By Kevin E. Noonan —

Last week, the Court of Appeals for the Federal
Circuit in Therasense Inc. v. Becton
Dickinson & Co. issued an order granting plaintiffs' motion for rehearing
en banc on the Court's previous
affirmance that the patents-in-suit were unenforceable for inequitable
conduct.  In its order, the Court
certified six questions relating to its inequitable conduct jurisprudence,
asking the parties and amici to
provide their views on the standards of materiality and intent and the "balancing"
test first enunciated in Kingsdown
Medical Consutants Inc. v. Hollister (see "Federal Circuit Grants En Banc Review in Therasense v. Becton Dickinson").  The very
next day, a panel of the Federal Circuit nicely illustrated the current disjointed state
of the Court's inequitable conduct jurisprudence, suggesting that whatever
decision the Court reached en banc in
Therasense may not "solve" for
long the doctrinal inconsistencies that seem to arise inexorably when courts
attempt to decide whether a patent has been obtained through inequitable
conduct.

The technology involved will be familiar to most
pet owners:  detection of biocompatible chips used to identify lost pets
unambiguously.  Plaintiff Avid
Identification Systems was started by its president, Dr. Hannis Stoddard, after
losing his own dog.  Dr. Stoddard
testified that he realized that most of the animals in pounds and shelters were
lost pets, but that there had been no way to reunite the pets and their
owners.  While the company first
used chips obtained from an independent supplier, Dr. Stoddard testified that
he changed the business model in 1985, by developing a chip reader that could
read both Avid's own encrypted chips as well as unencrypted chips then
commercially available.  Not being
an engineer, Dr. Stoddard testified that he hired "at least" three
engineers, the named inventors of the patent-in-suit, U.S. Patent No.
5,235,326.  These engineers had
developed both specifically-encrypted chips as well as the desired chip reader
that recognized both encrypted and unencrypted chips.

More than a year before filing a patent application
on this technology, it was undisputed that Dr. Stoddard demonstrated "some
of Avid's technology" at a livestock trade show.  At trial, the District Court granted defendant's motion that
this demonstration was material prior art under 35 U.S.C. § 102(b), that this
information was withheld from the patent examiner during prosecution of the '326
patent, and that the information was withheld with deceptive intent.  In making this determination, the District Court specifically found that Dr. Stoddard had a duty of candor to the
U.S. Patent and Trademark Office under 37 C.F.R. § 1.56.  This was the issue decided by the
Federal Circuit in affirming the District Court's judgment.

The Federal Circuit opinion was written by Judge
Prost joined by Judge Mayer and joined in part (relating to a standing issue)
by Judge Linn, who also filed an opinion dissenting in part (on the Court's
substantive decision on who owes a duty of candor to the office).  Avid conceded the issue of deceptive
intent on appeal, relying on a challenge to whether Dr. Stoddard's
demonstration was material and whether he fell within the scope of the
individuals owing a duty of candor to the Office.

With regard to materiality, the panel applied the
definition contained in Rule 56 itself:  "Information is material where a reasonable examiner would
find it important to a determination of patentability," citing Astrazeneca Pharm. LP v. Teva Pharm. USA,
583 F.3d 766, 773 (Fed. Cir. 2009).  The majority rejected Avid's contention that the reference was not
material by clear and convincing evidence because the jury did not find the
claims invalid over evidence of the disclosure.  Illustrating at least one of the principles underlying the ad hoc nature of inequitable conduct
determinations, the Court stated that "[w]e have often held that a
reasonable examiner may find a particular piece of information important to a
determination of patentability, even if that piece of information does not
actually invalidate the patent," citing Praxair, Inc. v. ATMI, Inc., 543
F.3d 1306, 1314-15 (Fed. Cir. 2008), Upjohn Co. v. Mova Pharm. Corp., 225 F.3d
1306, 1312 (Fed. Cir. 2000), and Molins PLC v. Textron, Inc., 48 F.3d 1172,
1179-80 (Fed. Cir. 1995).  Regarding Avid's contention that what was demonstrated was not what was
patented, but a precursor that did not comprise all the features of the
patented invention, the Court held that as such the precursor "reflected
the closest prior art" and thus was material to patentability.  The majority found that this determination
was not clearly erroneous.

The majority's
decision depended on whether Dr. Stoddard was bound by a duty of candor under
Rule 56, it being hornbook law that only individuals having the duty could have committed inequitable conduct in procuring a patent.  Individuals having a duty of candor are defined in Rule 56(c):

"[I]individual[s] associated with the
filing or prosecution of a patent application" as (1) each named inventor,
(2) each attorney or agent that prepares or prosecutes the application, and (3)
every other person who is substantively involved in the preparation or prosecution
of the application and who is associated with the inventor or assignee. 37
C.F.R. § 1.56(c).

Here, it was
"undisputed that Dr. Stoddard is not an inventor of the '326
patent, or an attorney or agent who prepared the '326 patent application."  Thus, in order for Dr. Stoddard's
actions to constitute inequitable conduct, the Court considered whether he was "substantively
involved in the preparation or prosecution of the application" and "associated
with the inventor or assignee," citing 37 C.F.R. § 1.56(c)(3).  Calling the question of who other than
an inventor or a patent attorney/agent is "substantively involved an the
preparation or prosecution of a patent application" one that the Court had not
previously considered, the Court considered the meaning of the phrase "substantively
involved."  One thing the
majority determined it was not was involvement that was "wholly
administrative or secretarial in nature."  The District Court made three findings of fact with regard
to what was known by Dr. Stoddard (although seemingly attributing either his
knowledge to Avid or vice versa):

1)  That Avid was aware of the consequences of selling or
offering to sell its reader and tag before filing the '326 patent application,
2)  That Avid attempted to file the '326
patent application in advance of the 102(b) date, i.e., within one year after
its first sales, but failed, and
3)  That Avid intentionally withheld
evidence of such sales from the PTO in an effort to deceive the PTO and secure
allowance of the '326 patent.

The District Court was
express in its linkage of Avid and Dr. Stoddard.  According to the majority, these included "the nature of his position as president
and founder of Avid, that Avid is a closely held company, and that Stoddard
hired the inventors to reduce his encrypted chip concept to practice," and
thus that Dr. Stoddard satisfied the requirementa of 37 C.F.R. § 1.56(c)(3) that
individuals in Dr. Stoddard's position must be "associated" with the
inventors.  Moreover, the District Court found that Dr. Stoddard was "substantively involved" in
preparing or prosecuting the application because he was "involved in all
aspects of the company's operation, from marketing and sales to research and
development."  This led
to the "reasonable inference" that Dr. Stoddard was also involved in
preparing an application.  The District Court also cited as evidence two communications relating to the
patent, one to the European associate from one of the named '326 inventors
relating to the European counterpart (Dr. Stoddard was included in a cc) and
one from the inventor to Dr. Stoddard regarding nondisclosure of the
invention.  This evidence, Dr.
Stoddard's role in the company, and "the nature and content of these
communications," strongly supported the District Court's decision
regarding the "inference."

In addition,
the Court found that Dr. Stoddard's testimony at trial was not credible,
because "his memory of facts was suspiciously selective, and he refused to
acknowledge certain incontrovertible events."  In addition, the panel stated that "[o]ur
conclusion that the district court's duty of candor analysis was not clearly
erroneous is reinforced by our own review of the entire record and relevant
case law, which reveals sufficient reason to uphold the district court's
judgment."  And what was Dr.
Stoddard's contribution?

Dr. Stoddard
was personally responsible for the disputed prior art demonstrations.  He was in
contact with at least one of the inventors during the preparation of the '326
patent application regarding patent-related matters.  He was also advised by
that inventor to check with a patent attorney before disclosing information about
Avid's technology to the public.  He signed the small entity status affidavit
shortly before the application was filed.  These facts lend further support to
the inference that Dr. Stoddard was substantively involved in preparations for
filing the application, and demonstrate that Dr. Stoddard spoke for Avid in
representations to the PTO.

Although Dr.
Stoddard did not contribute enough to the patentable features of the claims to
be considered an inventor, the functionality of the system described in the '326
patent was his idea.  The inventors he hired were specifically instructed to
reduce his idea to practice.  Dr. Stoddard's inclusion on substantive
communications related to the preparation of the European counterpart to the '326
patent application further support the more general conclusion that he was
substantively involved in preparation of the patent application covering the system
he conceived.

Under the terms of Rule 56, the PTO
does not assign a duty of candor to persons not associated with a patent
application, or to those involved only in a ministerial capacity.  Such persons
would not be in a position to appreciate that their conduct or knowledge might
be relevant to the PTO.

The district
court did not clearly err in determining that Dr. Stoddard was not such an
exempt person.  Indeed, to accept Avid's argument 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.

The majority then rebutted the dissenting Judge's
views on the grounds that the Rule 56 requirement for substantial involvement
was not the same (and did not require) "knowledge that the undisclosed information is material."  There is no such "knowledge"
requirement, according to the majority, and thus materiality (even
after-appreciated materiality) plus intent equals inequitable conduct.

Dissenting Judge Linn took a different view.  Initially
Judge Linn "parted company" with the majority on the issue of whether
Dr. Stoddard was "substantively involved" with preparing or
prosecuting the application.  The Judge "finds no basis" in either Rule 56 or policy to
extend the scope of the duty of candor as the majority has done, particularly
with regard to "those on the commercial side of patented product
development," because they are "the types of people most likely to
have knowledge of § 102(b) prior art."  The Judge's point is simple:  since the Rule imposes a duty to disclose any information "material
to patentability," anyone having the duty must of necessity have "knowledge
of the technical details or legal merits of an application"; otherwise how
would they know whether something was material (and thus needed to be
disclosed) or not.  Unlike the
majority view, Judge Linn's view seems to reasonably require that those having
a duty to disclose know what it is that they are required to disclose.  Thus, excluded from the duty are not
only "'typists, clerks, and similar personnel who assist with the
application' in a non-substantive way" but also but also corporate
officers, managers, employees, and all other individuals who are neither aware
of the technical details or legal merits of the application nor engaged in the
preparation or prosecution thereof."  For Judge Linn, "[s]imply having
a general interest or even a financial interest in the invention or a general
awareness of the application is not enough."  Contrary to the majority, Judge Linn contends that the key
phrase in Rule 56(c)(3)is "substantively involved," which requires "specific
understanding of the substance of the application" as  a threshold for imposing the duty of
candor.  Otherwise, according to
the Judge, the duty would be imposed on individuals insufficiently informed
about the content of the application to be able to know what was and was not
material, and thus what needed to be disclosed:

The majority's interpretation places on
persons who are not in a position to assess materiality an obligation to
disclose information the relevance of which they have no way of determining.  The effect is either to encourage the filing of information regardless of its
materiality, just to be on the safe side, or to widen the net of inequitable
conduct that may be cast by accused infringers after the fact in litigation.

The decision,
and the dissent, in this case illustrate some of the problems with how
inequitable conduct is determined.  It seems from the record that the District Court did not credit Dr.
Stoddard's testimony, particularly in view of the uncontested nature of his
intent to deceive on appeal.  Whatever culpability he may have had in this regard certainly seems to
have amounted to a "something smells" instinct in the District Court.  Moreover, the "coulda-woulda-shoulda"
nature of the ex post facto determination
of what is (or is not) material, the determination that Dr. Stoddard's
presentation must represent the "closest prior art" to claims
presented (and drafted) months after that presentation, makes it easy for a
defendant to satisfy the two prongs (materiality and intent) of the current
inequitable conduct standard.  And
once a District Court has made that determination, having the Federal Circuit
use the "abuse of discretion" standard of review effectively
insulates the District Court's decision from any kind of skeptical (or even
neutral) reconsideration.  Requiring some objective indicia of both intent and materiality (for
example, evidence of mens rea or a
determination that the undisclosed information invalidated one or more claims)
would avoid the kind of hindsight reconstruction of both the facts, and the
motivations, that characterize this and so many other inequitable conduct
cases.

Avid
Identification Systems, Inc. v. Crystal
Import Corp. (Fed. Cir. 2010)
Panel:  Circuit Judges Mayer, Linn, and Prost
Opinion for the court by Circuit Judge Prost, concurring-in-part and dissenting-in-part opinion by Circuit Judge Linn