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Despite a Finding of Inequitable Conduct, Patentee Retains Antitrust Immunity

February 09, 2007

Decision icon Decision

Last Month at the Federal Circuit - March 2007

Judges: Mayer, Rader, Gajarsa (author)

[Appealed from: N.D. Tex., Judge Thrash]

In Dippin’ Dots, Inc. v. Mosey, Nos. 05-1330, -1582 (Fed. Cir. Feb. 9, 2007), the Federal Circuit affirmed the district court’s grant of SJ of noninfringement and the judgment following trial that the claims are obvious and the patent unenforceable due to inequitable conduct. The Court reversed the holding that Dippin’ Dots, Inc. and Curt D. Jones (collectively “DDI”) violated antitrust laws by asserting a patent procured through fraud.

DDI developed a form of cryogenically prepared novelty ice cream sold under the DDI brand. The method of preparing the ice cream product, as claimed in claim 1 of U.S. Patent No. 5,126,156 (“the ’156 patent”), consists of six steps: (1) preparing the composition, (2) dripping the composition, (3) freezing the composition, (4) storing the composition, (5) bringing the composition to a higher temperature, and (5) serving the composition.

The initial patent application omitted the final serving step from claim 1 and was rejected by the PTO as obvious over the prior art. DDI amended the claim to include the serving step and the claim was again rejected for obviousness. DDI subsequently filed a declaration in which it submitted evidence of the significant commercial success of the claimed method. The PTO was persuaded and issued the ’156 patent in June 1992.

The critical date for DDI’s patent is March 6, 1988, with sales made before this date implicating the on-sale bar of 35 U.S.C. § 102(b). Beginning on July 24, 1987, the inventor sold cryogenically prepared, largely beaded ice cream at the Festival Market mall in Kentucky for at least five days to about eight hundred customers. These sales were never disclosed to the PTO during prosecution of the ’156 patent. Moreover, the declaration of significant commercial success contained a sworn statement that initial sales of the product took place in March 1988.

Several distributors of the DDI product entered into competition with DDI. DDI subsequently filed patent infringement lawsuits against these competitors. The defendants counterclaimed for violation of § 2 of the Sherman Act, alleging that DDI was attempting to enforce a fraudulently acquired patent. The district court granted SJ of noninfringement, both literally and under the DOE. The district court denied SJ on the claims of invalidity and inequitable conduct.

At trial, a jury found that the Festival Market sales were prior art, and that all claims of the ’156 patent were invalid for obviousness. The jury also found that the inventor had, with intent to deceive, made material representations or omissions to the PTO. Thus, the jury found that the defendants had proven all required elements of their antitrust claim. The district court denied DDI’s JMOL motion and found the ’156 patent unenforceable due to inequitable conduct. It also awarded attorney’s fees to two of the defendants pursuant to the Clayton Act. DDI appealed.

On appeal, the Federal Circuit affirmed the district court’s finding that the claim steps mentioning “beads” were limited to covering processes that produce beads and only beads. Because it found that the accused processes produce irregularly shaped particles other than beads, the Court concluded the defendants do not literally infringe the ’156 patent.

With regard to obviousness, the Federal Circuit concluded that the Festival Market sales were prior art and the process, combined with other relevant prior art, rendered the claims of the ’156 patent obvious. Further, the Court concluded that substantial evidence existed for the jury to find the facts necessary for both conclusions. Specifically, the inventor testified that his purpose at Festival Market was to determine the marketability of his ice cream product and not to improve it technically. Accordingly, the jury could conclude that because the prior sales were not experimental in nature, the “experimental use” exception to the § 102(b) on-sale bar was inapplicable. Further, the inventor testified that the first three steps of claim 1 (preparing, dripping, and freezing) were practiced at Festival Market. The Court found the last two steps (bringing and serving) were probably practiced as well. Further, the Court concluded that extended cold storage, reflected in the fourth step (storing), was an obvious part of distributing and retailing the product at Festival Market. The Federal Circuit also found that someone of ordinary skill in the art of ice cream retailing would seek the appropriate temperature ranges within which to store and serve the product. Because the factors that led to DDI’s later commercial success were already largely present at Festival Market, the Court concluded that the jury could reasonably have seen the later changes to the process as not improving the prior art’s commercial appeal. Accordingly, the Court affirmed the judgment of obviousness.

With regard to inequitable conduct, the Federal Circuit concluded that the district court did not abuse its discretion in balancing relatively weak evidence of DDI’s intent to deceive the PTO against strong evidence that the omission of the Festival Market sales was highly material to the issuance of the ’156 patent. Thus, the Federal Circuit affirmed the finding of inequitable conduct. Regarding the antitrust claims, the Federal Circuit applied the test for Walker Process fraud, which requires higher threshold showings of both materiality and intent than are required to show inequitable conduct. The Court concluded that there was evidence of sufficient materiality to support a finding of fraud because the evidence supports a finding that the ’156 patent would not have issued had DDI disclosed the Festival Market sales to the PTO. However, noting that the mere failure to cite a reference to the PTO is not sufficient to show Walker Process intent, and finding no separate evidence of intent to withhold the information in the evidentiary record, the Federal Circuit concluded that there was no proof of deceptive intent to the extent necessary for a reasonable jury to find Walker Process fraud.

The Federal Circuit distinguished the facts of this case from those in Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998). In Nobelpharma, a patent agent deleted from a foreign patent application all references to a book written by the patentee that anticipated the patent. The agent also failed to mention the book in the U.S. application that led to the patent at issue in that case. When pressed on the issue at trial, the agent could not explain his actions. The Federal Circuit concluded that evidence of actual deletion by the patent agent was a reasonable ground on which to find intent to defraud the PTO. In this case, however, the Federal Circuit concluded that there was no similarly strong evidence that the omission of the Festival Market sales was fraudulent. For these reasons, the Federal Circuit concluded that DDI retained its antitrust immunity as a patent holder and reversed the district court’s holding as to the antitrust counterclaim. Because it reversed the judgment of antitrust liability, the Federal Circuit vacated the grant of attorney’s fees awarded by the district court under § 4 of the Clayton Act.