Failure to Disclose Pre-Filing Service Contract == Inequitable Conduct

by Dennis Crouch

In Vitality Heating v. Heat On-The-Fly, the Federal Circuit affirmed the lessen court’s keeping that Heat On-The-Fly’s U.S. Patent No. 8,171,993 is unenforceable thanks to inequitable carry out.

The fundamental invention involves a transportable system for preparing a heated drinking water and proppant (e.g. sand) mixture for use in hydraulic fracing.  Mr. Hefley, sole inventor and founder of Heat On-The-Fly, submitted his precedence provisional patent application back in September 2009 that inevitably led to the ‘993 patent.

The dilemma:  By September 2008 (a person year ahead of submitting), Heafly and his business had provided his companies to dozens of “frac jobs” — amassing pretty much $2 million in revenue.

Mr. Hefley admitted at demo that he and his providers made use of drinking water-heating methods that contains all the components of claim 1 on at least 61 frac employment ahead of the essential day. The court docket additional identified that invoices reflected that Mr. Hefley’s providers collected around $1.8 million for individuals pre-essential day heat-on-the-fly companies.

All those pre-submitting employment ended up not disclosed to the USPTO whilst the ‘993’s application was pending – even however they appear really content below 102(b) (Pre-AIA).

35 U.S.C. 102(b) (Pre-AIA) A person shall be entitled to a patent until — (b) the invention was ... on sale in this country, more than a person year prior to the day of the application for patent in the United States.

Under Pfaff, the “on sale” bar demands (1) a “commercial” sale or provide and (2) the invention be “ready for patenting.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).  One particular exception to this rule is for “bona fide experiments.”  In specific, the Federal Circuit has held that experiments to “(1) exam the claimed attributes or (2) identify if the invention would do the job for its meant use . . . will not provide as a bar.” Citing Clock Spring, L.P. v. Wrapmaster, Inc., 560 F.3d 1317 (Fed. Cir. 2009).

Inequitable Perform: In the failure-to-disclose context inequitable carry out requires clear and convincing proof that “the applicant knew of … the prior commercial sale, knew that it was content, and created a deliberate decision to withhold it.” See Therasense.  These concerns are decided by the district court docket choose and supplied deference on appeal.  Consequently, an inequitable carry out getting must only be overturned when based mostly upon a misapplication of regulation or based mostly upon a evidently erroneous getting of actuality.

Right here, the patentee argued that the prior uses ended up “experimental” or at least he imagined that they ended up.  That argument was turned down considering that the prior uses included all components of claim 1 that there ended up no notebooks or other experiment-like-paraphernalia and that the uses ended up completed openly without having any attempt to disguise the system or call for confidentiality. (Linking these aspects to Allen Engineering Corp. v. Bartell Industries, Inc., 299 F.3d 1336 (Fed. Cir. 2002)).  All those components ended up more than sufficient to defeat the experimental-use-protection.

On Attorney Information: The court docket also affirmed that Hefley knew of the materiality. On this point, the interesting twist involve’s Hefley’s patent attorney Seth Nehrbass.  Nehrbass was not permitted to testify at demo — but would have evidently testified that the non-disclosure was on attorney advice:

HOTF asserts that Mr. Nehrbass would have testified that Mr. Hefley instructed him about the 61 frac employment, but that Mr. Nehrbass made the decision they ended up all experimental uses that have to have not be disclosed.

This testimony may well have saved the patent from the inequitable carry out getting.  Nevertheless, it was correctly excluded on prejudice grounds. In specific, up until eventually just ahead of demo Hefley had asserted attorney-consumer-privilege (together with all through the Nehrbass and Hefley depositions).  Then, just ahead of demo, Hefley tried to elevate the attorney-advice protection.

We conclude that the district court docket did not abuse its discretion in excluding Mr. Nehrbass’s testimony. The attorney-consumer privilege cannot be made use of as equally a sword and a defend. HOTF was the a person who asserted the attorney-consumer privilege in the 1st occasion and was also the a person who unsuccessful to follow up later by deposing or normally earning Mr. Nehrbass accessible for assessment prior to demo. HOTF cannot have it equally methods. Appropriately, we conclude that the district court docket did not abuse its discretion in excluding this proof on HOTF’s advice of counsel protection.

Inequitable carry out affirmed.  Because inequitable carry out wiped-out all of the patented statements, the court docket did not get to the other patent queries of “obviousness, claim construction, and divided infringement.

Tortious Interference: The jury also identified that HOTF was liable for tortious interference.  The details:

Vitality (Appellee) alleges ... that a HOTF employee (Mr. Ron Lyles) had referred to as Triangle [a potential Energy client], informing it that Vitality was “infringing on a patent that they had” on the drinking water-heating technological innovation. Wary of the litigation risk, Triangle gave its waterheating employment to HOTF rather. Based on this testimony, Energy argued to the jury that HOTF tortiously interfered with the potential enterprise marriage Vitality had with Triangle. The jury agreed and awarded Vitality $750,000 in damages.

On appeal, the Federal Circuit has affirmed — getting that the proof offered ended up enough to meet the subjective and aim negative-religion element essential to support a tort claim based mostly upon enforcing a patent.  See Adept, Inc. v. Murex Sec., Ltd., 539 F.3d 1354 (Fed. Cir. 2008).

Attorney Service fees: Ultimately, the district court docket denied the prevailing celebration attorney fees below Part 285.  That judgment was vacated with a robust recommendation that this is an exceptional scenario.

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