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After Jury Verdict of No Anticipation, Claims Invalidated as a Matter of Law by Prior Art System Described in Reference Modified After Critical Date

May 17, 2010

Decision icon Decision

Last Month at the Federal Circuit - June 2010

Judges: Gajarsa (author), Plager, Linn

[Appealed from: E.D. Tex., Judge Davis]

In Orion IP, LLC v. Hyundai Motor America, No. 09−1130 (Fed. Cir. May 17, 2010), the Federal Circuit reversed the district court’s denial of JMOL on validity, invalidating the asserted claims.  The Court also affirmed the district court’s ruling that the patent in question was not unenforceable due to alleged inequitable conduct by its inventor. 

Orion IP, LLC (“Orion”) asserted U.S. Patent No. 5,367,627 (“the ’627 patent”) related to computer−assisted parts sales against Hyundai Motor America (“Hyundai”) and twenty other automakers, alleging infringement by the automakers’ online sales systems.  Hyundai, the only defendant not to settle prior to trial, alleged that the ’627 patent was anticipated by a prior art reference entitled “Electronic Parts Catalog,” which describes an electronic parts catalog system referred to as the IDB2000 system.  Orion’s sole argument to distinguish its invention from the prior art was the failure of the IDB2000 system to generate a “proposal,” a claim term construed by the district court to mean “information intended for conveyance to a potential customer.”  The jury awarded Orion $34 million in damages after finding the ’627 patent infringed and not invalid.  Subsequently, the district court denied Hyundai’s motion for JMOL regarding the IDB2000 system. 

Hyundai also alleged that the ’627 patent was unenforceable due to the inventor’s failure to disclose alleged on−sale bar activity after submitting a sworn affidavit that no such activity existed.  After a bench trial on the issue, the district court found that Hyundai failed to establish both materiality and intent, and therefore failed to prove inequitable conduct. 

Among other identified errors, Hyundai appealed the district court’s decision on inequitable conduct and denial of Hyundai’s JMOL motion regarding the IDB2000 system.  On appeal, the Federal Circuit only needed to address these two substantive issues. 

Before reaching Hyundai’s arguments regarding the IDB2000 system, the Federal Circuit rejected Orion’s argument that Hyundai waived its right to appeal by failing to make a sufficiently specific presubmission motion under Fed. R. Civ. P. 50(a).  At trial, counsel for Hyundai stated that Hyundai sought JMOL based on prior art and referred generally to testimony previously heard by the district court.  The Federal Circuit found that Hyundai’s statement, although cursory in its content, was sufficient under Fifth Circuit law because neither Orion nor the district judge could have failed to understand Hyundai’s positions, given the context of the statement and its reference to arguments already heard.

The Federal Circuit next turned to Hyundai’s invalidity arguments based on the Electronic Parts Catalog reference describing the IDB2000 system.  First, the Court considered whether the Electronic Parts Catalog reference qualified as prior art.  The reference had a copyright date prior to the critical date and a revision date after the critical date.  Hyundai presented unrebutted evidence and testimony that, prior to the critical date, the reference was distributed and demonstrated by hundreds of salespersons, and the IDB2000 system was demonstrated hundreds of times in accordance with the description in the reference.  As a result, the Court determined that the Electronic Parts Catalog, as embodied by the IDB2000 system, qualified as a printed publication because it was accessible to those interested in the business of auto parts prior to the critical date. 

After qualifying the art, the Court explained each party’s position as to whether or not the Electronic Parts Catalog met the “proposal” element.  Hyundai presented extensive evidence, including expert testimony, third−party fact witnesses, and documentary evidence, showing that the IDB2000 system was designed to be used by salespersons to convey parts−related information directly to customers.  For example, Hyundai’s expert and fact witnesses explained that the Electronic Parts Catalog reference described a system with a high−resolution screen designed with a tilt and swivel feature, allowing a counterperson to show parts information, such as diagrams and prices, to customers. 

In contrast to Hyundai’s strong evidence, the Court concluded that Orion presented minimal contradictory evidence regarding the “proposal” element.  Orion argued that the IDB2000 system showed both retail and wholesale prices, and the wholesale prices would not have been intended for customers to see.  Orion also offered an affidavit from a fact witness who characterized the IDB2000 system primarily as a “back−office” look−up system. 

The Court found Orion’s arguments to have limited value to Orion’s position on anticipation, instead concluding that “there is overwhelming documentary and testimonial evidence that the Electronic Parts Catalog reference teaches parts−related information being conveyed to a customer using the IDB2000 system in order to improve communications with customers for faster and more accurate sales by counter salespersons.”  Slip op. at 13.  “[N]o reasonable fact−finder could reach a conclusion other than that the IDB2000 system, as described in the Electronic Parts Catalog reference, discloses the proposal element, in an enabling manner.”  Id. at 14.  The Federal Circuit therefore found that a reasonable jury would not have a legally sufficient basis to find that the claims were not anticipated by the Electric Parts Catalog reference. 

Turning next to the district court’s determination that Hyundai failed to establish inequitable conduct, the Federal Circuit could not find any clear error by the district court and upheld the district court’s decision.  Considering materiality first, the Court noted that the district court reasonably credited the inventor’s testimony that the invention was not reduced to practice by the time of the on−sale activity alleged by Hyundai.  It followed that the inventor’s statement to the PTO that the invention had not been in public use or on sale before the critical date was truthful and could not have served as a basis for the district court to conclusively infer an intent to deceive.  Thus, because Hyundai failed to establish threshold levels of either materiality or intent to deceive, the district court did not abuse its discretion in finding that the inventor did not engage in inequitable conduct.


Summary authored by John S. Sieman, Esq.