Inequitable Conduct under the Therasense Standard

Andrew Melick | October 1, 2014

American Calcar, Inc. v. American Honda Motor Co., Inc.

September 26, 2014

Panel:  Prost, Newman and Wallach.  Opinion by Prost. Dissent by Newman.

Summary:

American Calcar, Inc. (“Calcar”) sued American Honda Motor Co., Inc. (“Honda”) for infringement of fifteen patents, three of which are involved in this case. The three patents are related by a common priority application and share a common specification. The patents deal with a multimedia system for accessing vehicle information and controlling vehicle functions. The parent application disclosed and explicitly referred to a system used in the 1996 Acura RL. However, Honda alleged that Calcar deliberately withheld the 1996 Acura RL owner’s manual and photographs taken of the system that were in Calcar’s possession. The district court found the missing information to be material under the “but for” materiality standard and found that the missing information was intentionally withheld based on the “single reasonable inference” standard. The CAFC affirmed the district court’s finding.

 Details:

In 1996, Calcar was publishing “Quick Tips” guides about cars based on the car’s owner’s manuals and from observation of the vehicle itself. Mr. Obradovich, a co-inventor of the patents at issue and founder of Calcar, operated the navigation system used in the 1996 Acura RL (“96RL”) and Calcar personnel took photographs of the system. Later, the parent patent application was filed that explicitly referred to the 96RL system as prior art.

The patents involved in this case are U.S. Patent Nos. 6,330,497 (the ‘497 patent), 6,438,465 (the ‘465 patent), and 6,542,795 (the ‘795 patent). The ‘497 patent was found to be invalid by the jury, and the ‘465 and ‘795 patents were found to be valid. Interestingly, as discussed in the dissent, the ‘497 patent was found to be valid during reexamination at the PTO.

Honda alleged that Mr. Obradovich knew that the 96RL owner’s manual and photographs were in Calcar’s possession and deliberately withheld them during prosecution. Honda also alleged that the operational details, which were not disclosed, directly related to features claimed in the patents at issue.

Inequitable conduct requires clear and convincing evidence that the patent applicant (1) misrepresented or omitted information material to patentability, and (2) did so with specific intent to mislead or deceive the PTO. Based on Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011), the materiality prong is a “but-for” materiality test, i.e., undisclosed prior art is “but-for” material, if the PTO would not have allowed a claim had it been aware of it. Additionally, under Therasense, materiality and intent must be separately established. Inequitable conduct is reviewed on appeal at the CAFC for abuse of discretion.

Materiality

The CAFC stated that materiality is assessed based on the PTO’s standards for examination of applications, applying a preponderance of the evidence standard and giving the claims their broadest reasonable interpretation. Since the district court and the PTO use different evidentiary standards, it does not matter for the materiality standard of inequitable conduct that the claims are found to be valid by a jury.

Materiality was already established in a previous appeal for the ‘497 patent concerning displaying the status of vehicle functions. The materiality issue on this appeal applies to the ‘465 and ‘795 patents.

 Claim 1 of the ‘465 patent is a representative claim:

1.  A system for use in a vehicle comprising:

a memory for storing a plurality of displays having predetermined contents, the plurality of displays being associated with a plurality of aspects of the vehicle;

an interface for entering a query to conduct a search concerning an aspect of the vehicle;

an input device for selecting a result of the search;

a processor responsive to the selected result for identifying at least one of the plurality of displays which is associated with the aspect of the vehicle; and

a display element for showing thereon the at least one display.

The highlighted phrase is considered by the court to be the only difference between the prior art and the claim. Calcar argued that the district court did not account for the inventive differences between the prior art 96RL navigation system and the claims of the patents referring to examples in the specification, such as the ability to retrieve such features as climate control functions, the radio, and the engine. Calcar argued that these aspects are non-obvious over the prior art 96RL system. However, the CAFC stated that the district court properly focused on the claim language, which more broadly recites “a search concerning an aspect of the vehicle” which refers to “anything about the car.” The district court found that the PTO would not have allowed such claims, because “it would have been obvious to a person of ordinary skill in the art to include different information in the 96RL system.” The CAFC affirmed the district court’s finding on materiality.

Intent

Intent can be inferred from indirect and circumstantial evidence, assuming that the intent is the single reasonable inference. In this case, no direct evidence of intent was found. The district court inferred specific intent, based on the fact that the information was not disclosed and testimony by Mr. Obradovich that included contradictory assertions and lack of candor about the inventors’ possession of photographs of the 96RL system. The district court found that the single reasonable inference was that Mr. Obradovich deliberately decided to withhold the information from the PTO.

Calcar argued that it would have been equally reasonable for the district court to infer that Mr. Obradovich’s actions were merely negligent or grossly negligent, and that Mr. Obradovich’s inexperience may have contributed to a mistaken or accidental failure to disclose. However, the district court found no evidence to support Calcar’s assertions and that Mr. Obradovich had “ample time and opportunity” for a comprehensive disclosure.

Calcar also argued that the court disregarded the jury’s advisory verdict in 2008 that there was no inequitable conduct. But the CAFC said that the district court was not bound by this verdict and that after the jury’s verdict the district court had access to “thousands” of pages of testimony from Calcar’s previous litigation that included contradictory assertions by Mr. Obradovich.

The CAFC found no clear error in the district court’s inference of Mr. Obradovich’s specific intent to deceive the PTO.

Dissent (Judge Newman)

Judge Newman pointed out that the while the owner’s manual and the photographs were not submitted when the parent application was filed, those materials were provided to the PTO on reexamination of the ‘497 patent, and patentability was confirmed by the PTO. Thus, there cannot be “but-for materiality.” Judge Newman also highlighted several paragraphs in the patents that describe the 96RL system and takes issue with the majority’s statement that there are undisclosed operational details in the owner’s manual without stating what those details are.

Judge Newman also said there is no evidence of intent to deceive and that a “more likely” inference from the fact that Mr. Obradovich did not initially disclose the information to the PTO is that “a savvy inventor and businessman would know that a patent obtained through concealment of a material reference is not a reliable commercial asset.” Judge Newman stated that Therasense “stressed the need for rationality and proof, not guess and sentiment.” The dissent went into details about the facts used to support the district court’s assertion of lack of credibility. For example, inconsistencies about who took the photographs of the 96RL’s system in 1996 (12 years before trial), and Mr. Obradovich’s vague recollection of whether he “played with” the system during his test drive in 1996. Judge Newman said that this does not rise to the level of clear and convincing evidence of intent to deceive the PTO.

Takeaway:

This case appears to be an easing of the inequitable conduct standards set forth in Therasense.  Based on the facts provided in the case, it did not look like there was an intent to deceive on the part of Mr. Obradovich. This case is a reminder to provide complete and comprehensive prior art disclosures to the PTO when filing and prosecuting a patent application.

On the litigation side, as a defendant in a patent infringement suit, it may be worth raising the inequitable conduct defense, even if non-disclosed information was later considered in the PTO during reexamination and the PTO confirmed the patent. “But-for” materiality may be found even if the PTO confirms a patent with the same information at issue for inequitable conduct. “But-for” materiality can also be found even if a patent is found valid in the district court due to different evidentiary standards at the PTO.

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