Avid Identification Systems, Inc. v. Crystal Import Corp., 603 F.3d 967, CPLRG 0059 (Fed. Cir. 2010) (PROST & Mayer; LINN, concurring-in-part & dissenting-in-part)AvidIdentification04272010
MAJOR ISSUES: inequitable conduct; individuals subject to duty of candor; person other than inventors, attorneys and agents; substantive involvement in preparation or prosecution of patent application
COMMENT. In this decision dated April 27, 2010, over a dissent by Judge Linn, the panel majority affirms an inequitable conduct finding. It is a rare instance in which the conduct in question was by a person who was neither a named inventor nor a patent attorney or agent.
Just a day before, on April 26, 2010, the Federal Circuit granted rehearing en banc in another case. Therasense, Inc. v. Becton, Dickinson & Co., 593 F.3d 1289 (Fed. Cir. 2010), vacated and rehearing en banc granted, 374 Fed. Appx. 35, CPLRG 0058 (Fed. Cir. 2010). The order in Therasense suggests that the Federal Circuit will comprehensively review the law on inequitable conduct.
A major issue in Therasense is the standard for inferring the deceptive intent element of inequitable conduct. Oddly, in this case, there was no disputed issue on whether the charged person had the requisite intent to deceive the PTO. The patent owner did not appeal the determination that the person, the founder and president of the patent owner, had such an intent in not disclosing pre-critical date trade show activity. The appealed issue was whether the person was under any duty of candor at all. The Federal Circuit applies the PTO rule, which requires “substantive involvement” in the preparation or prosecution of an application. The majority upholds a district court finding of sufficient involvement, thus meeting the PTO standard. The court did not address whether the PTO standard was the proper one for applying the judicially developed defense of inequitable conduct.
1. RADIO FREQUENCY IDENTIFICATION; CHIPS IN PETS. The patent at issue concerned a radio frequency identification system that used implanted biocompatible chips to assist in the location of owners of lost pets. U.S. Pat. No. 5,235,326. USPatNo5235326
2. In finding the patent unenforceable, a district court applied Rule 56(c). It found that an individual, Stoddard, was “substantively involved” in patent’s preparation and prosecution even though he was not a named inventor. He was the founder of the company to whom the patent was assigned.
a. BREACH; WITHHOLDING OF TRADE SHOW DEMONSTRATION. Stoddard breached the duty by withholding, with a specific intent to deceive the PTO, information on a demonstration at a trade show of a precursor of the patented product. The precursor was the closest prior art and, therefore, highly material to patentability even though a jury later found the patent’s claims not invalid.
b. Stoddard founded the patent owner as a company to carry out his personal mission of developing and marketing an identification system. He hired the named inventors to reduce his idea to practice. He “did not contribute enough to the patentable features of the claims to be considered an inventor,” but “the functionality of the system described in the ‘326 patent was his idea.”
c. The district court found Stoddard was involved in “all aspects of the company’s operation,” including marketing and research and development. That involvement contributed to a “reasonable inference” that Stoddard was involved in the preparation of the patent application, which concerned his “personal mission.”
d. TWO COMMUNICATIONS. Two communications contributed to an inference of Stoddard’s substantive involvement in “patent matters related to the identification chip system.”
i. First, Stoddard was one of two recipients of a communication by a named inventor that contained the content of a European application corresponding to the United States patent application for the patent at issue.
ii. Second, the named inventor sent a note to Stoddard, advising him to check with the company’s European patent attorney before demonstrating technology that might affect patent rights in Europe.
e. TESTIMONY: NOT CREDIBLE. The district court found that Stoddard’s trial testimony was “suspiciously selective” and not credible. Stoddard’s lack of credibility cast doubt on his assertion that he did not understand the technology of the patented invention and was not involved in the preparation of the application.
f. Stoddard “was personally responsible for the disputed prior art demonstrations.”
g. Stoddard executed the small entity status affidavit for the application.
3. PERSONS MOST LIKELY TO KNOW OF COMMERCIAL ACTIVITY. The Federal Circuit noted that, to hold that “a person such as Dr. Stoddard owes no duty of candor would allow intentional deception by the types of people most likely to have knowledge of § 102(b) prior art, i.e., those on the commercial side of patented product development.”
4. CAUTION. The Federal Circuit cautioned that its “holding does not automatically extend the duty of candor to all individuals who contact one of the inventors or sign the small entity affidavit.” “Nor does our holding extend the duty generally to all individuals on the commercial side of product development.”
“We simply hold that the district court may properly consider a variety of factors, such as an individual’s position within the company, role in developing or marketing the patented idea, contact with the inventors or prosecutors, and representations to the PTO in deciding whether that individual is ‘substantively involved’ within the meaning of § 1.56(c)(3) and thus owes a duty of candor to the PTO.”
CROSS REFERENCES. On persons subject to the duty of candor, see Chisum Patent Law Digest 4250; Chisum on Patents 19.03[e].