Avid Identification Sys. v. Crystal Import Corp., No. 09-1216 (April 27, 2010)
Avid brought suit against Datamars alleging infringement of a patent directed to an RFID system for reading encoded implant chips. The patent was found valid and infringed, but was unenforceable for inequitable conduct committed by Dr. Stoddard, who was president and founder of Avid, but was not an inventor of the patent.
During development of the product from which the patent was based on, Stoddard demonstrated an early version of the technology at a trade show more than one year prior to the filing date of the patent. There was no evidence indicating that the inventors or the prosecuting attorney knew about the demonstration. Stoddard admitted to witholding this information from the USPTO, but argued that, as a non-inventor/prosecuting attorney, he did not owe a duty of candor to the USPTO.
37 C.F.R. § 1.56 imposes a duty to disclose information to the PTO, when an individual is (1) associated with the filing and prosecution of a patent application, and (2) knows that the information is question is material. For purposes of identifying who owes a duty of candor to the PTO, Rule 56 defines “individual[s] associated with the filing or prosecution of a patent application” as (1) each named inventor, (2) each attorney or agent that prepares or prosecutes the application, and (3) every other person who is substantively involved in the preparation. or prosecution of the application and who is associated with the inventor or assignee. 37 C.F.R. § 1.56(c). Individuals other than the attorney, agent, or inventor, who are “substantively involved in the preparation or prosecution of the application,” may comply with their duty of candor by disclosing known material information to one of the attorney, agent, or inventor.
Thus, the question was whether Stoddard was "substantively involved" in the prosecution, and whether the specific demonstration was "material."
On materiality, Avid argued that the trade show demonstration was submitted to the jury during litigation, and it found that the demonstrated product did not contain all the elements of the patent claims. The court nevertheless dismissed this argument:
Such arguments  confuse the concepts of “material” and “invalidating.” We have often held that a reasonable examiner may find a particular piece of information important to a determination of patentability, even if that piece of information does not actually invalidate the patent . . . The district court found that sales demonstrations would be important to a determination of patentability under § 102(b) . . . The district court found that the precursor product, while not invalidating, reflected the closest prior art, and thus was highly material to patentability. We hold that the district court’s analysis of materiality is not clearly erroneous.Additionally, the court affirmed that Dr. Stoddard was "substantively involved" based on a number of factors:
- He was the president and founder of Avid, a closely held company; Dr. Stoddard was also “involved in all aspects of the company’s operation, from marketing and sales to research and development.”
- Stoddard hired the inventors to reduce his encrypted chip concept to practice;
- Stoddard received communications from inventors regarding EPO prosecution of the patents. The district court stated that the communications "contributed to an inference that Dr. Stoddard was substantively involved in patent matters related to the identification chip system."
- The district court also determined that "Dr. Stoddard’s testimony at trial was not credible, his memory of facts was suspiciously selective, and he refused to acknowledge certain incontrovertible events."
The majority opinion stated:
Although Dr. Stoddard did not contribute enough to the patentable features of the claims to be considered an inventor, the functionality of the system described in the ’326 patent was his idea. The inventors he hired were specifically instructed to reduce his idea to practice. Dr. Stoddard’s inclusion on substantive communications related to the preparation of the European counterpart to the ’326 patent application further support the more general conclusion that he was substantively involved in preparation of the patent application covering the system he conceived.AFFIRMED
Under the terms of Rule 56, the PTO does not assign a duty of candor to persons not associated with a patent application, or to those involved only in a ministerial capacity. Such persons would not be in a position to appreciate that their conduct or knowledge might be relevant to the PTO. The district court did not clearly err in determining that Dr. Stoddard was not such an exempt person. Indeed, to accept Avid’s argument that a person such as Dr. Stoddard owes no duty of candor would allow intentional deception by the types of people most likely to have knowledge of § 102(b) prior art, i.e., those on the commercial side of patented product development.
In my view, the district court both misapplied Rule 56(c)(3) and clearly erred in finding that Dr. Stoddard was “substantively involved in the preparation or prosecution of the application.” Accordingly, I would reverse the determination that the ’326 patent is unenforceable due to inequitable conduct.
* * *The obligation imposed by the duty of candor is to disclose to the PTO information “material to patentability.” 37 C.F.R. § 1.56(a). Because one cannot assess whether information is “material to patentability” without knowledge of the technical details or legal merits of an application, it should be self-evident that when Rule 56(c)(3) talks about persons who are “substantively involved” it is referring to those persons who are both (1) engaged in the preparation or prosecution of an application and (2) sufficiently apprised of the technical details or legal merits of the application as to be able to assess the materiality of any information they may know or discover as the application is prepared or prosecuted. This naturally excludes not only the “typists, clerks, and similar personnel who assist with the application” in a non-substantive way . . . but also corporate officers, managers, employees, and all other individuals who are neither aware of the technical details or legal merits of the application nor engaged in the preparation or prosecution thereof. Simply having a general interest or even a financial interest in the invention or a general awareness of the application is not enough.