Avid ID v. Crystal Import: En Banc Request Denied On Issue of Inequitable Conduct by Non-Inventor CEO

By Dennis Crouch

In Avid ID, the Federal Circuit denied Avid's motion for en banc rehearing on the issue of whether inequitable conduct exists when the non-inventor, non-attorney CEO of a company applying for a patent failed to submit information to the USPTO about pre-filing but non-invalidating trade-show exhibit of a prior version of the patented product. Judge Newman dissented.   

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Avid Identification Systems v. Crystal Import Corp. (Fed. Cir. 2010).

In its original decision in this case, the Federal Circuit held that the president of Avid ID Systems was "substantially involved" with the prosecution of the asserted patent and therefore was subject to the duty of disclosure. The court went on to find that the president had failed that duty by failing to advise the PTO of a trade-show demonstration that occurred more than one-year before the patent application was filed. The inequitable conduct decision was important to the case because the trade-show demonstration of a prior product did not leave the patent invalid under the statutory bar of 102(b)/103(a).   

Avid requested rehearing en banc and that its case join with the pending TheraSense en banc case or, in the alternative, to stay the rehearing decision until after Therasense is decided. The Federal Circuit has denied Avid's motion for rehearing en banc.

Judge Newman dissented from the rehearing denial and would have stayed the case to await changes in the law of inequitable conduct:

The law as applied in Avid is subject to conflicting precedent, a conflict whose resolution is reasonably likely to alter the result. Thus it is prudent, and just, to hold Avid’s petition while the law is clarified. The court today has declined to do so, rendering the subject patent permanently unenforceable, although the patent was found valid on the same prior art that is the basis for its unenforceability.

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This court held that Dr. Stoddard’s demonstration during the Livestock Committee trade show of what the panel calls “some of Avid’s technology,” and Avid calls a “precursor product,” was material to patentability and that Dr. Stoddard was required to assure that the patent examiner was informed. According to the panel opinion, the district court “found that the precursor product, while not invalidating, reflected the closest prior art, and thus was highly material to patentability.” Avid Identification Sys., Inc. v. Crystal Import Corp., 603 F.3d 967, 973 (Fed. Cir. 2010)(“Avid II”). While “closest prior art” has been discussed in the context of whether certain information is cumulative of that already presented to an examiner, see, e.g., AstraZeneca Pharms. LP v. Teva Pharms. USA, 583 F.3d 766, 773-75 (Fed. Cir. 2009), it has never been the law that information is “highly material” simply because it is “closest.” It is not disputed that whatever was demonstrated was not an invalidating disclosure of the patented invention, and not a sale or offer to sell the patented invention, for the jury found that the demonstration at the Livestock Committee was not invalidating. See Avid I, 2007 WL 2901415, at *1.

Dr. Stoddard, who is the president of Avid, is a veterinarian whose principal occupation is running an animal hospital; he is not an electronics engineer and not a chip designer and not an inventor of the patented device and not a lawyer. See Avid II, 603 F.3d at 970. On the undisputed fact that the challenged information is not invalidating, the court’s holding of inequitable conduct is sufficiently questionable to warrant a stay until this court resolves the larger issues before us, including the en banc Order’s query: “Should a finding of materiality require that but for the alleged misconduct, one or more claims would not have issued?” Order, 2010 WL 1655391, at *1. It is at least possible that the court will answer this question in the affirmative. Although I do not venture to guess how Therasense will fare overall, it is not unreasonable to expect that it may affect the Avid decision.

The Avid panel applied the former Rule 56 standard of materiality as stated in J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559 (Fed. Cir. 1984), although this standard was abandoned by the PTO in 1992. The information here criticized does not appear to violate the current Rule 56 standard, and Dr. Stoddard is not within the cadre upon whom is placed the obligation of understanding the patent law, as Judge Linn explained in his dissent. I must, respectfully, dissent from the court’s refusal to stay this appeal in view of the en banc proceeding in Therasense.