Just one day after the U.S. Court of Appeals for the Federal Circuit indicated that it would consider the current state of the inequitable conduct doctrine en banc in Therasense, Inc. v. Becton Dickinson and Co., a split panel of the Federal Circuit issued a decision in the case of Avid Identification Systems, Inc. v. Crystal Import Corp. affirming a lower court’s finding of inequitable conduct. The holding in Avid is surprising because it is based on the conduct of Avid’s president who was neither an inventor nor an attorney or agent who prepared or prosecuted the patent. To consider how company management and other corporate personnel can best avoid such problems in patent prosecution, we must first consider the facts of Avid.
The patent in question was Avid’s U.S. Patent No. 5,235,326 (“the ’326 patent”) directed to a multi-mode radio-frequency identification system for reading encoded biocompatible chips implanted in animals. The U.S. District Court for the Eastern District of Texas found the ’326 patent valid and infringed, but unenforceable due to inequitable conduct. More specifically, the court found that Avid’s founder and president, veterinarian Dr. Hannis Stoddard, owed a duty of candor to the United States Patent and Trademark Office (“PTO”) and failed to comply with that duty by withholding information regarding his demonstration of some of Avid’s technology at a trade show more than a year before Avid filed for the ’326 patent.
On appeal, the Federal Circuit considered two primary issues: (1) Was the trade show demonstration “material”? and (2) Did Dr. Stoddard owe a duty of candor to the PTO? An interesting fact, and perhaps the primary one that determined the outcome, is that Avid did not dispute that Dr. Stoddard withheld the information with the specific intent of deceiving the PTO for the purpose of obtaining a patent.
The majority opinion, authored by Judge Prost, noted that “In evaluating materiality, this court typically refers to the definition provided in 37 C.F.R. § 1.56, by which the PTO promulgated the duty of disclosure.” However, rather than reciting the current definition for materiality which states that every individual associated with the filing and prosecution of a patent application has a duty to disclose to the PTO “all information known to that individual to be material to patentability,” the majority opinion states that “information is material where a reasonable examiner would find it important to a determination of patentability.” This so-called “reasonable examiner” definition of materiality was changed in 1992 to the current more objective definition.
Using the old “reasonable examiner” standard to consider inequitable conduct, the majority found that Dr. Stoddard’s public demonstration of a precursor product of the claimed invention was material despite also recognizing it “did not contain all of the elements of the ’326 patent claims” and, therefore, was “not invalidating” prior art. In that regard, the jury had considered the trade show disclosure and still found the claims of the ’326 patent not invalid. Neither the majority opinion nor Judge Linn in his dissent addressed whether the trade show disclosure: (1) could be utilized to establish a prima facie case of unpatentability, such as based on obviousness, or (2) is inconsistent with a position that Avid took regarding patentability. Thus, while purporting to rely on the definition of materiality provided in 37 C.F.R. § 1.56, the court failed to address the factors explicitly set forth in 37 C.F.R. § 1.56 for determining materiality.
Duty of Candor
In accordance with 37 C.F.R. § 1.56, “each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office.” Such individuals include: (1) each inventor; (2) each attorney or agent who 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, the assignee, or anyone to whom there is an obligation to assign the application.
Dr. Stoddard was not a named inventor and did not help prepare or prosecute the ’326 patent. Accordingly, Dr. Stoddard owed a duty of candor to the PTO only if he was “substantively involved” in the preparation or prosecution of the ’326 patent. The majority found that Dr. Stoddard’s involvement in “all aspects” of Avid, a closely held corporation, contributed to a “reasonable inference that he was also involved in the preparation of the patent application.” However, there was no clear evidence that Dr. Stoddard was directly involved in any substantive aspect of the preparation and prosecution of the ’326 patent. Rather, the majority found the trial court had reasonably relied on evidence that loosely linked Dr. Stoddard to Avid’s patent prosecution to infer that he was substantively involved. The specific evidence used to support the inference that Dr. Stoddard was substantively involved in the preparation or prosecution of the ’326 patent was that Dr. Stoddard signed a Small Entity affidavit, was copied on a communication to European counsel regarding a European patent application, received a note from an inventor asking him to check with European counsel before demonstrating Avid’s technology, was responsible for the disputed trade show demonstration, and lacked credibility as a witness during trial. Accordingly, the majority held that the district court’s duty of candor analysis was not clearly erroneous.
How to Avidly Prevent Another Avid
There are several precautionary steps that can be taken to minimize the risks of patent invalidity due to officers or other employees being found to be “substantively involved” in the prosecution of a patent when in reality they are not.
First, keep track of public disclosures of technology and provide that information to patent counsel. Information regarding a public disclosure that is relevant to a particular invention can be easily shared with patent counsel by keeping an updated list of the trade shows, conferences, and other venues where the company’s technological information is shared and preserving copies of the relevant abstracts, presentations, and other documentation associated with those public disclosures. This permits informed decision making as to whether such disclosures are sufficiently material to the patentability of the invention to be disclosed to the PTO.
Second, empower inventors to take charge of collecting such information for patent counsel. Indeed, inventors have a vested interest in supporting the validity of their patents. Patent lawyers typically will not know what a company is publicly disclosing about the technological area of the invention, but must rely on the inventors to transmit the relevant public disclosure information to patent counsel for consideration. Sales and advertising employees often are not in direct contact with patent counsel and are unlikely to be aware of patent applications in progress. Accordingly, sales personnel are unlikely to know what public disclosures are relevant to the pending applications, nor even what patent applications are pending. By tasking one or more of the named inventors with knowing what is being publicly disclosed or used by the company in the general technological area of the invention, the right information can flow to patent counsel more easily.
Finally, make it a policy to file a well-drafted patent application before public disclosure of any newly developed technology. This will not only help reduce the chances of a finding of inequitable conduct, but will more importantly reduce the risk of losing all patent rights in foreign countries with strict novelty laws. Of course, simply filing a patent application before any public disclosure of a new invention may not be enough in and of itself to prevent a subsequent finding of inequitable conduct, as seen in Avid where the disclosure of a precursor product to the invention resulted in the finding of inequitable conduct.
Until the Federal Circuit hopefully clarifies the inequitable conduct doctrine en banc in Therasense, Inc. v. Becton Dickinson and Co., taking one or more of the steps outlined above may help reduce the risk of corporate management or another employee unwittingly invalidating a patent based on inequitable conduct.