3M Liable for $26 Million for Fraudulent Patent Enforcement

By Dennis Crouch

Transweb v. 3M (Fed. Cir. 2016)

Although 3M was the initial litigation aggressor, TransWeb’s response is the more successful.  Here, the lower court sided with TransWeb – finding 3M’s asserted patent claims invalid based upon pre-filing public uses by TransWeb and unenforceable due to inequitable conduct during prosecution. In addition, the jury awarded TransWeb $26 million for antitrust violations based upon 3M’s attempts to maintain its monopoly by asserting a fraudulently obtained patent. On appeal, the Federal Circuit has affirmed.  The technology at issue here involves Plasma-fluorinated filters as covered by 3M’s U.S. Patents 6,397,458 and 6,808,551.

Public Use based upon Oral Testimony: The evidence of pre-filing public use came from TransWeb’s founder Kumar Ogale who orally testified that he attended an expo in May 1997 and handed out “T-Melt” samples (more than one year before 3M’s 1998 priority filing date).  Although it was clear that Ogale did attend the expo and that samples were distributed, 3M challenged the oral testimony based upon the lack of corroborating evidence that Ogale handed-out samples that included the plasma-fluorinated material at the expo.  Oral testimony of an interested party is ordinarily insufficient to invalidate an issued patent.  Rather, the ‘clear and convincing’ evidence standard requires further documentation or testimony to that corroborates the account.  However, “there are no hard and fast rules as to what constitutes sufficient corroboration, and each case must be decided on its own facts.”  In this case, the Federal Circuit rejected 3M’s argument that each and every factual conclusions leading to an invalidity determination must be corroborated by additional evidence.  Rather, the rule of corroboration is a “flexible, rule of reason demand” designed to ensure that “as a whole” the oral testimony is credible.  Here, there was corroborating evidence that Ogale attended the expo and distributed materials; that his company had been producing the plasma-fluorinated material for several months and had filed for patent protection on some aspects of the material; etc.  Reviewing this evidence, the Federal Circuit found “abundant support” for Mr. Ogale’s testimony and for the jury’s verdict of prior public use.

Inequitable Conduct:  As an equitable judgment, the determination of whether a patent is unenforceable due to inequitable conduct is ordinarily within the purview of the judge rather than the jury.  Here, however, the judge permitted the jury to offer an ‘advisory opinion’ of unenforceability that the judge then enforced based upon reaching the same conclusion.  On appeal, the Federal Circuit only reviewed the judge’s conclusions.

The basic facts are that 3M had a sample of TransWeb’s filter and notified the examiner of that fact.  Based upon this notice, the examiner rejected the pending claims as obvious.  At that point, 3M offered the ‘dubious’ assertion that the TransWeb samples were only received after signing of a confidentiality agreement and thus could not constitute prior art.  That assertion was, of course, sufficient for the examiner who withdrew the rejection.  In reviewing what happened, the district court also found that 3M’s in-house counsel “undertook an intentional scheme to paper over the potentially prior art nature” of its TransWeb samples that a 3M collaborator (and later subsidiary) had received from TransWeb one-moth after the aforementioned expo.   Based upon these (and additional facts explained in the decision), the appellate panel affirmed that the fraud upon the patent office was both intentional and material – thus affirming the inequitable conduct finding.

Antitrust Violation:  In the 1965 Walker Process decision, the Supreme Court held that an antitrust-plaintiff can prevail by showing (1) that a patentee enforced its patent, knowing the same to have been obtained by willful fraud upon the patent office leading to (2) monopolization (or attempted monopolization). Although the “willful fraud” element of a Walker Process claim was previously described as a higher burden than that used in inequitable conduct. Following Therasense, the court now sees these as “nearly identical.”

The jury found that the actual harm suffered by TransWeb for the monopolization was a measly $34,000 in lost profits.  However, TransWeb also spent over $10 million in legal fees fighting the patent infringement claims ($7.7 million) and asserting the antitrust claims ($3.2 million).  Under the Sherman Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”  Following that rule, the district court awarded $3.2 million for the cost-of-suit but then trebled the $7.7 million as the damages for fraudulent patent enforcement.  On appeal, the Federal Circuit affirmed that result – holding that “3M’s unlawful act [of enforcing its fraudulently obtained patent] was in fact aimed at reducing competition and would have done so had the suit been successful.”

 

Michael Williams (Quinn Emanuel) represented TransWeb in the appeal while Seth Waxman (Wilmer) represented 3M.

 

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

42 thoughts on “3M Liable for $26 Million for Fraudulent Patent Enforcement

  1. Read the case, very disappointed in 3M’s behavior.

    Only one problem with the opinion, judges should not take “advisory opinions” from juries in determining equity. To find facts, of course, but inequitable conduct is a legal conclusion. Does a judge ask a jury whether an injunction should be granted? No. Same for inequitable conduct.

    Harmless error, though.

    1. J, Inequitable conduct is a “legal” conclusion?

      Care to elaborate? The foundational cases are all based on Supreme Court law involving fraud on the patent office and the doctrine of unclean hands.

      Regarding juries, they were used in all cases in law or equity involving disputed facts prior to 1800. Chesnin, Harold, and Geoffrey C. Hazard Jr. “Chancery Procedure and the Seventh Amendment: Jury Trial of Issues in Equity Cases Before 1791.” Yale LJ 83 (1973): 999

      Even in patent cases when filed in Chancery, disputed facts were tried to juries. See, Lemley, Mark A. “Why Do Juries Decide If Patents Are Valid?” Va. L. Rev. 98 (2013): 1673-1893, where the author concludes:

      “The history I discuss in Part I blows up the myth that patent
      issues were tried to juries only if damages were at issue.
      Both equitable infringement suits in Chancery and scire
      facias actions were referred to juries to resolve fact disputes,
      despite the fact that neither involved claims for damages.”

      Id. at 1733.

      1. Ned, did not the Fed. Cir. hold some time ago that when the patent owner seeks only an injunction, and not any damages, that a jury trial is not required?

    2. “inequitable conduct is a legal conclusion”

      I thought it was a question of equity? As in, you’re asking a court not to enforce the patent due to the other party having unclean hands? It’s kinda in the name…

      link to en.wikipedia.org

      “The unclean hands cases of Keystone Driller v. General Excavator, Hazel-Atlas v. Hartford, and Precision v. Automotive formed the basis for the doctrine of inequitable conduct that developed and evolved over time.[1]”

      link to en.wikipedia.org

      1. A legal conclusion, meaning, it is not a question of fact. It is equity, which is why I compared inequitable conduct to injunctions.

      2. In this manner, I mean “legal conclusion” versus “factual conclusion.” “Legal” does not mean law v. equity.

        Also, I don’t mean to suggest that it is reviewed de novo. Its an abuse of discretion review for the legal conclusion and clear error for the underlying facts.

        1. J, equity typically requires a balancing of factors and seeks to do justice.

          Legal judgments are applying law to facts. There is only one correct result.

          1. I mean “legal conclusion” in the broadest sense of “legal.” We learned about equity in law school. “Law” in that sense of the word, includes equity. I think my original point makes that clear.

            What is interesting is your statement, “there is only one correct result.” Though I am a natural law theorist, what is a correct result can be up for debate.

            1. J, when it is the liability of one to another, or when one is going to lose his property, or when one’s freedom or life is a stake, thank god for the law.

    3. J, I finally had a chance to read the case. I think the reason that the judge submitted the issue of inequitable conduct to the jury was because it was required to do so. Inequitable conduct is an essential element of proof the antitrust violation. Anti-trust cases must be tried to a jury as a matter of the Seventh Amendment because they ask for damages.

      1. I don’t read it that way at all. Yes, underlying facts always go to a jury. It read to me, under section IV, that the judge asked the jury “do you think 3M acted inequitably?”

        But if I accept your premise that the purpose was to prove antitrust, then I agree with the analysis.

  2. $10m legal costs compared to $38,000 in lost profits. If that isn’t a damning indictment of the US legal system I don’t know what is.

    1. Wrong. The monetary figures and their justly-earned penalty is a damning indictment of 3M.

      The legal system worked just as it should. Justice was served.

      1. Justice was served after TransWeb were forced to spend $10m defending themselves! Yes, they eventually got that money back, but how many companies or individuals could afford that sort of defence cost? Most would have been forced to settle or simply crushed long before this stage.

        Justice served for the rich. Justice denied for everybody else.

  3. CONVOLVE, INC. v. COMPAQ COMPUTER CORP
    link to cafc.uscourts.gov

    In this case, the patentee added the modifier “seek” in
    front of “acoustic noise” during the 2008 reexamination
    proceedings after a prior art rejection. Our task, therefore,
    is to determine whether the pre-2008 reexamination
    claims are limited to “seek acoustic noise” or whether the
    original claims cover both seek and spindle acoustic noise.
    Applying the Phillips framework, we conclude that the
    claims were originally limited to seek acoustic noise, and
    the addition of the word “seek” did not alter the scope of
    the claims.

    While the specification, in and of itself, may not require
    the “seek acoustic noise” construction, the prosecution
    history of the ’473 patent before the 2008
    reexamination demonstrates that acoustic noise is limited
    to “seek” acoustic noise. In an office action dated March
    26, 2001, the Patent Office rejected several of the claims
    as anticipated or obvious in light of two prior art references:
    Rowan and Koizumi. The Patent Office determined
    that Rowan teaches a mechanism for controlling seek
    time and both electrical noise and acoustic noise from the
    spindle motor, J.A. 1893, and that Koizumi teaches
    “reduc[ing] the spindle speed to achieve the quiet mode,”
    J.A. 1896. In response, on April 2, 2001, the patentee
    amended the claims “to state explicitly that the noise to
    be controlled is acoustic noise as opposed to electrical
    noise.” J.A. 1909. In explaining the reasoning for the
    amendment, the applicant went further and made clear
    that the acoustic noise problems addressed by the claims
    and the specification are limited to those generated by the
    seek function, not the spindle motor.

    The prosecution history of the 2008 reexamination—a
    “highly influential” piece of evidence in the intervening
    rights inquiry, Laitram IV, 163 F.3d at 1348—does not
    compel a different result. Applying the broadest reasonable
    interpretation, the examiner focused exclusively on
    the language of the claims at the expense of the clear
    language in the specification and prior examination
    history. Indeed, the examiner stated that under the
    broadest reasonable interpretation standard “limitations
    are not read into the claims” and expressly rejected the
    patentee’s attempt to interpret the claims in light of the
    specification.

    In the intervening rights analysis, our task is to interpret
    the scope of the claims per the Phillips standard,
    see Laitram IV, 163 F.3d at 1346–47, and under the
    correct standard, the specification “is the single best guide
    to the meaning of the disputed term,” and is usually
    dispositive, Phillips, 415 F.3d at 1313. “In addition to
    consulting the specification, we have held that a court
    should also consider the patent’s prosecution history, if it
    is in evidence.” Id. at 1317 (citations and internal quotation
    marks omitted). Thus, the examiner’s finding under
    the broadest reasonable interpretation that the claims are
    not limited to “seek acoustic noise” cannot be dispositive.
    To the extent that the district court adopted this reasoning
    wholesale without accounting for the differences
    between the broadest reasonable interpretation standard
    and Phillips, the court erred.

    In sum, we conclude that the addition of the term
    “seek” before “acoustic noise” did not alter the scope of the
    claim. In so concluding, we decline to give significant
    weight to the patentee’s and the examiner’s use of the
    term “clarify” or “clarifying” in describing the amendment
    in prosecution. The inquiry must focus on a case-by-case
    analysis of the scope of the claims before and after claim
    amendment, which gives rise to the intervening rights
    challenge.

  4. “At that point, 3M offered the ‘dubious’ assertion that the TransWeb samples were only received after signing of a confidentiality agreement and thus could not constitute prior art. That assertion was, of course, sufficient for the examiner who withdrew the rejection. ”

    Well, I agree that a confidentiality agreement would keep the samples from being prior art as a public use, but they still are prior art under 102(f) to 3M itself. OddzOn Products, Inc. v. Just Toys, Inc., 122 F.3d 1396, 1401-1404 (Fed. Cir. 1997).

    What kind of law were they smoking in the 3M patent department to not know this well after OddzOn had been decided?

    1. Arrgh! OddzOn products does not apply.

      An essential fact that I did not known until I actually read the case was that the disclosure of the TransWeb samples was not to 3M but to a company called Racal that 3M subsequently acquired. The Racal people informed 3M that they had received samples from TransWeb, and that they had the feature eventually patented by 3M. The Racal people do not state that they had received the samples under a confidentiality agreement. The 3M in-house counsel apparently tried to demonstrate that there was a confidentiality agreement by writing a letter to TransWeb trying to discuss certain details of an alleged confidentiality agreement. Apparently there was no reply.

      But the central facts seem to be that 3M knew that Racal had received the samples, that they contained the feature patented, and that the samples were not disclose under a confidentiality agreement. Nevertheless, when 3M disclosed the fact of the TransWeb samples to the patent office, 3M argued that they were not prior art because of the alleged confidentiality agreement.

      There is also a lot of discussion about samples distributed at a trade show and whether they of the patented variety. The conclusion was that they were.

      This Expo was material to proving intention. 3M had a organized task force targeting TransWeb at a industry Expo, and must have received the samples being distributed by TransWeb. There is some incriminating internal email traffic that indicates that there was some discussion between the inventor and an in-house patent attorney about that industry Expo. The facts seem to indicate that the inventor knew that TransWeb was distributing products having the patented feature at that Expo and had informed his patent attorney.

      Interestingly, a web search on the patent attorney involved here indicates that this is not the first time he has been accused of inequitable conduct. link to zoominfo.com, but the accusation then took place at a time when every case involved a charge of inequitable conduct if any potentially material reference was not disclosed.

      If you were 3M’s patent or general counsel, what would you do about this patent attorney and the cases he prosecuted? Was he a lone wolf, or is there an environment at the company that encourages if not requires its patent attorneys to engage in sharp practices?

      Regardless, defense counsel will carefully look at 3M, and in particular, this attorney in future litigation.

  5. Hmm. I’m OK with the willfulness issue and especially with the issue regarding collaboration of oral testimony. But, it seems to me that the anti-trust analysis in this case deserves a closer look. Maybe it’s the fault of 3M’s attorneys (although they’ve certainly got expensive ones), but the court’s analysis seems to merge the Walker Process requirement that the patentee “obtained the patent by knowing
    and willful fraud on the patent office and maintained and enforced the patent with knowledge of the fraudulent procurement” with with at least the separate requirement, under the Sherman Act, that “the defendant has engaged in predatory or anticompetitive conduct.” When you couple that with the court’s analysis of the relevant “market,” this leads to the result that launching a patented product that is superior to its competitors is necessarily an antitrust violation and a Walker Product violation, if the patent was acquired through inequitable conduct. That seems like a pretty radical step.

    1. According to the court’s analysis, would there have been a Walker process violation had 3M “merely” obtained the patent through inequitable conduct and just let it “hang out there” (rather than actively enforcing it, seeking licenses, etc.)? The existence of the patent alone might have stifled some competition but if 3M wasn’t actively enforcing the patent and there was no monopoly (because some other companies were “infringing” with impunity) it would seem have been far more difficult to prove the antitrust case … no?

      1. Well, yes, you’re right, 3M did start it. But, “enforcement” is the first prong of the Walker Process claim. So the court is either merging the “enforcement” prong of Walker Process with the “predatory or anticompetitive conduct” requirement of the Sherman Act, or is merging the “willful fraud” (now simply inequitable conduct?) prong of Walker Process with the “predator or anticompetitive conduct” requirement of the Sherman Act, or some combination of both. I’ll have to go back to Walker Process itself, but I usually expect that when the Supreme Court lists 5 requirements for a violation, those 5 requirements would somehow be distinct.
        Just musing, at this point…

        1. I mean that “enforcement” is one prong of the Walker Process claim, i.e., that the patentee “obtained the patent by knowing and willful fraud on the patent office and maintained and enforced the patent with knowledge of the fraudulent procurement.”

          1. 15 usc 15 “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws”
            –> means, in this case, (1) violation of section 2 (monopolization) + “injury to business property” (standing and amount to recover).

            The monopolist (proven indirectly by market share) or attempted monopolist (proven by a dangerous probability of acquiring monopoly power (as proven indirectly by market share)) who “engages in predatory or anticompetitive conduct” is what makes the walker process claim.

            In this case, enforcing a patent knowing it was acquired invalidly is exclusionary conduct that is “predatory or anticompetitive conduct.” The attorneys for 3M did not try to argue about this. See page 16 of opinion. Instead they focused on the “dangerous probability of acquiring monopoly power (by focusing on market share calculation).

    2. “launching a patented product”

      launching a product is not anti-competitive. It’s when you start trying to enforce your fraudulent patent that a problem arises.

    3. DanH, I thought the violation was the abuse of legal process by filing suit against its sole competitor with a patent 3M knew was fraudulently procured.

  6. Hmmm….I always used to respect 3M. I can’t think of anything they make that’s bad, and most of it is great.

    This is too bad.

  7. I think we should see more inequitable conduct results like this. Examiners often are required to take the Applicant at his word when the Examiner cannot find any contradicting evidence. And most of the time, it is the Applicant who has access to all the facts. I have allowed cases based on affidavits that seemed fishy, but the Applicant swore to facts that led to only one conclusion for me, the Examiner, non-obviousness. I didn’t have facts to rebut, though the affidavit sure seemed “convenient.” So I allowed the case, and trusted that if it ever came to litigation or licensing, the opposing side would have the resources to quickly debunk the affidavit, and thus destroy the basis for allowability of the patent.

    1. You can use pretty much whatever insult you’d like to describe 3M’s behavior in this case and you wouldn’t be far off the mark.

      But the typical “patent tr0ll” is not only asserting a junk patent that should never have been granted. It’s a non-practicing entity (typically some lawyers working in concert for some veiled, cash-bloated daddy) that exists only to “monetize” that junk patent (which is usually just one piece of junk in a package of recycled junk). I hope that helps.

      1. Not really.

        All that does is show your disdain for the basic nature of a property right (and how that property right exists – quite separate from the holder of the property).

        But thanks for trying.

        1. Pretty sure that 3M is the party who showed “disdain for the basic nature of a property right” but, hey, dig yourself a giant hole and lie down in it. Free speech! Yay!

      2. MM, if you were 3M’s general counsel and had an apparently unethical patent department (unless they try to shift the entire blame on one guy), what would you do?

        1. Ned, perhaps he or she would want to dump that public embarrassment on the 3M Personnel Department and/or the PTO Office of Enrollment and Discipline? But only if is it clear that patent prosecution conduct was by an in house patent attorney or agent rather than by O.C.?

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