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Failure to Disclose Pertinent Data to Patent Counsel Undermined Noninfringement Opinion

June 01, 2006

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Last Month at the Federal Circuit - July 2006

Judges: Gajarsa (author), Dyk, Prost

In Liquid Dynamics Corp. v. Vaughan Co., Nos. 05-1105, -1325, -1366, -1399 (Fed. Cir. June 1, 2006), the Federal Circuit affirmed the district court’s denial of a JMOL motion for noninfringement, invalidity, no willful infringement, and unenforceability due to inequitable conduct. The Federal Circuit also upheld the district court’s orders for a permanent injunction, enhanced damages, and attorneys’ fees.

Liquid Dynamics Corporation (“LD”) is the owner of U.S. Patent No. 5,458,414 (“the ’414 patent”), which involves a system of pumps that stirs mixtures of solids and liquids in large million-gallon tanks. The invention is primarily directed to applications for mixing wastewater and manure. LD brought suit against Vaughan Company, Inc. (“Vaughan”) alleging that forty-seven Vaughan tank installations infringed the ’414 patent. A jury returned a verdict that all forty-seven tank installations infringed the ’414 patent, that the infringement was willful, and that

Vaughan failed to prove that the ’414 patent was invalid. The jury awarded damages to LD in the amount of $1,183,722. The district court then held a bench trial on Vaughan’s allegation of inequitable conduct, but granted LD’s motion for JMOL on that issue. The district court also trebled the jury’s damage award based upon the jury’s willfulness finding and awarded attorneys’ fees in the amount of $1,501,239.

On appeal, the Federal Circuit first considered Vaughan’s argument that LD presented insufficient evidence that eleven of the forty-seven accused tank installations met the required tank nozzle placement and nozzle angle limitations required by the asserted claims. Vaughan pointed out that its chief engineer testified to his knowledge of four tanks with nozzles located outside the regions claimed by the patent.

The Federal Circuit rejected Vaughan’s arguments, concluding the jury could reasonably have discredited the testimony of Vaughan’s chief engineer and given more weight to the circumstantial evidence of the Vaughan engineering manual, which showed Vaughan’s regular method of installing tanks and also showed nozzle placement within the claim limitations. Thus, the Court held that there was substantial evidence that all forty-seven accused tank installations met the claim limitations of the ’414 patent.

The Federal Circuit also rejected Vaughan’s challenge to the admissibility and reliability of LD’s computer simulations that were used to establish a claimlimitation that required helical and rotational flow of the liquid and solids in the tank. The Court noted that Vaughan’s argument focused on the accuracy of the parameters applied by LD’s technical expert and not on the reliability of the general type of analysis performed by the expert. Thus, the Court concluded that Vaughan’s challenge went to the weight of the evidence rather than admissibility. Although LD’s expert admitted that his models did not exactly match the various accused tanks, this fact was fully discussed on cross-examination. The Court thus declined to “contravene the province of the jury by reweighing [the expert’s] testimony.” Slip op. at 17.

The Federal Circuit also rejected Vaughan’s argument that there was insufficient evidence under 35 U.S.C. § 271(f)(1) that it intended for foreign purchasers to infringe the ’414 patent by installing tanks in an infringing configuration. The Court noted in particular that Vaughan hired a former LD employee with knowledge of the patented design, and Vaughan’s chief engineer had testified that Vaughan relied on nozzle orientations from the former LD employee. Morever, Vaughan’s engineering manual was replete with infringing examples and was sent to customers. The Court held that this constituted circumstantial evidence that Vaughan intended for its subsequent buyers, including foreign buyers, to install systems that infringed the claims of the ’414 patent. Thus, the Court held that there was substantial evidence to support the jury’s verdict under § 271(f).

The Federal Circuit also dismissed Vaughan’s arguments that the ’414 patent should have been held invalid because the specification failed to disclose the use of reducers on the tank nozzles, which was the best mode of practicing the invention. In rejecting this argument, the Court particularly pointed to statements in the ’414 patent that suggested the use of reducers as well as evidence presented by LD that adding reducers is a routine detail that did not need to be disclosed to a person of ordinary skill in the art.

The Federal Circuit also rejected Vaughan’s argument that there was not clear and convincing evidence to support the jury’s verdict of willful infringement. The Court noted that there was a number of pieces of evidence that the jury could have relied upon to infer copying. The Court pointed out that Vaughan’s engineering drawings were virtual duplicates of LD’s drawings, and Vaughan relied on the former LD employee to establish its nozzle angles. Although Vaughan relied heavily on its opinion of counsel, the Court noted that LD presented evidence that Vaughan’s patent counsel was not given a complete set of data and was advised that vector plots of fluid flow did not show anything of significance. The Court concluded that the “jury could use such a concealment of evidence from the attorney to discount the opinion.” Id. at 26.

Finally, regarding the issue of inequitable conduct, Vaughan argued that the district court committed clear error by finding that two of LD’s prior tank installations were not prior art that should have been disclosed to the patent examiner. The Federal Circuit concluded that although the district court erred in its analysis of materiality, the error was not reversible because Vaughan failed to establish that the inventors had the requisite intent to deceive the PTO. Regarding materiality, the Court explained that the district court focused on whether the prior installations actually embodied the invention, when the correct analysis asks whether a reasonable examiner would find it important. Regarding intent to deceive, the Court noted that the district court relied on evidence that the inventor did not believe the prior installations were necessary disclosures because they were not embodiments of the invention and were similar to other disclosures. Moreover, the inventor testified that he did inform the examiner of the prior tanks. The Court held that this evidence supported the district court’s analysis of intent and affirmed the finding of no inequitable conduct.