintiff.
    Larry B. Kelleher, New Orleans, La., D. Dennis Allegretti, Chicago, Ill., for defendant.
   OPINION

BEER, District Judge.

The Dow Chemical Company (“Dow”) instituted this action against American Cyanamid Company (“Cyanamid”) seeking injunctive relief and damages based on Cyanamid’s alleged infringement of Dow’s U.S. Patent No. 3,631,104 (“the ‘104 patent”), Reissue Patent No. 31,430 (“the ‘430 reissue patent”), U.S. Patent No. 3,994,973 (“the ‘973 patent”), U.S. Patent No. 3,642,-894 (“the ‘894 patent”), U.S. Patent No. 3,758,578 (“the '578 patent”), and Reissue Patent No. 31,356 (“the ‘356 reissue patent”). Four of these patents, the ‘104 patent, the ‘430 reissue patent, which is the reissue of the original ‘104 patent, the ‘973 patent and the ‘894 patent, claim the chemical process of hydration of acrylonitrile to acrylamide in the presence of a reduced copper oxide catalyst, and thus are collectively referred to as the “oxide” patents. The remaining two patents, the ‘578 patent and the ‘356 reissue patent, which is the reissue of the original ‘578 patent, claim the process of hydration of acrylonitrile to acrylamide using a catalyst prepared by the reduction of copper salt, and hence are referred to as the “salt” patents.

Cyanamid has denied any infringement, and has counterclaimed for declaration that the Dow patents are invalid, unenforceable and not infringed.

By stipulation of the parties dated January 28,1985, the damage issues were bifurcated.

This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1338(a). Venue is proper in the Eastern District of Louisiana pursuant to 35 U.S.C. § 1400(b).

This case was tried to the Court sitting without a jury from March 21, 1985 through April 3, 1985. Having thereafter considered the very comprehensive briefs and accompanying data and then taken the matter under consideration, I now make the following findings of fact and conclusions of law. To the extent that any findings of fact constitute conclusions of law, they are adopted as such; to the extent that any conclusions of law state findings of fact, they are so adopted.

FINDINGS OF FACT

I. BACKGROUND

This controversy centers around the processes used by Dow and Cyanamid to manufacture an organic chemical compound known as acrylamide. The acrylamide formed from such processes is of great commercial value in that it can be converted into polymers which presently have varied uses in numerous commercial applications including enhanced oil recovery, municipal and industrial water treatment, pulp and paper processing, textile treatment and food processing.

Beginning in 1954, Cyanamid manufactured acrylamide using a sulfuric acid process. In the sulfuric acid process, acrylonitrile is mixed slowly with sulfuric acid and water under controlled conditions to produce acrylamide sulfate. The acrylamide sulfate is decomposed to acrylamide by reaction with ammonia, resulting in the formation of large quantities of ammonium sulfate as a by-product.

Dow also initially manufactured acrylamide by the sulfuric acid process. However, due to the serious waste disposal problem generated by the formation of by-products in the process, Dow initiated research in 1967 with the purpose of discovering a better method. Dow instructed one of its research chemists, Dr. Ben A. Tefertiller, to research a commercially viable alternate process which would utilize a heterogeneous catalyst.

In reviewing the literature prior to initiating his experimental work, Dr. Tefertiller considered the disclosures on heterogeneeras catalysis in Mahan U.S. Patent 2,421,-030; publications of Dr. Watanabe entitled “Studies of Organic Catalytic Reactions II. —The Hydration of Nitriles to Amides With Nickel Catalysts”, 37. Bull.Chem. Soc’y Japan, 1325 (1964), “Studies on Organic Catalytic Reactions III.—The Hydration Mechanism of Nitriles to Amides With Nickel Catalysts” 39 Bull.Chem.Soc’y Japan, 8 (1966), (Watanabe III); and also on article by Cook and Forbes entitled “Solid Phase Catalysis of the Hydrolysis of Nitriles to Amides”, 5 Chemical Communications, 121 (1966).

Using the heterogeneous catalysis disclosed in the Mahan U.S. Patent 2,421,030, Dr. Tefertiller was unable to convert acrylonitrile to acrylamide in any significant quantities. He then employed metallic nickel catalysts as disclosed by Watanabe for the hydration of acrylonitrile to acrylamide, but found that the major product of that reaction was proplonitrile, a hydrogenated product of acrylonitrile, rather than acrylamide. No further work was done on such catalysts by Dr. Tefertiller.

The Cook et al. reference disclosed the use of manganese dioxide to convert acrylonitrile to acrylamide in methylene chloride. In deviating from the teachings of the Cook et al. article, Dr. Tefertiller discovered that the hydration of acrylonitrile to acrylamide with manganese dioxide catalysts could be improved if the hydration was carried out in the presence of water using a particular form of manganese dioxide. In attempting to develop the use of manganese dioxide, Dr. Tefertiller found that in a continuous reaction system the manganese dioxide quickly became poisoned, resulting in the formation of polymeric by-products. The attempts to use manganese dioxide as a catalyst were consequently abandoned by Dr. Tefertiller.

The initial experimental work of Dr. Tefertiller on review of the literature demonstrated that the closest prior art did not suggest a catalyst which could be utilized in a viable process for the hydration of acrylonitrile to acrylamide. However, in 1967 Dr. Tefertiller, discovered that zinc and cadmium chromites gave encouraging results in the hydration of acrylonitrile. In order to test a wide variety of zinc and cadmium chromites, Dr. Tefertiller, who was now working in collaboration with Dr. Clarence E. Habermann, decided to prepare experimental catalysts. Such preparation included reducing zinc and cadmium chromates with hydrogen to form the corresponding chromites. In late 1968, Dr. Habermann and Dr. Tefertiller discovered that hydrogen reduction of the zinc and cadmium chromates resulted in improved catalytic activity in the hydration of acrylonitrile to acrylamide. In connection with the testing of reduced chromate catalysts for the hydration of acrylonitrile to acrylamide, Dr. Tefertiller and' Dr. Habermann jointly discovered that copper zinc compounds, and other copper compounds as well, were active catalysts.

In the period of January to March of 1969, Dr. Tefertiller and Dr. Habermann discovered that reduced copper catalysts obtained by the reduction of copper oxide, when employed in a continuous manner for the hydration of acrylonitrile to acrylamide, resulted in high yields of acrylamide and high conversion of acrylonitrile for long periods of time, without significant formation of by-products. The particular catalysts employed were reduced chromium-copper oxide catalysts which on reduction were passivated by gradual exposure to oxygen to prevent rapid oxidation. These catalysts, furthermore, were tested in continuous unit from which air was excluded during the reaction.

The discovery of using a reduced copper oxide catalyst was recognized to be a breakthrough in technology because of that catalyst’s high selectivity in forming acrylamide without significant by-product, its high conversion of acrylonitrile to acrylamide and its long life. A number of catalysts obtained by the reduction of various copper compounds, including metallic copper obtained by the reduction of copper oxide were tested. The reduced Harshaw Cu 0203 was found to be the most effective catalyst for the hydration of acrylonitrile to acrylamide, as will be hereafter discussed.

In March of 1969, Dr. Habermann and Dr. Tefertiller, working with Ralph E. Friedrich, discovered that the careful exclusion of oxygen, not only from the reduced catalyst but also from the feed streams, resulted in still further improvements of the yield, selectivity life of the catalyst, and quality of the acrylamide product in its further use to form polyacrylamide. In view of the encouraging results obtained by Dr. Habermann and Dr. Tefertiller, Dow management scaled the laboratory process upward by a factor of almost 300,000, constructing a full scale commercial plant without any intermediate pilot plants which were usually built and tested before design of a full sized plant. In May, 1970, Dow started up its commercial plant using its reduced copper oxide catalyst and has continued to operate it for the commercial hydration of acrylonitrile to acrylamide.

Subsequent to the start-up of Dow’s commercial plant, the reactors plugged due to polymerization. Dow formed a task force to define and solve the problem, which had not occurred in the laboratory tests run by Dr. Tefertiller. The plugging due to polymerization was determined to be caused by stagnant areas in the reactors. The plugging was not the result of the chemistry of the process, but rather, the chemical engineering of scaling-up the laboratory invention. Dow’s polymerization problem was solved by maintaining a continuous flow of the reaction medium and increasing velocity of the flow by recirculation of the reaction medium.

II. THE PATENTS IN SUIT

A. The ‘104 Patent

Dow sought and obtained patents on its invention, which are here at issue. The ‘104 patent was applied for in the United States Patent and Trade Office by Dr. Habermann and Dr. Tefertiller on June 23, 1969, as a continuation in-part of an earlier patent application, filed on January 16, 1969, which matured into U.S. Patent 3,597,481 (“the ‘481 patent”). The ‘481 patent discloses (in Example 2) the preparation of a catalyst by the reduction of a copper oxide, and (in Example 4) discloses the use of such catalyst in the hydration of acrylonitrile to acrylamide. This was the first U.S. patent disclosure by Dow of reduced copper oxide catalysts.

The ‘104 patent discloses the use of a copper catalyst obtained by the reduction of copper oxide, copper-chromium oxide, copper-molybdenum oxide or mixtures thereof, in a continuous flow reaction for the hydration of acrylonitrile. The patent was issued on December 28, 1971, as U.S.Patent 3,631,104. The examples of the ‘104 patent describe the hydration of acrylonitrile to acrylamide using various reduced copper oxide containing catalysts in a continuous flow reactor. Example 8, employing a reduced Harshaw copper oxide catalyst which had been protected from exposure to oxygen, was stated by Dr. Tefertiller, to be the best mode of practicing the invention.

Claim 26 of the ‘104 patent, which Dow asserts is infringed by Cyanamid, reads, in independent form, as follows:

In a process for converting a nitrile to the corresponding amide by contacting acrylonitrile in the presence of water with a heterogeneous catalyst, the improvement comprising using a cupreous catalyst consisting essentially of reduced copper oxide, reduced copper-chromium oxide, reduced copper-molybdenum oxide, unreduced copper-molybdenum or mixtures thereof.

On January 16, 1970, Dow caused to be filed in Belgium a patent application corresponding in scope to the ‘481 and the ‘104 patent, such application having been published in Belgium on July 16, 1970 as Belgian Patent No. 774,543. Example 7 of the Belgian patent corresponds to Example 8 of the T04 patent.

B. The ‘894 Patent

The ‘894 patent was applied for in the United States Patent Office by Dr. Habermann and Dr. Tefertiller on December 5, 1969, as a continuation-in-part of the ‘104 patent, and issued on February 15, 1972, as U.S. Patent 3,642,894. The ‘894 patent discloses that catalyst life and product quality in the hydration of acrylonitrile using reduced copper oxide catalyst are improved by protecting the reduced catalysts from contact with oxygen after reduction. Claim 6 of the ‘894 patent, in independent form, reads as follows:

In the process for catalytically hydrating acrylonitrile to the corresponding amide by contacting a reactant feed of water and acrylonitrile with a reduced copper oxide or reduced copper chromite catalyst, the improvement comprising at least partially protecting the reduced catalysts from contact with oxygen after reduction.

C. The '973 Patent

On June 28,1971 Dr. Habermann and Dr. Tefertiller filed, as a further continuation-in-part of the ‘104 patent, a patent application which issued on November 30, 1976, as U.S. Patent 3,994,973. The ‘973 patent discloses that for unsaturated nitriles (i.e., acrylonitrile) which tend to polymerize, a reaction temperature of less than about 200° C, a polymerization inhibitor or dilute reaction solutions are desirable to avoid polymerization of the nitrile and possible poisoning of the catalyst. (‘973 patent, Column 6, lines .3-7). The patent also discloses, as does the ‘104 patent and ‘894 patent, the preference for a continuous flow reaction wherein the rate of flow of reactants over the catalyst is controlled to give desired contact of the reactants with the catalyst. Claim 13 of the ‘973 patent reads in independent form as follows:

In the process for converting acrylonitrile to the corresponding amide by reacting the acrylonitrile with water in the presence of a catalyst, the improvement comprising conducting the reaction in the presence of a catalytic amount of copper prepared by reducing copper oxide.

D. The ‘578 Patent

On June 28, 1971, Dr. Habermann and Dr. Tefertiller filed an application disclosing and claiming the use of a reduced copper salt or hydroxide for the hydration of acrylonitrile to acrylamide. That application issued as U.S. Patent 3,758,578. The ‘578 patent discloses, as does the ‘973, the preference for a continuous flow reaction, and suggest the dilution of reactants as a means of preventing polymerization. Claim 10 of the ‘578 patent reads in independent form as follows:

In the process for converting acrylonitrile to the corresponding amide by reacting the acrylonitrile with water in the presence of a catalyst, the improvement comprising conducting the reaction in the presence of a catalytic amount of copper prepared by reducing copper hydroxide or a copper salt.

E. The ‘430 Reissue Patent

On February 26, 1981, Dr. Habermann and Dr. Tefertiller filed for a reissue of the ‘104 Patent in order to have the Patent Office reexamine the patentability of the claims in the light of prior art and other grounds not considered in the original prosecution. The reissue application issued on October 25, 1983 as Reissue Patent No. 31,430. The inventors, Dr. Habermann and Dr. Tefertiller, cited a number of references to the Patent Office for its consideration in the reexamination, of the claims including four Watanabe references, the Kobayashi patent publication No. 44-5205, the German Reppe patent No. 552,987 and the Greene et al. patent U.S. No. 3,381,034. In conjunction with the filing of the reissue the inventors also submitted a preliminary argument and an affidavit to remove as a reference the Kobayashi patent publication 44-5205. The affidavit stated that prior to the effective date of the Kobayashi patent publication Dow’s inventor Dr. Habermann had conducted an experiment in which he had reduced copper oxide to essentially copper metal, and had successfully tested such reduced catalyst in the hydration of acrylonitrile to acrylamide.

In response to Dow’s submission, the Patent Office did not cite Kobayashi as prior art in its first Office Action. In a later Office Action the Patent Office expressly held the affidavit to be effective in eliminating the Kobayashi patent publication as a reference.

The Patent Office allowed claims 11, 12, 25 and 26 of the T04 patent over the prior art stated, which said claims read on the hydration of olefinic nitriles of 3 to 6 carbon atoms to their corresponding amides. Broader claims referring to aliphatic nitriles were held to be unpatentable over the Reppe German patent. The inventors thus limited the claims of the ‘430 reissue to the hydration of olefinic nitrites (which includes acrylonitrile) with a cupreous catalyst of copper, copper-oxide, copper-chromium oxide, copper-molybdenum oxide or mixtures thereof. Claims 1, 12, 16 and 26 of the ‘430 reissue were carried over from the ‘104 patent and are identical in scope and language to Claims 11, 12, 25 and 26 of the ‘104 patent. Claim 26 of the ‘430 reissue patent thus reads in independent form:

In a process for converting a nitrile to the corresponding amide by contacting acrylonitrile in the presence of water with a heterogeneous catalyst, the improvement comprising using a cupreous catalyst consisting essentially of reduced copper oxide, reduced copper chromium oxide ...

F. The ‘356 Reissue Patent

On February 26, 1981, Dr. Habermann and Dr. Tefertiller also applied for reissue of the ‘578 patent. The reissue application was granted by the Patent Office and was reissued on August 23, 1983 as Reissue Patent No. 31,356. The ‘356 reissue application was filed concurrently with the ‘430 reissue application and was examined in the Patent Office by the same Examiner. The same prior art and the same affidavit were submitted to the Patent Office as were submitted in the ‘430 reissue. In the prosecution of the ‘356 reissue, similar to the ‘430 reissue, the Patent Office held claims to the hydration of olefinic nitriles to be patentable over all the prior art cited and held the affidavit effective to eliminate the Kobayashi patent publication as a prior art reference. Claims 1 and 10 of the ‘356 reissue patent are identical in scope and language to Claims 9 and 10 of the original ‘578 patent. Claim 10 of the ‘356 reissue reads in independent form as follows:

In the process for converting acrylonitrile to the corresponding amide by reacting the acrylonitrile with water in the presence of a catalyst, the improvement comprising conducting the reaction in the presence of a catalytic amount of copper prepared by reducing copper hydroxide or a copper salt.

During the prosecution of the ‘430 reissue and ‘356 reissue patents, the U.S. Patent Office reviewed Cyanamid’ charges that Dow had engaged in inequitable conduct and fraud on the Patent Office. After investigating the claim, the Patent Office concluded that there was insufficient evidence on which to base a holding of misconduct on the part of Dow or its inventors.

III. CYANAMID’S PROCESS

Cyanamid concedes that it produces acrylamide at its production plant in Fortier, Louisiana, by passing acrylonitrile mixed with water over a heterogeneous metallic copper catalyst. Cyanamid also admits that despite Dow’s refusal to license its technology, it utilized a hydrogen-reduced Harshaw Cu 203 catalyst, as disclosed in Example 8 of the ‘104 patent and in the ‘973 and ‘894 patents, at the Fortier plant in 1973 through 1974 and again from late 1977 to mid 1978.

The dispute between the parties thus centers around Cyanamid’s current use of a hydrogen-reduced commercial catalyst purchased from BASF Corporation (“BASF”), which is known as the BASF R3-11. Dow claims that Cyanamid’s use of the BASF catalyst infringes its patent because the catalyst contains copper oxide which is reduced to the copper metal state for use as a heterogeneous catalyst, and that malachite contained in the catalyst proceeds through a two-step reduction phase, with the reduction of malachite to copper oxide, and then copper oxide to copper metal. Cyanamid maintains that the catalyst does not contain copper oxide, and that the reduction of malachite proceeds directly to the copper metal state without an intermediate phase of copper oxide.

A. Cyanamid’s Acquisition and Analysis of the BASF Catalyst

In May, 1973, BASF informed Cyanamid that the R3-11 commercial catalyst, when reduced with hydrogen to metallic copper, was a highly efficient catalyst for the hydration of acrylonitrile to acrylamide. BASF claimed that prior to reduction, the catalyst consisted essentially of copper silicate, and therefore was outside of the scope of any Dow patent claims because it did not contain any copper oxide. BASF also claimed that no copper oxide was formed during the reduction phase.

Following receipt of catalyst samples from BASF, Cyanamid conducted x-ray analysis and found, contrary to BASF’s assertions, that the catalyst contained both copper oxide and malachite. Further analyses conducted by Cyanamid showed that after being heated for 18 hours at 320°C, the malachite phase was no longer observed and the catalyst was comprised of more copper oxide than the unheated sample. Based on an analysis of the chemical contents of the catalyst, Cyanamid believed that the BASF catalyst was comprised of 34% malachite and 9.7% copper oxide. In internal documents, Cyanamid conceded that the BASF catalyst was not completely free of the Dow patents.

Cyanamid thus requested BASF to produce a copper-oxide free catalyst. In September, 1973, BASF assured Cyanamid that it would be able to supply a catalyst which contained less than 5% of copper oxide as requested by Cyanamid. Dr. Laszlo Marosi of BASF prepared a report based on his analyses of the catalyst which asserted that the catalyst contained 1-2% copper oxide. Dr. Marosi also testified at trial that he has been unable to detect any copper oxide in the material supplied to Cyanamid for use as a catalyst. With BASF’s assertions regarding the nonexistence of copper oxide in the catalyst, Cyanamid took a license under the BASF technology without independently verifying BASF’s analyses. In fact, Dr. Siegel of Cyanamid, initially performed tests on the “new” catalyst only to find that it contained 5-10% copper oxide. No further analyses were conducted at that time; instead, Cyanamid relied on BASF’s assertions.

B. Two-Step Reduction of the BASF Catalyst

BASF also informed Cyanamid that the catalyst would reduce directly to copper metal without first passing through an intermediate copper oxide phase by reducing the catalyst at a temperature range of 160°C to 230°C with the gradual introduction of hydrogen. BASF demonstrated that by following this procedure and observing the process with x-ray analysis, the reduction proceeded in one step directly to copper metal. However, Cyanamid’s reduction of the catalyst on December 15, 1973, at the Fortier plant indicated that “in actuality, two distinct steady state reduction stages were observed in the plant reactor.” (P-192, pg. 3). The first step involved the reduction of malachite and copper compounds to cuprous oxide, and the second step involved the reduction of the cuprous oxide to copper metal. Based on these experiments, Cyanamid knew (or should have known) that the BASF catalyst was reduced by the same two step procedure, as was the Harshaw Cu 203 catalyst.

Prior to trial, Cyanamid again ran analyses of the reduction of the BASF catalyst at a temperature of 210°C, which is in accordance with the reduction process used at the Fortier plant. Cyanamid’s expert witness testified that the reduction occurred so rapidly that there was no “visual” evidence in the analyses employed to indicate that an intermediate phase of cuprous oxide was formed during the reduction. Based on this alleged lack of visual or graphic verification, Cyanamid’s experts concluded that the copper components comprising the catalyst reduced directly to copper metal without first passing through an intermediate copper oxide phase.

C. Dow’s Analyses of the BASF Catalyst

Dow’s visual inspection under a microscope of the R3-11 catalyst as purchased by Cyanamid from BASF reveals dark brown areas which are rich in copper oxide, and light blue and green areas which are mainly malachite. The visual examination conducted by Cyanamid in 1973 also showed the catalyst to exhibit the same appearance. These independent visual inspections of the BASF R3-11 catalyst show that no significant change in catalyst composition took place between 1973 and 1984.

Tests performed by Dow in 1983-84 established the malachite (basic copper carbonate) content to be 31%. Cyanamid’s tests at this time period established the malachite to be 35.4% in one test and 30.3% in another test. The malachite content of the BASF catalyst as determined by Cyan-amid in 1973 was 34%. Thus, Cyanamid’s malachite determinations in 1973 and 1984 show that no significant changes have taken place in the malachite content of the catalyst.

Dow established by quantitative x-ray analysis that the current BASF R3-11 catalyst employed by Cyanamid contains 14% copper oxide. The reliability of Dow’s x-ray data was confirmed by independent elemental analyses. The analyses conducted by Dow demonstrate that substantially all of the copper present in the catalyst is accounted for by the copper in the copper oxide and by the copper in the malachite. No significant quantities of other copper compounds are traceable.

Dow also performed analyzes proving that the reduction of the BASF R3-11 catalyst proceeds through two-steps with the intermediate formation of copper oxide. X-ray analysis conducted by Dow’s Dr. Timothy G. Fawcett on the BASF R3-11 catalyst demonstrates that when the catalyst is reduced at 300°C the reduction takes place in two steps with the intermediate formation of a copper oxide which is then reduced to copper metal. The fact that Dr. Fawcett’s reduction experiment was conducted by 300°C does not affect its validity. The chemistry is essentially, the same whether the reaction is carried out at 210°C or 300°C, with the intermediate'formation of copper oxide. In reaching this conclusion, I have relied on the testimony of Dr. Ludo Frevel who I found to be entirely credible.

Dr. Fawcett further analyzed an x-ray photographic diffractogram generated by Dr. Marosi under conditions closely approximating those of the Cyanamid reduction process for the R3-11 catalyst. This analysis established that cuprous oxide forms as an intermediate in the reduction process.

Dow’s analytical evidence thus establishes that the BASF catalyst contains both copper oxide and malachite, and reduces to copper metal by a two-step reduction which includes the formation of an intermediate cuprous oxide before going to the metal state.

CONCLUSIONS OF LAW

Cyanamid argues that Dow’s patents are invalid for the following reasons: 1) obviousness under 35 U.S.C. § 103; 2) failure to disclose the best mode of invention under 35 U.S.C. § 112; and 3) inequitable conduct and fraud on the Patent Office. Dow asserts that the patents are valid and that certain claims, are infringed by Cyan-amid. The validity of the patents will be addressed first, and thereafter infringement.

I. PRESUMPTION OF VALIDITY

The starting point in analyzing a challenge to the validity of a patent is the presumption that the patent is valid, 35 U.S.C. § 282, with the burden of demonstrating invalidity by clear and convincing proof resting on the party asserting it. American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed.Cir.1984). Cyanamid, therefore, has the burden of demonstrating, by clear and convincing evidence, the invalidity of the patents-in-suit and the invalidity of each claim it seeks to destroy. See, Shelcore Inc. v. Durham Industries, 745 F.2d 621 (Fed.Cir.1984).

While an Examiner’s decision on an original reissue application is not binding on a court, it is evidence that the court considers in determining whether the presumption of validity has been overcome. In this case, the Examiner for the U.S. Patent & Trade Office considered all of the relevant prior art and Cyanamid’s contention of fraud in the prosecution of the patents. Since no prior art other than that which was considered by the Patent Office Examiner is relied on by Cyanamid in its defense, it “has the added burden of overcoming the deference that is due to a qualified government agency presumed to have properly done its job.” American Hoist, 725 F.2d at 1359. Cyanamid has failed to meet its burden of proof, and thus the patents in suit have not been proved invalid on the various grounds asserted by Cyanamid.

II. OBVIOUSNESS—33 U.S.C. § 103

33 U.S.C. § 103 provides that:

“A patent may not be. obtained ... if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains ...”

In assessing the nonobviousness or obviousness of a patent invention, certain factual inquiries are determined: (1) the scope and content of the prior art; (2) the level of ordinary skill in the art; (3) the differences between the claimed invention and the prior art; and (4) so-called “secondary” considerations, such as long felt need, unexpected results, commercial success and failure of others. Graham v. John Deere Co., 383 U.S. 1,17, 86 S.Ct. 684, 694, 15 L.Ed.2d 545 (1966). These secondary considerations, when present as they are in this case, are especially helpful in determining nonobviousness of a patent without falling prey to hindsight reasoning. Atlas Powder Co. v. E.I. DuPont DeNemours and Co., 750 F.2d 1569, 1574 (Fed.Cir.1984).

The pertinent prior art includes the German Reppe patent, four Watanabe references, the Greene, et al. patent, a Haefele patent and a 1967 lecture. The German Reppe patent No. 522,987, entitled “Method for Hydrogenation of Nitriles of Unsaturated Acids”, issued to Walter Reppe, et al. in 1932, the U.S. cognate being U.S. Patent No. 1,891,055. The Reppe patent teaches that metallic copper catalysts made by the reduction of copper compounds, such as copper carbonate, copper oxide or copper hydroxide are useful for the hydrogenation of unsaturated nitriles to the corresponding saturated nitriles. The Reppe patent also discloses that after the hydrogenation and separation of the catalyst from the reaction mixture, the saturated nitrile can be converted to the amide by the addition of water or water vapor using standard reaction methods. Reppe does not teach the reaction of a nitrile with water over the copper catalysts, and does not disclose the hydration of acrylonitrile to acrylamide using a reduced copper compound as a catalyst.

In 1959, Dr. Watanabe of Tokyo Metropolitan University published an article entitled “Studies of Organic Catalytic Reactions” (Watanabe I), 32 Bull.Chem. Soc’y. Japan, 1280 (1959), in which Watanabe described the use of metallic nickel catalysts for the conversion of some aromatic nitriles to their corresponding amides. In that article, the author also indicated that metallic copper catalysts could be used but stated that they were not as useful because of undesirable side reactions. In a second article entitled “Studies on Organic Catalytic Reactions II.—The Hydration of Nitriles to Amides with Nickel Catalysts”, 37 Bull.Chem.Soc’y. Japan, 1324 (1964), Dr. Watanabe disclosed that the hydration of aliphatic nitriles was somewhat complicated and different from that of aromatic ones, and that the hydration was accompanied by side reactions forming acidic compounds. With respect to the use of metallic copper, Dr. Watanabe indicated that such materials gave poor results as catalysts for hydration and sometimes caused unexpected side reactions. In addition, Dr. Watanabe stated that some metallic copper species failed to give any hydration of nitriles to amides, but formed large amounts of complexes of corresponding amines. In addition, Dr. Watanabe taught that the catalysts could be exposed to air during their preparation and that city water could be used for their preparation. The reference does not disclose the hydration of acrylonitrile to acrylamide with a reduced copper compound as a catalyst.

The Watanabe reference entitled “Studies on Organic Catalytic Reactions III.— The Hydration Mechanism of Nitriles to Amides with Nickel Catalysts”, 39 Bull. Chem.Soc’y. Japan, 8 (1966), confirmed Watanabe’s earlier report that aliphatic nitriles gave poor results in his attempts to convert such to amides with nickel catalysts. Catalysts other than the nickel catalysts employed by Watanabe gave poor results with all nitriles. The reference does not disclose the hydration of acrylonitrile to acrylamide with a reduced copper compound as a catalyst.

The third Watanabe reference, entitled “Novel Reduction of Various Organic Compounds with Water in the Presence of Precipitated Metals”, 41 Bull.Chem.Soc’y. Japan, 1902 (1968), discloses that metallic nickel and, to a lesser extent, metallic copper, would convert aromatic nitriles to amines instead of amides and that the same nickel catalysts convert unsaturated carbon-carbon double bonds to saturated bonds when such organic materials are reacted with water.

In 1968, United States Letters Patent 3,381,034, entitled “Process for Hydrolyzing Nitriles”, was issued to Janice L. Greene, et. al. The Greene, et al. patent taught that soluble copper ions would convert aromatic and aliphatic nitriles, including acrylonitriles, to their corresponding amides; it stated, however, that metallic copper alone was not an effective catalyst for converting acrylonitrile to acrylamide.

In January of 1968, United States Letters Patent 3,366,639 issued to Haefele disclosed the use of large amounts of manganese dioxide as a catalyst with an organic solvent to convert nitriles, including acrylonitrile, to the corresponding amide. The reference does not disclose the use of a reduced copper compound to catalyze the hydration of acrylonitrile to acrylamide.

The 1967 Lectures teach how to prepare metallic copper catalysts, but do not disclose the use of such catalysts in the hydration of a nitrile to an amide. These references are merely cumulative to the Reppe patent already discussed. The ‘104 patent in Column 2 acknowledges that the copper catalysts employed are known and can be prepared by conventional methods.

I conclude that there are differences between the subject matter claimed by Dow in the patent-in-suit and the prior art when taken as a whole, and that such differences would not be obvious to those skilled in the art. First, the references teach that the conversion of a nitrile to its corresponding amide is affected by the type of metal catalyst employed. The Greene et. al. reference taught explicitly that copper metal is not an effective catalyst for such a conversion. Thus, the hydration of nitriles by the use of a copper catalyst obtained through the reduction of a copper compound was not predictable, and was not obvious. Secondly, the inventions claimed in the Dow patents are limited to the conversion of certain unsaturated nitriles, particularly acrylonitrile to its corresponding unsaturated amide. The process claimed in the Dow patents, therefore, differ from the prior art in the nature of the nitrile hydrated and the nature of the resultant amide. The difference in the chemical nature of the unsaturated nitriles claimed in the Dow patents, as compared to the saturated and aromatic nitriles shown in the art, confirms that Dow’s inventions were not obvious.

Secondary considerations of nonobviousness further support the conclusion that the Dow patents are valid. The long-felt need to find a better way to manufacture acrylamide than the then-existing sulfuric acid process is evidenced by the research efforts of Dow and Cyanamid. Both parties sensed the compelling need to develop a better method because of the waste disposal problem generated by the sulfuric acid process. Dow’s efforts were successful, not only scientifically, but also commercially in that Dow was able to build a full-size plant utilizing its patented invention that replaced the sulfuric acid process. Further, Cyanamid admits that it utilized the process disclosed in the patent specifically with a Harshaw Cu 203 catalyst, thus indicating Cyanamid’s frustrations in not being able to develop its own process based on prior art. These factors indicate that Dow’s patented invention is not obvious in view of prior art.

III. BEST MODE—35 U.S.C. § 112

Under 35 U.S.C. § 112, the applicant for a patent must include in his application a specification containing a “written description of the invention” setting “forth the best mode contemplated by the inventor of carrying out his invention.” The best mode required to be disclosed is the best mode of practicing the invention that is known to the inventor at the time the application for the patent is filed. W.L. Gore & Associates, Inc. v. Garlock, Inc., 721 F.2d 1540, 1556 (Fed.Cir.1983).

Cyanamid contends that the Dow patents are invalid for failure to disclose the best mode in that Dow did not disclose the problems of polymer formation and subsequent plugging of the reactor due to polymerization, and that Dow did not disclose that maintaining a high linear velocity of fluid through the reactor eliminates the polymer formation and subsequent plugging.

However, the essence of the invention in the Dow patents is the use of a reduced copper compound as a catalyst in the conversion of an unsaturated nitrile of its corresponding unsaturated amide, and not a method to prevent polymerization. Patents are written for those skilled in the relevant art, and thus, an applicant need not divulge every piece of information which a lay person would need to operate the invention most effectively.

The problem of polymer formation did not exist until 1971, significantly later than the filing dates of the applications maturing into the ’104 and ’894 patents. The disclosure in Example 8 of the ’104 patent satisfies the best mode requirement as this method was the best way of practicing the invention at the time the application was made. The ’430 reissue patent also is not invalid for disclosing the best mode, as it is the reissue of the original ’104 patent, and no new matter can be added to a patent in a reissue proceeding. 35 U.S.C. § 251. Even though the polymerization problem had not occurred at the time of filing the application, the ’104 and ’894 patents disclose the preference for a continuous flow reaction wherein the rate of flow of reactants over the catalyst is controlled to give desired contact of the reactants with the catalyst. This disclosure satisfies the best mode requirement since the use of continuous flow of reactant mixtures was later found to prevent polymerization.

The later patents, the ’973, the ’578 and the reissue ’356 specifically disclose that in hydrating unsaturated nitriles (i.e., acrylonitrile) which tend to polymerize, a reaction temperature of less than 200°C, a polymerization inhibitor or the dilution of reaction solutions are desirable to avoid polymerization of the nitrile and subsequent poisoning of the catalyst. These patents also disclose the preference for continuous flow of reactant mixtures. The disclosure of a specific rate of flow of the reactant mixture is not necessary in order to meet the best mode requirement. “Where one of ordinary skill in the art would know how to select operating conditions so as to achieve a particular result, the failure to include a recitation of some specific operating conditions in the specification cannot give rise to a rejection ... under the ‘best mode’ requirement of 35 U.S.C. § 112.” In re: Karnofsky, 390 F.2d 994, 997 (C.C.P.A.1968), see also General Motors Corp. v. U.S. International Trade Commission, 687 F.2d 476 (C.C.P.A.1982). Further, the best mode requirement does not require the inventor to disclose production details so long as the means to achieve the inventive results are disclosed. International Telephone & Telegraph v. Raychem Corp., 538 F.2d 453, 460 (1st Cir. 1976), cert. denied, 429 U.S. 886, 97 S.Ct. 238, 50 L.Ed.2d 167 (1976). See also McGill, Inc. v. John Zink Co., 736 F.2d 666 (Fed.Cir.1984).

Here, Cyanamid’s ability to copy and design a commercial process, and successfully manufacture acrylamide based on Example 8 of the ’104 patent using the Harshaw Cu 203 catalyst confirms that Dow’s patents-in-suit meet the best mode requirements.

IV. INEQUITABLE CONDUCT

Cyanamid maintains that Dow engaged in inequitable conduct in the prosecution of its patents and reissue patents by failing to disclose prior known art, and then by fraudulently misrepresenting the nature of the catalyst used in experiments which were disclosed in an affidavit which caused the Patent Office to eliminate the Kobayashi reference.

A breach of the duty of candor owed to the U.S. Patent and Trade Office which renders a patent unenforceable occurs when material information is misrepresented or withheld, and such misrepresentation or withholding is intentional or accompanied by gross negligence or bad faith. Hycor Corporation v. The Schleuter Co., 740 F.2d 1529, 1538 (Fed.Cir.1984). To establish inequitable conduct as a defense rendering a patent unenforceable, the party asserting this defense must prove, by clear and convincing evidence, the thresholds of materiality and intent. Atlas Powder Co. v. E.I. DuPont DeNemours & Co., 750 F.2d 1569, 1578 (Fed.Cir. 1984). Cyanamid has failed to demonstrate that Dow engaged in fraudulent conduct when prosecuting its patent claims. Since Cyanamid has failed in its burden of proof, this Court concludes that the ’104, ’587, ’973 and ’894 patents were duly and lawfully issued, and the ’430 and ’578 reissue patents were duly and lawfully reissued.

V. INFRINGEMENT

35 U.S.C. § 271(a) provides that:

“... whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent.”

Dow asserts that the inventions covered by Claim 26 of the ’104 patent and of the ’430 reissue, Claim 6 of ’894 patent, Claim 13 of the ’973 patent and Claim 10 of the ’578 patent and the ’356 reissue of its patents have been copied by Cyanamid for the manufacture of acrylamide without license from Dow or lawful right.

The claims of a patent set forth the formal definitions of the invention and must be looked to in determining if there has been infringement. Autogiro Co. of America v. United States, 384 F.2d 391, 181 Ct.Cl. 55 (1967). Although the claims define the bounds of the patent, this Court is not confined to the language of the claims in interpreting their meanings. Rel-Reeves, Inc. v. United States, 534 F.2d 274, 209 Ct.Cl. 595 (1976). However, claim interpretation should be done on a reasoned basis to avoid unjust results. Emery Industries v. Schumann, 111 F.2d 209 (7th Cir.1940).

In determining whether there is an infringement of the patent by the accused process, the meaning of the claims in issue must first be ascertained. In interpretating the claims, it must be noted that terms of art in the claims specifically “comprising” and “consisting essentially of” have been previously defined. The term “comprising” permits the inclusion of other steps, elements or materials in addition to the elements or components specified in the claims. In re: Baxter, 656 F.2d 679, 686 (C.C.P.A.1981). The term “consisting essentially of” limits the scope of the claims to the specified ingredients, and those that do not materially affect the basic and novel characteristics of a composition. In re: Herz, 537 F.2d 549, 551 (C.C. P.A.1976).

Claim 26 of the ’104 patent and of the ’430 reissue patent reads, in independent form, as follows:

In a process for converting a nitrile to the corresponding amide by contacting acrylonitrile in the presence of water with a heterogeneous catalyst, the improvement comprising using a cupreous catalyst consisting essentially of reduced copper oxide, reduced copper chromium oxide...

The issue of infringement with respect to this claim is whether the metallic copper in Cyanamid’s reduced BASF R3-11 catalyst is obtained substantially or entirely through the reduction of copper oxide. Dow has proved by a preponderance of the evidence that the metallic copper in the reduced BASF catalyst is derived entirely from the reduction of copper oxide initially present in the catalyst and from copper oxide formed by the reduction of the malachite present in the catalyst. Accordingly, Claim 26 of the '104 patent and of the ’430 reissue, as well as Claim 12, which reads, in pertinent part: “Contacting acrylonitrile in the presence of water with a heterogeneous cupreous catalyst consisting essentially of copper prepared by reducing copper oxide,” have been infringed upon by Cyanamid.

Claim 6 of '894 patent reads, in independent form, as follows:

In the process for catalytically hydrating acrylonitrile to the corresponding amide by contacting reactant feed of water and acrylonitrile with a reduced copper oxide or reduced copper chromite catalyst, the improvement comprising at least partially protecting the reduced catalysts from contact with oxygen after reduction.

The issue relative to infringement of this claim is whether Cyanamid’s process and catalyst comply with exact terms of the claim. Dow has proved by a preponderance of the evidence that the BASF catalyst is a reduced copper oxide catalyst and that Cyanamid does protect the catalyst from exposure to oxygen after reduction and during hydration. Accordingly, Claim 6 of the ‘894 patent has been infringed by Cyanamid.

Claim 13 of the ‘973 patent reads, in independent form, as follows:

In the process for converting acrylonitrile to the corresponding amide by reacting the acrylonitrile with water in the presence of a catalyst, the improvement comprising conducting the reaction in the presence of a catalytic amount of copper prepared by reducing copper oxide.

This claim differs from Claims 12 and 26 of the ‘104 patent in that it allows the presence of other catalytic species, but is infringed so long as catalytic amounts of copper obtained by the reduction of copper oxide are present. Dow has proven by a preponderance of evidence that the conditions called for by Claim 13 are satisfied by Cyanamid’s process in utilizing the reduced copper oxide BASF catalyst; thus, this claim has also been infringed.

Claim 10 of the ‘578 patent and the ‘356 reissue patent reads, in independent form, as follows:

In the process for converting acrylonitrile to the corresponding amide by reacting the acrylonitrile with water in the presence of a catalyst, the improvement comprising conducing the reaction in the presence of a catalytic amount of copper prepared by reducing copper hydroxide or a copper salt.

Claim 10 of the ‘578 patent and the ‘356 reissue differs from previously discussed Claim 26 of the ‘104 patent in two respects. First, said Claim 10 requires that a catalytic amount of copper in the catalyst be prepared by direct reduction of copper hydroxide or a copper salt; and second, the use of “comprising” permits the inclusion of other catalytic components in addition to the required catalytic amount of copper. The use in Cyanamid’s process of a copper catalyst obtained by direct reduction of a copper salt would constitute infringement of said Claim 10. However, since this Court has found that the metallic copper of Cyan-amid’s reduced BASF catalyst is produced by the reduction of copper oxide, the Cyan-amid process does not infringe said Claim 10 of the ‘578 and the ‘356 reissue patents.

Although this Court has found that Cyanamid’s process utilizing the BASF reduced copper oxide catalyst literally infringes Dow’s ‘104 patent and ‘430 reissue, ‘894 patent and ‘973 patent, it must be further noted that Cyanamid’s process also infringes the claims of these patents under the doctrine of equivalents. The doctrine, designed to protect a patentee from an infringer who appropriates the invention but avoids the literal language of the claim, allows a finding of infringement when the accused product and claimed invention performs substantially in the same way to yield substantially the same results. Gravier Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605, 608, 70 S.Ct. 854, 856, 94 L.Ed.2d 1097 (1950); Atlas Powder Co. v. E.I. DuPont deNemours, 750 F.2d 1569, 1579 (Fed.Cir.1984). Cyanamid’s use of the BASF catalyst performs the same process claimed in the Dow oxide patents in the same way disclosed, particularly since Cyanamid utilizes a reduction process and protects the catalyst from oxygen. Furthermore, Cyanamid’s process utilizing the allegedly revised BASF catalyst produces high yields of pure acrylamide from the hydration of acrylonitrile, as does the Dow process disclosed in the invention.

Initially, Cyanamid realized that the original catalysts supplied by BASF contained copper oxide and other copper compounds which, when reduced, went through an intermediate copper oxide phase. The revised catalyst supplied by BASF allegedly contained no copper oxide or a miniscule amount so as to not infringe the patent. Regardless of BASF’s assertion, it is apparent that the original BASF catalyst and the alleged revised catalyst utilized in Cyanamid’s process are obtained by the reduction of a copper compound, particularly malachite, with hydrogen. Both catalysts performed the same function in the same way with the same results, namely, the prosperous production of great yields of acrylamide with little or no by-product. The presence of malachite in the non-reduced catalyst does not allow Cyanamid to avoid infringement of the patents, especially since this Court has found that when reduced, the malachite in the BASF catalyst proceeds through an intermediate copper oxide phase.

VI. INJUNCTION—35 U.S.C. § 154

The remedy of injunction for infringement is granted to the patent owner under 35 U.S.C. § 154, Congress having thus recognized that a patentee whose claims have been infringed should be entitled to exclude others, and reserve to himself, the right to practice his invention. Here, in view of Cyanamid’s infringement of the patents in suit, Dow is entitled to an injunction enjoining Cyanamid for the remaining respective terms of the patents in suit from committing any further acts of infringement.

I find, however, that Cyanamid’s infringement did not reach the degree of calculated and willful infringement which I perceive to be the basis for awarding treble damages and attorney fees under 35 U.S.C. §§ 284 and 285, providing for such relief in “exceptional” cases. The remaining issue of damages, by stipulation of the parties, has been bifurcated, and therefore remains to be tried.

Counsel for Dow is hereby instructed to prepare a judgment in accordance with the foregoing.

      . The Dow Chemical Company is a corporation existing under the laws of the State of Delaware with its principal place of business in Midland, Michigan, and having a regular place of business in the Eastern District of Louisiana.

      . American Cyanamid Company is a corporation organized and existing under the laws of Maine with its principal place of business in Wayne, New Jersey, and having a regular place of business in the Eastern District of Louisiana.

      . A hydration is a reaction in which a molecule of water attaches to another molecule. In this instance, hydration means that a molecule of water attaches itself to the nitrile group (-CN) of acrylonitrile (CH2 = CH-CN) to form acrylamide (ch2= ch-conh2).

      . A catalyst is a material which will affect a chemical reaction without the catalyst itself being consumed in the reaction. The process of conversion of chemicals in the presence of a catalyst is known as catalysis.

      . Catalysts are either homogeneous or heterogeneous. Homogeneous catalysts are used in the same phase, most often liquid, as the reactants, and the reaction thus occurs anywhere in the reaction mixture. Heterogeneous catalysis involves the use of a material which is in a different phase from that of the reactants. Heterogeneous catalysis usually involves the reaction of gaseous or liquid reactants with a solid catalyst. In heterogeneous catalysis, the reaction takes place on the surface of the catalyst and involves the absorption of the reactants onto the surface, the reaction of such on the surface, and the desorption of the reaction products from the surface.

      . Reduction is a process by which the valance state of a compound is changed. In the case at hand, the valance state of copper contained in the compound is sought to be reduced from one of the copper-plus states to CU°. Thus, divalent cupric oxide (CU3O) is reduced when it forms the monovalent cuprous oxide (CU2O). The cuprous oxide can be further reduced to copper metal (CU). A variety of reducing agents cause this transformation of the two valent copper to the metallic stage, although the one that is preferred and commercially employed is hydrogen.

      . For such use as a reviewing court may wish to accord my observations on this point, I feel obliged to say that I felt Cyanamid’s experts were somewhat equivocal in their testimony. They obviously did not want to be untruthful and thus, they struggled mightily to "reach conclusions” rather than come directly to grips with the issue.

      . Since this Court agrees with and accepts the findings of the U.S. Patent Office in eliminating Kobayashi as prior art, there is no need to detail the teachings of the Kobayashi reference.

      . Acrylonitrile and acrylamide are, respectively, unsaturated aliphatic nitriles and unsaturated amides, and hence, differ chemically from saturated nitriles and amides.

      . This is not to condone (my perception of) the relationship that existed between Cyanamid and BASF. Even the "tests” which Cyanamid used to "confirm” its comprehension that the BASF process did not infringe were, I think, marginal at best. But such doubts as I have had are not quite able to successfully compete with the presumption of moral regularity that Cyanamid is entitled to.


source: Caselaw Access Project

author: LUONGO, Chief Judge.

license: Public Domain

text:
    Frank R. NUTIS, et al., v. PENN MERCHANDISING CORP., et al.
    Civ. A. No. 83-5708.
    United States District Court, E.D. Pennsylvania.
    Aug. 15, 1985.
    David L. Braverman, Fellheimer, Eichen & Goodman, Philadelphia, Pa., for plaintiffs.
    Stuart H. Savett, Kohn, Savett, Marion & Graf, Philadelphia, Pa., for defendants.
   OPINION

LUONGO, Chief Judge.

Plaintiffs, minority shareholders of Penn Merchandising Corporation (“Old Penn”), brought this federal securities action against certain officers, directors and controlling shareholders of Old Penn. In an Opinion and Order filed June 18, 1985 I dismissed plaintiffs’ amended complaint for failure to state a cause of action. Plaintiffs have now moved for partial reconsideration and for leave to file a second amended complaint. For the reasons that follow, I will deny the motion.

Plaintiffs seek to have the judgment of dismissal reconsidered on the basis of facts alleged in their proposed second amended complaint. Their motion is essentially one to “alter or amend the judgment” under Fed.R.Civ.P. 59(e). See Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Adams v. Gould, Inc., 739 F.2d 858, 863-64 (3d Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 806, 83 L.Ed.2d 799 (1985); Parks v. “Mr. Ford,” 68 F.R.D. 305, 308-09 (E.D.Pa.1975), rev’d in part on other grounds, 556 F.2d 132 (3d Cir.1977). In considering plaintiffs’ motion, however, I must follow the mandate of Rule 15(a) that leave to amend “shall be freely given when justice so requires.” Both a motion to alter a judgment and a motion for leave to amend a complaint are addressed to the sound discretion of the district court. Adams, 739 F.2d at 863-64; United States Labor Party v. Oremus, 619 F.2d 683, 692 (7th Cir.1980).

According to the Supreme Court, a motion to amend should be granted absent “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.” Foman, 371 U.S. at 182, 83 S.Ct. at 230. Denial of plaintiffs’ request for leave to amend is justified on the ground that the proposed second amended complaint does not set forth a claim on which relief can be granted. Amendment would therefore be futile.

Plaintiffs seek to amend their complaint to include the following allegations. At some time in 1978, defendants formulated a plan to obtain control of Old Penn and take the company private, eliminating the minority shareholders. Pursuant to and without disclosing this plan, defendants purchased hundreds of thousands of shares of Old Penn common stock.

Plaintiffs began to purchase Old Penn common stock in October of 1981. They anticipated a long-term return on their investment, having determined that Old Penn’s management team was excellent and that its asset value far exceeded the market price for its common stock.

In March, 1983, Old Penn offered to purchase up to 350,000 shares of its common stock for $4.00 per share. The tender offer materials stated that the company intended to acquire a pool of treasury stock for future use. Defendants’ alleged plan to take Old Penn private was not revealed. Plaintiffs claim they were misled by defendants’ statements and continued to purchase shares, believing that all shareholders would eventually profit as a result of defendants’ management activities. Plaintiffs claim they would not have purchased shares had they known defendants would take Old Penn private within the next few months. Their claim of injury is based on their ownership of shares at the time of the merger agreement, when minority shareholders were allegedly forced out at an inadequate price.

Plaintiffs’ counsel discussed these allegations in somewhat less articulate fashion at time of oral argument. Although in ruling on defendants’ motion to dismiss I could not formally consider allegations outside the amended complaint, I noted in my June 18 Opinion that plaintiffs’ oral presentation gave me no indication that they could amend the complaint to state a federal securities law claim. Plaintiffs’ more complete presentation of their proposed amendments in connection with the present motion does not convince me otherwise.

Plaintiffs’ proposed second amended complaint essentially alleges that defendants violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, by trading in Old Penn’s securities without disclosing material inside information. In order to recover, plaintiffs must ultimately prove that defendants had a duty to disclose or abstain from trading, and that the allegedly undisclosed information was material. See, e.g., Chiarella v. United States, 445 U.S. 222, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980); Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Defendants do not deny that they are corporate insiders with an affirmative duty to disclose. I must therefore determine whether plaintiffs have adequately alleged that defendants breached their duty by trading on the basis of undisclosed material information.

I dismissed plaintiffs’ first amended complaint in part because it failed properly to allege that defendants withheld material information. The amended complaint did not allege that plaintiffs purchased or sold securities because of defendants’ purported misdeeds. Instead, plaintiffs’ securities claim was based on the injuries they allegedly sustained as “forced sellers” under the merger agreement. Because plaintiffs’ votes were not needed to approve the merger, I applied the standard of materiality set forth in Healey v. Catalyst Recovery of Pennsylvania, Inc., 616 F.2d 641, 645-48 (3d Cir.1980), and found the complaint defective in failing to allege that plaintiffs would have acted differently had defendants’ merger plans been disclosed earlier.

Plaintiffs now state that they purchased Old Penn stock from 1981 to 1983, and that those purchases would not have been made had defendants disclosed their plans. Although plaintiffs have thereby avoided the concerns addressed in Healey, their allegations are not sufficient to show that defendants’ plans were material. Plaintiffs must still allege sufficient information to withstand the rule of Greenfield v. Heublein, Inc., 742 F.2d 751 (3d Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 1189, 84 L.Ed.2d 336 (1985), that tentative merger plans are immaterial as a matter of law.

Under Greenfield, a duty to disclose a merger plan arises only when there is an “agreement in principle” to merge. Id. at 756-57. See also Staffin v. Greenberg, 672 F.2d 1196, 1205-07 (3d Cir.1982). Contrary to plaintiffs’ contention, the fact that defendants controlled both New Penn Merchandising Corporation, the acquiring company, and Old Penn, the target, is not sufficient to show that an agreement in principle existed. Greenfield describes an agreement in principle as an agreement on the fundamental terms of the merger, such as price and structure. Id. The court’s concern that disclosure of preliminary discussions and plans can itself be misleading applies with full force to the “going private” merger at issue in this case.

Plaintiffs have not alleged that a concrete agreement was reached. They merely state in conclusory fashion that defendants, since “sometime in 1978,” have planned to take Old Penn private. I do not suggest that plaintiffs must set forth the precise details of a merger plan in order to avoid dismissal of the complaint. Plaintiffs must, however, do more than merely allege that defendants had a plan. Some information must be set forth which would permit an inference that defendants had formulated an agreement of sufficient specificity to incur a duty of disclosure. Without such information, plaintiffs’ allegations do no more than reiterate the basic theme of the amended complaint: that defendants planned to perpetuate their control at the expense of the minority shareholders. Such allegations do not state a claim under federal securities law. See, e.g., Panter v. Marshall Field & Co., 646 F.2d 271, 287-89 (7th Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981); Biesenbach v. Guenther, 588 F.2d 400, 402 (3d Cir.1978); Warner Communications, Inc. v. Murdoch, 581 F.Supp. 1482 (D.Del.1984); Sanders v. Thrall Car Manufacturing Co., 582 F.Supp. 945 (S.D.N.Y.1983), aff’d per curiam, 730 F.2d 910 (2d Cir.1984); Issen v. GSC Enterprises, 508 F.Supp. 1278 (N.D.Ill.1981).

Accepting plaintiffs’ allegations concerning defendants’ activities, I find it difficult to characterize this as an “insider trading” case at all. Insider trading is considered fraudulent because of the “ ‘inherent unfairness involved where one takes advantage’ of ‘information intended to be available only for a corporate purpose and not for the personal benefit of anyone.’ ” Dirks v. SEC, 463 U.S. 646, 654, 103 S.Ct. 3255, 3261, 77 L.Ed.2d 911 (1983) (quoting In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 43 S.E.C. 933, 936 (1968)). Plaintiffs, however, have not alleged that defendants traded on the basis of inside information. This is not a case in which defendants are accused of purchasing stock knowing that the corporation’s imminent announcement of a merger agreement would cause the price of the stock to rise. Instead, to use plaintiffs’ own words, “defendants were purchasing Old Penn common stock in execution of their plan to take Old Penn private.” Plaintiffs’ Motion for Partial Reconsideration at 11 (emphasis added). Plaintiffs have in effect alleged only that defendants were striving to increase their control of Old Penn. Although defendants may have breached certain fiduciary duties in the process, their failure to publicize their intentions is not the type of material nondisclosure contemplated by the “disclose or abstain” rule. Defendants were certainly not obliged to announce the obvious fact that their purchases of Old Penn stock would increase their control. See Rodman v. Grant Foundation, 608 F.2d 64, 73 (2d Cir.1979); Issen, 508 F.Supp. at 1291 n. 10.

The proposed second amended complaint is also defective with respect to the requirement of “loss causation.” That requirement is satisfied “only if the misrepresentation touches upon the reasons for the investment’s decline in value.” In re Catanella, 583 F.Supp. 1388, 1415 (E.D.Pa.1984) (quoting Huddleston v. Herman & MacLean, 640 F.2d 534, 549 (5th Cir.1981), aff’d in part, rev’d in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983)); Beissinger v. Rockwood Computer Corp., 529 F.Supp. 770, 787 (E.D.Pa. 1981). If an intervening cause, such as a breach of fiduciary duty, is responsible for the loss, recovery under § 10(b) and Rule 10b-5 is not permitted. Catanella, 583 F.Supp. at 1415-16; Warner Communications, 581 F.Supp. at 1495.

In the instant case, plaintiffs’ alleged injuries, like defendants’ alleged nondisclosures, are beyond the scope of the classic insider trading claim. Normally, a plaintiff will allege that he sold stock at a time when an insider was purchasing (or vice versa). The basis for recovery is that “defendant had profited through the purchase of stock, whereas plaintiff contemporaneously had sustained a loss through the sale of his stock due to an imbalance of information.” Laventhall v. General Dynamics Corp., 704 F.2d 407, 412 (8th Cir.), cert. denied, — U.S. —, 104 S.Ct. 150, 78 L.Ed.2d 140 (1983). As the Laventhall court pointed out:

The legal justification for liability of the corporate insider to the outside uninformed investor is that if the insider trades on the basis of the inside information it may profit at the expense of outside investors who are disadvantaged in the same or similar transaction by lack of the inside information. Thus, in this hypothetical transaction there is a direct nexus between the defendant’s gain and the plaintiff’s loss.

Id.

The required nexus has not been adequately alleged in this case. According to plaintiffs, plaintiffs and defendants were all purchasing Old Penn stock at the time of the alleged nondisclosures. Plaintiffs do not claim to have suffered losses from trading with inadequate information. Instead, they claim they would never have purchased Old Penn stock had they known of defendants’ plans. If plaintiffs had not owned Old Penn stock at the time of the merger agreement, they would not have been forced out at an inadequate price.

These claims allege only transactional or “but for” causation and fail to show that defendants’ misdeeds caused plaintiffs’ losses. Although losses incurred under an unfair merger agreement may be attributable to a breach of fiduciary duty, they cannot be traced to defendants’ failure to disclose their plans earlier. Defendants’ nondisclosures “may well have induced the purchase of the stock,” but were “remote and wholly unrelated to” the price ultimately offered for plaintiffs’ stock. Catanella, 583 F.Supp. at 1416. See also Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 61-62 (2d Cir.1985); Laventhall, 704 F.2d at 412-15; Warner Communications, 581 F.Supp. at 1495.

Plaintiffs’ allegations of damage are themselves highly questionable. Recovery under the 1934 Act is limited to “actual damages.” 15 U.S.C. § 78bb(a). Although such damages may consist of more than out of pocket losses, a plaintiff may not recover for an entirely speculative loss of profits. See, e.g., Osofsky v. Zipf, 645 F.2d 107, 111-14 (2d Cir.1981); Gould v. American-Hawaiian Steamship Co., 535 F.2d 761, 781 (3d Cir.1976); Rubenstein v. IU International Corp., 506 F.Supp. 311, 316-17 (E.D.Pa.1980).

Although the allegations in the proposed second amended complaint concerning plaintiffs’ shares are incomplete, it appears that approximately one half of plaintiffs’ shares were purchased at prices equal to or less than the merger price of $4.00 per share. Second Amended Complaint at H 5. Plaintiffs do not claim out of pocket losses as to these shares. In fact, they place relatively little emphasis on any out of pocket losses they may have sustained. The bulk of their damage claim rests on their “inability to share in the profitability of Old Penn” after the projected merger date. Id. at H 25. Plaintiffs’ “disappointment in the outcome of a speculative series of trades is not a sufficient basis for the serious securities violations alleged.” Zuckerman v. Harnischfeger Corp., 591 F.Supp. 112, 122 (S.D.N.Y.1984).

I will deny plaintiffs’ motion to amend on the ground that amendment would be futile. I note, however, that plaintiffs had ample opportunity to amend the complaint earlier, and have not explained their reason for waiting until judgment of dismissal had been entered. Any new facts set forth in the proposed second amended complaint were necessarily within plaintiffs’ knowledge even before the first complaint was filed. As plaintiffs themselves note, they did attempt to raise new issues in earlier memoranda and at oral argument. Their new issues and theories, however, were neither clearly articulated nor properly presented to the court. Not until I filed an opinion explaining how plaintiffs’ complaint was deficient did they present a reasonably lucid, (although still meritless), alternative theory of recovery.

Throughout this litigation, plaintiffs have struggled to bring defendants’ purported misdeeds within the scope of the federal securities laws. Although plaintiffs have obscured the issues through their convoluted arguments and theories of recovery, a careful scrutiny of their pleadings reveals that plaintiffs are essentially complaining of unfair treatment by fiduciaries. Under Santa Fe Industries v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), such claims do not state a federal cause of action. I originally denied plaintiffs leave to amend because they had presented no facts which could cure their defective complaint and because of reluctance to “authorize an effort to circumvent Santa Fe Industries v. Green through still more artful pleading.” Nutis v. Penn Merchandising Corp., 610 F.Supp. 1573, 1583 (1985). In my view, plaintiffs’ proposed amendment constitutes an effort to circumvent both Santa Fe and the June 18 Opinion and Order dismissing their amended complaint. Absent compelling circumstances not present here, plaintiffs should not be permitted “to pursue a case to judgment and then, if they lose, to reopen the case by amending their complaint to take account of the court’s decision.” James v. Watt, 716 F.2d 71, 78 (1st Cir.1983), cert. denied, — U.S. —, 104 S.Ct. 2397, 81 L.Ed.2d 354 (1984). See also Commonwealth of Pennsylvania v. Local 542, 569 F.Supp. 582, 589 (E.D.Pa.1983). Plaintiffs’ motion for partial reconsideration and for leave to amend will be denied.

      . In my June 18 Opinion, I noted that information concerning a concrete merger plan would have been material to shareholders deciding whether to accept Old Penn’s tender offer. Because plaintiffs did not allege they were injured by an investment decision made at the time of the tender offer, and because plaintiffs’ allegations were inadequate in light of Healey’s requirements, it was not necessary for me to determine whether plaintiffs had sufficiently alleged the existence of such a concrete plan. Plaintiffs have now shifted the focus of their complaint to investment decisions made before the agreement of merger. I must therefore address the sufficiency of the allegations concerning defendants' merger plans.

      . Plaintiffs have submitted certain extrinsic materials in support of their contentions. Although the issue before me concerns the legal sufficiency of plaintiffs’ proposed amendments, I have, out of an abundance of caution, examined those materials to aid in determining whether plaintiffs can prove any set of facts in support of their claim. Plaintiffs’ submissions contain no information from which I can infer that plaintiffs will be able to satisfy the requirements of Greenfield. The affidavit of Paul E. Veit states only that Old Penn’s management may in 1981 have considered taking the company private. Veit’s supplemental affidavit, which states his opinion that defendant Jerome Schottenstein intended to take Old Penn private, is not evidence of the concrete merger plan required by Greenfield. Similarly, the complaint in Waterman v. Schottenstein, No. C2-84-1264 (S.D.Ohio filed June 28, 1984), sets forth not facts, but merely another shareholder’s allegations concerning defendants’ plans for Old Penn.

      . At oral argument and in the June 18 Opinion, I expressed concern at plaintiffs' failure to state precisely when they purchased their shares. Plaintiffs purport to do so in ¶ 5 of their proposed second amended complaint, but apparently either their information or their mathematical ability is deficient. According to my calculations, plaintiffs claim to own a total of 53,306 shares. They have itemized the purchase date and price paid for only 48,906 of those shares, leaving 4,400 unaccounted for. Most puzzling is the fact that the discrepancies are spread out among various plaintiffs. Plaintiff Ball Brokerage is said to own 8,756 shares, but only 7,456 are accounted for. Cutler Company is said to own 22,500 shares, but only 21,500 are accounted for. Discrepancies also exist with respect to the shares listed for Nu Cutler and Michael Cutler. I am disturbed at plaintiffs’ apparent inability, even after dismissal of their complaint in part for failure to allege loss causation and damage, to set forth their facts and figures accurately.


author: DILLIN, District Judge.

text:
    MILWAUKEE MUTUAL INSURANCE COMPANY, Plaintiff, v. Daniel R. BUTLER, Defendant.
    No. IP 82-926-C.
    United States District Court, S.D. Indiana, Indianapolis Division.
    Aug. 15, 1985.

      Frank I. Magers, Indianapolis, Ind., for plaintiff.
    William V. Barteau, Speedway, Ind., for defendant.
   MEMORANDUM OF DECISION

DILLIN, District Judge.

The Court, having heretofore heard the evidence in this cause, limited to the issue of liability, now makes its findings of fact and conclusions of law in the form of this memorandum. Rule 52(a), Federal Rules of Civil Procedure.

Background

On October 28, 1979, defendant, Daniel R. Butler, was struck by an automobile near the intersection of West 34th Street and High School Road in Indianapolis, Indiana. The striking followed an altercation between defendant and one of his friends with two unidentified young males, one of whom was the driver of the car which struck the defendant. The vehicle that struck defendant did not stop following the incident and thus was a “hit and run” automobile within the meaning of the term as defined in the insurance policies written by plaintiff, Milwaukee Mutual Insurance Company.

Defendant received extensive injuries as a result of the striking, was hospitalized for over three weeks and was confined to his bed at home for several months thereafter.

The incident was reported to the Indianapolis Police Department and an investigation was undertaken by that department immediately following the striking. With the assistance of a Marion County Deputy Sheriff, a relative of defendant, a tentative identification of the driver and owner of the vehicle that struck defendant was made and charges were filed against the alleged driver, a juvenile, in the Juvenile Division of the Marion County Superior Court. A hearing was held in such juvenile case in May, 1980, at which time defendant was unable to identify the charged juvenile as the driver of the vehicle which had struck him, and he was unable to make positive identification of the juvenile’s automobile as such vehicle. As a result, the charges against the juvenile were dismissed.

Until the time of the hearing in Juvenile Court, defendant was operating under the belief that the driver and owner of the vehicle which had struck him were known, and he was unaware that he could have insurance coverage under insurance policies held by his relatives occupying the same household, if the identity of the owner and driver of the vehicle which struck him were unknown. Thereafter he hired counsel, who put plaintiff on notice by a letter dated June 24, 1980, following by a telephone call on July 1, 1980.

At the time of his injuries, defendant was residing with his parents, Samuel P. and Barbara Butler, and his sister, Judith Butler, in his parents’ residence. His father had an insurance policy in effect with Milwaukee Mutual which provided uninsured motorist coverage with $15,000/30,000 limits. This policy also provided for medical services coverage of $2,000. It was as to this policy which defendant originally claimed benefits.

Defendant’s sister, Judith Butler, also had had an insurance policy in effect with Milwaukee Mutual which provided for $15,-000/30,000 uninsured motorist coverage and $1,000 medical services coverage. Under the terms of the policies, defendant was included within the definition of “insured” in that he was a resident of the same household with his father and his sister, and he was not otherwise excluded by the terms of the policy.

Ms. Butler’s original policy with the plaintiff covered the period from April 23, 1979, to October 23, 1979. Before the termination date of October 23, 1979, she received a “renewal certificate” from plaintiff which stated, in pertinent part, that: “In consideration of the payment of the premium shown below, this policy is hereby extended for the Policy Period designated.” The policy period so designated was from October 23, 1979, to April 23, 1980, and the premium payment was $176.80. No such payment was ever made. After receiving a final notice that the renewal premium had not been received by plaintiff, Ms. Butler received a notice from plaintiff that her policy had lapsed. In January, 1980 she applied for and was issued a new policy from plaintiff covering her for the period of January 14, 1980, to July 14, 1980.

Plaintiff’s local representative, Jerry Jenkins, responded to defendant’s notice on August 20, 1980 by letter. Mr. Jenkins testified in deposition that he opened a file on the case, but he took no further action on the claim until approximately a year later when he contracted with an independent adjusting company, Crawford and Company, to investigate and adjust the claim. Crawford and Company representatives met with defendant’s'attorney on several occasions, and said attorney supplied Crawford and Company with all available medical and other information available. Two appointments were made to obtain defendant’s statement, as requested by Crawford and Company, but the Crawford and Company representative failed to appear. Defendant’s attorney then contacted Mr. Jenkins by letter of October 19, 1981 and informed him of the status of the case and requested that immediate action be taken. Following this, the Crawford and Company representative appeared and took a written statement from defendant.

Defendant filed a John Doe complaint against the unknown defendants and plaintiff in the Marion County Superior Court on October 23, 1981. Plaintiff appeared in that case and filed various motions. Plaintiff then filed this action, seeking a declaratory judgment that it was not liable to defendant under the policies above mentioned. Defendant filed a counterclaim for relief under the policies.

The Samuel P. Butler Policy

I.

Initially, the Court must determine whether the defendant gave sufficient notice to plaintiff of his claim under the insurance contract. Under Indiana law, the failure of the insured to give reasonable notice constitutes a material breach of the terms of the policy; however, if the insured can sustain his burden of proving that the insurer was not prejudiced by the late notice, then coverage may not be denied on that basis. Miller v. Dilts, 463 N.E.2d 257, 265-66 (Ind.1984).

It is not completely clear under the instant contract as to when Mr. Butler was required to notify his insurer of his claim. On page three of the contract it is provided that if the identity of the driver or owner of a hit-and-run automobile cannot be ascertained, then the insured must report the accident within 24 hours to a police officer and must file with the company within thirty days thereafter a sworn statement that he has a cause of action arising out of the accident. Later, on page four of the policy, it states that written notice must be given within twenty days following the date of the accident, occurrence or loss, provided that the failure to give such notice within the time specified shall not invalidate any claim made by the insured if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that such notice was given as soon as reasonably possible. This Court need not decide whether or not the notice given by defendant was reasonable under the contract and facts of this case because it is clear that, even if the notice was late, the plaintiff, as insurer, was not prejudiced thereby.

The incident at issue was promptly reported to the Indianapolis Police Department as well as the Marion County Sheriffs Department. A thorough investigation ensued which resulted in an arrest of a suspect who was subsequently released because of the inability of the witnesses to identify him. It is doubtful that the plaintiff, even had it been given more prompt notice, could have or would have conducted a more effective investigation. This is manifested by the actions which Milwaukee Mutual did take (or failed to take) once it was actually notified of defendant’s claim. The plaintiff’s claims manager opened a file on the matter after receiving notification of the claim but took no real action other than to request copies of defendant’s medical bills and reports. Such reports, even if submitted much earlier, would not have aided the plaintiff in identifying the hit-and-run vehicle. Not until a year after being notified of the claim did Milwaukee Mutual assign the case to an independent adjusting company for investigation of the claim. Four months after this assignment, the independent adjuster finally took the insured’s statement, but only after missing two previous appointments for that purpose.

The insured has established that the insurer was not prejudiced, under the facts of this case, by the timing of the claim notification even assuming that it was late, because it is unlikely that Milwaukee Mutual could have identified the driver and/or owner of the offending vehicle even given an earlier opportunity to do so. Thus, defendant’s claim cannot be denied on the basis of untimely notice.

II.

The second issue before the Court is whether a victim covered under an uninsured motorist provision of an automobile liability policy may recover from his own carrier for injuries resulting from the intentional wrong of an uninsured motorist when the policy protects the insured from damages “caused by accident.” This appears to be a case of first impression under Indiana law, which is the law to be applied in this action.

Essentially, the determination of whether an intentional act constitutes an “accident” within the meaning of an uninsured motorist provision depends upon whether such an act is viewed from the standpoint of the victim or from the standpoint of the intentional wrongdoer. It seems clear to this Court that the proper standpoint from which to view such an occurrence is that of the victim. A victim’s injuries are just as unexpected and unwelcome—accidental, if you will—to him whether they are intentionally, negligently, or otherwise delivered. This Court believes that, given the opportunity, the Indiana Supreme Court would take the “victim viewpoint” approach, thus aligning itself with the rule that injuries intentionally inflicted by an uninsured motorist fall within the meaning of damages “caused by accident” in the insured victim’s uninsured motorist coverage. State Farm Fire & Casualty Company v. Tringali, 686 F.2d 821, 824 (9th Cir.1982) (construing Hawaii law); Sciascia v. American Insurance Company, 183 N.J.Super. 352, 443 A.2d 1118, 1120 (1982); Kish v. Central National Insurance Group of Omaha, 67 Ohio St.2d 41, 424 N.E.2d 288, 291 (1981); Tomlin v. State Farm Mutual Automobile Liability Insurance Company, 95 Wis.2d 215, 290 N.W.2d 285, 288 (1980) (construing automobile liability provision other than that for uninsured motorist); Leatherby Insurance Company v. Willoughby, 315 So.2d 553, 555 (Fla.Dist.Ct.App.1975); Davis v. State Farm Mutual Automobile Insurance Company, 264 Or. 547, 507 P.2d 9, 10 (1973) (construing Michigan law).

The Indiana Court of Appeals, by focusing on the insured victim, has implicitly recognized the rationale behind this position by noting that “the duty of the insurer to pay damages arises solely out of its contract with its insured and not by reason of any special relationship between the insurer and the uninsured motorist.” Bocek v. Inter-Insurance Exchange of Chicago Motor Club, 175 Ind.App. 69, 369 N.E.2d 1093, 1096 (1977). This interpretation of the language “caused by accident” is also supported by the declaration of the Indiana Supreme Court that “[i]t is the rule ... that an ambiguous term in an insurance policy will be resolved in favor of the insured.” Freeman v. Commonwealth Life Insurance Company, 259 Ind. 237, 286 N.E.2d 396, 397 (1972).

That the incident at bar was “caused by accident” within the meaning of the policy under Indiana law is further evidenced by the fact that Indiana is a compulsory automobile liability insurance state. Ind.Code § 9-1-4-3.5 (Supp.1984). Compulsory insurance statutes manifest a social policy to guarantee compensation for victims of traffic mishaps. Other jurisdictions which require such insurance, recognizing that its purpose is to provide broad protection, have held that injuries suffered as the result of an intentional act by the insured are caused “by accident” and thus are covered by policies utilizing such language. State Farm Fire and Casualty Company v. Tringali, supra; Sciascia v. American Insurance Company, supra; Hartford Accident and Indemnity Company v. Wolbarst, 95 N.H. 40, 57 A.2d 151, 153 (1948). The general rule of insurance law that voids a policy indemnifying an insured against liability for his willful wrong does not apply to compulsory automobile liability insurance because “[t]he statute itself is declaratory of public policy applicable to compulsory insurance and supersedes any rule of public policy which obtains in ordinary insurance law.” Wheeler v. O’Connell, 297 Mass. 549, 9 N.E.2d 544, 547 (1937).

This Court need not decide whether a victim of intentional harm may recover under the intentional wrongdoer’s own insurance coverage because the case at bar concerns the distinct situation in which the victim and the insured are one and the same, by virtue of uninsured motorist coverage. However, given Indiana’s compulsory insurance statute and the fact that intentional harm is just as “accidental” to the victim whether it is he or the tortfeasor who is insured, this distinction is not of critical importance and it would not change our conclusion on this issue.

Defendant’s injuries in this case were “caused by accident” within the meaning of the instant uninsured motorist provision, thus causing plaintiff to be liable to defendant thereunder. The maximum amount of such insurance is in the amount of $15,000 for bodily injury and $2,000 for medical expenses. Although the issue of the amount of damages was reserved, it is obvious from material in the file that defendant’s loss in each category is substantially more than the amount of insurance.

The Judith Butler Policy

The final issue which confronts the Court is whether the defendant’s sister’s policy with plaintiff, covering the defendant as an insured, was in effect at the time of the hit-and-run incident. We hold that it was not.

The credible evidence shows that Ms. Butler did receive communications from plaintiff, prior to her brother’s mishap, stating that her insurance protection was being terminated at the expiration of her policy period for nonpayment of premium. However, it is ultimately irrelevant whether or not she received such notice. Plaintiff is not required to give notice, since the policy was not “cancelled” within the meaning of Ind.Code § 27-7-6-1 et seq., but rather was “not renewed” due to Ms. Butler’s failure to pay the renewal premium. American Family Mutual Insurance Company v. Ramsey, 425 N.E.2d 243, 244 (Ind.Ct.App.1981). Defendant argues that plaintiff renewed the policy by issuing a “renewal certificate” to Ms. Butler and therefore a notice of cancellation was subsequently required prior to the termination of the policy. However, this is not the case.

The Indiana Court of Appeals has recognized the general rule that “the delivery of a policy by the insurer to the insured upon the expiration of a policy without request by the insured is an offer which must be accepted by the insured before a contract of insurance is effective.” Cook v. Michigan Mutual Liability Company, 154 Ind.App. 346, 289 N.E.2d 754, 757 (1972). Applying this rule to the facts of the case, the court went on to hold that when a renewal policy recites the payment of a premium as consideration, and there is no intention to pay the required premium, there is no valid insurance policy. Id. Here, as in Cook, the “renewal policy” recites the payment of the premium as consideration for the extension of the policy. Ms. Butler did not pay, nor did she have any intention of paying the required premium. Therefore, no renewal took place and the policy lapsed as of October 23, 1979, five days before her brother’s accident.

Summary

For all the foregoing reasons, the plaintiff is liable under the insurance policy purchased by Samuel P. Butler for the injuries suffered in the accident of October 28, 1979, by Daniel R. Butler in an amount not to exceed $15,000 for personal injuries and $2,000 for medical expenses. There is no such liability under the policy purchased by Judith Butler.