The story of the bullied patent owner, more widespread than bad acting patent trolls

All too frequently we hear about how large corporations are held up and completely helpless due to bullying at the hands of much smaller patent owners, or even individuals. On its face the narrative about how giant multinational corporations are helpless makes little sense, but that fairy tale has dominated the public debate on patent reform for years.

Those in the industry are well aware that there are a handful of bad actors on the patent owner side, but it is equally well known that there is real and substantial abuse and bullying perpetrated by large companies against smaller companies, including patent owners. The story of the bullied patent owner, which is far more widespread than any bad acting patent troll, is simply never told. The failure to tell the story of abuse perpetrated by larger corporations is for a variety of reasons, and the lack of reporting does unfortunately lend credence to the mythology that large companies only operate like Saints and patent owners only operate as Sinners. Of course, as is generally the case the truth lies somewhere in between.

One of the more egregious types of abuse suffered by small companies and individuals is the outright stealing of technology. In many circumstances smaller companies and individuals view a potential partnership or licensing opportunity with a larger entity as a blessing, when in fact it is frequently a curse. Even if you protect yourself with a Non-Disclosure Agreement (NDA), what is really stopping the larger, better funded corporation from simply taking what you lay out for inspection? Even if you do sue you will have to prove that they stole it, weren’t already working on the same thing, and they are bigger anyway so they have the resources necessary to prevail in what usually becomes a protracted legal battle. In short, innovators get bullied and no one seems to care.

Recently one innovator said enough is enough and is standing up to a larger corporation that signed an NDA and then had the audacity to take the technical information provided and use it in their own later filed patent application on the same innovation. Brazen yes, unheard of no.

On October 23, 2015, Separation Design Group IP Holdings, LLC, a wholly owned subsidiary of Separation Design Group, filed a patent infringement lawsuit against Inogen, Inc. (NASDAQ: INGN), alleging that claims of U.S. Patent No. 8,894,751 are being infringed. This is not your ordinary patent infringement lawsuit. In addition to alleging patent infringement the complaint, which was filed in the Central District of California, also alleges trade secret misappropriation and breach of contract.

This case clearly demonstrates the type of abuse faced by innovators at the hands of large corporate infringers.

First, lets dispense with what will undoubtedly be one frivolous and wholly inaccurate assertion by those who won’t want to believe that large corporations are actually capable of engaging in abusive behavior.

Separation Design Group IP Holdings is not a patent troll, period. Frankly, it isn’t even accurate to characterize them as a non-practicing entity. The patent owner here is a corporation created to hold the intellectual property of Separation Design Group, which is an independent research and product development firm located in Waynesburg, Pennsylvania. Separation Design operates a 57,000 square foot facility that houses its office and laboratories for research, development, analytics, prototyping, testing, fabrication, assembly and production. Furthermore, Separation Design Group won an SBIR Small Business Award “the critical role they play in research and development for the government and for their success in driving innovation and creating new jobs.” Therefore, what we have here is an innovator with a real, tangible business suing a much larger corporation who appears to have stolen the innovation in question despite having signed a Non-Disclosure Agreement.

The patent in question, the ‘751 patent, has a priority filing date all the way back to two provisional patent application filings, one on October 5, 2009 (Serial No. 61/248,712) and another on November 24, 2009 (Serial No. 61/264,069). The patent issued on November 25, 2014, and covers lightweight, portable oxygen concentrators that operate using an ultra rapid absorption cycle based on advanced molecular sieve materials. Inogen is a medical technology company that develops and manufactures portable oxygen concentrators for patients suffering from chronic respiratory conditions.

In August 2010, Separation Design Group approached Inogen regarding its related portable oxygen concentrator technology. On September 21, 2010, Separation Design Group and Inogen entered into a Mutual Non-Disclosure Agreement (“Mutual NDA”) to explore a possible business opportunity, with information and technical data relating to the patent applications that eventually resulted in the ’751 Patent being specifically identified as confidential. On September 30, 2010, representatives of Inogen met with Separation Design Group to allow Inogen to review confidential information relating to Separation Design Group’s portable oxygen concentrator technology.

Ultimately, no deal was struck between Separation Design Group and Inogen. Nevertheless, beginning in January 2011, less than three months after Inogen’s review of Separation Design Group’s confidential information, Inogen started development of a portable oxygen concentrator that remarkably resembled the one shown to them by Separation Design Group.

Further still, on April 22, 2011, Inogen filed U.S. Patent Application No. 13/066,716, which was published as U.S. Patent Application Publication No. 2012/0266883 on October 25, 2012. Several of inventors named on this Inogen patent application met with Separation Design Group during the previously mentioned September 30, 2010 meeting that exchanged confidential information. Particularly worrisome is that the Inogen patent application incorporates numerous features of portable oxygen concentrator technology that was part of the Confidential Information disclosed to Inogen under the Mutual NDA.

For example, the ‘751 patent, among other things, describes a user replaceable sieve module as a key feature, which eliminates the need for the manufacturer or medical supply company from having to replace the module. This replaceable feature is touted in an S-1 filing by Inogen made with the Securities and Exchange Commission (SEC) on November 27, 2013. In that S-1 filing Inogen also implies that it’s G3 Oxygen Concentrator is the only portable oxygen solution that accomplishes long term oxygen therapy for patients without supplemental use of a stationary concentrator or a replacement portable oxygen concentrator. There are certain qualifiers used, but by the time this S-1 was filed Inogen was already in possession of the Separation Design Group invention and confidential information describing the use of a replaceable module.

In the S-1 Inogen also lays claim to developing the replaceable filtration cartridges taught in the ‘751 patent and disclosed under the mutual NDA with Separation Design Group. Thus, it seems clear that Inogen will claim that they independently developed this technology on their own and without any of Separation Design Group’s confidential information being used. It will be interesting to see how the evidence shakes out, but at this point it certainly looks bad for Inogen. Why would you send inventors who are independently working on a similar device to review what is supposed to be confidential information? The optics are awful, and it looks like they leveraged what they learned for their own patent application.

Time will tell what ultimately happens here, but this is a story that has a familiar ring to it. We have all heard it. We all know it happens. Large company takes a look at what small company is working on, refuses to do a deal and then miraculously thereafter starts to infringe. In this, as in many cases, there was a confidentiality agreement, but what good is such an agreement without the means to enforce it? Even worse, it appears as if in this case the larger company had the audacity to file a patent application of their own after being granted access to what was supposed to be confidential information.

Unfortunately, Congress and the Courts seem singularly focused on protecting helpless large multinational corporations who, as the story goes, are getting bullied by patent owners. That just isn’t the reality I see.