Inequitable Conduct Ruling Upheld

In AMERICAN CALCAR, INC. v. AMERICAN HONDA MOTOR CO., Appeal No. 2013-1061, the Federal Circuit affirmed a finding of inequitable conduct.

Calcar asserted patents related to car multimedia systems.  Honda moved for a finding of invalidity due to inequitable conduct because the patentee withheld an owner’s manual and photographs of a Honda prior-art vehicle during prosecution.  The district court agreed.  It reasoned that, but for the withheld information, the PTO would not have granted the patents.  Furthermore, the district court found that the patentee intended to deceive the PTO because he knew the information was material and made a deliberate decision to withhold it.  Calcar appealed.

The Federal Circuit affirmed.  On materiality, the Federal Circuit rejected Calcar’s argument that the district court failed to account for inventive differences between the withheld prior art and the claims of the asserted patents.  The district court did address that issue when it found that the only difference was “the nature of the information contained in the systems” and that it would have been obvious to a person of ordinary skill in the art to include different information in the prior art system.  Thus, the district court did not commit clear error in its finding of materiality.  Similarly, the Federal Circuit determined that the district court did not commit clear error with respect to the intent prong.  The Federal Circuit held that partial disclosure of material information about the prior art “cannot absolve a patentee of intent if the disclosure is intentionally selective.”  The patentee had “ample time and opportunity for comprehensive disclosure,” and thus an inference of negligence is not supported by the evidence.

In dissent, Judge Newman argued that, during reexamination of one of the patents in suit, the PTO found the previously withheld information was not material to patentability, and thus the materiality prong could not be satisfied.  She also questioned whether the intent prong was satisfied, arguing that alternative inferences could be drawn from the patentee’s statements and actions towards the PTO and emphasizing the jury’s advisory verdict of no inequitable conduct. 

$368 Million Damages Award Vacated

In VIRNETX, INC. v. CISCO SYSTEMS, INC., Appeal No. 2013-1489, the Federal Circuit vacated a damages award for use of an improper royalty base. 

VirnetX sued Apple for infringing patents relating to secure Internet connections and VPN technology. VirnetX won a jury trial verdict of $368 million against Apple based on its “FaceTime” and “VPN On Demand” features. 

On appeal, the Federal Circuit vacated and remanded the damages award as founded on an improper royalty base.  The Federal Circuit determined that the district court’s jury instructions misstated the law on reasonable royalties because the instructions mistakenly suggested that, when a smallest salable unit is used in the royalty base, there is no further constraint on the selection of the base.  When the smallest salable unit is a multicomponent product containing several non-infringing features (for example, Apple’s iPhone), the patentee must do more to estimate what portion of the value of that product is attributable to the patented technology.  The Federal Circuit also pointed out that a damages theory based on a mathematical theorem (the Nash Bargaining Solution) suggesting a 50/50 split was an inappropriate “rule of thumb” as applied in this case.

Online Transaction Claim Held Unpatentable

In BUYSAFE, INC. v. GOOGLE, INC., Appeal No. 2013-1575, the Federal Circuit affirmed a judgment of invalidity under 35 U.S.C. § 101 for lack of patent-eligible subject matter.

buySAFE sued Google for patent infringement.  The asserted claims were methods and machine-readable media for guaranteeing a party’s performance of an online transaction.  Google moved for judgment on the pleadings, arguing that the asserted claims were invalid under 35 U.S.C. § 101.  The district court granted Google’s motion and concluded that the patent describes a well-known and widely understood concept and merely applied that concept using conventional computer technology and the Internet.

The Federal Circuit affirmed under the Supreme Court’s two-step framework established in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), and Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014).  First, the Federal Circuit determined whether the claims were directed to an abstract idea. The Federal Circuit stated that the claims are “squarely” about the abstract idea of creating a contractual relationship, specifically a “transaction performance guarantee.”  The Federal Circuit next ascertained whether the claims recited additional elements sufficient to transform the nature of the claim into something “significantly more” than the abstract idea itself.  The Federal Circuit concluded they did not because the recited computer functionality is generic and “not even arguably inventive.”  Further, the Federal Circuit stated that it cannot be enough that the transactions being guaranteed are themselves online transactions. The Federal Circuit noted that such phraseology is insufficient to save the claims because it only limits the use of the abstract guarantee idea to a particular technological environment.