IP News

Patentee's Duty to Disclose Contradictory Arguments Made to a Foreign Patent Office

In Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008-1511, -1512, -1513, -1514, -1595 (Fed. Cir. Jan. 25, 2010), the Federal Circuit affirmed the U.S. District Court for the Northern District of California's decision that a patent was unenforceable for inequitable conduct due to a failure to disclose statements made to the European Patent Office (“EPO”) concerning a European counterpart outside the patent-in-suit's family that included some common inventors.

Co-plaintiff Abbott owns U.S. Patents 5,820,551 (“the '551 patent”) and 4,545,382 (“the '382 patent”). The claims of the '382 patent are directed to sensors for testing fluids by generating an electrical current in the fluid. The '551 patent is directed to a system for testing blood using sensors similar to those disclosed by the '382 patent, with dependent claims focusing on the use of strips for testing blood sugar (primarily for use by diabetics). The '551 patent is not a descendant of the '382 patent, nor does it have an identical set of inventors, though it does share two inventors with those listed on the '382 patent. The district court found that the '551 patent was obvious in light of the '382 patent and U.S. Patent No. 4,225,410 (“the '410 patent”).

The Federal Circuit stated that, “The central question with respect to obviousness is whether the prior art disclosed a glucose sensor without a membrane for use in whole blood.” Both patents disclosed sensors without a membrane, but Abbott argued that the '382 patent only discloses a membraneless sensor for uses other than testing blood, and taught that a membrane was required for testing blood. The district court determined from evidence presented that the sensor disclosed by the '382 patent could be used without a membrane for testing blood, that the patent in fact suggested such a use, and that the sensor disclosed by the '382 patent when used for testing blood as part of the electronic system was disclosed by the '410 patent. Based on these findings, the district court determined that the first four claims of the '551 patent were invalid as obvious, and the Federal Circuit affirmed.

The district court also held that the entire patent was unenforceable for inequitable conduct as a result of Abbott's failure to disclose arguments it made to the EPO about the obviousness inquiry concerning the '382 patent. In response to repeated obviousness rejections during prosecution of the '551 patent, Abbott argued that the '382 patent failed to disclose a glucose sensor that did not require a membrane for testing blood. Abbott's Director of Research submitted a declaration to the PTO stating that at the time of filing of the application, one skilled in the art would not read the '382 patent as teaching the use of a blood glucose sensor without a membrane. However, when Abbott prosecuted the European counterpart to the '382 patent, EP 0 078 636 (“the EP '636 patent”), it distinguished the EP '636 patent over a German reference by stating that the protective membrane when used for blood was optional, but preferred. Abbott did not disclose its EPO argument to the PTO in prosecuting the '551 patent. The district court found this failure to disclose constituted inequitable conduct.

On appeal, the Federal Circuit rejected Abbott's argument that its statements to the PTO about the '382 patent were mere attorney argument. The court noted, “An applicant's earlier statements about prior art, especially one's own prior art, are material to the PTO when those statements directly contradict the applicant's position regarding that prior art in the PTO.”

Judge Richard Linn dissented with respect to the court's inequitable conduct ruling, while concurring with all other parts of the opinion. His dissent focused on the fact that Abbott's earlier statements to the EPO tracked the language in the prior art itself. Linn noted that the statement in the EP '636 patent and '382 patent could be read as indicating that the membrane is used preferably on blood and optionally on fluids other than blood such as interstitial fluid, rather than indicating that the membrane is optionally used on blood. Linn's dissent makes the point that Abbott's statement was unclear, and so should be given the benefit of the doubt; the dissent does not take issue with the majority's holding that failure to disclose prior contradictory statements about prior art can be inequitable conduct.

Federal Circuit Clarifies Burden of Proof for Plaintiffs Claiming Reasonable Royalty Damages

On Feb. 5, the Federal Circuit reversed the U.S. District Court for the Southern District of New York's award of a 12.5% royalty to a patentee where the patentee's evidence was flawed and the infringer had presented no evidence on the issue of damages, remanding for further proceedings on damages. ResQNet.com, Inc. v. Lansa, Inc., Nos. 2008-1365, -1366, 2009-1030 (Fed. Cir. Feb. 5, 2010).

ResQNet owns U.S. Patent 6,295,075 (“the '075 patent”), along with four additional patents, directed to methods for communicating between a host computer and a remote terminal to facilitate user interface improvements. Lansa makes the accused system “NewLook,” a terminal emulator program that creates graphical user interfaces for older green screen mainframe systems. The lower court found that only the '075 patent was valid and infringed by Lansa's NewLook system. The district court awarded ResQNet $506,305 in damages, reflecting a 12.5% reasonable royalty rate applied to Lansa's revenues from the sale of NewLook software.

ResQNet's damages expert, Dr. Jesse David, considered seven other ResQNet licenses, five of which were re-bundling licenses that gave licensees the right to bundle ResQNet's software into other packages; they did not cover the claimed invention. The five re-bundling licenses all used royalty rates of at least 25%; the two straight licenses covering the claimed invention were less. Dr. David came to a recommended rate of 12.5%, somewhere in between the rates for the re-bundling licenses and the straight licenses. However, Lansa presented no evidence or suggested reasonable royalty rate of its own. The lower court adopted ResQNet's suggested reasonable royalty rate of 12.5%.

The Federal Circuit reversed the lower court's damages award, holding that the plaintiff has the burden of proving a reasonable royalty rate with sufficient evidence. Defendants have no burden to rebut the plaintiff's suggested royalty rate if the plaintiff has not presented sufficient evidence for its rate. The re-bundling licenses simply had no place in the damages analysis. The court specifically noted, “This court should not sustain a royalty award based on inapposite licenses simply because Lansa did not proffer an expert to rebut Dr. David.”

Judge Pauline Newman dissented only as to the court's damages opinion, joining the court's opinion on validity, infringement, and Rule 11 sanctions. In her dissent, Judge Newman noted that the court did not simply accept Dr. David's royalty rate without question, but analyzed how the re-bundling licenses were similar and determined what facts about the market for the patented technology could be gleaned from them. Judge Newman criticized the court's opinion as leaving the damages analysis without access to relevant information, and observed that past transactions need not be identical to the hypothetical licensing of the infringed patent to inform the court's decision.

Jeffrey S. Ginsberg is a partner and Brian Beck is an associate in the New York office of Kenyon & Kenyon LLP.

Patentee's Duty to Disclose Contradictory Arguments Made to a Foreign Patent Office

In Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008-1511, -1512, -1513, -1514, -1595 (Fed. Cir. Jan. 25, 2010), the Federal Circuit affirmed the U.S. District Court for the Northern District of California's decision that a patent was unenforceable for inequitable conduct due to a failure to disclose statements made to the European Patent Office (“EPO”) concerning a European counterpart outside the patent-in-suit's family that included some common inventors.

Co-plaintiff Abbott owns U.S. Patents 5,820,551 (“the '551 patent”) and 4,545,382 (“the '382 patent”). The claims of the '382 patent are directed to sensors for testing fluids by generating an electrical current in the fluid. The '551 patent is directed to a system for testing blood using sensors similar to those disclosed by the '382 patent, with dependent claims focusing on the use of strips for testing blood sugar (primarily for use by diabetics). The '551 patent is not a descendant of the '382 patent, nor does it have an identical set of inventors, though it does share two inventors with those listed on the '382 patent. The district court found that the '551 patent was obvious in light of the '382 patent and U.S. Patent No. 4,225,410 (“the '410 patent”).

The Federal Circuit stated that, “The central question with respect to obviousness is whether the prior art disclosed a glucose sensor without a membrane for use in whole blood.” Both patents disclosed sensors without a membrane, but Abbott argued that the '382 patent only discloses a membraneless sensor for uses other than testing blood, and taught that a membrane was required for testing blood. The district court determined from evidence presented that the sensor disclosed by the '382 patent could be used without a membrane for testing blood, that the patent in fact suggested such a use, and that the sensor disclosed by the '382 patent when used for testing blood as part of the electronic system was disclosed by the '410 patent. Based on these findings, the district court determined that the first four claims of the '551 patent were invalid as obvious, and the Federal Circuit affirmed.

The district court also held that the entire patent was unenforceable for inequitable conduct as a result of Abbott's failure to disclose arguments it made to the EPO about the obviousness inquiry concerning the '382 patent. In response to repeated obviousness rejections during prosecution of the '551 patent, Abbott argued that the '382 patent failed to disclose a glucose sensor that did not require a membrane for testing blood. Abbott's Director of Research submitted a declaration to the PTO stating that at the time of filing of the application, one skilled in the art would not read the '382 patent as teaching the use of a blood glucose sensor without a membrane. However, when Abbott prosecuted the European counterpart to the '382 patent, EP 0 078 636 (“the EP '636 patent”), it distinguished the EP '636 patent over a German reference by stating that the protective membrane when used for blood was optional, but preferred. Abbott did not disclose its EPO argument to the PTO in prosecuting the '551 patent. The district court found this failure to disclose constituted inequitable conduct.

On appeal, the Federal Circuit rejected Abbott's argument that its statements to the PTO about the '382 patent were mere attorney argument. The court noted, “An applicant's earlier statements about prior art, especially one's own prior art, are material to the PTO when those statements directly contradict the applicant's position regarding that prior art in the PTO.”

Judge Richard Linn dissented with respect to the court's inequitable conduct ruling, while concurring with all other parts of the opinion. His dissent focused on the fact that Abbott's earlier statements to the EPO tracked the language in the prior art itself. Linn noted that the statement in the EP '636 patent and '382 patent could be read as indicating that the membrane is used preferably on blood and optionally on fluids other than blood such as interstitial fluid, rather than indicating that the membrane is optionally used on blood. Linn's dissent makes the point that Abbott's statement was unclear, and so should be given the benefit of the doubt; the dissent does not take issue with the majority's holding that failure to disclose prior contradictory statements about prior art can be inequitable conduct.

Federal Circuit Clarifies Burden of Proof for Plaintiffs Claiming Reasonable Royalty Damages

On Feb. 5, the Federal Circuit reversed the U.S. District Court for the Southern District of New York's award of a 12.5% royalty to a patentee where the patentee's evidence was flawed and the infringer had presented no evidence on the issue of damages, remanding for further proceedings on damages. ResQNet.com, Inc. v. Lansa, Inc., Nos. 2008-1365, -1366, 2009-1030 (Fed. Cir. Feb. 5, 2010).

ResQNet owns U.S. Patent 6,295,075 (“the '075 patent”), along with four additional patents, directed to methods for communicating between a host computer and a remote terminal to facilitate user interface improvements. Lansa makes the accused system “NewLook,” a terminal emulator program that creates graphical user interfaces for older green screen mainframe systems. The lower court found that only the '075 patent was valid and infringed by Lansa's NewLook system. The district court awarded ResQNet $506,305 in damages, reflecting a 12.5% reasonable royalty rate applied to Lansa's revenues from the sale of NewLook software.

ResQNet's damages expert, Dr. Jesse David, considered seven other ResQNet licenses, five of which were re-bundling licenses that gave licensees the right to bundle ResQNet's software into other packages; they did not cover the claimed invention. The five re-bundling licenses all used royalty rates of at least 25%; the two straight licenses covering the claimed invention were less. Dr. David came to a recommended rate of 12.5%, somewhere in between the rates for the re-bundling licenses and the straight licenses. However, Lansa presented no evidence or suggested reasonable royalty rate of its own. The lower court adopted ResQNet's suggested reasonable royalty rate of 12.5%.

The Federal Circuit reversed the lower court's damages award, holding that the plaintiff has the burden of proving a reasonable royalty rate with sufficient evidence. Defendants have no burden to rebut the plaintiff's suggested royalty rate if the plaintiff has not presented sufficient evidence for its rate. The re-bundling licenses simply had no place in the damages analysis. The court specifically noted, “This court should not sustain a royalty award based on inapposite licenses simply because Lansa did not proffer an expert to rebut Dr. David.”

Judge Pauline Newman dissented only as to the court's damages opinion, joining the court's opinion on validity, infringement, and Rule 11 sanctions. In her dissent, Judge Newman noted that the court did not simply accept Dr. David's royalty rate without question, but analyzed how the re-bundling licenses were similar and determined what facts about the market for the patented technology could be gleaned from them. Judge Newman criticized the court's opinion as leaving the damages analysis without access to relevant information, and observed that past transactions need not be identical to the hypothetical licensing of the infringed patent to inform the court's decision.

Jeffrey S. Ginsberg is a partner and Brian Beck is an associate in the New York office of Kenyon & Kenyon LLP.