Cargill v. Canbra Foods and Dow Agrosicences (CAFC 06-1265)

Cargill sued Canbra Foods and Dow Agrosciences for infringing: 5,969,169; 6,201,145; 6,270,828; 6,680,396. A defense summary judgment motion whacked '828 and '396 invalid for on-sale bar (35 U.S.C. § 102(b)). But Cargill got an infringement summary judgment for '169 and '145. Following trial, however, the district court found '169 and '145 unenforceable due to inequitable conduct. Cargill was left holding the short straw on appeal.

The CAFC clarified that a patent applicant has a duty to disclose known material prior art for examiner evaluation: "applicants [should] continue to submit information for consideration by the Office in applications rather than making and relying on their own determinations of materiality." Failure to disclose may itself consititute intent, particularly if the undisclosed prior art is highly material.

Patent backdrop -

The '169 and '145 patents relate to a non-hydrogenated canola oil that possesses superior oxidative stability and fry stability, and is useful for food applications. The claimed oil is referred to in the '169 and '145 patents by the designation "IMC 130." According to the patents, ordinary canola oil is unstable and easily oxidized during cooking, which creates an off-flavor in the food. It also develops an undesirable odor when being stored. Therefore, the superior stability of the IMC 130 oil makes that oil more acceptable for cooking and storage.

The oxidative stability of canola oil can be measured in at least two ways: in terms of AOM (Active Oxygen Method) hours, or in terms of peroxide and para-anisidine values. Generic commercial canola oil typically has an oxidative stability of about 22 AOM hours, whereas IMC 130 has an oxidative stability of about 35 to 40 AOM hours.

U.S. Patent Application No. 08/425,108 (the "'108 application"), which ultimately issued as the '169 patent, was initially rejected by the examiner as being anticipated by a European patent application by Wong et al. ("Wong"). The examiner's reasoning was that Wong disclosed a canola oil with a fatty acid composition similar to that of IMC 130. According to the examiner, oxidative stability is based directly on fatty acid composition, and therefore, both the oil disclosed in Wong and IMC 130 would exhibit a similar oxidative stability. In response, the applicant argued that the test data set forth in the specification refutes the examiner's position. The applicant contended that the data demonstrates that two canola oils with similar fatty acid compositions, the claimed IMC 130 oil and an oil designated as IMC 129, have strikingly different oxidative stability values. Thus, the applicant took the position that Wong could not be found to anticipate the claimed oil solely because it recites a canola oil with a similar fatty acid composition.

After considerable back-and-forth, the examiner relented, allowing '169, with different oxidative stability between the prior art and '169 being the reason for allowance. '145 is a continuation of '169.

Inequitable Conduct

The current standard for a finding of inequitable conduct during patent prosecution -

To hold a patent unenforceable due to inequitable conduct, there must be clear and convincing evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the U.S. Patent and Trademark Office ("PTO"). Impax Labs., Inc. v. Aventis Pharm. Inc., 468 F.3d 1366, 1374 (Fed. Cir. 2006).

The materiality element of inequitable conduct was recently clarified in Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309 (Fed. Cir. 2006). In that decision, we explained that the standard for materiality set forth in the current version of PTO Rule 56, see 37 C.F.R. § 1.56(b) (2006), did not supplant the earlier "reasonable examiner" standard, see 37 C.F.R. § 1.56(a) (1991). Digital Control, 437 F.3d at 1316; see also Impax Labs., 468 F.3d at 1374. Rather, "if a misstatement or omission is material under the new Rule 56, it is material. Similarly, if a misstatement or omission is material under the 'reasonable examiner' standard . . . it is also material." Digital Control, 437 F.3d at 1316. The present version of Rule 56 states that:

[I]nformation is material to patentability when it 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.
A prima facie case of unpatentability is established when the information compels a conclusion that a claim is unpatentable under the preponderance of evidence, burden-of-proof standard, giving each term in the claim its broadest reasonable construction consistent with the specification, and before any consideration is given to evidence which may be submitted in an attempt to establish a contrary conclusion of patentability.

37 C.F.R. § 1.56(b) (2006). Under the earlier "reasonable examiner" standard, "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." 37 C.F.R. § 1.56(a) (1991).

The intent element of inequitable conduct requires that "the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive." Impax Labs., 468 F.3d at 1374-75 (quoting Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988)). Intent rarely can be, and need not be, proven by direct evidence. Id. at 1375. Instead, an intent to deceive is usually inferred from the facts and circumstances surrounding the conduct at issue. Id.

If a district court finds that the requirements of materiality and intent have been established by clear and convincing evidence, it must then "balance the equities to determine whether the patentee has committed inequitable conduct that warrants holding the patent unenforceable." Id. (quoting Monsanto Co. v. Bayer Bioscience N.V., 363 F.3d 1235, 1239 (Fed. Cir. 2004)). Under the balancing test, "[t]he more material the omission or the misrepresentation, the lower the level of intent required to establish inequitable conduct, and vice versa." Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997).

In litigation, the district count found inequitable conduct for failure to disclose material test results about '169 and '145. Of the two-pronged test, materiality is the easier hurdle: would an examiner be interested?

Following trial, the district court granted Defendants' motion for judgment that the '169 and '145 patents are unenforceable due to inequitable conduct. In reaching that decision, the court relied on two documents that contained the applicant's internal testing data but that were not disclosed to the examiner during prosecution.

[T]he district court found that the applicant failed to disclose during prosecution of the '169 and '145 patents two documents containing material information: a 1992 chemistry research report (the "Report") and certain Schaal oven data (the "Oven Data"). As is evident from the portion of the prosecution history quoted earlier, the applicant overcame the examiner's rejection by arguing that IMC 130 oil demonstrated an oxidative stability of 35 to 40 AOM hours, and that those stability values are strikingly superior to IMC 129 oil. However, the Report contains test data indicating that three samples of IMC 129 oil exhibited oxidative stabilities of 32, 35, and 32 AOM hours, which is a range similar to and, at one point, overlapping that of IMC 130. In addition, the Oven Data shows peroxide and para-anisidine values for IMC 129 that appear to be superior to those of IMC 130.

[T]he documents withheld during prosecution remain material. "[M]ateriality is determined from the viewpoint of a reasonable patent examiner, and not the subjective beliefs of the patentee." Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 326 F.3d 1226, 1238 (Fed. Cir. 2003) (internal citations omitted). A reasonable examiner would certainly want to consider test data that is directly related to an important issue of patentability, along with the applicant's interpretation of that data. Whether the examiner would have ultimately allowed the patent to issue is irrelevant because "[u]nder the 'reasonable examiner' standard, a misstatement or omission may be material even if disclosure of that misstatement or omission would not have rendered the invention unpatentable." Digital Control, 437 F.3d at 1318.

Although the district court did not explicitly reference the "reasonable examiner" standard for materiality, it effectively applied that standard in finding that, by not disclosing those two documents, the applicant "unilaterally withheld information that unquestionably would have been viewed as worthy of serious consideration by the PTO, and might have resulted in the patents not being issued." Cargill, Inc. v. Canbra Foods, Ltd., No. CV03-1209-MO, 2005 WL 3478178, at *2 (D. Or. Dec. 20, 2005). That finding is not clearly erroneous.

In finding inequitable conduct, there is an inverse correlation between materiality and intent: the more material, the less evidence required to show intent; the less material, the more needed to demonstrate intent. Here, the prior art was highly material.

The district court found an intent to deceive based on several circumstantial factors: the repeated nature of the omission, the applicant's motive to conceal, and the high materiality of the undisclosed information. With respect to the first factor, the court found that there were multiple occasions that called for disclosure of the omitted data. The district court did not elaborate on the importance of that factor, and, as a result, Cargill questions its significance. The repeated omission, however, is relevant because "intent may be inferred where a patent applicant knew, or should have known, that withheld information would be material to the PTO's consideration of the patent application." Critikon, 120 F.3d at 1256. An applicant should know information is material when the examiner repeatedly raises an issue to which the information relates. In Critikon, a factor in our finding of intent was that the examiner reiterated, on at least two occasions, the importance of a specific point of novelty in the application. Id. We concluded that the applicant should have known that any information related to that point of novelty would be material to the examiner. Id. In this case, each of the examiner's five rejections involved the issue of whether the oxidative stability of IMC 130 was superior to that of oil with a similar fatty acid composition. The repeated nature of that rejection demonstrates that the applicant should have been aware of the materiality of the omitted test data, and, therefore, the district court properly considered it as significant circumstantial evidence of an intent to deceive the PTO about the evidence relevant to the application.

The district court found the high degree of materiality of the undisclosed test data to be the most potent evidence of intent. The court explained that, "[m]ore than anything else, it is the omitted data's high degree of relevance that points toward an intent to conceal it from the PTO." Cargill challenges the court's reasoning on the ground that "[i]ntent to deceive cannot be inferred simply from the decision to withhold the reference where the reasons given for the withholding are plausible." We need not assess whether that proposition accurately states the law because, once more, the argument is inapposite. The district court did not rely simply on the applicant's decision to withhold the information. It relied on an assessment of all the evidence, which included an analysis of the particular materiality of the withheld information. We have never held that materiality is irrelevant to the question of intent. To the contrary, we have recognized that "a patentee facing a high level of materiality and clear proof that it knew or should have known of that materiality, can expect to find it difficult to establish 'subjective good faith' sufficient to prevent the drawing of an inference of intent to mislead." Critikon, 120 F.3d at 1257. Here, the district court found that the omitted test data was related to "the heart of the question that bedeviled the examiner: the nature of the difference between IMC 129 and IMC 130." Such a high degree of materiality, coupled with evidence that the applicant should have known of that materiality, creates a strong inference of an intent to deceive.

[T]he applicant knowingly misled the PTO about the available evidence. Even if there were a mitigating explanation for the withheld data, it was no excuse for the applicant's purposeful omissions in this case. "Close cases should be resolved by disclosure, not unilaterally by the applicant." LaBounty Mfg., Inc. v. U.S. Int'l Trade Comm'n, 958 F.2d 1066, 1076 (Fed. Cir. 1992). That rule is drawn from the policy that "applicants [should] continue to submit information for consideration by the Office in applications rather than making and relying on their own determinations of materiality." Critikon, 120 F.3d at 1257.

While we have recognized that subjective good faith can support a defense to inequitable conduct, see Allen Archery, Inc. v. Browning Mfg. Co., 819 F.2d 1087, 1095 (Fed. Cir. 1987) ("To the extent that Browning is arguing that . . . subjective good faith is never a defense to a claim of inequitable conduct, we rejected that contention . . . .") (internal quotations omitted), there is no such thing as a good faith intent to deceive. When an applicant knows or obviously should know that information would be material to the examiner, as was true here, but the applicant decides to withhold that information, "good faith" does not negate an intent to manipulate the evidence. Indeed, self-serving manipulation of highly material evidence can hardly be called "good faith." Cf. Laitram Corp. v. Cambridge Wire Cloth Co., 785 F.2d 292, 294 (Fed. Cir. 1986) (explaining that, in Argus Chemical Corp. v. Fibre Glass-Evercoat Co., 759 F.2d 10 (Fed. Cir. 1985), good faith did not negate inequitable conduct because the withheld information "was known by counsel and counsel should have known that it was material to the examiner").

On-Sale Bar

Cargill also appealed the on-sale bar ruling. The threshold for "reduced to practice" is utility: "[t]he fact that the claimed material was sold under circumstances in which no question existed that it was useful means that it was reduced to practice."

A patent is invalid under the on-sale bar of 35 U.S.C. § 102(b) if, more than one year before the application was filed, two conditions are satisfied: first, the claimed invention must be the subject of a commercial sale or offer for sale, and, second, it must be ready for patenting. Sparton Corp. v. United States, 399 F.3d 1321, 1323 (Fed. Cir. 2005). An invention can be found to be "ready for patenting" in at least the following ways: by proof that it was reduced to practice, or by proof that the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention. Id.

The district court had evidence of a sale more than a year earlier than the filing date.

The court explained that it could not "find any way to interpret the language linking a buck fifty with FOB to be anything other than a sale."... The material facts are not in dispute on this point. The dispute is over the legal conclusion to be drawn from the facts. The June 7 letter explicitly sets forth an amount of oil to be delivered to P&G, at a specified unit price, and under a standard contract designation, FOB (free on board), which allocates the risks and responsibilities of a buyer and a seller. See Black's Law Dictionary 690 (8th ed. 2004) (defining "free on board"). As recognized by the district court, that is powerful evidence of a sales transaction.

The issue then becomes whether what was sold was representative of the claimed invention.

The district court found that the invention disclosed in the '828 and '396 patents was ready for patenting prior to the critical date because there was proof of reduction to practice. More specifically, the court concluded that the claimed oil was reduced to practice because "when it's composed or made, it's reduced to practice."

Cargill argues that the district court made an error of law because an invention is only reduced to practice when it is shown to work for its intended purpose. However, the district court's decision is not inconsistent with that statement of the law. The court based its decision on Abbott Laboratories v. Geneva Pharmaceuticals, Inc., 182 F.3d 1315 (Fed. Cir. 1999). In Abbott Laboratories, we held that "[t]he fact that the claimed material was sold under circumstances in which no question existed that it was useful means that it was reduced to practice." 182 F.3d at 1318. In this case, the evidence demonstrates that DNAP was aware of the utility of the claimed oil prior to its offer to sell the oil to P&G on June 7, 1990.

Cargill argued that the P&G transaction was experimental, that the invention wasn't fully appreciated, hence, the invention had not been reduced to practice. But if it works, it's there (reduced to practice).

Although the district court concluded that the transaction was experimental, that does not mean that the invention had not been reduced to practice. In Abbott Laboratories, we explained that "[i]t is well settled in the law that there is no requirement that a sales offer specifically identify all the characteristics of an invention offered for sale or that the parties recognize the significance of all of these characteristics at the time of the offer." 182 F.3d at 1319. Since DNAP knew of the general utility of the claimed oil, it was reduced to practice. DNAP did not need to be aware of the specific characteristics that made the oil useful.