Print PDF

Materiality and Intent Are Not a Part of Sliding Scale in Inequitable Conduct Analysis

June 27, 2011

Decision icon Decision

Last Month at the Federal Circuit - July 2011

Judges: Lourie (author), Bryson, Gajarsa

[Appealed from: S.D. Cal., Judge Sabraw]

In American Calcar, Inc. v. American Honda Motor Co., Nos. 09-1503, -1567 (Fed. Cir. June 27, 2011), the Federal Circuit affirmed the district court’s grants of SJ of noninfringement, reversed the denial of JMOL on the issue of validity, vacated the decision on inequitable conduct, and remanded for consideration of inequitable conduct under the guidelines set forth in Therasense v. Becton, Dickinson & Co., No. 08-1511 (Fed. Cir. May 25, 2011) (en banc).

American Calcar, Inc. (“ACI”) holds fifteen patents relating to various aspects of vehicle computer systems, including allowing the user to select, obtain information, and control various features of the vehicle by touching the appropriate option on the screen. The patents can be categorized into six groups. U.S. Patent No. 6,587,759 (“the Notable Condition patent”) is directed toward a system that alerts the driver when a problem arises in the vehicle. U.S. Patent No. 6,330,497 (“the Three-Status patent”) relates to a system that allows a user to select an option from a list, to be shown a preview of information about the selection, and then to activate it. U.S. Patent Nos. 6,438,465 and 6,542,795 (“the Search patents”) are directed to a system for performing searches on a system in a vehicle. U.S. Patent Nos. 6,754,485 and 6,987,964 (“the Car-Mail patents”) relate to notifying drivers about a “faulty condition,” such as a condition for which the manufacturer issues a recall. U.S. Patent No. 6,275,231 (“the Radio patent”) is directed to a centralized entertainment system for use in vehicles to facilitate a user’s control and management of entertainment program selection. U.S. Patent Nos. 6,577,928 and 6,524,794 (“the Service Provider patents”) are directed to identifying a service provider when it is determined that a vehicle needs service. Before filing the applications for the Three-Status and Search patents, the inventors borrowed an Acura 96RL vehicle and examined the car’s navigation system. Although the 96RL system is described in the “Background” section of the patent applications, the description is limited to the navigation aspect of the system, not the user interface aspects. ACI asserted its patents against American Honda Motor Company, Incoprorated (“Honda”).

The district court granted SJ of noninfringement of five patents, namely, the Car-Mail, Service Provider, and Radio patents, and denied Honda’s motion for SJ of invalidity of the Notable Condition patent. The jury found the Three-Status patent invalid as anticipated by the 96RL and awarded ACI damages for the patents that had been found infringed and not invalid. The jury also rendered an advisory finding of no inequitable conduct as to the Three-Status and Search patents. Following the verdict, the district court ruled on Honda’s inequitable conduct motion, finding that the inventors committed inequitable conduct during prosecution of the family containing the Three-Status and Search patents, and held these patent unenforceable. In so doing, the district court held that, given that the withheld information was highly material, less evidence of intent was required to reach a finding of inequitable conduct. The district court also denied Honda’s motion for JMOL of invalidity of the Notable Condition patent. ACI appealed the rulings on inequitable conduct, claim construction, and noninfringement of the Car-Mail, Service Provider, and Radio patents. Honda cross-appealed the denial of JMOL of invalidity of the Notable Condition patent.

On appeal, the Federal Circuit first considered whether the Three-Status and Search patents are unenforceable for inequitable conduct. As an initial matter, the Court concluded that the district court did not prejudice ACI by disregarding the jury’s advisory verdict of no inequitable conduct. The Court reminded that inequitable conduct is equitable in nature, with no right to a jury, and that the trial court has the obligation to resolve the underlying facts of materiality and intent.

The Court next explained that, to prove inequitable conduct, the accused infringer must provide evidence that the applicant (1) misrepresented or omitted material information, and (2) did so with the specific intent to deceive the PTO. Under the Court’s recent decision in Therasense, the materiality required to establish inequitable conduct is, in general, but-for materiality. In other words, when an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.

Applying this standard, the Court agreed with Honda that the undisclosed 96RL information was material to the Three-Status patent because the jury found, and the district court upheld, the asserted claims as anticipated by the 96RL system, and ACI did not appeal that decision. With regard to the Search patents, the Court found that although the jury rejected Honda’s invalidity arguments based on the 96RL system, the withheld information may be material if it would have blocked patent issuance under the PTO’s preponderance of the evidence standard, giving those patent claims their broadest reasonable construction. Because the Court was not able to infer that finding from the district court’s opinion, it vacated the district court’s findings of materiality as to the Search patents and remanded the issue.

The Federal Circuit also concluded that the district court applied an incorrect standard in determining specific intent to deceive the PTO by the ACI inventors. Under Therasense, the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it. The Court found that the district court made no holding that any of the inventors knew that the withheld information was in fact material and made a deliberate decision to withhold it. Instead, the district court relied on the sliding scale standard that was rejected in Therasense. Accordingly, the Court vacated the district court’s finding of intent and remanded the issue.

The Federal Circuit turned next to ACI’s challenge to the grant of SJ of noninfringement of five of its patents. With regard to the Car-Mail patents, ACI argued that the district court improperly limited the claim term “message” based on embodiments disclosed in the patent specification. According to ACI, the term means “communication.” ACI also argued that the claim term “identifier” should not have been construed as unique to each vehicle. Honda responded that the district court merely adopted the patentee’s own definition in requiring that the “message” be in the format <vehicle-id>@<domain> and that a nonunique identifier would render identification meaningless. The Court agreed with Honda and affirmed the two constructions and the grant of SJ of noninfringement of the Car-Mail patents.

Regarding the Radio patent, ACI argued that the district court construed the claim term “source” too narrowly, requiring that it broadcast from a fixed location and on a specified frequency. The Court disagreed, finding that ACI’s broad reading of “source” was not supported by the specification. ACI also argued that the district court erred in granting SJ of noninfringement of the Radio patent because there is a question of fact as to whether the accused XM Satellite Radio receivers meet the limitation under the DOE. The Court, however, agreed with the district court that ACI had not met its evidentiary burden to demonstrate by particularized testimony that the accused receivers perform substantially the same function in substantially the same way to obtain the same result as the claimed system. The Court, therefore, affirmed the district court’s SJ of noninfringement of the Radio patent.

Turning to the Service Provider patents, the Federal Circuit considered ACI’s argument that the district court imported a negative limitation into the claims. Specifically, ACI argued that the district court’s construction of the terms “in response” and “while” prohibited any user action between two events in the claims. ACI contended that the term “identifying one of the plurality of providers in response to vehicle conditions” simply connotes a cause-and-effect relationship between the first and second event, and does not preclude user interaction in-between. ACI similarly argued that the phrase “selecting at least one service provider for servicing the vehicle when the vehicle needs a service” requires only that one event happen before the other. The Court agreed with Honda that the district court properly construed the claims and properly found prosecution history estoppel based on statements to the PTO distinguishing a prior art reference. ACI has argued in the PTO that, in the prior art, the identification by the processor was in response to a user request rather than to the occurrence of a maintenance condition. Further, the Court found that the language of the claim itself suggests that when a vehicle condition is detected, the processing element identifies a provider automatically as opposed to requiring further user interaction. Thus, the Court affirmed the district court’s finding of noninfringement of ACI’s Service Provider patents by Honda’s accused systems.

The Federal Circuit next considered Honda’s cross-appeal of the denial of its motion seeking JMOL that the Notable Condition patent is invalid. Honda argued that the district court erred in the construction of the claim term “prompting a user to select the option” by requiring that the system prompt for not just any option, but for the one option that would allow the user to cope with the notable event. In Honda’s view, this improperly required something more than the mere display of the option and that there is no support for that in the patent specification. Under the correct construction, Honda contended, a prior art reference does exactly what the patented system does—it displays a button to bring up coping information and provides an audible alert. The Court agreed with Honda that, under a proper construction, the prior art reference anticipated the asserted claims of the Notable Condition patent. Accordingly, the Court reversed the jury’s verdict and held the patent invalid as anticipated.

Summary authored by Constance B. Jones, Esq.