Outside the Box Innovations, LLC v. Travel Caddy, Inc.

• Decision Date: 21 September 2012
• Docket Number: No. 2009–1171.,2009–1171.
• Parties: OUTSIDE THE BOX INNOVATIONS, LLC (doing business as Union Rich USA), Plaintiff–Appellee, and Bonaka Limited Bonaka, Plastic Manufacturing Co., Ltd., and Union Rich Plastic Factory, Ltd., Counterclaim Defendants–Appellees, and Christopher Ure, Matt Williams, Terry Kinskey and Lynn Martineau, Counterclaim Defendants, v. TRAVEL CADDY, INC. Defendant/Counterclaimant–Appellant, and Rooster Products (doing business as The Rooster Group), Defendant/Counterclaimant.
• Court: U.S. Court of Appeals — Federal Circuit

695 F.3d 1285

89 Fed. R. Evid. Serv. 671

OUTSIDE THE BOX INNOVATIONS, LLC (doing business as Union Rich USA), Plaintiff–Appellee,andBonaka Limited Bonaka, Plastic Manufacturing Co., Ltd., and Union Rich Plastic Factory, Ltd., Counterclaim Defendants–Appellees,andChristopher Ure, Matt Williams, Terry Kinskey and Lynn Martineau, Counterclaim Defendants,

v. TRAVEL CADDY, INC. Defendant/Counterclaimant–Appellant,andRooster Products (doing business as The Rooster Group), Defendant/Counterclaimant.

No. 2009–1171.

United States Court of Appeals,Federal Circuit.

Sept. 21, 2012.

Patrick D. McPherson, Duane Morris LLP, of Washington, DC, argued for plaintiff-appellee and counterclaim defendants-appellees. On the brief were Robert L. Byer and Matthew C. Mousley, of Philadelphia, PA, and J. Rodman Steele, Jr. and Gregory M. Lefkowitz, of Boca Raton, FL. Of counsel were William Blake Coblentz, of Washington, DC, and Barry P. Golob, of San Francisco, CA; Gregory L. Hillyer, Feldman Gale, P.A., of Philadelphia, PA; and Jerold I. Schneider, Novak Druce + Quigg LLP, of West Palm Beach, FL.

Timothy P. Maloney, Fitch, Even, Tabin & Flannery, of Chicago, IL, argued for defendant/counterclaimant-appellant. With him on the brief was Mark W. Hetzler. Of counsel on the brief were Vance L. Liebman, Glenn A. Rice, Orley Moskovits Desser, and Seth A. Stern, Funkhouser Vegosen Liebman & Dunn, Ltd., of Chicago, IL.

Before NEWMAN, PROST, and O'MALLEY, Circuit Judges.

Opinion for the court filed PER CURIAM. Opinion concurring in part and dissenting in part filed by Circuit Judge NEWMAN.

PER CURIAM.

This declaratory judgment patent suit was filed by Outside the Box Innovations, LLC, doing business as Union Rich USA (herein “Union Rich”) against Travel Caddy, Inc. and its distributor/sales agent for Travel Caddy's patented tool carry cases, Rooster Products (doing business as The Rooster Group). The issues, duly presented by claim and counterclaim, were infringement, patent validity, enforceability, and unfair competition.

The United States District Court for the Northern District of Georgia held that Travel Caddy's United States Patent No. 6,823,992 (the '992 patent) and its continuation Patent No. 6,991,104 (the '104 patent) are unenforceable in their entirety, based on inequitable conduct in the United States Patent and Trademark Office (PTO). The district court sustained the validity of claims 5, 12, 23, and 30 of the '104 patent, but held the other claims of the '104 patent and all the claims of the '992 patent invalid on the ground of obviousness. The court held on summary judgment that the version of the Union Rich tool carry case called the Electricians Carryalls (Electricians Bag I) infringes various patent claims, but that a modified version called Electricians Bag II and the tool carry case called Heavy–Duty ProTool Bag do not infringe. The court also dismissed Union Rich's unfair-competition claims against Travel Caddy.¹ On Travel Caddy's appeal, we reverse the judgment of unenforceability based on inequitable conduct, vacate the rulings of invalidity, affirm the rulings of noninfringement, and remand for further proceedings.

We start with the district court's rulings of inequitable conduct in the PTO, for these rulings voided all claims of both patents.

I

Inequitable conduct

The district court held the '992 and '104 patents unenforceable on the grounds that (1) Travel Caddy did not disclose to the PTO the existence of the litigation on the '992 patent during prosecution of the ' 104 application, and (2) Travel Caddy paid small entity fees to the PTO but was not entitled to small entity status.

To establish unenforceability based on inequitable conduct in the PTO, it must be shown that information material to patentability was withheld from the PTO, or material misinformation was provided to the PTO, with the intent to deceive or mislead the patent examiner into granting the patent. Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290–92 (Fed.Cir.2011) (en banc). Withholding of material information and intent to deceive or mislead must be established by clear and convincing evidence. Id. at 1287 (citing Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed.Cir.2008)).

A. Non-disclosure of the '992 litigation in the record of the '104 application

The district court held that Travel Caddy committed inequitable conduct in failing to notify the examiner of the '104 application that the parent '992 patent was in litigation. The district court held that Travel Caddy had the obligation to inform the '104 examiner of the '992 litigation, and that this was material information, citing Manual of Patent Examining Procedure (MPEP) § 2001.06(c):

Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office. Examples of such material information include evidence of possible prior public use or sales, questions of inventorship, prior art, allegations of “fraud,” “inequitable conduct,” and “violation of duty of disclosure.” Another example of such material information is any assertion that is made during litigation which is contradictory to assertions made to the examiner.

The district court held that, although only infringement of the '992 patent had been placed at issue, “it was clear that the issue of validity would likely arise in the litigation.” Inequitable Conduct and Validity op., at *39. The court inferred deceptive intent from the fact of non-disclosure, stating:

The Court infers from the facts in evidence that Travel Caddy intended to deceive the PTO when it failed to disclose the current litigation during the pendency of the '104 Patent. Nelson drafted the '104 and '992 Patents, was the prosecuting attorney for both patents, and has been heavily involved as counsel in the current litigation. Furthermore, Nelson is clearly an experienced patent attorney and testified as to his awareness of Rule 56 and Section 2001 of the MPEP.

Inequitable Conduct and Validity op., at *41.

MPEP § 2001.05 states that “[i]f information is not material, there is no duty to disclose the information to the Office.” Travel Caddy argues that it violated no law or regulation or rule, that there was no withholding of information material to patentability, and no intent to deceive the PTO. Travel Caddy points out that validity of the '992 patent had not been included in the Union Rich complaint nor otherwise placed at issue during the time when the '104 application was pending, and that no prior art or other information had been presented by Union Rich, even informally, during the brief period of overlapping pendency of the '104 application and the '992 litigation. The '104 application was filed on November 4, 2004, and this complaint was filed by Union Rich on September 23, 2005, requesting only a declaration of noninfringement. The '104 patent was allowed on October 31, 2005 and issued on January 31, 2006.

No information now asserted to be relevant to patentability of the '104 application had been provided in the '992 litigation while the '104 application was pending. No ground of invalidity was included in the complaint against the '992 patent, or communicated informally despite Travel Caddy's inquiries. Travel Caddy's patent attorney Nelson testified that he did not file notice of the '992 litigation in the prosecution of the '104 application because “[t]here was nothing in there that was what I understood to be material under Rule 56. There was nothing that related to patentability, enforceability or validity.” T. Tr. 230:11–13 (Feb. 5, 2008), J.A. 5572. See Therasense, 649 F.3d at 1291 (information is material “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art”).

The district court found that, “[g]iven the number of indicators that validity could arise as an issue and Nelson's involvement in both the application for the '104 Patent and the current litigation, the Court finds it incredible that Nelson believed the current litigation to be irrelevant to the prosecution of the '104 patent.” Inequitable Conduct and Validity op., at *42. However, the issue was not whether the '992 litigation was irrelevant; the issue was whether the existence of the '992 litigation was material to patentability of the '104 application, when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the '992 complaint as it existed during pendency of the '104 application. Although a later challenge to the validity of the '992 patent was surely possible, it did not then exist. We conclude that the district court's ruling was in error, for there was not clear and convincing evidence of withholding of information material to patentability of the claims in the '104 application during the pendency of that application.

Nor was there clear and convincing evidence of intent to deceive the examiner of the '104 application. The district court stated that it “made this inference [of deceptive intent] because it found this inference to be the single most reasonable inference based on the evidence.” Reconsideration op., at *13. The district court stated that its “finding that Travel Caddy intended to deceive the PTO when it failed to disclose the current litigation to the PTO is in keeping with the law recited in Star Scientific.” Id. In Star Scientific the court held that to draw an inference of deceptive intent it must be “the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard.” 537 F.3d at 1366. There was no evidence on which to base an inference of deceptive intent.

The court in Therasense sought to restore objectivity and consistency to the law of inequitable conduct, by requiring that “the accused infringer must prove...