Conspiracy Theory Fails to Convince Federal Circuit

Posted on August 25, 2008 by Brian Wm. Higgins
  • Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., No. 2007-1448 (Fed. Cir., argued March 7, 2008; opinion August 25, 2008)

     Petersburg, Virginia-based Star Scientific, Inc., sued R.J. Reynolds Tobacco Co. for infringement of U.S. Patent Nos. 6,202,649 and 6,425,401 in the U.S. District Court for the District of Maryland in 2001. A bench trial on the issue of the enforceability of the asserted patents was held in 2005. On June 25, 2007, the District Court found Star’s patents to be unenforceable on the basis of inequitable conduct by Star’s attorneys during prosecution of Star’s patents before the U.S. Patent & Trademark Office. Thereafter, Star characterized the decision as “stunning and totally without support in the record,” and concluded that “the opinion ignores significant portions of the record, distorts others, and spins a tale that is unrecognizable to those who attended the trial.” The Federal Circuit reversed.

Background

     In August 1998, Star's Jonnie Williams, the named inventor, engaged Delmendo of Sughrue to prosecute a patent application on a tobacco curing process aimed at lowering TSNA levels. Delmendo was sent a letter on August 28, 1998, by Star consultant Dr. Harold Burton in which Burton wrote that Chinese tobacco products contain very low TSNA levels, probably due to radiant heating. Delmendo testified that he spoke with Burton, analyzed the letter, and ultimately concluded that neither it nor its content was material to the contemplated patent application.

     Delmendo later filed a provisional patent application for Williams disclosing that some nations, including China, still utilize radiant heat curing, and stating "It has been determined that [the radiant heat] process as applied to tobacco grown in the United States yields tobacco products with high levels of TSNA." Exactly one year later, Delmendo filed a non-provisional application that deleted the statement that radiant heat curing of U.S.-grown tobacco produced "high levels of TSNA." Instead, the application disclosed: "I have discovered that it is possible to somewhat reduce the TSNA levels by not venting combustive exhaust gases into the curing apparatus or barn."

    Shortly thereafter, Williams and Star terminate Sughrue's engagement and hired Banner & Witcoff. Rivard and Hoscheit from Banner met with Delmendo to discuss the transfer of files and the status of pending applications. Paul Perito, a partner of the law firm Paul, Hastings, who became the chairman of Star, tapped Scott Flicker from Paul Hastings to facilitate the transfer of files from Sughrue to Banner. Upon receiving the files, Rivard searched them for prior art but did not notice the Burton letter. Rivard filed an Information Disclosure Statement ("IDS") discussing and distinguishing certain prior art, but did not include the Burton letter. Rivard filed a continuation with an IDS listing many of the same references as his earlier IDS, but also did not include the Burton letter.

     In June 2002, while waiting for the continuation application to issue as a patent, Rivard became aware of the Burton letter and other data when Star's trial counsel, Crowell & Moring ("Crowell"), informed him that RJR had raised those documents in litigation. Rivard's initial reaction was that they should be disclosed out of an abundance of caution. Several Crowell attorneys exchanged e-mails amongst themselves discussing whether they thought the Burton letter was required to be disclosed to the PTO; however, the letter was never disclosed to the PTO.

Analysis

     In reaching its decision, the Federal Circuit said, 

The need to strictly enforce the burden of proof and elevated standard of proof in the inequitable conduct context is paramount because the penalty for inequitable conduct is so severe, the loss of the entire patent even where every claim clearly meets every requirement of patentability. Just as it is inequitable to permit a patentee who obtained his patent through deliberate misrepresentations or omissions of material information to enforce the patent against others, it is also inequitable to strike down an entire patent where the patentee only committed minor missteps or acted with minimal culpability or in good faith. As a result, courts must ensure that an accused infringer asserting inequitable conduct has met his burden on materiality and deceptive intent with clear and convincing evidence before exercising its discretion on whether to render a patent unenforceable.

 Deceptive Intent Prong

     The Federal Circuit found that the District Court's finding of deceptive intent as to both patents-in-suit was based primarily on its acceptance of RJR's theory that Williams and Star conspired to deliberately prevent Delmendo and his colleagues at the Sughrue firm from disclosing the Burton letter to the PTO by replacing them with the Banner firm and purposely keeping the Banner firm ignorant of the Burton letter. The Federal Circuit held that this "quarantine" theory was not supported by clear and convincing evidence, in that RJR's evidence had a major gap—RJR failed to elicit any testimony or submit any other evidence indicating that Star knew what the Burton letter said prior to replacing the Sughrue firm.

Materiality Prong

     The Federal Circuit found that an interrogatory response, which Star disclosed to the PTO, contained the critical information that the prior art had achieved low to insignificant levels of TSNA, and that the information contained in the Burton letter would therefore have been cumulative during prosecution by the time the Banner lawyers were made aware of the letter in June 2002.

     Read Part 1 of this post.
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Seagate vs. Patent Reform Act of 2007

Posted on August 29, 2007 by Brian Wm. Higgins

Summary:  Don't get too comfortable with Seagate's "objective recklessness" standard for determining willfulness in patent litigation: the Patent Reform Act of 2007 could change everything.

 

     35 U.S.C. § 284, enacted in 1952, provides that a court "may increase damages up to three times the amount found or assessed" in the case of willful patent infringement. In 1983, the Federal Circuit established the standard for evaluating willfulness: 

“Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.”

Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)(emphasis added).  Thus, an accused infringer could establish that its continued accused activities were done in good faith if it reasonably relied on advice from counsel. The duty of care standard survived until just recently, when the Federal Circuit overruled the standard and held that:

"Proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." 

In re Seagate Technology, LLC, Civ. No. 830 (Fed. Cir. 2007) (en banc) (Newman, J., Garjarsa, J., concurring).  Under Seagate, a patentee must show by clear and convincing evidence "that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent."  Once the threshold objective standard is satisfied, the patentee "must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer." According to the Federal Circuit, the state of mind of the accused infringer is not relevant to this objective inquiry.

     The Patent Reform Act of 2007, if enacted, would include a new § 284 concerning willful patent infringement (see Senate and House bills S.1145 and H.R.1908, respectfully; see also related posts here).  The new law would allow a court to find willfulness only if the patent owner presented clear and convincing evidence that the accused did one of the following three things:

"(A) after receiving written notice from the patentee...alleging acts of infringement...the infringer, after a reasonable opportunity to investigate, thereafter performed one or more of the alleged acts of infringement;

"(B) the infringer intentionally copied the patented invention with knowledge that it was patented; or

"(C) after having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent."

     Part of the new law, if enacted in its current form, would limit willfulness damages where the infringer has an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent.  An "informed good faith belief" may be established by:

(1) "reasonable reliance on advice of counsel;"

(2) "evidence that the infringer sought to modify its conduct to avoid infringement once it had discovered the patent;" or

(3) "other evidence a court may find sufficient to establish such good faith belief."

     Under the new law, there is no requirement, like in Seagate, to perform an objective risk of infringement assessment or establish that an accused infringer knew or should have known of the risks.  However, like in Seagate, the new law would also not impose a requirement that infringers obtain advice of counsel as a prerequisite to making, using, or selling a product or performing a method.  As William Lafuze and Michael Valek noted in their recent article [1]:

"If [patent reform is] enacted, the advice-of-counsel defense will remain an option, but accused infringers will not face the same pressure to waive privilege over such advice because there will be additional, statutorily defined limits and defenses to willfulness." 

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