Alerts and Updates
Federal Circuit Alert
March 2006
Competence of Opinion of Counsel Is Proper Subject of Inquiry in Willful Infringement Analysis
Golden Blount, Inc. v. Robert H. Peterson, Co., 04-1609, 05-1141, 05-1202
In a February 15, 2006 decision from a unanimous panel, the Federal Circuit affirmed a judgment of willful infringement by the United States District Court for the Northern District of Texas. According to the Federal Circuit, nothing in the Federal Circuit's prior en banc Knorr-Bremse decision precluded a patentee from attempting to make a showing challenging the competence of the opinions received. Although not addressed herein, the Federal Circuit also addressed procedural questions under Rule 52(b) of the Federal Rules of Civil Procedure, vacated the damages award and remanded to the District Court for the limited purpose of reexamining the number of infringing products sold.
Golden Blount filed suit against Peterson on January 18, 2001 for infringement of U.S. Patent No. 5,988,159 ("the '159 patent") relating to fireplace burners and associated equipment. The District Court found that there was willful infringement, that the claims were valid, awarded attorney fees and granted an injunction against Peterson. Peterson subsequently appealed the judgment and, in April 2004, the Federal Circuit (365 F.3d 1054) affirmed the Texas District Court's validity determinations but vacated the infringement finding and remanded the case for factual determinations concerning infringement. On remand, the District Court adopted Golden Blount's proposed factual findings and again determined that Peterson willfully infringed the '159 patent. In addition to trebling the lost-profit damages awarded to Golden Blount, the District Court awarded Golden Blount attorney fees and post-judgment interest. Peterson appealed.
A key issue on appeal was Peterson's contention that it did not willfully infringe the '159 patent. The factual record before the District Court indicated that Golden Blount first sent Peterson a letter concerning possible infringement of the '159 patent in December 1999. Peterson provided its outside patent counsel (McLaughlin) with the December 1999 letter and a copy of the "instructions and working drawings" for the accused product. McLaughlin provided Peterson an oral opinion, stating that "if we can prove that what the Peterson Company was doing with the present product" was known for 20 or 30 years, then either Peterson does not infringe or the patent is invalid. At the time, McLaughlin did not possess the accused device, the file wrapper, or any prior art. Peterson never provided Golden Blount with a substantive response to the December 1999 letter. On May 3, 2000, Golden Blount sent a follow-up letter to Peterson stating that it had not received a response. Peterson responded on May 16, 2000 that it "very much disagreed" with the allegation of infringement and asked for a detailed explanation as to why it infringed the '159 patent. There was no further communication until Golden Blount filed suit in January 2001.
McLaughlin testified that after suit was filed, Peterson employee Bortz asked for another opinion of counsel, in part because Bortz "had heard that an opinion could help avoid a charge of willful infringement." Bortz testified at trial he was more concerned about attorney fees than the potential damages for infringing sales. McLaughlin provided two additional oral opinions. In February 2001, McLaughlin opined that based on a photo and drawing of the accused product, there was no literal infringement and some claims were invalid. In May 2001, after reviewing the file wrapper for the first time, but still not having viewed the accused product, McLaughlin advised that the claims were not literally infringed or infringed under the doctrine of equivalents, and any remaining claims were invalid. Peterson never obtained a written opinion on the potential infringement.
The District Court found that in the two and one-half years after Peterson received notice of the patent, Peterson never obtained a written opinion of counsel and the oral opinions were "incompetent" because they were rendered without reviewing the '159 file history or the accused device. Furthermore, the District Court found that the oral opinions were issued only as "an illusory shield against a later charge of willful infringement, rather than a good faith attempt to avoid infringing another's patent."
On appeal, Peterson challenged the District Court's willfulness finding on two grounds. First, Peterson argued that the District Court drew an inference of the type prohibited in the 2004 en banc decision by the Federal Circuit in Knorr-Bremse Systems Fuer Nutzfahrqeuge GmbH v. Dana Corp. (383 F.3d 1337). Peterson argued that it had no duty to seek an opinion of counsel and that the lack of a competent opinion cannot help Golden Blount make out is prima facie case that Peterson acted willfully. In effect, Peterson argued that the District Court should have disregarded the opinion-related evidence.
The Federal Circuit rejected Peterson's interpretation of the Knorr-Bremse decision. First, the Court reiterated the holding in Knorr-Bremse that the failure to produce an exculpatory opinion of counsel cannot be used by the patentee to infer that such an opinion, if rendered, would have been unfavorable to the alleged infringer. On the other hand, if the alleged infringer does not assert the privilege and does rely on opinion of counsel, "the patentee in making its threshold showing of culpable conduct is free to introduce as evidence whatever opinions were obtained and to challenge the competence of those opinions." According to the unanimous Federal Circuit panel, nothing in the en banc Knorr-Bremse decision precludes a patentee from attempting to make a showing challenging the competence of the opinions received. The Federal Circuit proceeded to note that Peterson did not assert the attorney-client privilege regarding the opinions it obtained from counsel and the competence of those opinions, and the facts surrounding Peterson's obtaining of those opinions were relevant to the willfulness issue and properly considered by the District Court. As such, the Federal Circuit rejected Peterson's first argument to overturn the finding of willful infringement as without merit.
Peterson also argued that even in the absence of the formal opinion of counsel, it had a reasonable, good-faith belief that it did not infringe the '159 patent and did not act in reckless disregard of the patent, and thus, the District Court's willfulness finding was clearly erroneous. Upon reviewing the record, the Federal Circuit found no clear error in according little weight to the first two oral opinions rendered by McLaughlin since he did not consider the prosecution history. The Federal Circuit also found no clear error in the lower court's conclusion that Peterson demonstrated a "cavalier attitude toward Golden Blount's patent rights" from the facts that Peterson did not respond substantively to Golden Blount's notice letters, and only obtained a thorough opinion of counsel after suit was filed , and then only out of a concern to avoid a potential willfulness finding. Given the totality of Peterson's conduct, the Federal Circuit found that Peterson failed to rebut the inference of reckless conduct and affirmed the finding that Peterson willfully infringed the '159 patent.
For the full opinion, see: http://fedcir.gov/opinions/04-1609.pdf
Federal Circuits Elaborates on "Materiality" Standard in Determinations of Inequitable Conduct
Digital Control Inc., et al. v. Charles Machine Works, 05-1128
In a February 8, 2006 decision, the Federal Circuit vacated the United States District Court for the Western District of Washington's summary judgment finding that the asserted patents were unenforceable for inequitable conduct and remanded for further factual findings.
The plaintiffs, Digital Control, Inc. and Merlin Technology, Inc., initiated an action for infringement of three related patents directed to horizontal directional drilling technology. The claimed invention is directed to a device that allows a worker to pinpoint the location of a boring tool by using above-ground receivers in combination with a transmitter attached to the boring tool as it moves underground. The District Court found no genuine issues of material fact as to the materiality of misstatements in a Rule 131 declaration and the failure to disclose known prior art by the inventor, Dr. John Mercer, during prosecution of the patents. The District Court also found that despite the lack of direct evidence of intent to deceive, Dr. Mercer's misstatements and omissions were done with the intent to deceive the Patent Office and that the level of materiality and the "inference of intent" were so high as to warrant a finding that the patents were unenforceable due to inequitable conduct.
The Federal Circuit began its analysis by examining the history of the standard for "materiality" under the inequitable conduct doctrine, noting there have been several standards for materiality and that the 1992 amendment to 37 C.F.R. §1.56 ("Rule 56") created "an arguably narrower standard of materiality." While conceding that the new rules regarding materiality may be in potential conflict with the old "reasonable examiner" standard, the Federal Court concluded that the old "reasonable examiner" standard was not supplanted by the new Rule 56 standard, but rather the new Rule 56 standard offered an additional test for materiality. The Federal Circuit also emphasized the sliding scale component of the analysis of the materiality and intent prongs for finding inequitable conduct, confirming prior precedent that "to the extent one standard requires a higher showing of materiality than another standard, the requisite finding of intent may be lower."
Dr. Mercer's alleged misstatements before the Patent Office concerned the submission of a Rule 131 declaration in which Dr. Mercer stated he had tested and demonstrated his boring tool underground upon a certain date. This declaration was submitted in order to overcome prior art by establishing a reduction to practice date for the invention prior to the effective date of the prior art reference. It was later determined that Dr. Mercer did not engage in the testing at the time that he stated pursuant to his declaration. Upon analysis, the Federal Circuit agreed with the District Court that a reasonable examiner would have considered the true nature of Dr. Mercer's reduction to practice as being important in deciding whether to allow the patent to issue and that misstatements made by Dr. Mercer unquestionably met the threshold requirements of materiality.
With respect to Dr. Mercer's failure to disclose known prior art, the Federal Circuit focused on the requirement that an otherwise material prior art reference may not be material for purposes of inequitable conduct, if it is "merely cumulative" to the information already considered by the Patent Office. Upon analysis of the arguments concerning the prior art, the Federal Circuit noted that "the scope and content of prior art and what the prior art teaches are questions of fact," and concluded that the present record did not permit a determination as a matter of summary judgment that the failure to disclose the known prior art reference was a material omission.
The Federal Circuit next examined Dr. Mercer's intent in providing the misstatements and the omission. The Court stated that in determining whether misstatements are intentional, "the involved conduct, viewed in light of all of the evidence, including evidence of good faith, must indicate sufficient culpability to require a finding of intent to deceive." Upon analysis, the Federal Circuit noted the evidence that Dr. Mercer added the misstatements to the Rule 131 declaration and had the motivation to deceive the Patent Office since he was "under severe pressure from his largest customer ... to acquire and enforce patent rights." While the Federal Circuit described the District Court as providing "ample factual findings regarding Dr. Mercer's intent to deceive," the Federal Circuit found that the District Court did not distinguish between Dr. Mercer's misstatements and the prior art omissions in weighing the materiality and intent prongs of the inequitable conduct analysis. Because the Federal Circuit could not ascertain whether the finding of inequitable conduct was based primarily on Dr. Mercer's misstatement in his declaration or on his failure to disclose known prior art, the case was remanded for further examination.
For the full opinion, see: http://fedcir.gov/opinions/05-1128.pdf
Inequitable Conduct Finding Affirmed Where Patentee Failed to Disclose Potential Bias of Non-Inventors Who Submitted Declarations Supporting Patent Application
Ferring B.V., et al. v. Barr Laboratories, Inc., 05-1284
In a February 15, 2006 decision from a split panel, the Federal Circuit affirmed a summary judgment finding of inequitable conduct from the United States District Court for the Southern District of New York rendering the asserted patent unenforceable. Writing for the majority, Circuit Judge Dyk concluded that the failure of the applicant during prosecution to inform the Patent Office of information bearing upon the credibility of non-inventors who submitted declarations in support of the application amounted to inequitable conduct. Where the objectivity of the declarant is an issue in the prosecution of a patent, the Federal Circuit found that the inventor must disclose the known relations and affiliations of the declarant.
Plaintiffs Ferring B.V. and its exclusive licensee Aventis Pharmaceutical, Inc. brought suit against Barr Laboratories, Inc. for infringement of U.S. Patent No. 5,407,398 ("the '398 patent") after Barr filed an Abbreviated New Drug Application with the FDA. The claimed invention relates to a medicinal compound for treating diuretic symptoms associated with diabetes and a method for administering the compound by oral dosage in which it is absorbed through the gastrointestinal tract. The particular medicinal compound (a peptide described as 1-deamin-8-D-arginine vasopressin) was known in the art to prevent diuretic symptoms when absorbed through a patient's mouth. However, such mode of delivery was considered cumbersome and time-consuming. It was argued during prosecution of the '398 patent that the claimed oral dosage form of the compound was an improvement over the prior art since the claimed compound was designed to be simply swallowed and absorbed through the gastrointestinal tract.
In December 1985, Ferring filed a patent application for the '398 patent naming Hans Vilhardt and Helmer Hagstam as the inventors. During a preliminary interview with the examiner at the Patent Office that Vilhardt attended, the examiner expressed concern that a particular prior art reference ("the Zaoral patent") might have previously disclosed the claimed oral administration of the peptide for gastrointestinal absorption by disclosing the "peroral" administration of the drug. The examiner suggested that the applicants obtain evidence "from a non-inventor" to support the applicant's view that "peroral" was limited to absorption through the walls of the mouth. In response, Ferring submitted four declarations, including two from Vilhardt, addressing the meaning of "peroral." However, one of the declarations failed to disclose that the declarant, Dr. Czernichow, was receiving funding from Ferring for research. In spite of these declarations, the examiner continued to reject certain claims of the application based on the Zaoral patent.
Following a reconsideration and an appeal in which the claims were rejected on obviousness grounds, Ferring submitted five more declarations to the examiner to overcome prior art rejections based on the Zaoral patent in combination with other references, including another declaration from Dr. Czernichow, a declaration from Dr. Robinson, who had been a consultant in Ferring's employ and received research funding, and a declaration from Dr. Barth, who had worked on several projects for Ferring. The Federal Circuit noted that Vilhardt communicated with each of these declarants before their declarations were submitted to the Patent Office and sent Dr. Barth and Dr. Robinson draft declarations. Although four of the five declarations submitted to the Patent Office were written by scientists who had been employed or had received research funds from Ferring, none of the declarations stated the relationships between the declarants and Ferring. After receipt of the declarations, the Patent Office allowed the previously rejected claims and the '398 patent issued.
District Court Judge Brieant found that the declarations were highly material to the prosecution history and that even viewing the evidence in the light most favorable to Ferring, the entire record presented clear and convincing evidence of an intent to mislead the examiners, specifically referencing the Czernichow, Robinson, and to a lesser extent, Barr declarations. In affirming, the Federal Circuit first confirmed that the inequitable conduct analysis required determining whether the alleged inequitable conduct first meets a "threshold level of materiality and intent to mislead, and second, a weighing of the materiality and intent in light of circumstances to determine whether the conduct is so culpable that the patent should be held unenforceable."
Applying the standard for materiality prior to the amendment to 37 C.F.R. §1.56 in 1992, the Federal Circuit first agreed with the District Court that the declarations were "highly material." Noting an applicant's expectation that the Patent Office will rely on declarations submitted by the applicant and the ex parte nature of proceedings before the Patent Office, the Federal Circuit stated that "it is especially important that the examiner has all the information needed" to determine whether to rely on the declarations submitted by an applicant. Further, where the examiner requested affidavits from disinterested persons, the Federal Circuit found that the applicant is "on notice as to the materiality of information" regarding the declarants' ties to the applicant. The Federal Circuit proceeded to find the relationship of the declarants to Ferring to be significant, the declarants not disinterested, and the failure to disclose the ties between Ferring and the declarants as highly material.
The Federal Circuit also found that Ferring's omissions concerning the ties between Ferring and the declarants were made with the requisite intent to deceive the Patent Office. Upon confirming that the question of intent is directed to the applicant's intent, not the declarants', the Federal Circuit found that summary judgment is appropriate on the issue of intent when there has been a failure to supply highly material information and the summary judgment record establishes that (1) the applicant knew of the information; (2) the applicant knew or should have known of the materiality of the information; and (3) the applicant has not provided a credible explanation for the withholding. The Federal Circuit proceeded to find all three conditions satisfied. First, the evidence established that Vilhardt knew of significant past relationships between the declarants and Ferring. Second, Vilhardt was aware of the examiner's request for non-inventor affidavits and, therefore, "knew or should have known that the Ferring affiliations were material." Finally, the Federal Circuit rejected appellant's argument that there are possible benign explanations for the withholding, finding that appellants' argument amounted to speculation that was not supported by any evidence. Given that Barr had made a prima facie showing of inequitable conduct, the Federal Circuit found the burden shifted to Ferring to come forward with specific evidence to support a credible explanation for withholding. Here, Ferring failed to submit any affidavit from Vilhardt or provide any credible explanation for the withholding.
After finding no genuine factual disputes with respect to the issues of materiality and intent, the Federal Circuit reviewed the District Court's ultimate finding of inequitable conduct for abuse of discretion. In finding no abuse of discretion, the Federal Circuit noted that there was not a single omission here, but rather "multiple omissions over a long period of time - a fact that heightens the seriousness of the conduct."
For the full opinion, see: http://fedcir.gov/opinions/05-1284.pdf
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