Federal Circuit Affirms Inequitable Conduct Holding Against GS CleanTech

The U.S. Court of Appeals for the Federal Circuit has affirmed a ruling by the United States District Court for the Southern District of Indiana finding CleanTech’s patents-in-suit unenforceable for inequitable conduct for making a pre-critical-date offer for sale.  The patents-in-suit, U.S. Patent Nos. 7,601,858 (“the ’858 patent”), 8,008,516 (“the ’516 patent”), 8,008,517 (“the ’517 patent”), and 8,283,484 (“the ’484 patent”), are directed to methods of recovering oil from a dry mill ethanol plant’s byproduct, i.e. “thin stillage.”

The Proposal

In 2000, David Cantrell founded Vortex Dehydration Technology (VDT) for selling products and methods of processing factory waste. The Inventors of the patents-in-suit began developing an oil recovery process product for animal waste products.  Shortly thereafter, Cantrell shifted his focus to the creation of an ethanol recovery system. In June 2003, Cantrell sent an email to Argi-Energy employees explaining how the oil recovery system for animal waste products may be useful for ethanol recovery. He included an image of an oil recovery system and an operational cost spreadsheet. Cantrell later indicated to Greg Barlage, a market unit manager at Alfa Laval AB, that Argi-Energy would send Barlage a sample of its “thin stillage and syrup” for oil recovery.

Patent Prosecution History

In February 2004, the Inventors contacted attorney Andrew Dorisio, who prepared and filed a provisional application on August 17, 2004, thereby setting the critical date for the on-sale bar to August 17, 2003. The Inventors informed Attorney Dorisio of the 2003 test results but failed to disclose the July 2003 Proposal or the Ethanol Oil Recovery System Diagram. In March 2008, the prosecution was transferred to the law firm Cantor Colburn LLP.  Cantor Colburn was made aware of the testing done in June and July 2003. However, Cantor Colburn filed a letter with the USPTO stating that feasibility testing was performed sometime in May 2004. No mention was made of the June and July 2003 testing.

The District Court

Between 2009 and 2014, CleanTech filed multiple suits against Adkins Energy for infringement of the patents-in-suit. The actions were combined into a multidistrict litigation and Adkins moved for summary judgement on invalidity. The District Court determined that there was no infringement because the claims in the lawsuit were invalid due to the on-sale bar. In particular, the District Court determined that an offer for sale had been made and the methods described in the patents-in-suit had been “reduced to practice or/and there was sufficient description of the patented method” prior to the critical date. The District Court also held an inequitable conduct bench trial and determined that the patents-in-suit were unenforceable due to inequitable conduct.  In addition, the District Court concluded that CleanTech’s attorneys also participated in the inequitable conduct by either purposefully evading or failing to seek out relevant information related to the offer for sale. On appeal, CleanTech argued that the District Court made clearly erroneous findings of fact and misapplied the law with respect to the on-sale bar determination and the parties’ knowledge of materiality.

Federal Circuit Backs District Court

In its review of the District Court’s findings, the Federal Circuit addressed the on-sale bar and whether the claimed invention was offered for commercial sale and ready for patenting. The Court reasoned that the July 2003 Proposal provided an offer of “all items necessary to recover oil and the price.” Further, the Inventors understood the offer to be a “first sale” that would lead to additional sales. With respect to the claimed invention being ready for patenting, the Court determined that the June and July 2003 testing constituted a reduction to practice.  The creation of the Ethanol Oil Recovery System Diagram further led the Court to determine that the District court did not abuse its discretion in determining that the method of the patented invention had been performed during June and July 2003 and that CleanTech and its lawyers deliberately withheld material information with the intent to deceive the USPTO.

In order to prove inequitable conduct in a patent case, as set forth in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011), “the accused infringer must prove by clear and convincing evidence that the patentee: (1) “knew of the reference” or prior commercial sale; (2) “knew that it was material”; and (3) “made a deliberate decision to withhold it.”

The Court pointed to five reasons that the District Court’s determination was correct:

1. It was clear from the record that CleanTech knew the July 2003 Proposal to Agri-Energy threatened its chances of patenting its ethanol oil recovery method;
2. the record supported the District Court’s finding that the Inventors and the attorneys at Cantor Colburn withheld evidence of successful testing in 2003 and made false representations by implying that the invention was not reduced to practice until 2004;
3. there was sufficient evidence in the record to support the District Court’s determination that CleanTech and Cantor Colburn had threatened Agri-Energy “to coerce its support regarding the critical date for the Patents-in-Suit, after the July 2003 Proposal surfaced and during the pendency of the ’516 and ’517 patents”;
4. the record supported the finding that the Inventors and Cantor Colburn made a “patently false” statement in the First Cantrell Declaration, byclaiming the July 2003 Proposal was delivered to Agri-Energy after the critical date; and
5. it was clear that Cantor Colburn’s failure to correct the false declaration in the ’484 patent prosecution was “strong evidence of intentional deceit[.]”

The Court found CleanTech’s counterarguments—that the District Court’s review of materiality exceeded the bench trial; that the materiality finding violated its right to a jury trial; and that the District Court erroneously barred CleanTech from relitigating materiality—unpersuasive, and ultimately affirmed.

At least one commentator has expressed concern about this decision and its implications. David Hricik of Mercer Law School explained in an article written for PatentlyO that: “Whatever the merits, the panel misstates key issues of appellate review of inequitable conduct and contradicts prior panel decisions and even Therasense itself — and does so in a way that radically increases the scope of this equitable defense while, at the same time, failing to analyze the equities, oddly enough.”

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