Hiding prior art from the Patent Office: from inequitable conduct to antitrust violation

Nicolas Seckel | February 18, 2016

TransWeb, LLC v. 3M Innovative Properties Co.  (Precedential)

February 10, 2016

Before Wallach, Bryson and Hughes.  Opinion by Hughes.

Summary:

A 3M inventor and the in-house prosecuting attorney concealed a prior public use by TransWeb which rendered the 3M invention unpatentable. A sample of the TransWeb prior art was given to the Patent Office Examiner with the pretense that it had been communicated under a confidentiality agreement. Given 3M’s capacity to monopolize the market, this fraud constituted, not just inequitable conduct, but also antitrust violation. Under the antitrust statute, 3M is liable, not only for treble damages ($103,000), but also treble attorney fees ($23 million).

Details:

TransWeb sued 3M in New Jersey for declaratory judgment of non-infringement of 3M’s 458 and 551 patents. The invention concerns a respirator filter made of a fibrous web in which fluorine atoms have been introduced by a plasma fluorination treatment. Both 3M patents claim the benefit of an application filed in July 1998.

The District Court found the asserted 3M claims not infringed and invalid, both 3M patents unenforceable for inequitable conduct, and 3M’s use of the patents an antitrust violation.

Public use

In the District Court, the 3M claims were found invalid based on evidence of public distribution of a plasma-fluorinated respirator filter material by TransWeb’s founder at a filtration industry exposition in May 1997. The main evidence was the oral testimony of TransWeb’s founder.

Oral testimony of an interested party is not sufficient as “clear and convincing evidence” of invalidity unless it is corroborated by other evidence. Sufficiency of corroboration is determined under a “rule of reason”. The main focus is whether the oral testimony is “credible”. For example, contemporaneous documentary evidence has higher corroborative value than testimonies of other interested persons.

TransWeb had no direct corroboration that the plasma-fluorinated material was distributed at the exposition, but it had presented documentary evidence that TransWeb had produced the material and had filed a patent application before the exposition, and that TransWeb had sent samples to correspondents and offered the material for sale shortly after the exposition. The Appeals Court finds no clear error in the District Court’s determination that this constituted sufficient circumstantial corroboration.

Inequitable conduct

Under Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc), inequitable conduct requires clear and convincing evidence of materiality, knowledge of materiality, and a deliberate decision to deceive. Except in cases of egregious conduct, materiality means “but-for” materiality, i.e., the patent would not have been granted if the Examiner had been aware of the information.

Here, the information was clearly “but-for” material, because after 3M disclosed the TransWeb samples to the Examiner, the Examiner rejected the claims over those samples, and 3M overcame the rejection only when it falsely asserted the samples had been received under a confidentiality agreement with TransWeb.

In addition, internal email exchanges between the 3M inventor and his supervisor showed that they both knew of the TransWeb product before the May 1997 exposition, which the 3M inventor attended with the mission of collecting information on the TransWeb product. Then, immediately after the exposition, the 3M inventor discussed the TransWeb product with the in-house attorney in charge of prosecuting the 3M applications. Later, the in-house attorney sent a “clarifying letter” to TransWeb purporting to apply a TransWeb-3M confidentiality agreement retroactively to samples that TransWeb had sent just after the exposition to Racal, an independent company that 3M subsequently acquired. In addition, the TransWeb samples were not disclosed to the Examiner “until the last possible moment”, with a request for continued prosecution after allowance, following the failure of 3M’s attempt to purchase TransWeb.

Accordingly, the Appeals Court finds no abuse of discretion in the District Court’s conclusion of unenforceability for inequitable conduct.

Antitrust violation

In an additional wrinkle, 3M’s inequitable conduct ballooned into an antitrust violation under Section 2 of the Sherman Act. This so-called “Walker Process” antitrust violation sanctions the predatory and anticompetitive enforcement of a fraudulently-obtained patent with specific intent and dangerous probability of achieving monopoly power (see Walker Process Equip. v. Food Mach & Chem. Corp. (1965)).

The Appeals Court finds that substantial evidence supported the jury verdict, in view of 3M’s fraudulent intent, coupled with 3M’s capacity to monopolize the market for fluorinated respirators, which are certified and required in certain worksites by government regulations.

Damages and attorney fees

Under section 4 of the Sherman Act, the injured person “shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee”. The Appeals Court finds no error in the District Court’s calculations, under which lost profit of about $34,000 were trebled to $103,000, and attorney fees of about $7.7 million were trebled to $23 million.

Takeaway

The duty of disclosure is onerous, but finessing or delaying compliance can be costly.

Full Opinion

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