Decision: Total Rebuild, Inc. v. PHC Fluid Power, LLC, No. 6:15-CV-1855 (W.D. La. Oct. 15, 2019)
Holding: All claims rendered unenforceable for inequitable conduct, and case dismissed with prejudice.
Background: Every person associated with the filing and prosecution of a patent application has an affirmative and continuing duty of good faith and candor in his dealings with the USPTO. 37 C.F.R. § 1.56. That duty “includes the duty to disclose to the Office all information” material to patentability. Id. The continuing nature of that duty requires that an applicant disclose all material information that he discovers throughout the often-lengthy prosecution process. Id. If an applicant willfully violates this duty, he has committed inequitable conduct before the Office and will discover why inequitable conduct has been called the “atomic bomb” of patent law. Inequitable conduct renders all claims of that patent unenforceable.
Such a harsh result is tempered, however, by the Federal Circuit’s high standard of proof for inequitable conduct, set forth in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc). To prove inequitable conduct, a challenger must show, by clear and convincing evidence, that (1) the applicant knew of the material information; (2) knew that it was indeed material; and (3) made a deliberate decision to withhold it from the examiner. Id. at 1290. The challenger must thus prove both materiality and a specific intent to deceive. Although a court may infer the intent of the applicant from indirect or circumstantial evidence, the intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.” Id. Materiality is similarly difficult to prove; the Therasense court requires a “but-for” materiality analysis, i.e., “whether the USPTO would have allowed the claim if it had been aware of” the allegedly material information. Id.
This high standard of proof was put in place in part to address a high frequency of accused infringers alleging the defense of inequitable conduct, a practice the Federal Circuit saw as “an absolute plague.” Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988). Even if inequitable conduct became more difficult to prove after Therasense, such proof may be established. The defendant in a recent case discussed herein successfully used the defense to completely render unenforceable what seemed to be a valuable U.S. patent.
The Case: Total Rebuild, Inc. (“Total”) sued PHC Fluid Power, LLC (“PHC”), alleging infringement of Total’s U.S. Patent No. 8,146,428 (“the ’428 patent”), which was directed to systems and methods for safely testing devices and components under high pressure. PHC successfully defended by proving that not only had Total committed inequitable conduct during prosecution of the ’428 patent, it also committed litigation misconduct in its efforts to conceal that inequitable conduct.
On August 8, 2008, the sole inventor listed, Terry J. Lavergne, filed the first provisional application for what would eventually become the patent at issue in this case. The patent’s critical date—the date the court would use to analyze the on-sale and public-use bars of 35 U.S.C. § 102(b)—was thus one year prior, August 8, 2007. Throughout prosecution, Lavergne never informed his patent counsel nor the Office of any potentially material offers for sale or instances of public use of systems practicing the technology disclosed in the ’428 patent. This nondisclosure was despite Lavergne being informed multiple times by counsel of his continuing duty to disclose and Lavergne’s own signing of a Declaration for Patent Application acknowledging that duty. The ’428 patent issued in April 3, 2012.
What neither Lavergne’s patent counsel nor the USPTO was aware of were the many potentially barring offers for sale and sales of test systems which practiced the invention disclosed in the ’428 patent. Total, which Lavergne admitted was an alter-ego of himself, offered for sale, sold, installed, and/or demonstrated test systems on at least fourteen occasions before the critical date, beginning in June 2006 and continuing at least through May 2007. And since at least 2002, Total displayed such test systems on its website, advertising them as the “market standard for safety and excellence.”
Presumably confident in the strength of its patent, Total sued PHC for patent infringement. PHC, in turn, requested in discovery that Total disclose all prior offers for sale and/or sales of test systems. In its initial response to that request, Total disclosed that its first offer for and/or sale of a pressure safety system which practiced the technology disclosed in the ’428 patent was on August 22, 2008—over two years after its actual first sale of the technology. Total also initially claimed that the subject matter of the ’428 patent was reduced to practice approximately simultaneously with Lavergne’s filing of the first provisional application, and that the invention prototype was never publicly disclosed or in public use.
PHC sent Total a discovery deficiency letter indicating PHC’s awareness of earlier sale dates. Total responded by including five invoices for sales of test systems, the earliest of which was dated September 26, 2007—still fifteen months later than the earliest actual sale. PHC followed up again, requesting either earlier sale records or a confirmation that all earlier records were destroyed. Total responded that there were no such earlier sale records. PHC sent another discovery deficiency letter, attached to which were screenshots from Total’s website indicating its sale of test systems prior to the critical date. Total responded that any further relevant sale documents were disposed of in the normal course and scope of business.
Undeterred, PHC filed a motion to compel, requesting a forensic examination of Total’s computer system. In response to this motion, Total filed a sworn written statement indicating that there were indeed no further documents that had not been destroyed pursuant to its policy on document retention. The court nonetheless ordered the forensic examination. Before that examination could occur, Total finally turned over approximately forty invoices and quotes for test systems to PHC, thirty-five of which indicated sale and quote dates prior to the ’428 patent’s critical date.
The Court’s Findings: The court quickly found that Total’s prior offers for sale and sales of pressure testing systems were material—as the ’428 patent would not have been granted had the USPTO been aware of them—and then considered whether Lavergne’s nondisclosure was done with an intent to deceive.
Lavergne offered two reasons why he failed to disclose the material prior sales and offers for sale. The first was that he delegated the disclosure responsibility to his office manager, who failed to make the disclosures. The court found this excuse implausible, primarily because it failed to account for Lavergne’s signing of the declaration acknowledging his duty to disclose. Before signing that document, the court reasoned, Lavergne could have corrected his allegedly accidental nondisclosure—particularly when the excuse itself demonstrates Lavergne’s understanding that the prior sales were indeed material prior art.
The second proffered reason was that Lavergne believed the “interlock” safety system disclosed in the ’428 patent was the “entirety of his patent,” and that he did not understand that the language chosen by his patent counsel would also cover a variety of safety systems with pumps inside the housing. The court similarly found this excuse implausible for several reasons: Lavergne was experienced in safety systems; Lavergne had confirmed to the court he understood all the elements of the claim and intended to patent each element; a 2015 email from Lavergne to a potential customer indicated he believed any system with internal pumps would be infringing; and Total had argued throughout litigation that the scope of the claims encompassed not only systems with internal pumps, but also systems with pumps outside the housing. The court found Lavergne’s “convenient” limited understanding of the patent was contradicted by the evidence, remarking that “Lavergne cannot have it both ways.”
Having found neither excuse plausible, the court was left with only one reasonable inference: Lavergne intentionally did not disclose any of the sales or offers for sale occurring before the critical date of the ’428 patent. Further, the court found, independently, that Total committed litigation misconduct by intentionally withholding material information during the discovery process to conceal Lavergne’s prosecution misconduct. Total’s litigation misconduct allowed the court to place an adverse inference of specific intent to deceive under Regeneron Pharmaceuticals, Inc. v. Merus N.V., 864 F.3d 1343, 1356 (Fed. Cir. 2017), which bolstered the court’s finding of inequitable conduct. The Court thus entered judgment for PHC and dismissed all of Total’s claims with prejudice.
Practice Takeaways: The consequences of inequitable conduct are high, and thus should be taken very seriously and avoided. So, what can a practitioner do to prevent a patent being found unenforceable for inequitable conduct? The best course of action is, of course, to affirmatively disclose all known relevant, including material, information to the USPTO during the patent prosecution process. Note that in Total Rebuild, Lavergne’s patent prosecution counsel was not held liable for Lavergne’s nondisclosure, nor found to have violated his duty to the USPTO. This is in part because he fully informed his client of the disclosure duty on multiple occasions and did not participate in Lavergne’s concealment of relevant information.
If a practitioner discovers that material information has not been disclosed to the Office, she should make every effort to disclose that information at the earliest possible opportunity. If the information is disclosed in time for the examiner to adequately consider it, its prior withholding, accidental or otherwise, cannot be material—and any defense of inequitable conduct cannot stand. And practitioners should produce relevant material information during litigation, or else risk a finding of litigation misconduct and/or unclean hands and/or an adverse inference of intent. And if it all comes to light after a patent issues, one recourse for the patentee may be Supplemental Examination, discussed in various Finnegan publications. See, e.g., https://www.finnegan.com/en/insights/blogs/america-invents-act/aia-supplemental-examination-nuts-and-bolts-get-it-in-your-toolbox-and-dont-leave-home-without-it.html; https://www.finnegan.com/en/insights/blogs/america-invents-act/a-tale-of-two-supplemental-examinations-part-1-unraveling-confusion.html; https://www.finnegan.com/en/insights/blogs/america-invents-act/a-tale-of-two-supplemental-examinations-part-ii-surprising-events-when-citing-art-that-but-for-a-clerical-error-would-have-been-cited-during-original-prosecution.html; https://www.finnegan.com/en/insights/blogs/america-invents-act/in-supplemental-examination-discretion-is-the-better-part-of-valor.html; and https://www.finnegan.com/en/insights/blogs/america-invents-act/supplemental-examinations-and-alice-the-bare-essentials-of-when-not-to-poke-the-bear.html.
Total Rebuild offers a cautionary tale for patent practitioners: the defense of inequitable conduct is alive and well. To be sure, the raised burdens of proof under Therasense have made the defense more difficult to prove—but Total Rebuild shows that such proof can be made.