The Software IP Report

Failure to Disclose Sales Before Critical Date is Inequitable Conduct

Failure to disclose “material information of prior sales” resulted in a holding that U.S. Patent No. 8,146,428 “is unenforceable due to inequitable conduct” based on a finding of a “specific intent to deceive the PTO into granting the patent.” Total Rebuild, Inc. v. PHC Fluid Power, LLC, No. 6:15-CV-1855 (W.D. La. Sept. 13, 2019). The ‘428 patent is directed to “systems and methods for safely testing devices and components under high-pressure.”

Total Rebuild alleged PHC Fluid Power infringed the claims of the ‘428 patent. PHC Fluid Power challenged the enforcement of the ‘428 patent due inequitable conduct of the sole inventor regarding the on-sale and public-use bars of 35 USC § 102(b). The critical date for the ‘428 patent under 35 USC § 102(b) is August 8, 2007.

The court noted that “[t]o prevail on inequitable conduct, the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference or prior commercial sale, knew that it was material, and made a deliberate decision to withhold it.” Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1292 (Fed. Cir. 2011) (en banc). Further, the court noted that “[i]ntent and materiality are separate requirements for a finding of inequitable conduct,” Id., and there is clear and convincing evidence of intent to deceive when “such an intent is ‘the single most reasonable inference able to be drawn from the evidence.” Id.

During a bench trial, the inventor admitted “that prior to the critical date, he and Plaintiff, sold, installed and demonstrated safety systems for testing high-pressure devices containing all of the elements of Claims 1 and 16 of the ‘428 Patent.” The court found that invoices further established that “Plaintiff was paid for the installations and demonstrations of the safety systems prior to the critical date”. Additionally, the court found that “[t]he primary reason for the prior uses of the safety systems for testing high-pressure devices was to provide income to [the inventor] and Plaintiff at least more than one year before the critical date.” Therefore, the court found that Defendant proved materiality of the information because “the patent would not have issued if the Examiner had been provided with the information regarding the prior sales.”

Further, the court found that the inventor “knew of the significance of the ‘critical date’ and the one-year grace period for filing a patent application” because the prosecuting attorney “informed [the inventor] of the requirement that the patent process required filing the application within one year after the invention was first offered for sale or used publicly.” Yet the “[p]rior sales and uses were not reported to the United States Patent Office.” Therefore, the court found “[t]he single most reasonable inference to be drawn from the evidence requires a finding of deceitful intent in light of all of the circumstances.” Accordingly, the court found the inventor “engaged in inequitable conduct in order to obtain the ‘428 patent,” and the held the ‘428 patent to be unenforceable.

Lessons for Practice

The court in Therasense noted that “[i]f there are ‘multiple reasonable inferences that may be drawn, intent to deceive cannot be found.’” While this may have raised the bar for establishing an inequitable conduct claim, inequitable conduct could not be clearer than it is here where the inventor did not disclose information about his own sale of the patented system prior to the critical date with knowledge of the on-sale bar. Given the right set of facts, this case illustrates that inequitable conduct is still a viable defense to an infringement allegation.