By Jason Rantanen and Dennis Crouch
Outside the Box Innovations LLC (Union Rich) v. Travel Caddy (Fed. Cir. 2012) Download 09-1171
Panel: Newman (concurring in part and dissenting in part), Prost, O'Malley (opinion for the court Per Curiam)
A major criticism of the inequitable conduct doctrine has been that patents could be held unenforceable based upon even "minor and inadvertent errors" that occurred during prosecution of a patent. A major purpose of the Supplemental Examination provision of the America Invents Act was to provide an avenue for correcting the potential unenforceability of patent rights due to those errors. While the AIA was percolating through Congress, however, the Federal Circuit issued its en banc opinion in Therasense v. Becton Dickinson. Under the revised legal framework for inequitable conduct articulated in Therasense, it is highly questionable whether these "minor" violations continue to meet the materiality requirement of inequitable conduct.
Unsurprisingly, post-Therasense, the Federal Circuit has been skeptical of these types of claims. Last fall, in Powell v. Home Depot, 663 F.3d 1221, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'" (PatentlyO discussion here). In Outside the Box Innovations v. Travel Caddy, the Federal Circuit continues in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct – perhaps maintaining a bit of the "bark" of inequitable conduct despite curtailing its "bite."
Small Entity Fees and Inequitable Conduct
The USPTO offers a major price-break for “small entities” – a 50% reduction in fees if the patent owner qualifies for “small entity status.” In practice, small entities can actually be quite large. The usual rule is that the organizational structure be less than 500 employees. Small entities can lose their status, however, by inter alia licensing the patent to a non-small entity. See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003). (It's worth noting that the America Invents Act offers an even more aggressive price reduction of 75% for "micro entities," which the USPTO plans to implement in early 2013.)
Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees. See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007). Here, the patentee (Travel Caddy) paid the small entity fee when it should have paid the large entity fee (based upon licensing affiliates). The district court held the patents unenforceable. On appeal, the Federal Circuit reversed not on the ground of materiality, but on the basis of a lack of intent. The court thus deferred to another day the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct," leaving it intact, if somewhat dinged up:
[A] false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an “unmistakably false affidavit,” particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, we need not decide that question. Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO. Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees.
Slip Op. at 13.
Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement “per se material.” Judge Newman also argued that a contingent patent license to a distributor should not necessarily defeat the small entity status.
Failure to Inform Patent Office of Pending Litigation
Manual of Patent Examining Procedure §2001.06(c) states that "Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office." The application leading to Patent No. 6,991,104 was a continuation of the application that led to Patent No. 6,823,992. On September 23, 2005, a declaratory judgment was filed seeking a declaration of noninfringement of the '992 patent; Travel Caddy did not inform the patent examiner of the existence of this litigation prior to the '104 patent's issuance on January 31, 2006.
The Federal Circuit reversed the district court's pre-Therasense finding of both materiality and intent on this theory of inequitable conduct as well. On materiality, the Federal Circuit ruled that the failure to disclose the existence of a litigation "when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application" did not constitute "clear and convincing evidence" of materiality. Slip Op. at 7. On intent, "the record contains no suggestion of how the withholding of the information concerning the ’992 litigation could have deceived the examiner and no suggestion of deliberate action to withhold it in order to deceive the examiner." Id. at 8.
Experts Need Not Be Lawyers: In a somewhat bizzare ruling, the district court excluded an expert offered by one of the parties on the ground that he was not a lawyer. "To be sure, many lawyers have technical training, but it is technological experience in the field of the invention that guides the determination of obviousness, not the rhetorical skill or nuanced advocacy of the lawyer." Slip Op. at 19. The Federal Circuit concluded that this constituted an abuse of discretion, and that the error had a "substantial influence" on the outcome of the case.
Claim Construction: The opinion also includes a detailed discussion of claim construction procedure in the context of a prior interpretation by a CAFC panel reviewing a denial of a preliminary injunction (although no final resolution of the issue is reached), and addresses issues of claim construction generally. Judge Newman dissented from the opinion on these issues as well.