Judges: Bryson, Gajarsa (author), Dyk

[Appealed from E.D. Mo., Judge Webber]

In Monsanto Co. v. Bayer Bioscience N.V., No. 07-1109 (Fed. Cir. Jan. 25, 2008), the Federal Circuit (1) affirmed the district court’s holding that U.S. Patent No. 5,545,565 (“the ’565 patent”) was unenforceable for inequitable conduct; and (2) held that the district court had jurisdiction to find three related patents—U.S. Patent Nos. 5,767,372 (“the ’372 patent”), 6,107,546 (“the ’546 patent”), and 5,254,799 (“the ’799 patent”)—all of which the patentee had earlier withdrawn from the lawsuit, unenforceable for inequitable conduct.

Bayer Bioscience N.V. (“Bayer”) is the owner of the above-listed patents, which relate to insect-resistant plants. Strains of the bacteria Bacillus thuringiensis (“Bt”) produce proteins, known as Bt toxins, that are toxic to certain crop-destroying insects. Difficulties in getting plants to produce a full-length Bt toxin gene led a predecessor of Bayer to produce a truncated form of Bt toxin. The ’565 patent claimed chimeric genes (artificial genes created by linking together separate segments of natural or synthetic DNA from different sources) comprising a truncated Bt toxin gene and the regulatory region of a naturally occurring gene that enabled the chimeric genes to be transcribed in plants. The ’372, ’546, and ’799 patents were directed towards other aspects of the technology.

Monsanto sells genetically modified corn that expresses a Bt toxin with the same amino acid sequence claimed by Bayer. In 2000, Monsanto filed a DJ action seeking a declaration that its product did not infringe Bayer’s patents and that these patents were invalid and unenforceable. Bayer counterclaimed, alleging infringement of certain claims in each patent. The district court initially granted SJ to Monsanto, holding that (1) all four patents were unenforceable for inequitable conduct, (2) certain patent claims were invalid, and (3) the ’565 patent was not infringed. In 2004, the Federal Circuit reversed the district court’s claim construction and vacated the unenforceability and invalidity judgments. Monsanto Co. v. Bayer Bioscience N.V., 363 F.3d 1235 (Fed. Cir. 2004). On remand, Bayer dismissed all claims that Monsanto infringed the ’799, ’372, and ’546 patents, and filed a Statement of Non-Liability, covenanting not to sue Monsanto for infringement of these patents. Thus, the case proceeded to trial only on the ’565 patent.

The jury concluded that the ’565 patent was not infringed and was invalid for obviousness and prior invention by Monsanto. Then, following a bench trial on inequitable conduct, the district court found materiality and intent for two separate acts relating to the ’565 patent and concluded that inequitable conduct rendered the ’565 patent unenforceable. The district court also found inequitable conduct in the prosecution of the ’799, ’372, and ’546 patents, and accordingly held these patents unenforceable.

On appeal, the Federal Circuit began by reviewing the facts underlying the district court’s inequitable conduct finding. During prosecution, Bayer disclosed as prior art an abstract by Dr. Wayne Barnes entitled “A Bifunctional Gene for Insecticide and Kanamycin Resistance” that had been prepared for a conference at which Barnes made a presentation by displaying a poster presenting his findings (“the Barnes Poster”). The abstract stated that the second half of the Bt toxin gene “may be deleted” and replaced, and that the resulting chimeric gene “may” be inserted in T-DNA and “should” express an insecticide.

The examiner rejected all claims of the ’565 patent as obvious over various prior art references, including the abstract. The examiner noted that the abstract provided motivation to genetically engineer plant cells with a truncated Bt gene and, in the absence of unexpected results, it was obvious that a truncated version of the Bt protein would result in plants that were insecticidal. Moreover, the examiner rejected the claims for lack of enablement, noting that the prior art showed that “expression of [Bt] toxin genes in a plant cell is highly unpredictable” and concluded that “[i]n view of the unpredictability of [production] of foreign genes . . . it does not appear that any Bt toxin would be effective in plant cells against any species of insect.” Slip op. at 8 (alterations in original).

To overcome the abstract, Bayer argued that deletion of the second half of the Bt gene, as suggested by Barnes, would result in a nontoxic protein. Additionally, Bayer contended that the Barnes construct was nonenabled since the abstract stated that the fused gene “may” be inserted and that the plant gene “should” express the insecticide, but that the abstract presented “no concrete evidence.”

Although Bayer disclosed the abstract during prosecution, it did not disclose notes taken by Bayer employee Dr. Celestina Mariani that described in detail the contents of the Barnes Poster. In her deposition, Mariani explained that the Barnes Poster contained much more information than the abstract. Additionally, Mariani explained that her notes illustrated that the poster disclosed that Barnes had (1) truncated a Bt toxin gene at or near the restriction enzyme site xho and discovered that this gene fragment encoded a truncated Bt toxin protein which retained toxicity; (2) created a chimeric gene which encoded this truncated Bt toxin protein; and (3) produced this protein in a bacterial system and demonstrated that the protein was toxic to insects when applied to plants “in drops.” Moreover, Mariani emphasized that the Barnes construct had in fact been created.

The notes were widely circulated within Bayer, including to Dr. Wouter Meulemanns, who was responsible for prosecution of the ’565 patent. Meulemanns admitted that he had seen Mariani’s notes during prosecution and remembered talking to her about the Barnes Poster and her notes. Meulemanns stated Mariani was unable to remember anything about the presentation or poster during their conversation. Nevertheless, he conceded that if the notes contained reliable information that could add to the abstract, the notes could be important to an examiner.

In finding inequitable conduct, the district court found that “it [was] very obvious that the poster notes, if they were disclosed to the patent examiner, . . . would stand in sharp contradiction to the Bayer argument before the patent examiner.” Id. at 11. The district court further stated that it was “clear that the Barnes notes coded for the same . . . toxic protein Bayer wanted to claim” and “that because of the identified xho site, it would be easy to determine the identity of the Bt gene being used.” Id. Moreover, the district court stated that “[t]here [was] a substantial likelihood that a reasonable examiner would have considered the Barnes notes important in deciding whether to allow the application to issue as a patent.” Id. at 11-12. As such, the district court found that the notes, if disclosed, would establish a prima facie case of unpatentability of the ’565 patent claims. Furthermore, the district court found Meulemanns’s explanation for not disclosing the notes lacked credibility, and inferred intent to deceive. Thus, the district court held the ’565 patent unenforceable for inequitable conduct, concluding that Bayer made “a deliberate decision to withhold the known highly material reference with the specific intent to deceive or mislead the PTO examiner.” Id. at 12 (citation omitted).

On appeal, Bayer argued that the sole basis for the determination that the notes were material was the district court’s one-sentence finding that the construct in the Barnes notes coded for the identical species of Bt toxin claimed by Bayer. Bayer argued that this finding was clearly erroneous since it was based on unsupported speculation and that without this erroneous finding of fact, there could be no materiality.

The Federal Circuit disagreed. Although the Court acknowledged that Bayer was correct that there was nothing in the record to support a finding that the Bt toxins used by Barnes and claimed in the ’565 patent were identical, the Court stressed that this finding was not required for the district court to conclude that the notes were material. First, at the time of the rejection, Bayer was not limiting its claims to one species of Bt toxin protein but was broadly claiming a chimeric construct encoding any fragment of a Bt toxin protein. As such, any species of chimeric gene created by Barnes within this genus would directly implicate the allowability of Bayer’s claims. Second, the examiner’s rejection did not rely on the exact sequence of Bt toxin used by Barnes. Rather, the issue raised by the examiner was whether the abstract made Bayer’s invention obvious absent unexpected results because Barnes’s work, regardless of the specific species used, provided motivation to genetically engineer plant cells with a truncated Bt gene and taught truncated Bt proteins.

Nor was the district court’s one-sentence summary the sole basis for its materiality finding, the Court concluded. The Court pointed to the district court’s “critical finding” that the Mariani notes showed that the Barnes chimeric gene was toxic when applied to plants as a drop. Moreover, Mariani’s testimony established that the Barnes Poster, as recorded in the notes, disclosed that Barnes succeeded in (1) truncating a Bt toxin gene, (2) discovering this gene fragment encoded a truncated Bt toxin protein that retained toxicity, (3) creating a chimeric gene that encoded this truncated Bt toxin protein, and (4) producing this protein in a bacterial system and demonstrating that the protein was toxic to insects when applied as a drop.

Accordingly, the Court concluded that the notes would stand in “sharp contradiction” to Bayer’s argument before the examiner that the Barnes construct described in the abstract was nontoxic and nonenabled. Id. at 16. In light of this contradiction, the Court held that the notes clearly and convincingly “refute[] or [are] inconsistent with” Bayer’s position in opposing the examiner’s argument of unpatentability and were therefore material under 37 C.F.R. § 1.56(2)(i). Id. at 17. However, the Court noted that it was not suggesting that all internal documents of potential relevance must be submitted to the PTO as a matter of course, but that “it is the particular circumstances that render the internal documents material in this case.” Id.

The Court also upheld the district court’s finding that Meulemanns withheld the notes with intent to deceive. Although Meulemanns explained that he failed to disclose the information contained in the notes since the notes were indecipherable and that Mariani had been unable to remember anything about them, the Court agreed with the district court that this explanation lacked credibility, particularly in light of Mariani’s ability to testify “with clarity and detail” about the content of the notes. Id. at 20. Declaring that “[i]ntent is easily inferred when, as here, an applicant makes arguments to the PTO that it knows, or obviously should have known, are false in light of information not before the examiner, and the applicant knowingly withholds that additional information,” the Court concluded that the district court did not clearly err in inferring intent. Id. Thus, the Court affirmed the district court’s holding that the ’565 patent was unenforceable for inequitable conduct.

Bayer also argued that, because it had dismissed its infringement claims as to the ’799, ’372, and ’546 patents and covenanted not to sue Monsanto for infringement, the district court lacked jurisdiction to hold these patents unenforceable. The Court noted that even if filing a covenant not to sue with the district court may divest it of jurisdiction regarding these patents, the district court retained independent jurisdiction over Monsanto’s request for attorneys’ fees, which included fees accumulated before withdrawal of the three patents, under 35 U.S.C. § 285. The Court pointed to its ruling in Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007), where the Court held that because inequitable conduct with respect to one or more patents in a family can infect related applications, a district court has the power to declare related patents that are no longer in suit unenforceable for inequitable conduct. The Court noted that in Nilssen, the district court’s jurisdiction to reach the inequitable conduct inquiry for the patents withdrawn from suit was in question because the district court reached the issue only collaterally to determining whether there was inequitable conduct regarding patents that remained in suit. As such, the Court noted that in this case, the district court’s jurisdiction was even clearer as there was no dispute that the district court has an independent grant of jurisdiction under § 285 to consider inequitable conduct relating to the withdrawn patents. Therefore, the Court concluded that the district court had jurisdiction to declare the ’799, ’372, and ’546 patents unenforceable.