TransWeb v. 3M was decided on February 10, 2016 on appeal from the District of New Jersey. Prior than one year before the priority date of the asserted patents, defendant TransWeb’s founder handed out samples (that were arguably prior art) at an industry exposition. The jury found plaintiff 3M’s patents invalid due to TransWeb’s prior public use; and unenforceable due to inequitable conduct. The jury also found 3M to be liable for a Walker Process antitrust violation based on fraudulent procurement and subsequent assertion of the patents. The jury found attorney fees to be an appropriate antitrust remedy, so the district court awarded approximately $26 million to TransWeb, comprising trebled lost profits ($103,000), trebled attorney fees for defending the infringement suit ($23 million), and $3.2 million on a one-for-one basis for prosecuting the antitrust claim. 3M moved for JMOL, which the district court denied. 3M appealed the finding of invalidity, the finding of unenforceability for inequitable conduct, and the award of attorney fees as antitrust damages (the $23 million).
The Federal Circuit affirmed the jury’s finding of invalidity and of unenforceability for inequitable conduct, and affirmed the trebled attorney fees.
A judgment of inequitable conduct requires clear and convincing evidence of materiality, knowledge of materiality, and a deliberate decision to deceive. Except in cases of “egregious misconduct,” the materiality must reach the level of but-for materiality, that is, “the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” Intent to deceive may be found “only if intent to deceive is the single most reasonable inference able to be drawn from the evidence.” The Federal Circuit reviews the district court’s determination of inequitable conduct for abuse of discretion, and underlying factual determination for clear error.
The Federal Circuit upheld the inequitable conduct determination. There was but-for materiality. When prosecuting the application to which the patents-in-suit claim priority, 3M notified the examiner of one of TransWeb’s samples, and the examiner then rejected all claims as obvious. Only when 3M dubiously asserted that “the TransWeb samples were only received after signing of a confidentiality agreement and thus were not prior art did the examiner allow the claims.” Because the examiner would not have allowed the claims had the TransWeb samples been disclosed as prior art, the samples are but-for material.
The district court did not clearly err in finding specific intent to deceive the PTO by the inventor and the in-house attorney. The record showed that, at the time of the expo (before filing the priority application) 3M and the inventor were aware of the samples TransWeb was distributing at the expo, and were aware that these samples contained limitations of the eventual patents. Further, 3M employees received these TransWeb samples at the latest one month after the expo. The district court found that 3M’s in-house attorney undertook an “intentional scheme to paper over the potentially prior art nature” of the TransWeb samples. 3M’s attorney waited years, “until the last possible moment, when the notice of allowance had already been mailed,” to submit the TransWeb material. Although it was dubious that the samples were covered by a confidentiality agreement, 3M showed the PTO a letter claiming it to be “definitive proof that the TransWeb samples were not prior art.”
“Based on these factual findings, the district court concluded that the only reasonable inference that explains the actions of [the 3M inventor and attorney] is that they strategically delayed in disclosing the TransWeb prior art and then intentionally made an inaccurate disclosure of that material.” And this was not error.
The Federal Circuit upheld the antitrust determination. Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws … shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a). That section “does not provide recompense for any injury causally linked to a violation of the antitrust laws, but rather only for antitrust injury.” An antitrust injury must stem from an anti-competitive consequence of the defendant’s alleged misconduct.
3M’s argued that TransWeb’s attorney fees had no effect on competition (TransWeb was neither forced out of the market, nor were prices affected), and thus the fees could not be a proper basis for an antitrust damage. The Federal Circuit rejected this argument, holding that TransWeb’s attorney fees incurred defending the infringement suit are antitrust injury.
In doing so, the court noted that 3M’s unlawful act (the bringing of suit based on a fraudulently obtained patent) was “aimed at reducing competition and would have done so had the suit been successful.” 3M unlawfully attempted to gain a monopoly based on this fraudulently obtained patent. “TransWeb’s attorney fees,” the court continued, “flow[ed] directly from this unlawful aspect of 3M’s act.” And the attorney fees are the type of loss that the claimed antitrust violations would be likely to cause. 3M started an anticompetitive suit that forced the defendant to choose between ceasing competition or defending the suit (since 3M refused to license its patents to TransWeb). “[I]t is the abuse of the legal process by the antitrust-defendant that makes the attorney fees incurred by the antitrust-plaintiff during that legal process a relevant antitrust injury.” And the antitrust-defendant’s failure to prevail in the patent suit does not negate the antitrust injury.
The court thus held that TransWeb’s attorney fees could form antitrust damages under Section 4.
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