Golden Hour v. emsCharts: Puppeteer Required for Joint Infringement Doctrine; Partial Disclosure May Evidence Inequitable Conduct

In a split decision, the Federal Circuit has reiterated its strict interpretation of the joint infringement doctrine, limiting its application to cases where a clear “puppeteer” exists. In Golden Hour Data Systems Inc. v. emsCharts Inc., 614 F.3d 1367 (Fed. Cir. 2010), the Federal Circuit refused to apply the doctrine to hold two “strategic partners” liable because neither was the controlling “mastermind.” The Golden Hour Court also found it plausible – perhaps even likely – that the plaintiff’s partial disclosure to the patent examiner of material information relating to prior art may be grounds to void the plaintiff’s patent for inequitable conduct. However, the Federal Circuit remanded the issue due to insufficient evidence of plaintiff’s deceptive intent.

BACKGROUND

Golden Hour owned a patent (the ‘073 patent) for a system for emergency medical management that included integrated billing. After filing its patent application, Golden Hour filed an Information Disclosure Statement (IDS) describing what it believed to be the most similar system on the market – the AeroMed system. The IDS quoted from the front page of an AeroMed brochure, which suggested that AeroMed did not include integrated billing. The IDS did not disclose that inside that same brochure, AeroMed did claim to have integrated billing.

In 2006, Golden Hour used emsCharts and Softtech for infringement of the ‘073 patent. emsCharts had software that handled charts, diagnosis, and billing. Softtech owned flight dispatch software used in emergency helicopters used to manage patient pickup and delivery. The two companies formed a “strategic partnership” to enable their programs to work together and market the combine programs as a unit.

The jury received an instruction on “joint infringement” and returned a verdict in favor of Golden Hour, finding that the defendants’ joint program infringed on Golden Hour’s patent and that the AeroMed brochure had not anticipated the ‘073 patent. Following the jury verdict, the district court held a bench trial on the issue of inequitable conduct and found the ‘073 unenforceable due to Golden Hour’s failure to disclose the billing element of the AeroMed brochure. Looking at all the factors, especially Golden Hour’s choice to selectively disclose only the portion of the AeroMed brochure that did not threaten patentability, the district court concluded that “the single most reasonable inference to be drawn is that Golden Hour intended to deceive the patent office.” Golden Hour Data Systems, Inc. v. emsCharts Inc., No. 2:06 CV 381, 2009 WL 781334, *14 (March 23, 2009 E.D. Texas).

The district court also granted emsChart’s motion for judgment as a matter of law on the issue of joint infringement. The district court concluded that the plaintiff had failed to produce sufficient evidence of control or direction to uphold a finding of joint infringement.

Control or Direction Required for Joint Infringement

The joint infringement doctrine enables the court to hold more than one defendant liable for infringement when the defendants collaborated and combined to infringe on another’s patent claims.  However, the Federal Circuit has previously held that successful joint infringement claims must prove that one of the collaborators is the “puppeteer” in control of the entire process:

“Where the combined actions of multiple parties are alleged to infringe process claims, the patent holder must prove that one party exercised ‘control or direction’ over the entire process such that all steps of the process can be attributed to the controlling party, i.e., the ‘mastermind.” Muniauction Inc. v. Thomson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2008) (citing BMC Res. Inc. v. Paymentech L.P., 498 F.3d 1373, 180-181 (Fed. Cir. 2007)).

Two of the three judges on the Federal Circuit panel (Dyk and Friedman) agreed with the district court and affirmed the JMOL ruling on joint infringement because Golden Hour had failed to prove that either defendant exercised “‘control or direction’ over the entire process” as described in Muniauction. Golden Hour Data Systems Inc. v. emsCharts Inc., 614 F.3d 1367, 1380-1381 (Fed. Cir. 2010)

In her dissent, Judge Newman disputed the majority’s ruling, arguing that evidence that the defendants collaborated to form a “strategic partnership” to sell their combined programs as a single unit was sufficient to uphold the jury’s verdict. Id. at 1383. Moreover, Judge Newman pointed out the nonsensical nature of the majority’s holding, which suggests that two entities can deliberately work together to practice every limitation of the patented claims and still avoid liability for infringement so long as neither entity “controls or directs” the other. Id. at 1382-1383. Judge Newman said that this result is “incorrect as a matter of law.” Id. at 1383.

Specific Factual Findings Must Support a Ruling of Inequitable Conduct

The Federal Circuit vacated and remanded the district court’s finding of inequitable conduct for lack of specific factual findings supporting the claim of deceptive intent.

“A patent may be rendered unenforceable due to inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO during prosecution.” Digital Control Inc. v. Charles Mach. Works, 437 F.3d 1309, 1313 (Fed. Cir. 2006).  A party seeking to render a patent unenforceable due to inequitable conduct must prove both materiality and deceptive intent by clear and convincing evidence. Id.

1) The undisclosed information was material.

Information is considered material “when a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.” Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1367 (Fed. Cir. 2008). Information may be “material” even if does not qualify as prior art, and even if its inclusion would not necessarily have rendered the claims unpatentable. Digital Control, at 1318.

The Federal Circuit agreed with the district court’s assessment that the omitted information from the AeroMed brochure was “highly material” because it contradicted Golden Hour’s submissions to the PTO, regardless of whether it constituted prior art or not. “Given the significance of integrated billing to patentability, the failure to disclose the billing characteristics of the AeroMed system in the IDS was also highly material.” Golden Hour, 614 F.3d at 1376.

2) Insufficient Evidence of Deceptive Intent

To prove deceptive intent, “the involved conduct, viewed in light of all the evidence, including evidence of good faith, must indicate sufficient culpability to require a finding of intent to deceive.” Digital Control, at 1319. Intent can be inferred from indirect and circumstantial evidence, but any inference of intent must be based on sufficient evidence, reasonable in light of that evidence, and “the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard.” Star Scientific at 1366 (citations omitted).

The district court inferred deceptive intent based on the fact that the integrated billing information was obvious inside the AeroMed brochure, along with the court’s finding that that testimony of both Golden Hour’s CEO and its prosecution counsel lacked credibility. Golden Hour, 614 F.3d at 1377.

The Federal Circuit panel majority agreed with the district court that there was “ample evidence that could support finding that [the CEO or prosecution counsel] or both actually read the brochure and determined to withhold its contents from the PTO, knowing it to be material.” Id. at 1379. However, the Federal Circuit panel noted a lack of specific evidence that either the CEO or prosecution counsel were actually specifically aware of the inside contents of the brochure. Id. The majority remanded the issue back to the district court to “provide detailed factual findings with respect to crucial facts – such as whether [the CEO or prosecution counsel] read the entire brochure; whether, knowing the information to be material, they deliberately withheld it; or whether they deliberately refused to read the entire brochure in order to avoid learning damaging information.” Id.Judge Newman again dissented with her colleagues on the panel, but for a different reason. Judge Newman basically said that if the defendants could not effectively prove deceptive intent at the trial, then the Court should not given them another chance to do so. “Since intent to deceive was not established before the trial judge, and materiality is reasonably disputed, there is no basis for a second-bite ruling of inequitable conduct. I would lay the matter to rest…” Id. at 1382.

CONCLUSION

The Federal Circuit panel delineated the biggest risk that may result from its ruling regarding joint infringement: “This court acknowledges that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement.”

Just as Judge Newman expressed in her dissent, the opinion gives entities a blueprint for collaborating in a way that will allow them to infringe on patent claims with impunity. This ruling, which contradicts the very purpose of patent protection, will surely be tested in future cases.

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Thomas F. Zuber

Olivier A. Taillieu

Also See:

Mayo v. Prometheus: The Supreme Court Reverses the Federal Circuit, Finding Prometheus' Patents Cover Laws of Nature and Therefore Ineligible Subject Matter

Celsis In Vitro, Inc. v. Cellzdirect, Inc.: Federal Circuit Disagrees on Obviousness Analysis Post-KSR

In re Ricoh Co., Ltd.: Federal Circuit Clarifies § 1920 Allowances for Prevailing Party to Charge Costs

Bosch v. Pylon: Federal Circuit Confirms Elimination of the Presumption of Irreparable Harm in Permanent Injunction Analysis

Therasense v. Becton: Federal Circuit Narrows Scope of Inequitable Conduct