Benefit Funding – In the context of a stay determination, a district court need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting CBM review based on § 101.
uPI Semiconductor – The panel affirms an ITC ruling that uPI violated a consent order by aiding and abetting the import of infringing computer parts, and reverses a ruling that uPI's post-Consent Order controllers were not produced using Richtek trade secrets.
American Calcar – A divided panel affirms a determination that the district court followed the tests set forth in Therasense and did not abuse its discretion in determining that the patents in suit are unenforceable due to inequitable conduct.
Benefit Funding Systems LLC v. US Bancorp, Fed. Cir. Case 2014-1122, -1124, -1125 (September 25, 2014
Appellant Benefit Funding sued on a patent directed to a system for enabling beneficiaries of retirement benefits to convert future benefits into current resources to meet financial needs. Ten months into the litigation, appellees filed a petition for post-grant review under the Transitional Program for Covered Business Method Patents. The PTAB instituted the CBM review on the basis of 35 U.S.C. § 101, holding that it is more likely than not that the challenged claims were unpatentable. The court granted appellees' motion to stay the litigation, and Benefit Funding filed an interlocutory appeal.
Section 18(b) of the AIA identifies four factors to be considered when deciding whether to grant a stay:
- whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
- whether discovery is complete and whether a trial date has been set;
- whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
- whether a stay, or the denial thereof, will re- duce the burden of litigation on the parties and on the court.
The district court concluded that all of the factors strongly favored a stay.
Standard of Review
Traditionally, the Circuit reviews decisions on motions to stay pending PTO proceedings under the abuse of discretion standard. The AIA, however, provides the authority to conduct more searching review, stating that the Circuit "shall review the district court's decision to ensure consistent application of established precedent, and such review may be de novo." AIA § 18(b)(2).
Appellants' argument rests on the premise that the PTAB is not authorized to conduct CBM review based on § 101 grounds. That argument is a collateral attack similar to ones the Circuit recently held impermissible in VirtualAgility, Inc. v. Salesforce.com, 2014 WL 3360806. Allowing such a collateral attack would create serious practical problems, including mini-trials that would overwhelm and dramatically expand the nature of the stay determination. A district court, in the context of a stay determination, need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting the CBM review. This is not to say that a patent owner could never attack the PTAB's authority to conduct CBM review. Indeed, Appellants might potentially challenge that authority in the context of a direct appeal of the PTAB's final decision. They simply cannot mount such a challenge in opposition to a stay.
Having rejected Appellants' sole argument on appeal, the panel concludes that the district court did not abuse its discretion in granting the stay. Further, consistency with established precedent was not at issue in this case and no other compelling reason for a more searching review was presented. Finally, the panel notes that it will not address the underlying merits of that attack, namely whether § 101 is a valid ground for CBM review.
uPI Semiconductor Corporation v. International Trade Commission and Richtek Technology Corp., Fed. Cir. Case 2013-1157; 1159 (September 25, 2014)
uPI and Richtek are in the business of designing and selling DC-DC controllers, which convert direct current from one voltage to another. Richtek filed a complaint with the ITC, alleging that uPI misappropriated Richtek's trade secrets and infringed Richtek's patents in violation of 19 U.S.C. §1337. Shortly before an evidentiary hearing, uPI moved to terminate the investigation by offering to enter into a consent order whereby uPI would cease importation of all products produced using Richtek's trade secrets or infringing Richtek's patents.
One year later Richtek filed an Enforcement Complaint alleging that uPI was in violation of the Consent Order. After an enforcement proceeding, the ALJ issued an Enforcement Initial Determination ("EID") that separated the accused uPI products into two categories: (1) products that were accused in the prior investigation of infringing Richtek's patents or being produced using Richtek's trade secrets (the "formerly accused products"); and (2) products allegedly developed and produced after entry of the Consent Order (the "post-Consent Order products").
The ALJ found that the formerly accused products contained or were produced using Richtek's trade secrets and that the formerly accused products infringed the patents. The ALJ also found that the post-Consent Order products infringed the patents. However, the ALJ found that the post-Consent Order products were not produced using Richtek's trade secrets, due to clean room procedures uPI had implemented.
The full Commission affirmed the ALJ's findings that the formerly accused products were produced using Richtek's trade secrets and that the post-Consent Order products were produced without Richtek's trade secrets. The Commission also affirmed the ALJ's finding that uPI's formerly accused products violated the Consent Order with respect to the '190 patent because uPI knowingly aided or abetted the sale or importation of formerly accused products that directly infringe the '190 patent.
uPI's Appeal as to Third Party Imports
uPI objects to any bar under the Consent Order against importation by uPI's customers of products containing infringing DC- DC controllers. uPI cites the Kyocera case for the proposition that, despite its agreement by Consent Order not to knowingly aid, abet or induce importation of products produced using or containing Richtek trade secrets or infringing Richtek patents, because this case was terminated by Consent Order with no general exclusion order, no penalty can be based on importations by non-respondents. Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed. Cir. 2008).
uPI also argues that substantial evidence does not support violation of the Consent Order's knowingly aiding or abetting provision because the Commission had the burden of proving which downstream products imported into the U.S. were derived from uPI's post-Consent Order sales of formerly accused DC-DC controllers. uPI states that it is possible that all of the U.S. imports of downstream products containing formerly accused controllers were derived from uPI sales of the formerly accused products occurring before the Consent Order issued.
The panel finds that substantial evidence supports the Commission's findings that uPI post-Consent Order upstream sales were linked to subsequent downstream U.S. imports or sales of the formerly accused products and that uPI knowingly aided or abetted U.S. imports or sales of the formerly accused products. The Commission relied on spreadsheets produced by uPI showing uPI's purchase order data and sales of formerly accused products to downstream customers after the Consent Order issued. The Commission also relied on testimony by uPI executives that uPI knew the contract manufacturers to whom uPI's distributors sold the formerly accused products, and knew that these contract manufacturers imported downstream products into the U.S..
uPI argues that while the spreadsheet data show the post-Consent Order upstream sales and downstream imports of DC-DC controllers identified by the same model numbers, "[i]t is not enough that the chips are the same model number; they must be shown to be the same chips."
The panel concludes that the Commission's reliance on evidence of uPI upstream post-Consent Order sales of the formerly accused products, evidence of post-Consent Order downstream U.S. imports or sales of the same model number formerly accused products, the lag time between up-stream sale and U.S. entry, and testimony by uPI executives, reasonably supports the Commission's finding that uPI violated the knowingly aiding or abetting provision of the Consent Order. Kyocera does not prohibit the Commission from enforcing the Consent Order, and the Commission had statutory authority to assess a civil penalty against uPI for its violation of the Consent Order's knowingly aiding or abetting provision.
uPI's Appeal as to the '190 Patent
uPI also challenges the Commission's finding that uPI's formerly accused products directly infringed the '190 patent. The Commission responds that it did not find that uPI directly infringed the '190 patent, but that uPI violated the Consent Order prohibition on knowingly aiding or abetting the sale or importation into the United States of any DC-DC controllers or products containing same that infringe the '190 patent.
uPI does not challenge the Commission's finding that downstream products incorporating formerly accused products practice each element of each asserted claim of the '190 patent, but instead argues "the Commission's finding of direct infringement by uPI of the '190 patent (if that is what it found) was erroneous." The record makes clear the Commission did not find direct infringement of the '190 patent by the uPI upstream products. For the reasons discussed in the preceding section, the panel affirms the Commission's finding that the U.S. sale or importation of downstream products, which incorporate uPI's upstream products and infringe the '190 patent, constitutes a violation of the Consent Order's knowingly aiding or abetting provision.
Richtek's Appeal as to the use of Trade Secrets in Post-Consent Order Products
Richtek challenges the Commission's finding that uPI's post-Consent Order controllers are not produced using Richtek trade secrets. The Consent Order prohibits selling or importing, and aiding or abetting the sale or importation, of products that are produced using Richtek trade secrets. uPI does not challenge the finding that its formerly accused products were produced using Richtek trade secrets, but argued to the Commission that its post-Consent Order products were independently developed through "clean room" procedures, and did not use the Richtek trade secrets.
The record as a whole does not support with substantial evidence the Commission's finding that uPI's post-Consent Order products were not produced using Richtek trade secrets. uPI stated that it engaged outside design firms to create new layouts and schematics to produce a new line of DC-DC controller chips, and that it did not provide the outside design firms with Richtek trade secrets or uPI's former schematics or layouts. However, the evidence was grossly inadequate.
Richtek's experts testified to the high degree of similarity and identity between uPI's post-Consent Order products and formerly accused products, compared with Richtek's trade secrets. Richtek witnesses pointed to the many unchanged features of the layouts and the circuitry, including errors therein. The reproduction of design errors, notations and extraneous markings is not consistent with independent development.
Substantial evidence does not support the Commission's conclusion that uPI's post-Consent Order products were independently developed. The determination that uPI did not violate the Consent Order with respect to post-Consent Order products is reversed, and the case is remanded for further proceedings with this ruling.
American Calcar, Inc. v. American Honda Motor Co., Inc., Fed. Cir. Case 2013-1061 (September 26, 2014)
This appeal arises from Calcar's suit against Honda asserting the infringement of several related patents directed to navigation and other systems for use in a car. Before trial, Honda moved for a finding of inequitable conduct based on the actions of Calcar's founder, Mr. Obradovich. Among the three co-inventors, Mr. Obradovich was the one primarily responsible for preparing the patent application. Honda alleged that while Mr. Obradovich disclosed the existence of the 1996 Acura RL ("96RL") navigation system, he intentionally did not disclose additional information that would have led the PTO to deny the patent as anticipated or rendered obvious by the system.
In 1996, Honda added the navigation system as an option for the Acura RL. At the time, Calcar was publishing "Quick Tips" guides: booklets with condensed information from a car's owner's manual. During the course of developing a QuickTips guide for the 96RL, Mr. Obradovich drove the car and operated the navigation system, and Calcar personnel took photographs of the navigation system and owner's manual. Subsequently, Mr. Obradovich began working on the parent application that ultimately issued as one of the patents in suit. The application explicitly referred to the 96RL system as prior art, and Mr. Obradovich acknowledged that the system was used as the basis of Calcar's inventions. Honda alleged that Mr. Obradovich knew that the owner's manual and photographs were in Calcar's possession and deliberately withheld them during prosecution. Honda argued that the operational details that he did not disclose were precisely those that were claimed in the other patents at issue—the use of the system to display the status of vehicle functions.
The case went to trial and the jury found the '497 patent invalid, but the '465 and '795 patents valid. After the trial the district court granted Honda's inequitable conduct motion and, therefore, held the patents at issue unenforceable. Calcar appealed. While the appeal was pending, the Circuit established a revised and narrower test for inequitable conduct in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc). In light of Therasense, the Circuit affirmed the district court's finding of the materiality of the prior art with respect to the '497 patent, and vacated the district court's other determinations of materiality and intent.
On remand, applying Therasense, the district court again found that the three patents at issue were obtained through inequitable conduct. The district court found that but for the information about the prior art withheld by Mr. Obradovich, the PTO would not have granted the '465 and '795 patents. It made further findings as to all three patents regarding Mr. Obradovich's specific intent to deceive the PTO, concluding that the only reasonable inferences from the evidence were that Mr. Obradovich knew that the prior art was material to his invention and that he made a deliberate decision to withhold material information. It also found that evidence of Mr. Obradovich's good faith did not overcome this other evidence, nor did it create a reasonable inference that Mr. Obradovich may have been merely negligent or grossly negligent. Having made findings on each prong of the Therasense standard, the district court once again concluded that the patents were unenforceable due to inequitable conduct.
Therasense requires "but for" materiality and specific intent
Inequitable conduct is an equitable defense to patent infringement. The defendant proves inequitable conduct "by clear and convincing evidence that the patent applicant (1) misrepresented or omitted information material to patentability, and (2) did so with specific intent to mislead or deceive the PTO." Intent and materiality must be separately established. Therasense, 649 F.3d at 1290. On appeal, the district court's findings of materiality and intent are reviewed for clear error and the ultimate finding of inequitable conduct based on those underlying facts is reviewed for abuse of discretion.
This court held in Therasense that the standard for "the materiality required to establish inequitable conduct is but-for materiality." This means that to assess materiality, the court must look to the standard used by the PTO to allow claims during examination. To wit: "The court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction." District courts and the PTO employ different evidentiary standards and rules for claim construction. Therefore, "even if a district court does not invalidate a claim based on a deliberately withheld reference, the reference may be material if it would have blocked patent issuance under the PTO's different evidentiary standards." The jury's verdict finding the patents at issue non-obvious thus does not weigh on the determination of materiality for inequitable conduct, and indeed, Calcar does not make any arguments on appeal that rely on the jury's determination.
Calcar's principal argument is that the district court improperly failed to account for the inventive differences between the prior art 96RL navigation system and the claims of the '465 and '795 patents. Calcar points to examples listed in the patent's specification, such as the ability to retrieve such features as climate control functions, "the radio, the engine, and other aspects of the vehicle." The district court did address the differences between the 96RL system and what Calcar actually claimed. It found that the only difference was "the nature of the information contained in the systems": navigational details (destinations, addresses, directions) in the 96RL system and information about the vehicle itself in the '465 and '795 patents. The district court found that the PTO would have not allowed the patents as "it would have been obvious to a person of ordinary skill in the art to include different information in the 96RL navigation system." Id.
Because the district court did not commit clear error in its finding of materiality, the panel affirms the district court's determination that the undisclosed operational details of the 96RL navigation system are material to the patentability of the patents.
Calcar provided a limited disclosure of the 96RL navigation system in the patents' specification, and it also submitted a New York Times article describing the system during prosecution. As the district found, however, these disclosures exclude material information about the 96RL system, such as the manner in which the prior art system provided notifications to the user and displayed search results. Partial disclosure of material information about the prior art to the PTO cannot absolve a patentee of intent if the disclosure is intentionally selective.
The panel recognized that "[b]ecause direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence," provided that such intent is the single reasonable inference. In the previous appeal, the Circuit noted that based on its review of the record, the district court found that Mr. Obradovich's testimony lacked credibility. We held, however, that in light of Therasense, the finding of materiality and Mr. Obradovich's lack of credibility were insufficient grounds to find intent. We thus remanded for the district court to determine whether the single reasonable inference of the factual record would be that any of the inventors possessed undisclosed information about the 96RL system, knew it was material, and deliberately decided to withhold that information from the PTO.
On remand, the district court reviewed the record and made the findings of fact required under Therasense. The district court found that Mr. Obradovich possessed material information based on his own testimony about his personal knowledge of the 96RL system, test drives of the 96RL with the system, and use of figures from the 96RL owner's manual in the patent application he drafted. It further found that Mr. Obradovich knew the information was material because he himself acknowledged the importance of the information he possessed about how the 96RL system was used to access information and present it to the user. The district court also found that the single reasonable inference based on the facts regarding Mr. Obradovich's role in developing the patent application was that Mr. Obradovich deliberately decided to withhold the information from the PTO.
The district court expressly rejected Calcar's suggestion that it would have been equally reasonable for the district court to infer that Mr. Obradovich's actions were merely negligent or grossly negligent. It found that the evidence showed that Mr. Obradovich had "ample time and opportunity" for a comprehensive disclosure, and yet he only disclosed the mere existence of the 96RL system without providing its operational details. It concluded, therefore, that his failure to disclose other information that would have prevented his patent application from succeeding "demonstrates a deliberative process, not an accident or mistake." Overall, the panel did not find any clear error in the district court's inference—based on its careful and comprehensive review of the record and eight years of experience with the case—of Mr. Obradovich's specific intent to deceive the PTO.
For the aforementioned reasons, the majority affirms the district court's judgment that the '497, '465, and '795 patents were obtained through inequitable conduct and are thus unenforceable.
Judge Newman's Dissent
Judge Newman opines in dissent that "the criteria of inequitable conduct are plainly not met." She notes that the only issue is whether Mr. Obradovich committed inequitable conduct by not providing the PTO, when the parent patent application was filed, with the Acura Owner's Manual and the photographs that the Calcar employees took of the Acura display. These materials were provided to the PTO on reexamination of the '497 patent, and patentability was confirmed by the PTO in light of that additional information. In a stinging rebuke to the majority she concludes: "The panel majority distorts theTherasense standards, ignores the PTO reexamination, casts the jury aside, and generally disregards the safeguards that this court adopted en banc."