Taltech v. Esquel Enterprises (Fed. Cir. 2010)
After a prior remand, the W.D. Washington district court held Taltech’s patent unenforceable due to inequitable conduct during prosecution and awarded over $6 million in attorney fees and costs to the defendant.
Section 285 of the patent statute allows a prevailing party to obtain reasonable attorney fees in “exceptional cases.” Typically, exceptional cases involve misconduct during either prosecution or litigation. Here, the lower court found three independent grounds for finding an exceptional case: (1) Taltech’s inequitable conduct in failing to disclose a prior-art raincoat seam to the PTO (labeled the “undisclosed raincoat seam” or URS); (2) Taltech’s inequitable conduct in misrepresenting the double top-stitch seam; and (3) abusive litigation tactics. On appeal, the Federal Circuit (Judges Mayer and Friedman) found no clear error with the lower court ruling.
The compelling element of the decision comes from Judge Gajarsa’s dissent:
This case exemplifies the ongoing pandemic of baseless inequitable conduct charges that pervade our patent system. For the reasons stated below, I respectfully dissent from the majority opinion.
Defendants’ inequitable conduct claim rests on a handmade drawing that the inventor, John Wong, sketched on a piece of paper during his deposition. Defendants’ counsel requested that Wong draw the prior art that “inspired” him to experiment in making pucker-free seams in dress shirts. In response, he sketched a prior art seam used to waterproof raincoats manufactured in the TAL factory. During litigation, Wong’s drawing was labeled the “Undisclosed Raincoat Seam” (“URS”). After a bench trial, the district court found that Wong committed fraud on the U.S. Patent and Trademark Office (“PTO”) because he failed to disclose the URS as the “inspiration” for his invention.
We vacated the inequitable conduct finding on the first appeal because there is no legal requirement that an inventor disclose the “inspiration” for his invention to the PTO. We remanded the case for a proper substantive inquiry into whether the URS was merely cumulative of the prior art on record with the PTO. Taltech Ltd. v. Esquel Enters., Inc., 279 F. App’x 974, 977 (Fed. Cir. May 22, 2008) (“If the undisclosed raincoat seam was merely cumulative to Robers, then no inequitable conduct lies in its nondisclosure.”).
On remand, the district court again found that Wong had committed inequitable conduct based on his failure to disclose the URS, but did so based on a flawed cumulativeness inquiry. The district court erroneously limited the teachings of both the URS and the Robers reference in order to render them non-cumulative prior art. Had the district court properly interpreted the teachings of both references, it would have found that the URS was merely cumulative of Robers.
The district court also improperly inferred intent to deceive from the materiality of the non-disclosed reference and several statements Wong made to the PTO. In both instances, the district court drew an inference of bad faith despite an equally plausible, and likely more reasonable, inference of good faith. Such an analysis has been rejected by this court and is legally erroneous. See Scanner Techs. Corp. v. ICOS Vision Sys. Corp., 528 F.3d 1365, 1376 (Fed. Cir. 2008) (“Whenever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference.”). The district court’s numerous legal and factual errors are discussed in more detail below. . . .