Litigation Practice

In a recent decision, the Federal Circuit ruled a company’s patent unenforceable due to the inequitable conduct committed by the company’s non-inventor president. As background, Avid’s founder and president, Dr. Hannis Stoddard, hired three engineers to develop a product based on his idea of identifying and processing recovered animals. Dr. Stoddard was not an inventor on the patent that ultimately issued, but he did demonstrate an early version of the technology at a trade show more than a year prior to the filing date of the issued patent. This demonstration was not disclosed to the United States Patent and Trademark Office (“USPTO”) during prosecution of the patent, and Dr. Stoddard did not dispute that this information was withheld with specific intent to deceive the USPTO for the purposes of obtaining a patent. He argued that he was neither an inventor nor an attorney and therefore owed no duty of candor to the USPTO; however, the district court disagreed and found Avid’s patent unenforceable for inequitable conduct committed by Dr. Stoddard. 

The regulations governing inequitable conduct are provided by 37 C.F.R. §1.56 (“Rule 56”), which imposes a duty to disclose information to the USPTO when an individual is (1) associated with the filing and prosecution of a patent application, and (2) knows that the information in question is material. For purposes of identifying who owes a duty of candor to the USPTO, Rule 56 defines “individual(s) associated with the filing or prosecution of a patent application” as (1) each named inventor, (2) each attorney or agent that prepares or prosecutes the application, and (3) every other person who is substantively involved in the preparation or prosecution of the application and who is associated with the inventor or assignee. 37 C.F.R §1.56(c). 

Dr. Stoddard is neither an inventor nor an attorney or agent involved in the preparation or prosecution of the patent, so the issue of whether or not he owed a duty to candor to the USPTO involved an analysis of whether or not he was “substantially involved” in the preparation or prosecution of the patent, and whether or not the prior demonstration was material to patentability. 

With respect to “substantially involved,” the Federal Circuit identified a number of factors in affirming the ruling of the district court that Dr. Stoddard met this requirement. Some of these factors included his position and responsibilities in the company, his involvement in hiring the engineers/inventors to develop the product, and his communication with the inventors during prosecution of the patent in Europe. 

With respect to materiality, the Federal Circuit dismissed Avid’s argument that the demonstration was not material to the patentability of the claims even though it would not have lead to a proper §102(b) rejection by the USPTO. Indeed, the demonstration involved a preliminary product that failed to contain all of the elements of the issued patent claims. Moreover, an infringement jury was given information regarding the demonstration and still found the patent valid. However, the court reasoned that the demonstration, while not invalidating, was the closest prior art and was thus material. By doing so, the court relied on the “reasonable examiner” standard, which was written out of the old Rule 56 (i.e., prior to the 1992 amendments). The current Rule 56 is much more objective and likely would have found this demonstration non-material to patentability. 

The Federal Circuit thus affirmed the lower court’s ruling that Avid’s patent was unenforceable for inequitable conduct committed by Dr. Stoddard. This case seems to be a close call, and it certainly didn’t help that Dr. Stoddard purposefully withheld the information knowing that it would likely have some impact during prosecution. If anything, this case serves as a reminder to submit any relevant information to the USPTO even if the person aware of this information is only remotely involved in the preparation and prosecution of a patent application. 

See Avid Identification Sys. v. Crystal Import Corp., No. 09-1216 (Fed. Cir. April 27, 2010).

The Federal Circuit has affirmed an International Trade Commission (ITC) decision finding two asserted patents invalid because they did not satisfy the best mode requirement of 35 U.S.C. §112.

The two patents relate to improved methods of producing L-lysine using genetically modified E. coli. (L-lysine is a dietary supplement in animal feed and has a multi-billion dollar market worldwide.) The patent disclosed one method of creating the L-lysine producing E. coli. However, before the patent applications were filed, the inventors created another, better strain. (The evidence also established that the better strain was intentionally withheld from the patent applications.)

The best mode requirement comes from 35 U.S.C. §112, which requires that the inventor disclose the preferred embodiment of the invention and any preferences that materially affect the claimed invention, but only to the extent that information is known by the inventor when an application is filed.

The patentee unsuccessfully argued that the improvements in the better E. coli strain related to other, non-patentable, improvements that were not related to the “inventive aspects” of the claimed invention.

Here, the best mode requirement was not met due to the breadth of the claims. The asserted claim recited the step of “cultivating a bacterium belonging to the genus [E. coli] … having mutation to desensitize feedback inhibition of L-lysine.” Because the scope of the claimed invention included “cultivating a bacterium,” the failure to disclose the preferred, and in one case, only bacterial strain used by the patentee to practice the claimed invention the best mode requirement was not met and the asserted patents were held invalid.

See Ajinomoto Co., Inc. v. International Trade Commission (Fed. Cir. 2010).

At long last, the Supreme Court has issued its opinion in Bilski v. Kappos. As widely expected, the Court affirmed the unpatentability of Bilski’s risk-management method. With a majority opinion authored by Justice Kennedy and concurring opinions offered by Justices Breyer and Stevens, the Court, instead of relying on the Federal Circuit’s “machine-or-transformation” test, relied on prior precedent to conclude that the claimed method was an “abstract idea” and thus not patentable. Interestingly, the opinion does not interpret §101 to exclude business method patents, and although the Court expressly refused to rule on the patentability of software, early consensus is that software will remain largely patentable. 

See, Bilski v. Kappos (Supreme Court 2010)(08-964). Please contact us for more information on the Bilski decision and its impact on business method and software patents

At long last, the Supreme Court has issued its opinion in Bilski v. Kappos. As widely expected, the Court affirmed the unpatentability of Bilski’s risk-management method. With a majority opinion authored by Justice Kennedy and concurring opinions offered by Justices Breyer and Stevens, the Court, instead of relying on the Federal Circuit’s “machine-or-transformation” test, relied on prior precedent to conclude that the claimed method was an “abstract idea” and thus not patentable. Interestingly, the opinion does not interpret §101 to exclude business method patents, and although the Court expressly refused to rule on the patentability of software, early consensus is that software will remain largely patentable.

Click here to read the full opinion, and please stay tuned for our further in-depth analysis of the Bilski v. Kappos decision.

The Court of Appeals for the Federal Circuit (CAFC) recently issued on en banc decision in Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co., essentially leaving the written description requirement intact.  In that case, Ariad filed a patent application relating to NF-kB and its involvement in activating gene expression underlying the body’s immune response to infection.  Once issued, Ariad and others sued Lilly for infringement, and the district court found that Lilly did indeed infringe some of the claims.  The district court also determined that the patent was not invalid for anticipation, lack of enablement or lack of written description.  On appeal, the CAFC reversed this decision, holding the Ariad patent invalid for lack of written description.  Ariad then petitioned for en banc review, which the CAFC granted.  Relying on the language in the statute, Supreme Court precedent and policy considerations, the en banc court ruled that the written description requirement was indeed separate and independent from the enablement requirement and affirmed that the Ariad patent is invalid for lack of written description. 

In his public blog, Director Kappos provided comments in response to this decision.  He suggests that some of the principles noted by the majority when analyzing whether or not the written description is met were also discussed in the USPTO’s 2001 Written Description Guidelines and exemplified in the 2008 Revised Written Description Training Materials.  He states that one of these principles involves considering “whether the specification discloses a representative number of species, sufficient structure, and/or a sufficient correlation of function to structure.”  Director Kappos suggests that although the written description requirement may not be used in a vast majority of cases, it is nevertheless an important tool for Examiner’s to use when a patentee is attempting to claim more than what he/she has invented.  He specifically mentions the usefulness of written description as it is applied to claims reciting functional language, for example, when a genus claim uses functional language to define what species are encompassed by the claim.

 The Ariad case demonstrates a common problem in the chemical and biotechnology arts.  Typically, an invention is discovered at an early stage, at which point a patent application is filed.  If the invention shows promise, further research is performed, and additional information that may not have been disclosed in the initial patent application is now trying to be claimed.  As noted by Director Kappos, this can occur where a compound is disclosed but a claim directed to a broad genus encompassing the compound is pursued.  Such a claim may be rejected for lack of written description.  To the extent possible, it is generally good practice to include any relevant experimental information showing multiple species in the context of the invention at the time of initial filing of a patent application.

Avid Identification Sys. v. Crystal Import Corp., No. 09-1216 (April 27, 2010)

In Avid, Dr. Hannis Stoddard, who was the founder and president of the company, hired three engineers to develop a product based on his idea of identifying and processing recovered animals.  Dr. Stoddard was not an inventor on the patent that ultimately issued, but he did demonstrate an early version of the technology at a trade show more than a year prior to the filing date of the issued patent.  This demonstration was not disclosed to the PTO during prosecution of the patent, and Dr. Stoddard did not dispute that this information was withheld with specific intent to deceive the PTO for the purposes of obtaining a patent.  He argued that he was neither an inventor nor an attorney and therefore owed no duty of candor to the PTO; however, the district court disagreed and found Avid’s patent unenforceable for inequitable conduct committed by Dr. Stoddard

The regulations governing inequitable conduct are provided by 37 C.F.R. §1.56 (Rule 56), which imposes a duty to disclose information to the PTO when an individual is (1) associated with the filing and prosecution of a patent application, and (2) knows that the information in question is material.  For purposes of identifying who owes a duty of candor to the PTO, Rule 56 defines “individual(s) associated with the filing or prosecution of a patent application” as (1) each named inventor, (2) each attorney or agent that prepares or prosecutes the application, and (3) every other person who is substantively involved in the preparation or prosecution of the application and who is associated with the inventor or assignee.  37 C.F.R §1.56(c).

Dr. Stoddard is neither an inventor nor an attorney or agent involved in the preparation or prosecution of the patent, so the issue of whether or not he owed a duty to candor to the PTO involved an analysis of whether or not he was “substantially involved” in the preparation or prosecution of the patent, and whether or not the prior demonstration was material to patentability.

With respect to “substantially involved,” the CAFC identified a number of factors in affirming the ruling of the district court that Dr. Stoddard met this requirement.  Some of these factors included his position and responsibilities in the company, his involvement in hiring the engineers/inventors to develop the product, and his communication with the inventors during prosecution of the patent in Europe.

With respect to materiality, the CAFC dismissed Avid’s argument that the demonstration was not material to the patentability of the claims even though it would not have lead to a proper §102(b) rejection by the PTO.  Indeed, the demonstration involved a preliminary product that failed to contain all of the elements of the issued patent claims.  Moreover, an infringement jury was given information regarding the demonstration and still found the patent valid.  However, the court reasoned that the demonstration, while not invalidating, was the closest prior art and was thus material.  By doing so, the court relied on the “reasonable examiner” standard, which was written out of the old Rule 56 (i.e., prior to the 1992 amendments).  The current Rule 56 is much more objective and likely would have found this demonstration non-material to patentability.

The CAFC thus affirmed the lower court’s ruling that Avid’s patent was unenforceable for inequitable conduct committed by Dr. Stoddard.  This case seems to be a close call, and it certainly didn’t help that Dr. Stoddard purposefully withheld the information knowing that it would likely have some impact during prosecution.  If anything, this case serves as a reminder to submit any relevant information to the PTO even if the person aware of this information is only remotely involved in the preparation and prosecution of a patent application.

Prior unsuccessful attempts to reform the U.S. patent system and rein in massive damages awards have sought to limit damages to the actual economic impact attributable to the claimed invention.  In its most recent bill, the U.S. Senate has shifted its focus from the methodology of the damages analysis, and now seeks to prevent a Plaintiff from presenting a more favorable damages theory absent sufficient evidence to justify its appropriateness. 

 The proposed bill would establish a Daubert like “gatekeeper” role, requiring the district court to exclude unjustified damages theories and evidence.  The proposed bill would mandate that the district courts conduct a thorough hearing on patent damages prior to trial. 

 The bill specifies that “the court shall consider whether one or more of a party’s damages contentions lacks a legally sufficient evidentiary basis” and that “[t]he court shall only permit the introduction of evidence relating to the determination of damages that is relevant to the methodologies and factors that the court determines may be considered in making the damages determination.”  Furthermore, the bill specifically requires that “[t]he court shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such a determination.”  Presumably, such an analysis would be guided by the well established Georgia-Pacific factors.  For a copy of the full version of the current Senate bill, click here.

The Ninth Circuit issued an ironic ruling last month regarding levying domain names to satisfy a prior judgment.  In Office Depot, Inc. v. Zuccarini, (9^th Cir., Feb. 2010) Slip Opinion, the Ninth Circuit ruled that a creditor can levy a domain name of a debtor to satisfy a judgment.

John Zuccarini, a notorious cyber squatter, registered hundreds of domain names incorporating other individual’s trademarks, including “officedepot.com.”  Office Depot successfully sued Zuccarini under the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. § 1125(d).  The ACPA provides a cause of action for trademark owners against persons who register their mark(s) as domain name(s) to profit from the trademark.  Office Depot obtained a judgment against Zuccarini, but was unable to collect and subsequently assigned the judgment to DS Holdings.

DS initially sought to have 109 “.com” domain names that were registered to Zuccarini transferred directly to it.  However, a California statue prohibited the court from ordering transfer of property held by a third party (a registrar maintains domain name registrations).  DS then successfully had the court appoint a receiver to take possession of the domain names and sell them to satisfy the judgment.

The irony is that this judgment arose from Zuccarini’s liability from registering these domain names to sell to trademark owners for profit.  Now, DS will presumably sell the same domain names to the same trademark owners to satisfy the judgment.  While this situation likely does not meet the definition of bad faith required under the ACPA, the end result is the same: a third party selling a domain name confusingly similar to another party’s trademark.

In any event, this decision provides a roadmap to levying domain names to satisfy a judgment.  In many cases, domain names would not be worth the effort to seize.  But in other cases, domain names can have significant commercial value, making such efforts worthwhile.

The Federal Circuit has affirmed an ITC decision finding two asserted patents invalid because they did not satisfy the best mode requirement of 35 U.S.C. §112.

The two patents relate to improved methods of producing L-lysine using genetically modified E. coli.  (L-lysine is a dietary supplement in animal feed and has a multi-billion dollar market worldwide.)  The patent disclosed one method of creating the L-lysine producing E. coli.  However, before the patent applications were filed, the inventors created another, better strain.  (The evidence also established that the better strain was intentionally withheld from the patent applications.)

§112 requires that the inventor disclose the preferred embodiment of the invention and any preferences that materially affect the claimed invention, but only to the extent that information is known by the inventor when an application is filed.

The patentee unsuccessfully argued that the improvements in the better E. coli strain related to other, non-patentable, improvements that were not related to the “inventive aspects” of the claimed invention.

Here, the best mode requirement was not met due to the breadth of the claims.  The asserted claim recited the step of “cultivating a bacterium belonging to the genus [E. coli] … having mutation to desensitize feedback inhibition of L-lysine.”  Because the scope of the claimed invention included “cultivating a bacterium,” the failure to disclose the preferred, and in one case, only bacterial strain used by the patentee to practice the claimed invention the best mode requirement was not met and the asserted patents were held invalid.

See Ajinomoto Co., Inc. v. International Trade Commission (Fed. Cir. 2010).  Link http://www.cafc.uscourts.gov/opinions/09-1081.pdf

Thus, it is important to keep your attorney apprised of any modification to the invention, particularly if you believe the modification is preferred, up to the filing date your patent application.

Note: the current version of the Patent Reform Act of 2010 eliminates the invalidity defense for failing to disclose the best mode, which would likely have  flipped the verdict in a case such as this.

The Federal Circuit has recently addressed the issue of the knowledge required to support a finding of induced infringement under 35 U.S.C. § 271(b).  SEB S.A., et al. v. Montgomery Ward & Co., et al., Case Nos. 2009-1099, -1108, -1119 (Fed. Cir. 2010).  The Federal Circuit addressed past precedent and drew upon case law from other civil contexts to ultimately find that “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.”  P. 25.  The Federal Circuit found that the record supported the conclusion that the defendant deliberately disregarded a known risk that a patent covered its product.  In this case, (1) the defendant copied the plaintiff’s product, (2) the defendant hired a patent attorney to perform a right-to-use study for its product, but did not tell the patent attorney that it had copied the plaintiff’s product, and (3) the defendant’s president was well versed in the U.S. patent system.  As a result and based on a finding of direct and induced infringement, the Federal Circuit upheld the $4.8 million judgment against the defendant.

The Federal Circuit clearly stated that a “failure to inform one’s counsel of copying would be highly suggestive of deliberate indifference in most circumstances.”  Id.  As is always the case, clients should be open and honest with their attorneys.  This is particularly important if the disclosed invention was in any way based upon a known product or design.  Inventors should understand that this type of information is important to the work of their patent attorney.

To download a copy of the SEB decision, please click here.