Specifically, Creo contended that Agfa did not disclose at least three prior art systems, the Creo Platesetter 3244, the Barco LithoSetter, and the Gerber Cressent/42. Creo further asserted that this prior art was more relevant to Agfa’s applications than the single reference discussed in the specification common to all of Agfa’s applications, a U.S. Patent on computer-to-film printing [5,303,647].

The district court severed the inequitable conduct issue from the rest of the case, and, over Agfa’s objection, conducted a bench trial on that issue. At the conclusion of that trial, the district court declared all of Agfa’s patents unenforceable. The district court further concluded that Agfa’s inequitable conduct rendered the case exceptional and awarded attorneys’ fees under 35 U.S.C. § 285.

--

Inequitable Conduct

On the merits of inequitable conduct; the CAFC left the trial court decision undisturbed -

Unenforceability due to inequitable conduct requires proof of materiality and intent by clear and convincing evidence. Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988). Upon finding evidence that satisfies a threshold measure of materiality and intent, the trial court then weighs that evidence to determine that the equities warrant a conclusion of inequitable conduct. Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995).

Materiality

In evaluating materiality, the trial court followed the standard set forth in PTO Rule 56. That rule considers information material to patentability when:

[I]t is not cumulative to information already of record or being made of record in the application, and
(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or
(2) It refutes, or is inconsistent with, a position the applicant takes in:
(i) Opposing an argument of unpatentability relied on by the Office, or
(ii) Asserting an argument of patentability.

37 C.F.R. § 1.56(b) (2004). The trial court found that the information withheld by Agfa satisfied both parts (1) and (2) of that rule.

Intent

Intent is typically more difficult to prove than materiality, but the CAFC clarified that failure to disclose when one has extensive knowledge of the prior art sufficiently establishes intent to deceive.

Turning to intent, the trial court found abundant evidence from which to infer Agfa’s culpable intent. Decision, slip op. at 41-45. For example, the evidence regarding Agfa’s knowledge of the Creo Platesetter 3244 was overwhelming... In addition to Agfa’s particular familiarity with Creo’s platesetter, the trial court explained that Agfa was well aware of other CTP prior art. According to the trial court, during development of the Galileo project, Agfa kept a spreadsheet entitled “Overview of [CTP] Products.” Id. slip op. at 7. The inventors common to all Agfa’s asserted patents possessed that spreadsheet, including its information on the Creo Platesetter 3244, the Barco Lithosetter, and the Gerber Crescent/42. Id. Based on Agfa’s extensive knowledge of the prior art, the trial court reasoned that “[Agfa’s] failure to disclose information about [the various] CTP systems to the [PTO] supports an inference of intent to deceive because patentability arguments could not have been made had the withheld information been disclosed.” Id., slip op. at 42.

Agfa seeks to confine the material references that support an intent finding to only those references that anticipate the claimed invention. Materiality is not synonymous with anticipation, but instead embraces the broader concept of patentability.

Fox Industries, Inc. v. Structural Preservation Systems, Inc., 922 F.2d 801 (Fed. Cir. 1990)... explains that inequitable conduct “early in the prosecution may render unenforceable all claims which eventually issue from the same or a related application.” Id. at 804. Later applications are, of course, not always tainted by the inequitable conduct of earlier applications. See Baxter Int’l, Inc. v. McGaw, Inc., 149 F.3d 1321, 1332 (Fed. Cir. 1998) (“[W]here the claims are subsequently separated from those tainted by inequitable conduct through a divisional application, and where the issued claims have no relation to the omitted prior art, the patent issued from the divisional application will not also be unenforceable due to inequitable conduct committed in the parent application.”).

Balance

Agfa presented an argument of balancing materiality & intent that got no traction with the appeals court.

[In] Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354 (Fed. Cir. 2003)... this court explained the importance of determining “whether the material misrepresentations or omissions in question are sufficiently serious in the light of the evidence of intent to deceive, to warrant the severe sanction of holding the patent unenforceable.” Id. at 1372. In Hoffmann-La Roche, this court remanded both because this court had not upheld all of the grounds for unenforceability and because the trial court had not addressed the weight of the various findings of materiality and intent. Id. In this case, however, this court has upheld the trial court’s findings of high levels of both materiality and intent. With those findings firmly established in this case, the district court’s less express balancing sufficed. In this setting, Hoffmann-La Roche does not require more.

Beyond the trial court’s findings of materiality and intent, Agfa also challenges the trial court’s inequitable conduct determination based on those findings. Agfa’s argument is that, notwithstanding its detailed inequitable conduct analysis, the district court did not perform a balancing of materiality and intent. This court, however, has no doubt that the district court perceived this to be a case of intentional, large scale, inequitable conduct. “The inequitable conduct established by the evidence here was not incidental or sporadic, but thoroughgoing.”

--

Bench v. Jury Trial

Agfa had argued that the district court erred in not allowing it a jury trial for inequitable conduct, citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959), but the CAFC noted a difference from Beacon (beginning on page 7 of the opinion): that there was no common issue regarding validity and inequitable conduct.

Procedurally, this case is almost indistinguishable from Gardco Manufacturing, Inc. v. Herst Lighting Co., 820 F.2d 1209 (Fed. Cir. 1987)... Thus, this court confronts the same situation that Gardco presented nearly twenty years ago. At that time, this court sustained the trial court’s approach. Gardco, 820 F.2d at 1213. This court, as it must, sustains the Gardco reasoning in this case.

As Gardco explained:

The simple fact is that a patent may be valid and yet be rendered unenforceable for misuse or inequitable conduct. Similarly, a valid patent may be (in the abstract) infringed, that is, the accused device may fall within the scope of the claim, but there will be no liability to the patentee when the patent is unenforceable. Thus the conduct-of-the-applicant-in-the-PTO issue raised in the nonjury trial and the separated infringement/validity issues are distinct and without commonality either as claims or in relation to the underlying fact issues.
820 F.2d at 1213.

This Gardco reasoning governs even in the face of 37 C.F.R. § 1.56(b). In that regulation, the PTO defines materiality as including information that establishes “a prima facie case of unpatentability.” 37 C.F.R. § 1.56(b)(1). Even though the definition of materiality, i.e., “a prima facie case of unpatentability,” may implicate some aspects of a validity analysis, the issues of invalidity and materiality are still not common within the legal construct of Beacon Theatres. As Gardco explained, a patent may be valid but not enforceable. Thus inequitable conduct and validity are not “common” issues as Beacon Theatres applied that concept.

Moreover this court’s recent decision in Digital Control, Inc. v. Charles Machine Works, 437 F.3d 1309, 1316 (Fed. Cir. 2006), explained that the PTO’s Rule 56 did not supplant the earlier, and arguably broader, “reasonable examiner” standard for materiality. Digital Control suggests as well that material prior art need not even be invalidating prior art. Thus, under the reasonable examiner standard, material prior art need not necessarily present a prima facie case of unpatentability. See id. at 1315 (Information is material “where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.”) (quoting an older version of Rule 56). Because the materiality of prior art is distinct from validity issues (without even considering the additional intent requirement for inequitable conduct), this court’s earlier reasoning in Gardco remains sound. Materiality, therefore, does not present common issues with validity. Because the issues are not “common,” the Beacon Theatres rule does not apply to protect Afga’s jury trial request.

In sum, although this case involves both issues of inequitable conduct and validity, the decision to hold a bench trial on inequitable conduct does not preclude the trial court’s later grant of a jury trial. The Beacon Theatres case does not mandate that these are “common issues” that must be tried to a jury.

The court today merely confirms what has been the law at least since Gardco: a judge retains the discretion to conduct a bench trial on the equitable issue of unenforceability in the same case where invalidity is to be tried to a jury.

--

Attorneys Fees

Adding injury to insult, the CAFC upheld the trial court's award of attorneys fees.

In the words of the trial court: “Even among the subset of ‘inequitable conduct’ patent cases, this one must be considered exceptional.”

--

Judge Newman dissented, opting that a jury trial was deserved.

[F]indings of deceptive intent often require findings of credibility. Credibility is unequivocally the province of the jury.