The following alert was written by our friends at Foley & Lardner.

On November 9, 2010, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, heard oral argument in two important patent cases. The first, Therasense, Inc. v. Becton, Dickinson & Co., No. 08-1511 et al., concerns whether the current materiality-intent balancing framework for determining inequitable conduct should be modified and, if so, how. The second case, TiVo, Inc. v. EchoStar Corp., No. 09-1374, concerns the circumstances under which a district court, following a finding of infringement at trial, might then use a contempt proceeding, instead of a new trial, to determine whether a newly accused device infringes.

Therasense, Inc. v. Becton, Dickinson & Co., No. 08-1511 et al. — Inequitable Conduct

Under the current standard, patent unenforceability based on inequitable conduct — whether a patent applicant somehow breached his duty of candor and good faith to the USPTO during prosecution — is frequently asserted by accused patent infringers as a defense to infringement. The Federal Circuit has previously expressed concerns that inequitable conduct is invoked too often. In Therasense, the court could make it more difficult to assert the defense in future cases.

Background

This case arose from a patent suit in which Abbott Laboratories and its subsidiary, Therasense, alleged that Becton, Dickinson and Co. and other parties (collectively, BD) had infringed Abbott’s patents relating to disposable blood glucose test strips. BD asserted a defense that Abbott’s ‘551 patent-in-suit was unenforceable due to inequitable conduct because Abbott had failed to disclose to the USPTO arguments made to the European Patent Office (EPO) in a proceeding regarding the European counterpart to another patent that was prior art to the ‘551 patent. BD alleged that Abbott’s EPO statements contradicted the position Abbott took on the prior art during the ‘551 patent prosecution. Abbott presented evidence that it did not disclose the EPO statements because it reasonably believed them to be consistent with the arguments it made to the USPTO, and that the arguments were, therefore, not material.

The district court applied the current two-pronged materiality and intent test for inequitable conduct and ruled the ‘551 patent unenforceable due to Abbott’s inequitable conduct. The district court first found that Abbott’s EPO statements were highly material and then inferred intent based on the court’s own evaluations of materiality and testimony. A three-judge panel of the Federal Circuit upheld the district court’s holding on inequitable conduct by a two-to-one majority. Abbott successfully petitioned for rehearing en banc, and the Federal Circuit ordered the parties to address questions relating to the current inequitable conduct standards, including whether the materiality-intent-balancing framework for inequitable conduct should be modified or replaced, and what the proper standard should be for materiality.

Oral Argument

At the en banc argument, all of the parties and the USPTO (which filed an amicus brief and participated in oral argument) seemed to agree that (a) the inequitable conduct doctrine needs to be reformed, and (b) the initial inquiry should focus on intent — specifically on whether the patentee appreciated the importance of certain information to the USPTO and still chose not to disclose it. The major differences between the parties concerned the proper standard for materiality of information. Abbott advocated use of a “but-for” causation test, which would require that but for the failure to disclose information, the patent would not have issued. Although Abbott contended that this test was supported by Supreme Court precedent that established the inequitable conduct doctrine, several judges expressed doubts that precedent supported such a test.

The USPTO also disagreed that the Supreme Court cases supported a but-for causation test. The USPTO advocated a materiality test based on its current Rule 56(b) (37 C.F.R. § 1.56(b)), which states that non-cumulative information is material where it either establishes a prima facie case of unpatentability, or refutes or is inconsistent with a position taken by the applicant before the USPTO. In response, at least two judges expressed concerns that under the current Rule 56, applicants tended to “dump” too much information on the USPTO, thus slowing down prosecution and making it harder for the examiner to find important information.

Counsel for appellees Becton, Dickinson et al. also supported a materiality test based on the current Rule 56(b), suggesting that patent prosecutors and the courts should be using the same standard to reduce confusion about what needs to be disclosed. Appellees’ counsel suggested that the problem of applicants dumping information on the USPTO could be addressed by requiring a finding of specific intent for inequitable conduct, and by the heightened pleading standards already imposed in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). The appellees expressed concerns that a but-for test would allow fraudulent behavior by patent applicants to go unpunished.

Conclusion

Overall, the en banc court, while apparently open to possible changes to the inequitable conduct standard, expressed significant concerns with both the but-for causation test for materiality advocated by Abbott and the Rule 56(b) test advocated by appellees and the USPTO. It remains to be seen whether the court will adopt a modified version of one of these tests for materiality or design some new test of its own. Although the current Congress has debated several possible legislative reforms aimed at inequitable conduct, the current outlook for any patent reform remains murky.

TiVo, Inc. v. EchoStar Corp., No. 09-1374 — Contempt Proceedings for Infringement

After losing at trial, manufacturers often attempt to create a new non-infringing product by “designing around” and eliminating infringing elements. The outcome ofTiVo may affect an adjudicated infringer’s right to obtain a new trial should its redesigned new product be accused and its potential liability for contempt sanctions based on a design-around attempt.

Background

TiVo sued EchoStar (and related entity DISH Network) in E.D. Texas for infringement of TiVo’s digital video recording (DVR) or “Time Warp” patent. Following a jury verdict of infringement and damages, the district court entered a permanent injunction ordering EchoStar to stop making, using, offering to sell, and/or selling the infringing receivers, and to disable the DVR functionality in existing receivers possessed by distributors and customers of the satellite television provider. EchoStar did not appeal the grant of the permanent injunction, although it did appeal on other issues. The Federal Circuit affirmed in part the jury verdict of infringement.

Meanwhile, EchoStar had redesigned its receiver software in an attempt to avoid further infringement. TiVo moved the district court to find EchoStar in contempt of the permanent injunction order for selling the redesigned receivers. The district court held EchoStar in contempt because, in the court’s opinion, the redesigned receivers still infringed, and because EchoStar had failed to comply with the court’s order requiring it to disable the DVR functionality of receivers adjudged infringing at trial. The court imposed sanctions on EchoStar of nearly $90 million for contempt and awarded additional infringement damages to TiVo. The court also ordered EchoStar to seek the court’s approval before implementing any further design arounds.

On appeal, a Federal Circuit panel affirmed, by a two-to-one majority, the district court’s judgment. The majority agreed with the district court that the redesign was not major and that no substantial open questions of infringement remained to be decided by a trial, so a contempt proceeding was proper. The dissent by Judge Rader opined that the redesigned product was substantially changed and, therefore, EchoStar should be entitled to a new trial, which would allow it the opportunity to present potentially helpful testimony of experts and others. The dissent also stated that the district court had gone beyond a reasonable reading of the injunction order by forcing EchoStar to physically remove its cable boxes from distributors and customers, whether or not they infringed.

The Federal Circuit granted EchoStar’s petition, and ordered the parties to address, among other questions, the circumstances under which it is proper for a district court, following a finding of infringement by an accused device at trial, to use contempt proceedings to determine infringement by a newly accused device.

Oral Argument

Much of the en banc argument focused on whether the district court acted properly by holding EchoStar in contempt based on an order that contains ambiguous and potentially overbroad terms. EchoStar argued that the Supreme Court held inGranny Goose Foods, Inc. v. Brotherhood of Teamsters, 415 U.S. 423 (1974), that an injunction had to clearly state what was prohibited. When panel members asked why EchoStar had not initially appealed the supposedly defective injunction order, EchoStar contended that it did not realize that anyone, including the district court, would read the order in what it considered to be an unreasonable way. TiVo, in turn, argued that EchoStar had never even sought a clarification of the supposedly ambiguous injunction order.

Counsel for EchoStar and TiVo also disputed whether the infringement trial jury had made findings supporting infringement by EchoStar’s redesigned products, which did not receive the benefit of a jury trial.

Conclusion

Several judges appeared to suggest that EchoStar’s new products would have been more properly challenged through a new infringement suit rather than a contempt proceeding, and at least one judge voiced concerns about the ambiguity of the injunction order. However, the court appears likely to also address EchoStar’s failure to appeal the initial order in its opinion.

Click here for the full publication from Foley & Lardner.

Tags: "designing around", Federal Circuit, inequitable conduct, intent, materiality, patent infringement, Therasesnse Inc. v. Becton Dickinson & Co., Tivo Inc. v. EchoStar Corp., USPTO

This entry was posted on Thursday, November 11th, 2010 at 13:31 and is filed under Ethics, inequitable conduct, Patent Litigation, posts, USPTO. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.