Court Has Discretion to Decide Issue of Inequitable Conduct Prior to Jury Trial on Invalidity
June 26, 2006
Last Month at the Federal Circuit - July 2006
Judges: Newman (dissenting), Lourie, Rader (author)
In Agfa Corp. v. Creo Products Inc., No. 05-1079 (Fed. Cir. June 26, 2006), the Federal Circuit affirmed the district court’s holding that Agfa Corporation’s (“Agfa”) asserted patents are unenforceable for inequitable conduct, granted Creo Products Inc.’s (“Creo”) request that inequitable conduct be tried to the court prior to a jury trial on other issues, and awarded Creo its attorneys’ fees.
Agfa owns six patents directed to various features of a “computer-to-plate” (CTP) system, which takes a desired image, including written and/or graphic content, and transfers that image directly from a computer onto a printing plate for large-scale printing. The patents teach improvements to CTP automation by facilitating the creation of multiple plates of different sizes.
Agfa sued Creo, alleging that Creo’s CTP system infringed Agfa’s six patents. As a defense and counterclaim, Creo asserted that Agfa engaged in inequitable conduct before the PTO by failing to disclose several prior art systems, thereby rendering Agfa’s patents unenforceable. The district court severed the inequitable conduct issue, conducted a bench trial on that issue, and declared Agfa’s patents unenforceable. The district court also awarded attorneys’ fees under 35 U.S.C. § 285 because Agfa’s inequitable conduct rendered the case exceptional.
The Federal Circuit affirmed the district court’s decision to sever the inequitable conduct issue for a bench trial while postponing for later, if necessary, a jury trial on infringement and invalidity. The Court explained that the case was “almost indistinguishable” from Gardco Manufacturing, Inc. v. Herst Lighting Co., 820 F.2d 1209 (Fed. Cir. 1987), slip op. at 6, and applied Gardco’s reasoning to the present facts. Stating its position as consistent with Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959), the Court reasoned that the issues of inequitable conduct and validity in the present case do not constitute “common” issues such that a request for jury trial must be honored. While certain factual aspects “overlapped” in the consideration of inequitable conduct and validity, the Court emphasized that such overlapping factual aspects do not suffice to render the issues “common.” For example, inequitable conduct may render unenforceable an otherwise valid patent. Furthermore, materiality and validity do not present common issues because of the broad “reasonable examiner” standard for materiality. Thus, the Federal Circuit concluded that the issues of inequitable conduct and validity lack commonality and the right to a jury trial, therefore, does not attach to the issue of inequitable conduct.
The Federal Circuit also dismissed Agfa’s contention that Gardco conflicts with dictum in a footnote in In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995), vacated, 515 U.S. 1182 (1995), which suggests that inequitable conduct is analogous to a writ of scire facias and, therefore, requires a jury trial. The Court reasoned that the writ is not a historic analog to inequitable conduct that would trigger a Seventh Amendment right to a jury trial and maintained that the Court has consistently treated inequitable conduct as an equitable defense that may be adjudicated without a jury.
A primary challenge by Agfa to the district court’s inequitable conduct ruling was that the court incorrectly construed the claims, which, if properly construed, would have lessened the materiality of the nondisclosed prior art. In construing the asserted claims, the Federal Circuit agreed with the district court’s understanding of the term “stack” to encompass “a number of plates arranged together in an orderly fashion,” regardless of whether the plates are arranged in a horizontal or vertical orientation. The Court stated that the district court correctly relied on the ordinary meaning of the term in reasoning that a stack tilted more than 45 degrees remains a stack and the dependent claims further limiting the stack to horizontally oriented plates support this construction. In addition, although the specifications of the patents depict horizontal orientation as the preferred embodiment, the Court found nothing in the intrinsic record that would support limiting the claimed invention to that particular embodiment.
With respect to the first element of inequitable conduct, the Federal Circuit affirmed the trial court’s finding that Agfa withheld material information from the PTO. The district court correctly held that prior art CTP systems, patents, and brochures, taken alone or in combination, establish a prima facie case of unpatentability for claims in each of Agfa’s asserted patents. Moreover, the district court also correctly held that the undisclosed prior art is inconsistent with Agfa’s position during examination, finding that had the art been disclosed, the patentee could not have made the arguments it did to distinguish the invention from the cited art. Each of these independent bases constitutes a failure to disclose material information to the PTO.
With regard to the second element, the Federal Circuit also affirmed the district court’s finding of culpable intent by Agfa. Agfa had particular familiarity with Creo’s prior art product and knew of other CTP prior art. The Court explained that the district court relied on Agfa’s substantial documentation and internal discussion of the prior art in the design and creation of its system. Agfa’s extensive knowledge of the undisclosed art, which was inconsistent with patentability arguments made to the PTO, supports an inference of intent to deceive. The Federal Circuit also affirmed the district court’s finding that Agfa appreciated the materiality of the undisclosed references despite their contention that, under Agfa’s claim construction, the prior art was not material. The Court emphasized that materiality does not coincide with anticipation, but instead embraces the broader concept of patentability.
Finally, while the Federal Circuit acknowledged that the district court did not do an “express and detailed” balancing of materiality and intent, id. at 21, the district court found high levels of materiality and intent, which the Court held were sufficient to establish inequitable conduct. Additionally, because the Court affirmed the district court’s decision, the Court also affirmed the award of attorneys’ fees.
Judge Newman dissented, contending that the materiality and intent elements of inequitable conduct are “quintessential questions of fact, and have been tried to a jury throughout the nation’s history.” Dissent at 1. Judge Newman argued that under common law, whether a patent was obtained upon “false suggestion” was tried to a jury and this right was carried into modern U.S. cases. Judge Newman contended that issues of fraud, deception, and intent are traditional jury questions.
With regard to the Court’s claim construction, Judge Newman disagreed that the term “stack” includes the embodiment in which the plates are vertically oriented as in the prior art because “when the plates are lined up in parallel there is no longer a ‘top’ plate, for the plates are no longer ‘stacked.’” Id. at 9.