Patent Case Summaries September 26, 2014

Federal Circuit Patent Case Summaries for the Week Ending September 26, 2014

The following is a summary of the precedential patent-related opinions issued by the Court of Appeals for the Federal Circuit for the week ending September 26, 2014. Leah Feinman and Wes Achey prepared this edition.  

Case Summaries

Patent Office Procedures: Generally
Litigation Practice and Procedure: Courts: Procedural Matters

Benefit Funding Systems LLC, et al. v. Advance America Cash Advance Centers Inc., et al., Nos. 14-1122, -1124, -1125 (Fed. Cir. Sept. 25, 2014).

The Federal Circuit affirmed the district court’s decision to stay a case pending resolution of a covered business method review (“CBM”) before the Patent Trial and Appeal (“PTAB”). In doing so, the Federal Circuit rejected the appellant’s argument that the district court would not be bound by the result of the CBM review because the PTAB is not authorized to conduct covered business method review based on 35 U.S.C. § 101.

Appellants Benefit Funding Systems LLC and Retirement Capital Access Management Company LLC sued appellees Advance America Cash Advance Centers, Inc., Regions Financial Corporation, CNU Online Holdings, and U.S. Bancorp (collectively “the appellees”) for infringement of U.S. Patent No. 6,625,582, which is directed to “a system and method for enabling beneficiaries of retirement benefits to convert future benefits into current resources to meet current financial and other needs and objectives.” Approximately ten months into the litigation, U.S. Bancorp filed a petition with the PTAB for post-grant review of the asserted claims under the Transitional Program for Covered Business Method Patents. The appellees then filed motions to stay the litigation pending review. The district court denied the motions.

The PTAB subsequently instituted the covered business method review on the sole basis of subject matter eligibility under 35 U.S.C. § 101. The appellees renewed their motions to stay, which were orally granted by the district court. On appeal, the appellants argued that the PTAB is not authorized to conduct CBM reviews based solely on § 101 grounds. As such, the appellants argued that the district court would not be bound by the results of the CBM review.

The Federal Circuit rejected the appellants’ argument, holding that “the stay determination is not the time or the place to review the PTAB’s decisions to institute a CBM proceeding.” The Federal Circuit further rejected the appellants’ argument regarding the PTAB’s authority to conduct the CBM review, holding that a district court “need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting the CBM review.” Rather, the Federal Circuit held that the proper way to challenge the PTAB’s authority is to institute a direct appeal of the PTAB’s final decision. The Federal Circuit declined to address the issue of whether § 101 is a valid ground for CBM review.  

Defenses: Fraud and Inequitable Conduct: Materiality
Defenses: Fraud and Inequitable Conduct: Intent to Deceive

American Calcar, Inc. v. American Honda Motor Co., No. 13-1061 (Fed. Cir. Sept. 26, 2014).

In affirming the district court’s determination of inequitable conduct, the Federal Circuit held that the district court properly applied the new, narrower inequitable conduct standard set forth in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011), by determining that the prior art withheld by the defendant was material, and that the single reasonable inference available from the factual record was that such failure to disclose was intentional.

American Calcar Inc. (“Calcar”) sued American Honda Motor Co., Inc. and Honda of America Manufacturing, Inc. (collectively “Honda”) in the U.S. District Court for the Southern District of California for infringement of fifteen patents directed to various aspects of an automotive multimedia system used to access vehicle information and control vehicle functions. The case was transferred to the Eastern District of Texas, and throughout the course of the subsequent proceedings, certain patents were dropped and summary judgment was granted on others. In 2008, a trial was held on four of the fifteen patents.

Honda moved for a finding of inequitable conduct, alleging that Calcar’s founder and co-inventor, deliberately withheld prior art that was material to patentability. Specifically, Honda argued that although the inventor disclosed a 1996 navigation system that was added as an option to the Acura RL as prior art (“96RL”), he did not disclose the existence of an owner’s manual and photographs that showed details that aligned with the subject matter claimed in the patents-in-suit.

Following a jury trial, the district court granted Honda’s inequitable conduct motion, holding the patents-in-suit unenforceable. Calcar appealed to the Federal Circuit. While the appeal was pending, the Federal Circuit revised its test for inequitable conduct in Therasense. The narrower Therasense test requires a showing of “but-for materiality,” or that “the PTO would not have allowed a claim had it been aware of” the undisclosed prior art. In light of this new standard, the Federal Circuit affirmed the district court’s ruling as to the ’497 patent, and remanded as to the ’465 and ’795 patents. The Federal Circuit held that the district court’s finding of materiality and the inventor’s lack of credibility were insufficient grounds for the district court to find intent, and directed the district court to determine the but-for materiality of the undisclosed prior art and determine whether the factual record led to a reasonable inference that any of the inventors possessed undisclosed information, knew the information was material, and deliberately decided to withhold it. The parties submitted additional briefing on these issues. The district court again found that all three patents were obtained through inequitable conduct. Calcar appealed.

The Federal Circuit affirmed, ruling that the district court’s analysis was consistent with the new Therasense standard. Specifically, the Federal Circuit held that the district court did not commit clear error by determining that but-for materiality was met. Nor did the district court commit clear error when determining that the single reasonable inference was that the inventor deliberately decided to withhold the information from the Patent and Trademark Office (“PTO”), which the district court determined based on the inventor’s own testimony regarding his personal knowledge of the 96RL system, his acknowledgement of the importance of the system, and his role in developing the patent application.

In an opinion dissenting from the majority, Judge Newman disagreed with the majority’s application of the Therasense factors, stating that the majority ignored the fact that the owner’s manual and photographs were provided to the PTO on reexamination of the ’497 patent, and patentability was confirmed by the PTO. Judge Newman believed that these facts dictated that the but-for materiality requirement had not been met.  

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