Originally Published MX May/June 2005
GOVERNMENTAL & LEGAL AFFAIRS
Can a Company Know Too Much?Full disclosure is the best way to be sure of enduring patent validity.
Margaret M. Buck and Paul K. Legaard
It is every medical technology company's worst nightmare: After the long and costly process of taking the idea from research and development into production, a medical device's potential to invigorate the company’s bottom line is shattered at the eleventh hour.
One instance in which this can happen is when, because material information is determined to have been withheld from the United States Patent and Trademark Office (PTO), a granted patent is later declared invalid. Such an eventuality means that the company has effectively wasted large sums of money developing the device. Without a valid patent, the company’s market is exposed; anybody can jump in with a competitive product and divert previously established market share.
One case affirmed in January by the appellate court that hears patent cases, the United States Court of Appeals for the Federal Circuit, tells a cautionary tale.
How to Lose a Patent
Bruno Independent Living Aids Inc. v. Acorn Mobility Services Ltd. is a classic study in how not to go about obtaining intellectual property.1
Both parties in the case, Bruno and Acorn, manufacture stairlifts—assistive devices that allow people with mobility impairment to ascend and descend stairways on a chair that travels along a rail. Bruno filed a patent application with the PTO for a stairlift in November 1991 and received the patent in July 1993. Almost a decade later, in July 2002, Bruno sued its competitor Acorn, alleging infringement of that patent. That is, the plaintiff Bruno alleged that the defendant Acorn had improperly used, made, sold, offered for sale, or imported a stairlift covered by Bruno's patent without permission from the patent holder.
Generally, an infringer is responsible for paying the patent owner damages. These can be, for example, the normal license royalty or as much as the infringer's accumulated gross profits on the infringing product.
Patent infringement suits often are filed against competitors. The story of Bruno v. Acorn so far is nothing out of the ordinary. The problem in this case arose when, during the discovery phase of the trial, Acorn produced numerous examples of prior-art stairlifts that had not been disclosed by Bruno to the patent examiner during prosecution of Bruno's patent. In addition, Bruno had shared at least one of these prior-art examples with FDA when the company was seeking medical device marketing approval to sell its stairlift.
Prior art in this context refers to preexisting information surrounding the technology of an invention that is material to the patentability of that invention. Prior art is important for the determination of whether an invention is, among other things, novel and not obvious, and, therefore, worthy of a patent. Generally, it is printed information, such as other patents, technical literature, journal articles, drawings, designs, and trade and industry publications. Earlier offers for sale, actual sales, and previous uses of the invention are actions that fall within the realm of prior art. Anything that might have an adverse effect on the likelihood of acquiring a patent could belong in this category. Moreover, a single example of prior art may be enough to prohibit a patent being obtained.
However, apparently troubling prior art often can be shown to be distinguishable from the invention, or the patent application might be amended. Success in either of these areas could result in a patent being granted despite the existence of prior art. When seeking to overcome the existence of such prior art, companies should never overlook the potential of such strategies.
With the discovery of the prior art during Bruno v. Acorn, Acorn argued that Bruno's patent on the stairlift was invalid because the device had existed, in the prior-art patent, before the Bruno patent had been secured. Bruno admitted that its asserted claims were invalid on account of the newly disclosed prior art. In an attempt to salvage its patent, Bruno filed a reissue patent application. But the trial court held in favor of Acorn, and the damage to Bruno—the plaintiff in the infringement action—was done. With its decision, the trial court found that the Bruno patent was indeed invalid, thereby opening the field of competition to Acorn and any other company that wanted to make or use such a stairlift.
In situations such as Bruno v. Acorn brought to light, not only does the patent owner not recoup damages from an alleged infringer, the patent owner in fact now owns no patent with which to secure the market for its product. This is the nightmare—probably the worst nightmare—for an innovating medtech company.
The Pitfall of Exceptional Knowledge
Besides finding Bruno's patent invalid, the trial court ordered Bruno to pay Acorn's attorneys' fees of approximately $400,000.
A so-called exceptional case for awarding attorneys' fees can arise from a determination of inequitable conduct, such as a failure to disclose information material to patentability coupled with an intent to deceive or mislead the PTO. Here, Acorn had accused Bruno of intentionally withholding the invalidating prior art from the PTO, and asked the trial court to declare the case exceptional. To establish that inequitable conduct occurred, and thus to recover its attorneys' fees, Acorn had to prove that a Bruno employee was under the duty to disclose prior art to the PTO, that what the employee failed to disclose was material to the patentability of the invention, and that there was intent to deceive or mislead the PTO. Acorn successfully proved all this during trial.
The trial court found that the information was withheld with deceptive intent because Bruno failed to disclose the invalidating prior art to the PTO even though an employee involved in the preparation and prosecution of the patent application had disclosed the prior-art information to FDA in Bruno's submission for marketing approval. More important, although the company asserted that it "didn't know" the importance of the prior art, the appellate court did not accept that explanation. It found instead that if the company did not know, then it should have known. This court stressed that a patent applicant that knows of the prior art cannot intentionally avoid learning of its materiality.
Bruno learned what such a patent owner's misstep can cost. Besides losing millions of dollars in future profits and being disappointed in the expectation of infringement damages—which might have amounted to millions more—the patent owner will no longer hold a valid patent and may be ordered to pay the accused infringer's attorney fees.
The law clearly states that patent applicants owe a "duty of candor and good faith" to the PTO.2 A breach of this duty may constitute inequitable conduct. To repeat, inequitable conduct can inhere in failure to disclose information material to patentability coupled with intent to deceive or mislead the PTO. For purposes of determining inequitable conduct, the "patent applicant" that owes the duty to disclose material information to the PTO comprises the company's patent attorneys and agents, the inventors of the technology to be patented, and anyone associated with the inventor or the patent assignee (that is, the patent owner) who is substantially involved in the preparation or prosecution of the patent application.
In Bruno v. Acorn, it was behavior within that last category of individuals with a duty to disclose that triggered inequitable conduct and the finding of an exceptional case. Here, an employee who prepared the FDA submission was also involved in the preparation and prosecution of the Bruno patent. That employee disclosed the invalidating prior-art reference to FDA, but did not see that it was disclosed to the PTO. To accomplish the latter, he could have—and should have—brought the reference to the attention of the in-house patent counsel or patent group, who would then have been obligated to disclose the prior art to the PTO.
How to Safeguard Patent Validity
The final outcome for Bruno was highly unfavorable. This exemplary case raises the question of how a medical technology company seeking a patent can avoid Bruno’s costly mistakes.
A company seeking a patent might be tempted to do everything in its power to pursue that end in a vacuum. That is, its executives could attempt to shield as many employees as possible—those who are not inventors or patent attorneys or agents—from involvement in the preparation and prosecution of the patent, and thereby limit liability. The fewer people involved, the fewer could be proved to have the duty to disclose.
But this "see no evil, hear no evil, speak no evil" approach is flawed at best. Keeping the various parties to the development and marketing of a device compartmentalized is an inexact science, to say the least. And in the Bruno case, even if the single employee who submitted the prior-art information to FDA had been shielded from the patent process, at the end of the day the company's patent would still have been invalid. That point should be kept in mind. The fact that this case was found to be "exceptional" is secondary. A patent declared invalid is the company's nightmare; the payment of the legal opponent's attorneys' fees merely adds a few more bad moments to it.
Medtech company executives whose goal is to secure a patent of unassailable validity that will help their company control its product market should do several things to ensure that employee mistakes do not prevent this objective from being achieved. The imperatives are to:
- Educate employees in important aspects of the patent process.
- Clearly outline territory that is dangerous to enter before the patent is secured.
- Follow up with continual vigilance.
Employee Education. Ensuring that company personnel are educated about patent-related issues is paramount. Although a company's in-house counsel, working together with its outside counsel, can be expected to be completely aware of the ins and outs of patent law, chances are that its inventors, R&D staff, engineers, regulatory personnel, and marketing and sales team will be, to a greater or lesser degree from one department to the next, in the dark.
An innovating medtech enterprise should have a program in place to educate new employees and provide regular review for existing employees who may be dealing with information that could be material to the patent process on any level. Guidance in recognizing what may be prior art is essential. These key employees are responsible for communicating with the company patent attorneys or patent group. They may share in the legally mandated duty to disclose. Therefore, it is crucial that these employees are not left on their own to decide what is material to the patent process and what is not. They have to understand how to communicate with the patent attorneys or with the department whose job it is to determine disclosure to the PTO, as well as with corporate in-house counsel responsible for conducting patent matters with outside counsel.
Behavioral Boundaries. Employees need to know exactly what they may and may not do with respect to an invention moving through the patent process. For example, an enthusiastic salesperson at a trade show might offer to sell a potentially big client a device for which a complete application has not yet been filed with the PTO. That action alone could torpedo the application. Inventors love to talk about their inventions, to each other and in published articles. An inventor might attend a scientific meeting and, without the knowledge of the patent attorneys, make a presentation in which he or she leaks key information about a product that has not cleared the patenting hurdle.
Again, all of the groups whose work revolves around an invention that is to be patented should know exactly what constitutes prior art. This way, they know when to communicate with the company patent department or corporate in-house counsel responsible for patent matters. Accordingly, inventors and anyone associated with the inventor or patent assignee who is substantially involved in the preparation or prosecution of a patent application also should communicate regularly with in-house counsel. And any prior-art searches or documents disclosed to FDA, for example, should be brought to the attention of in-house attorneys.
Eternal Vigilance. It isn't enough to have an education program on the books. Somebody from the patent department, in-house counsel, or a member of outside counsel must shoulder the responsibility to continually monitor and follow through with the education process. Only regular and consistent education can ensure that employees are likely to understand the impact a mistake can have. Such reinforcement should make clear that it is not up to them to decide whether or not a certain piece of information is germane. If employees have a continuing awareness of the proper occasions for communicating with company lawyers and the ways to do so, they are more likely to behave responsibly in handling their company's patent assets.
Conclusion
In view of the lesson of Bruno v. Acorn, medtech company executives and employees alike need to be cognizant that it takes only one employee to derail the company’s patent on its primary product. The cost of that employee's mistake, in company credibility, patent assets, patent fees, court costs, sacrificed profits, and stock loss, is likely to be significant, if not fatal, to a growing company.
References
Margaret M. Buck is an associate and Paul K. Legaard is a senior member in the intellectual property department of the law firm of Cozen O'Connor (Philadelphia).
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