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Even If Statement Associated with Small Entity Fee Payment Is Per Se Material, Court Finds No Evidence of Intent to Deceive the PTO

09-1171
September 21, 2012

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Last Month at the Federal Circuit - October 2012

Judges: Newman (concurring-in-part and dissenting-in-part), Prost, O'Malley (per curiam)

[Appealed from: N.D. Ga., Senior Judge Evans]

In Outside the Box Innovations, LLC v. Travel Caddy, Inc., No. 09-1171 (Fed. Cir. Sept. 21, 2012), the Federal Circuit reversed the district court’s judgment of unenforceability based on inequitable conduct, affirmed judgments related to infringement, vacated and remanded for redetermination of obviousness, and remanded for determination of a remedy for infringement.

Outside the Box Innovations, LLC, doing business as Union Rich USA (“Union Rich”), brought a DJ patent suit against Travel Caddy, Inc. (“Travel Caddy”) and its distributor/sales agent Rooster Products (“Rooster”) regarding cases for carrying tools. The district court held that Travel Caddy’s U.S. Patent No. 6,823,992 (“the ’992 patent”) and its continuation, U.S. Patent No. 6,991,104 (“the ’104 patent”), are unenforceable due to inequitable conduct. The district court also held some claims of the ’104 patent and all the claims of the ’992 patent invalid on the ground of obviousness. The district court further held on SJ that the version of the Union Rich tool carry case called the Electricians Carryalls (“Electricians Bag I”) infringes various patent claims, but that a modified version, called the Electricians Bag II, and the tool carry case, called the Heavy-Duty ProTool Bag, do not infringe. The district court also dismissed Union Rich’s unfair competition claims against Travel Caddy.

On appeal, the Federal Circuit first addressed the issue of enforceability of the ’992 and the ’104 patents. The district court found inequitable conduct on two grounds: Travel Caddy’s failure to disclose to the PTO the ’992 patent litigation during the prosecution of the ’104 patent, and its allegedly incorrect claim of “small entity” status in the PTO. The Court rejected both grounds and reversed the judgment of unenforceability.

With regard to Travel Caddy’s failure to disclose to the PTO the ’992 patent litigation, the Federal Circuit found neither but-for materiality nor specific intent to deceive the examiner into granting the ’104 patent application. Specifically, the Federal Circuit concluded that no information relevant to patentability of the ’104 patent application had been provided in the ’992 patent litigation while the ’104 patent application was pending. The Court further concluded that no ground of invalidity was included in the complaint against the ’992 patent or communicated informally despite Travel Caddy’s inquiries. Indeed, Travel Caddy’s patent attorney testified that he did not file a notice of the ’992 patent litigation in the prosecution of the ’104 patent application because “[t]here was nothing in there that was what I understood to be material under Rule 56. There was nothing that related to patentability, enforceability or validity.” Slip op. at 6 (alteration in original) (citation omitted).

The Federal Circuit turned next to Travel Caddy’s allegedly incorrect claim of small entity status. The district court held that small entity status was not available to Travel Caddy, although it met the small entity definition of having fewer than 500 employees, because of Travel Caddy’s commercial arrangement with Rooster, which had more than 500 employees, including its Mexican affiliates. The issue was whether a certain provision of a sales agreement between Travel Caddy and Rooster amounted to a patent license for purposes of evaluating small entity status under 37 C.F.R. § 1.27(a)(2), or merely offered protection to Rooster to obtain an alternative supply if Travel Caddy failed to provide the product. The Court declined to characterize the agreement provision. Instead, the Court concluded that, even if a false assertion of small entity status were per se material, here, there was no clear and convincing evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees. For these reasons, the Court reversed the district court’s ruling of unenforceability due to inequitable conduct.

Next, the Federal Circuit addressed the validity of the ’992 and the ’104 patents. Union Rich offered attorney argument that combinations of five references rendered both patents obvious. Travel Caddy sought to rebut this argument through the testimony of an expert witness with experience in the relevant technical field. The district court, however, prevented the expert witness from testifying because he was not a lawyer. The district court then ruled that Travel Caddy’s structure “was an obvious solution to simple problems inherent in the prior art patents.” Id. at 15 (citation omitted). Applying Eleventh Circuit law, the Federal Circuit found that the district court had abused its discretion in excluding the testimony of the expert. Specifically, the Court stated that “the exclusion of a technical expert for the reason that he is not a lawyer is contrary to Federal Rule of Evidence 702 and the benefits of technological assistance in resolution of technological issues.” Id. at 17. Accordingly, the Court vacated the district court’s invalidity decision and remanded for redetermination of the issue of obviousness on the entirety of the evidence, including expert testimony.

The Federal Circuit next considered issues of infringement. The district court construed thirteen claim terms, and the Federal Circuit had previously reviewed the construction of these terms in an interlocutory appeal from the denial of Travel Caddy’s request for a preliminary injunction. Travel Caddy argued that the district court’s previous claim construction was not final and that claim constructions rendered on appeal from a preliminary injunction ruling are not binding on the Federal Circuit. The Court agreed that, generally, the tentative claim construction for preliminary injunction purposes does not remove the issue from later review after the facts are elaborated, but found some merit in Union Rich’s argument that, because the district court’s claim construction decision was issued after a full Markman hearing and the parties had not identified any new factual findings, the Federal Circuit’s prior decision affirming the district court’s claim construction constituted law of the case. The Court declined to decide this issue, affirming the constructions on other grounds. In so doing, the Court held that Figure 4 of the ’104 patent is the only figure depicting the binding used in the claimed invention. The Court affirmed (1) the unchallenged judgment of infringement by Union Rich’s Electricians Bag I; and (2) the judgment of noninfringement by the Heavy-Duty ProTool Bag and the Electricians Bag II. The Court remanded for determination of remedy with respect to infringement by the Electricians Bag I.

Judge Newman concurred-in-part and dissented-in-part with the majority’s decision. Judge Newman first disagreed that a misstatement of small entity status was per se material to patentability, and thus could render the patent permanently unenforceable for inequitable conduct. Judge Newman explained that the immateriality of an affidavit that is not the basis of the patent grant was long ago established by precedent. Second, in Judge Newman’s view, the panel majority was incorrect in suggesting that pretrial claim construction on interlocutory appeal of a preliminary injunction was “law of the case” and could not be reviewed on final appeal. Finally, Judge Newman disagreed that the accused Heavy-Duty ProTool Bag does not infringe the ’104 patent. According to Judge Newman, “The panel majority construes the claims of the patents to exclude the bag in Figure 10, and thus to exclude infringement by the bag that Union Rich copied from Travel Caddy’s embodiment of Figure 10 . . . .” Newman op. at 7-8.

Summary authored by Alice Wang, law clerk at Finnegan.