Board Member's Due Diligence Analysis During Potential Patent Acquisition Did Not Create a Duty of Candor or Affect Patent Enforceability

Authored by Forrest A. Jones, D. Brian Kacedon, and John C. Paul

Summit 6 sued Samsung¹ for infringing a patent relating to software to resize and alter images sent using the MMS messaging service. Among other defenses, Samsung asserted that the Summit 6 patent was unenforceable because certain board members of Summit 6 had a duty of candor and failed to disclose certain information to the U.S. Patent and Trademark Office (USPTO) during prosecution of the Summit 6 patent. Specifically, while the application that ultimately led to Summit 6's patent was pending, Summit 6 explored opportunities to purchase additional patents from a third party, Point2 Technologies. As part of these discussions, certain information relating to Point2's patents was disclosed to Peter Yoakum, a board member of Summit 6. Samsung argued that the Point2 materials acquired during this due diligence investigation proved that the Summit 6's software was in public use more than a year before the priority date of Summit 6's patent, and therefore invalidated the patent. Samsung further argued that Summit 6's failure to disclose these materials to the patent office during prosecution of the patent made the patent unenforceable due to inequitable conduct.

After trial, the jury found that Summit 6's patent was not invalid and that Samsung infringed all five asserted claims. As a result, the jury awarded $15 million in damages to Summit 6 and wrote the term "lump sum" on the verdict form underneath "amount." The court held a separate bench trial on the inequitable-conduct charge and addressed whether the "lump sum" awarded by the jury was intended to cover only compensation for past infringement or also cover compensation for future infringement.

Inequitable Conduct and Licensing Due Diligence

To determine whether Summit 6 had committed inequitable conduct, the court first determined who had a duty of candor to the patent office. According to Samsung, three individuals had this duty: the inventor and two of Summit 6's board members. While Summit 6 agreed that the inventor had this duty, Summit 6 argued that neither board member owed this duty because they were not substantially involved with the prosecution of the patent application.

The first board member, Sarah Pate, had overall responsibility for the company's patent portfolio and had communicated with both patent prosecution counsel and the inventor of the Summit 6 patent. According to the court, however, the role of Pate was "business-related, not substantive" because the evidence did not show that her involvement in sending and receiving emails about the progress of the prosecution constituted substantive involvement "related to the content of the application or decisions related thereto." Similarly, the second board member, Peter Yoakum, had, on two occasions, commented on the prosecution of the application to the inventor. The court also found that these were "isolated instances" and were not enough to show Yoakum's substantial involvement in prosecution of the patent.

Samsung also argued Yoakum's involvement in the due diligence investigation of the Point2 patent during the patent acquisition being explored by Summit 6 showed that he was substantially involved in prosecution because Yoakum remarked that the materials required action on a separate patent in the portfolio. Yoakum had advised Summit 6 that the due diligence analysis concerning Point2's patent required Summit 6 to spend money to "improve or resuscitate" another patent in the Summit 6 portfolio. The court was not convinced that this activity constituted substantive involvement in the prosecution of the patent at issue because Yoakum's due diligence analysis was unrelated to the specific prosecution of the patent at issue here and that general advice about the portfolio did not demonstrate substantive involvement with a specific patent.

Having determined that only the inventor owed a duty of candor to the USPTO, the court went on to consider whether the inventor believed that the Point2 materials were highly material to the prosecution of the patent and whether he made a deliberate decision to withhold them from the patent office with the specific intent to deceive the patent office. The court viewed Lewis's knowledge of the Point2 materials as unclear at best and determined that, even if he did know of them, he could not have actually known they were material to the patent's prosecution. The court also found that the inventor did not have specific intent to deceive the patent office because such intent was not "the single most reasonable inference to be drawn from the evidence." Without that intent, the inventor could not be found to have committed inequitable conduct. Finally, the court also determined that the Point2 materials were not material to the patent's prosecution because the patent office would have issued the patent even if it were aware of the Point2 materials.

Reasonable Royalty and "Lump Sum"

After receiving a jury verdict of $15 million "lump sum," Summit 6 moved for a further royalty to compensate it for Samsung's future infringement. In support, it argued that the jury's verdict of $15 million "lump sum" compensated Summit 6 only for past infringement, up to the verdict. The jury instructions never specifically defined "lump sum," so Summit 6 argued that the jury's addition was unclear. Samsung, on the other hand, argued that the term was a clear statement by the jury that the verdict also included future infringement, citing testimony of both sides during the trial defining the term "lump sum" as "providing a one-time, single payment for a license for the life of the patent."

The court agreed with Samsung. While the court noted that it had broad discretion to interpret an ambiguous jury form, it did not find the form to be ambiguous. Even though the jury charge did not define the term, both parties' experts had testified multiple times about the definition of "lump sum." The court saw the jury's inclusion of the term as a clear statement of its intention to include both past and future infringement. Therefore, the court interpreted the verdict in light of the whole trial record, not just the specific language of the charge.

Strategy and Conclusion

This case demonstrates a benefit of separating patent-prosecution activities from patent-acquisition activities. Because inequitable conduct focuses on the actual knowledge of individuals with a duty of candor in a particular application, insulating individuals who are substantially involved in prosecution (and who therefore have a duty of candor) from the volumes of documents produced during the course of due diligence for acquisitions can help limit unenforceability attacks based on the appearance of possible intent to deceive the patent office.

This case also demonstrates the value in specifically defining key terms in agreements and jury instructions to avoid later disputes and the uncertainty in involving the court in defining such terms based on the context in which they were presented during trial.

Endnotes
¹ The Summit 6 decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2013/Summit6_v_RIM.pdf.

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