Federal Circuit Finds Inequitable Conduct on Multiple Grounds

Decision Highlights Multiple Potential Grounds for Finding Inequitable Conduct Due To Falsely Claiming Priority, For Failing To Report Litigation In Related Cases, And For Failing To Submit Relevant Prior Art

In Nilssen, et al. v. Osram Sylvania, Inc., et al., 504 F.3d 1223; 84 USPQ2d 1811 (Fed. Cir. 2007), Ole K. Nilssen and the Geo Foundation, Ltd. (collectively, “appellants”) appealed from the judgment of the United States District Court for the Northern District of Illinois in favor of Osram Sylvania, Inc. and Osram Sylvania Products, Inc. (collectively, “Osram”) holding fifteen patents issued to Nilssen unenforceable for inequitable conduct.  The fifteen patents include U.S. Patents 4,857,806 (“the ‘806 patent”); 5,164,637 (“the ‘637 patent”); 5,233,270 (“the ‘270 patent”); 5,343,123 (“the ‘123 patent”); 5,402,043 (“the ‘043 patent”); 5,416,386 (“the ‘386 patent”); 5,432,409 (“the ‘409 patent”); 5,479,074 (“the ‘074 patent”); 5,481,160 (“the ‘160 patent”); 5,510,680 (“the ‘680 patent”); 5,510,681 (“the ‘681 patent”); 4,677,345 (“the ‘345 patent”); 5,047,690 (“the ‘690 patent”); 5,189,342 (“the ‘342 patent”); and 5,341,067 (“the ‘067 patent”).  The fifteen patents are collectively referred to as the Nilssen patents.  Some of the fifteen patents relate to compact fluorescent light bulbs, and others relate to ballasts for gas discharge lamps such as fluorescent light bulbs. 

As background, in 1983, Nilssen began prosecuting his own patent applications pro se.  During prosecution, Nilssen cited the Manual of Patent Examining Procedure (“MPEP”), patent statutes and regulations, and case law, and was thus somewhat knowledgeable of the applicable rules and regulations.  During prosecution reexamination of the ’345 patent and the application that led to the ’690 patent, Nilssen submitted two affidavits from Dale Fiene in support of the patentability of claims rejected.  However, Nilssen did not disclose that there was a financial relationship between Nilssen and Fiene, and the Examiner never requested this information.

Prior to June 2000, Nilssen licensed at least some of the patents in suit to Philips.  Specifically, Nilssen entered into a Compact Fluorescent Lamp Agreement (the “CFLA”) with Philips, effective December 7, 1995. The CFLA provided as follows (emphasis added):

Nilssen expects to offer CFL manufacturers a preferential running royalty rate under his CFL patents for a limited time period starting the first quarter of 1996. Nilssen and Philips agree that Nilssen will offer and Philips will take a standard license from Nilssen under his CFL patents at the preferential rate provided that no royalties or payments will accrue under such license until Nilssen has licensed one CFL competitor having at least 10% Dollar share of the U.S. market for CFL’s.

Nilssen also entered into a Patent License Agreement (“PLA”) with Philips, effective January 1, 1996. The PLA and the CFLA covered the ’806, ’637, ’270, ’123, ’680, and ’681 patents.  Between the signing of the CFLA and the PLA, Nilssen paid various fees related to the’806, ’637, ’270, ’123, ’680, and ’681 patents claiming a small entity status.

Nilssen established the Geo Foundation as a not-for-profit charitable organization in theCayman Islandsin 1998 to license the Nilssen patents.   After June 2000, the license between Nilssen and Philips was canceled or revoked, and Geo began sublicensing those patents to Philips.   Geo still claimed small entity status when making various payments for the patents while licensed to Philips.

In 2000, the appellants sued Osram alleging that electronic ballasts manufactured and sold by Osram infringed eleven of Nilssen’s patents.  Osram asserted the defense that Nilssen had engaged in inequitable conduct in the procurement of the patents in suit.  The District Court agreed with Osram and held that Nilssen had engaged in inequitable conduct for a number of reasons, and invalidated each of the patents in suit.  Specifically, the District Court determined that the Nilssen patents were unenforceable on 5 different grounds. 

  1. Nilssen’s submission of two affidavits from Dale Fiene, one during re-examination of the ‘345 patent and one during examination of the application that led to the ‘690 patent, in support of the patentability of the claims constituted inequitable conduct because the affidavits failed to disclose Fiene’s personal and professional association with Nilssen and Fiene’s financial interest in Nilssen’s patents. 
  2. Nilssen engaged inequitable conduct by failing to pay large maintenance fees based on the Compact Fluorescent Lamp Agreement (the “CFLA”) which Nilssen and Philips had entered into and which meant that Nilssen agreed to pay the maintenance fees for Philips, a large entity. 
  3. Nilssen intentionally misclaimed an effective priority date of March 20, 1978, in the ‘637, ‘043, ‘386, ‘409, ‘160, ‘680, and ‘681 patents to potentially avoid prior art. 
  4. The ‘123, ‘043, ‘386, ‘409, ‘074, ‘160, ‘ 680, and ‘681 patents were unenforceable for inequitable conduct because Nilssen failed to report to the USPTO the existence of related litigation in which Motorola argued that each of these nine patents were invalid for anticipation, obviousness, and failure to observe the requirements of 35 U.S.C. §112. 
  5. Nilssen had engaged in inequitable conduct in the prosecution of the ‘342 patent and the ‘067 patent as well as the ‘806, ‘043, and ‘681 patents by failing to identify to the PTO relevant prior art of which he had knowledge.  

On appeal, the Federal Circuit upheld the district court’s decision since the District Court did not abuse its discretion in finding that Nilssen committed inequitable conduct. 

On the first ground, the Federal Circuit found that Nilssen committed inequitable conduct by submitting affidavits by Fiene in support of patentability without informing the examiner of the affiant’s relationship to Nilssen.  Specifically, the Federal Circuit cited to Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1187-88 (Fed. Cir. 2006) for the proposition that it is material to disclose the relationship between a Declarant and the applicant since this relationship can go to the credibility of the declaration itself.  Even though the Examiner did not raise a question as to credibility, by not clarifying the relationship between Fiene and Nilssen, Nilssen had withheld this material information and this withholding was sufficient to allow the District Court to find the resulting patents unenforceable due to inequitable conduct in the ’345 and ’690 patents.  Further, since the ’345 and ’690 patents were part of a larger family of applications, this inequitable conduct was found to infect the ’067, and ’342 patents since inequitable conduct with respect to one or more patents in a family can infect related applications, see, e.g., Consolidated Aluminum Corp. v. Foseco Int’l Ltd., 910 F.2d 804 (Fed. Cir. 1990). Moreover, while the ’345, ’690, ’067, and ’342 patents were withdrawn from the suit shortly before trial, the Federal Circuit found that the District Court retained jurisdiction to find the ’345, ’690, ’067, and ’342 patents unenforceable.

On the second ground, the Federal Circuit found that Nilssen committed inequitable conduct by claiming small entity status while paying various issue and maintenance fees when Nilssen should have been paying large entity maintenance fees due to the licensing agreement with Philips, a large entity.  As a defense, Nilssen had argued that the patent license itself was not in effect at the time of payment.  Instead, the only agreement then in effect was an agreement (the CFLA) to sign the license.  The Federal Circuit upheld the district court’s rejection of this defense.  The Federal Circuit noted the clear import of the United States Patent and Trademark regulations benefiting small entities under 37 C.F.R. § 1.9(c) is to “ensure that inventors currently receiving a revenue stream from or reasonably expected to receive a revenue stream from an entity that is not itself entitled to pay small entity fees should not be able to claim that right.”  The District Court properly interpreted the CFLA as an agreement or intent to license sufficient to be a licensing agreement with Philips, a large entity.  Moreover, for others of the patents directly licensed from Geo, the District Court correctly noted that a non-profit entity loses its small entity status for a particular patent when the non-profit licenses to a large entity, such as Philips.  While the incorrect claiming of small entity status does not automatically qualify as grounds for inequitable conduct, this incorrect claiming can be grounds if there are sufficient findings of intent to mislead. Ulead Sys., Inc. v. Lex Computer & Mgmt. Corp., 351 F.3d 1139, 1146 (Fed. Cir. 2003).   The Federal Circuit found that the District Court did have a basis for finding the requisite intent, based in part on Nilssen’s knowledge of the patent rules and regulations, and was entitled to discount the credibility of Nilssen’s explanations as to why the incorrect status was claimed.  Therefore, the Federal Circuit upheld the district court’s findings which rendered the Nilssen patents unenforceable due to Nilssen’s intentionally claiming entitlement to small entity treatment for the Nilssen patents.

On the third ground, the Federal Circuit found that Nilssen committed inequitable conduct by intentionally misclaiming an effective priority date to avoid potential prior art.  While an active misrepresentation made during prosecution in order to avoid prior art is no doubt “highly material,” (see Li Second Family Ltd. P’shp v. Toshiba Corp., 231 F.3d 1373, 1380 (Fed. Cir. 2000)), the Federal Circuit found that a misrepresentation that would not have immediately affected patentability is still material, see Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1318 (Fed. Cir. 2006).  Moreover, the Federal Circuit held that “[a] claim for priority is inherently material to patentability because a priority date may determine validity, whether an issue arises in prosecution or later in court challenges to validity.”  As such, the Federal Circuit found that the misclaiming could be grounds for inequitable conduct and also affirmed the District Court on the third ground.

On the fourth ground, the Federal Circuit found that Nilssen committed inequitable conduct by failing to disclose the Motorola litigation.  Nilssen filed a lawsuit against Motorola alleging infringement of six of his patents. As a defense, Motorola claimed the patents were invalid under 35 U.S.C. §§102, 103, and 112. The patents in issue involved common subject matter with applications then pending, and which resulted in the ’123, ’043, ’386, ’409, ’074, ’160, ’680, and ’681 patents.  The District Court found that Nilssen’s failure to inform the Examiner of the lawsuit was an intent to mislead and discounted Nilssen’s statement that he was unaware of the requirement.  In affirming the district court, the Federal Circuit found that MPEP §2001.06(c) clearly requires identification of the existence of the litigation, and that the litigation itself is material information that an examiner needs to have.  The identification is important because it signals the examiner that other material information relevant to patentability may become available through the litigation proceedings.  Since Nilssen was aware of the duty to disclose and MPEP 2001.06(c) “was adjacent in the MPEP to provisions with which Nilssen was admittedly familiar”, the Federal Circuit found that the failure to disclose the Motorola litigation was grounds for inequitable conduct and rendered the resulting patents unenforceable.

On the fifth ground, Nilssen committed inequitable conduct by failing to disclose prior art U.S. Patent 4,266,134, U.S. Patent 4,251,752, U.S. Patent 4,045,711, U.S. Patent 4,461,980, and U.S. Patent 4,053,813.  Each of these patents was repeatedly cited to Nilssen by Examiners during the prosecution of various ones of his patents, and therefore were clearly material.  As such, the Federal Circuit also upheld the district court’s finding of inequitable conduct on the fifth ground for failure to cite prior art cited in related applications.

Lastly, the Federal Circuit cautioned against an overly broad interpretation of each ground of inequitable conduct.  Specifically, the Federal Circuit issued a “few closing comments” to clarify that “[e]ach of the issues on which the District Court found inequitable conduct generated defenses by Nilssen that were not per se unreasonable when considered in isolation.”  The Federal Circuit specifically noted that the CFLA interpretation was “not beyond an interpretation contrary to what the District Court adopted,” that “Nilssen did pay some fees that were large entity fees,” the failure to “cite the Motorola litigation to the PTO may have been an oversight, as perhaps failure to cite prior art might have been,” and that “[p]erhaps Nilssen did not expressly assert an unjustified earlier priority date to obviate prior art.”  Instead, the Federal Circuit stated that their upholding of the district court’s decision was due to the district court’s proper review of “a collection of such problems,” as well as their making specific “credibility findings” and reliance on the record and testimony.  Thus, the Federal Circuit stated that “[m]istakes do happen, but inadvertence can carry an applicant only so far” and that to the extent that Mr. Nilssen believed he has gained sufficient knowledge of the patenting process to no longer need professional patent help, “[t]he result of this case, regrettably, proves that he was wrong.”

Significance for Patent Applicants and Owners

Nilssen highlights the numerous ways in which inequitable conduct can be found during prosecution.  While also a cautionary note against attempting to prosecute patent applications pro se, Nilssen provides a roadmap of the major ways in which applicant mistakes can provide both individual grounds for inequitable conduct, as well as a cumulative ground based upon numerous lesser offenses.  Applicants are generally familiar with a finding of inequitable conduct due to a failure to provide material publications to the Examiner as part of an information disclosure statement, but many applicants are unaware of problems that arise due to a failure to report litigation, misclaiming small entity status when licensing a patent portfolio, and misclaiming priority statuses.   Moreover, while the Federal Circuit made a special statement that each ground found by the District Court might not normally be sufficient for inequitable conduct, the Federal Circuit’s justification for upholding the finding of inequitable conduct due to the multitude of such problems is perhaps more troubling as most prosecution will have a multitude of small problems which collectively might meet the Federal Circuit’s standard.


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