Dickson Industries v. Patent Enforcement Team v. Midstate Traffic Controls and Sawhorse Investments (CAFC 2008-1372, -1398) nonprecedential

Dickson subsequently amended its Complaint to allege that PET tortiously interfered with Dickson's business relations, and PET filed a counterclaim against Dickson for infringement of claim 5 of the '069 Patent. In early 2003, the case was administratively closed pending reexamination of the patent. It was re-opened in 2006 after the USPTO upheld claims 1-7 of the original '069 Patent.

Pre-trial, and timely, Dickson charged inequitable conduct during reexam, but the district court judge wouldn't have it.

After issuing its Markman ruling, the district court entered a Scheduling Order setting deadlines for all parties to file a motion for leave to amend their pleadings. Dickson timely filed a Motion for Leave to File Second Amended Complaint, seeking to add an allegation that the '069 Patent is unenforceable due to inequitable conduct by PET during reexamination. The district court denied Dickson's motion. At the same time, it vacated the prior Scheduling Order and replaced it with one that did not allow for the amendment of pleadings.

The jury found PET's asserted claim 5 invalid by anticipation, and PET liable for tortious interference with Dickson's business relationships. $1.5 million compensatory and punitive damages.

A single patent, 4,473,319 by Spangler, anticipated '069. That much the CAFC panel affirmed.

Post-trial, the judge warmed to Dickson's inequitable conduct allegation, ruling '069 "unenforceable due to inequitable conduct by PET during reexamination. Furthermore, the district court concluded that this is an exceptional case under 35 U.S.C. § 285 because Dickson has shown by clear and convincing evidence that PET and/or its attorneys engaged in inequitable conduct before the USPTO during the re-examination."

The inequitable conduct finding got tricky. Case law shakedown -

Because inequitable conduct ultimately falls within the discretion of the district court, this court reviews that determination for an abuse of discretion. Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc). The trial court's factual findings on the issues of materiality and intent, however, are reviewed for clear error. Id. Where a court premises its inequitable conduct determination upon clearly erroneous findings of materiality and/or intent, it constitutes an abuse of discretion and this court must reverse. Impax Labs., Inc. v. Aventis Pharms., 468 F.3d 1366, 1375 (Fed. Cir. 2006).

To find a patent unenforceable due to inequitable conduct, the accused infringer must present 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 PTO. Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1363 (Fed. Cir. 2007). A determination based solely on one part of the test is legally erroneous. Id.

"Information is material when a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent." Star Scientific, 537 F.3d at 1367 (quoting Symantec Corp. v. Computer Assocs. Int'l, Inc., 522 F.3d 1279, 1297 (Fed. Cir. 2008)). For instance, information concealed from the USPTO may be material even if it does not invalidate the patent. Li Second Family Ltd. P'ship v. Toshiba Corp., 231 F.3d 1373, 1380 (Fed. Cir. 2000). But an otherwise material reference is not material if it is merely cumulative to, or less relevant than, information already considered by the examiner. See Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1319 (Fed. Cir. 2006).

Moreover, "materiality does not presume intent, which is a separate and essential component of inequitable conduct." GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1274 (Fed. Cir. 2001). The alleged infringer must prove with clear and convincing evidence that the patentee concealed the material information with the specific intent to mislead or deceive the USPTO. Star Scientific, 537 F.3d at 1366. And even gross negligence is insufficient to prove intent to deceive. Kingsdown, 863 F.2d at 876. "In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference." Star Scientific, 537 F.3d at 1366 (quoting Molins PLC v. Textron, Inc., 48 F.3d 1172, 1181 (Fed. Cir. 1995)).

District court screw-up -

In this case, the district court denied Dickson's motion to amend its complaint to add the issue of inequitable conduct during reexamination. Relying on the district court's earlier ruling, PET did not fully prepare the issue for trial. Then, despite PET's motion in limine and repeated objection, the district allowed the issue to be presented at trial. The district court's inconsistent orders prejudiced PET and denied it the opportunity to adequately defend against the allegation of inequitable conduct at trial. For instance, PET was denied the opportunity to introduce evidence of good faith, which militates against a finding of deceptive intent. See, e.g., Larson Mfg. Co. of S.D. v. Aluminart Products Ltd., 559 F.3d 1317, 1341 (Fed. Cir. 2009).

The district court's contradicting positions undermine the legitimacy of its ruling on inequitable conduct. This court cannot say with confidence that the record regarding inequitable conduct is not incomplete. Thus, this court vacates the district's decision on the issue of inequitable conduct and remands to provide an opportunity to fully develop the record regarding inequitable conduct. Further, this Court vacates the award of attorney fees premised on inequitable conduct as premature.

On remand, in order to prevail, Dickson must prove, by clear and convincing evidence that PET failed to disclose material information to the USPTO and intent to deceive the USPTO. See Star Scientific, 537 F.3d at 1366. The materiality prong and the intent prong are separate components of the inequitable conduct and must be independently satisfied. Id. Materiality does not presume intent and in the case of omission of material information, possession of the material references alone is insufficient to prove intent. Larson, 559 F.3d at 1341. Rather, there must be clear and convincing evidence that PET intended to deceive or mislead the USPTO. Id.

A warning to not be cavalier about inequitable conduct -

This court has long recognized that "the habit of charging inequitable conduct in almost every major patent case has become an absolute plague." Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988). Given the severe consequences of unenforceability when it is imposed on a patent, it is paramount that the district court exercise necessary caution to ensure that the patent owner met its burden of proof with respect to both the materiality and deceptive intent.

Affirmed in part, vacated in part, and remanded.