ACI v. Honda – Therasense in Practice

On June 27th, in American Calcar, Inc. v. American Honda Motor Co., Inc., No. 2009-1503, 1567 (Fed. Cir. June 27, 2011) the court reversed and remanded the district court’s findings of inequitable conduct in the obtainment of three patents relating to vehicular diagnostic systems. Unless you are really interested in dashboard displays and the operating systems behind them, you can skip to page 21 of the slip opinion, the section in which the court “schools” the district court judge on the standards of inequitable conduct articulated in Therasense.

The jury invalidated one patent, the ‘497 patent, as anticipated by an Acura owner’s manual that the ACI inventors were aware of, but had not submitted to the PTO during prosecution. The jury found two related patents—the “search patents” (‘465 patent and ‘795 patent) “not invalid” over art including the manual. The jury rendered an advisory opinion finding no inequitable conduct relating to these patents.

The district court judge ruled on a motion by Honda that ACI had, in fact, committed inequitable conduct with respect to all three patents due to its failure to disclose the manual to the PTO. In reversing and remanding, the Fed. Cir. reaffirmed that “[i]nequitable conduct is equitable in nature, with no right to a jury, and the trial court has the obligation of resolve the underlying facts of materiality and intent.” Slip op. at 23. The Fed. Cir. went on to find the materiality of the manual established by its role in anticipating the ‘497 patent – thereby exceeding the PTO “but-for” standard of Therasense – but the court’s agreement with the district court’s findings ended there. While giving deference to the judge’s findings that one of the inventor’s testimony was “ever-changing” and not candid, the Fed. Cir. held that lack of credibility did not per se provide sufficient evidence of intent to deceive. The Fed. Cir. also criticized the judge for balancing materiality and intent: “A district court should not use a ‘sliding scale’ where a weak showing of intent may be found sufficient based on a strong showing of materiality.” Slip. Op. at 25. Even though the manual was highly material, the Fed. Cir. reversed, finding insufficient evidence of record that “applicant made a deliberate decision to withhold a known material reference.”

The Fed. Cir. was even more critical of the standards that the judge used to find the two search patents unenforceable due to inequitable conduct. With respect to the intent prong, the Fed. Cir. found that only the fact of “withheld” had been adequately established, and that the court had not held that the inventors knew that the withheld manual was material and made a deliberate decision to withhold it.

While agreeing that evidence showed that the undisclosed manual was  not cumulative, the Fed. Cir. found that the judge had evaluated its materiality “based on the PTO’s Rule 56 standard and the ‘reasonable examiner standard’, both standards that we rejected in Therasense….On remand, the district court should determine whether the PTO would not have granted the search patents but for Calcar’s failure to disclose the [manual]…the court failed to make a finding, as it did for the ‘497 patent, that the withheld patent would have blocked issuance of the claims of the search patents.” Slip op at 26.

While the testimonial and other evidence may provide a foundation for a ruling of specific intent on remand, it is hard for me to envision how the judge will be able to evaluate materiality using the rigorous but-for PTO standard articulated in Therasense. Unlike the ‘497 patent, the two search patents were found “not invalid” by the jury, but the jury was applying a clear and convincing evidence standard, not the lower preponderance of evidence standard applied by the PTO. However, perhaps the “easy button” is for the court to re-cast its findings of fact regarding intent to deceive to be in accord with Therasense and hold that the art-anticipated ‘497 patent is invalid for inequitable conduct. The search patents are progeny of the ‘497 patent and could presumably held invalid as “fruit of the poisonous tree”, to use a term imparted by my mentor. Thus, the “atomic bomb” of patent law described by Chief Judge Rader could conceivably end this suit with dispatch.

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