Undercutting the Patent Owner

Powell v. Home Depot U.S.A., Inc., Nos. 2010–1409, –1416 (Fed. Cir. Nov. 14, 2011) (Judges Linn, Dyk, and Prost)

Home Depot offers a lumber-cutting service to customers who buy boards and other wood products. But they had a problem: employees were suffering a large number of injuries from the radial saws.

Michael Powell offered a solution, namely a safety guard that he designed (and patented):

 

Powell Patent

 

Home Depot only wanted to pay $1,200 a unit, and Powell couldn’t produce them at that price. So, Home Depot hired another company to come in, look at Powell’s samples, and copy the design. It installed the copies in its stores and virtually eliminated injuries on the radial saws that had the new guards.

Powell, as you might expect, wasn’t happy that Home Depot had taken his invention, and he sued for patent infringement. He won a judgment for more than $23 million, including prejudgment interest.

Home Depot, as you might expect, appealed.

Sure it’s wrong, but it isn’t THAT wrong

I think the most interesting issue in the opinion is an inequitable conduct charge against Powell. This is the first Federal Circuit opinion to actually apply the new standard for inequitable conduct under Therasense, Inc. v. Becton, Dickinson and Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc). (There was another recent case, American Calcar, Inc. v. American Honda Motor Co., 651 F.3d 1318 (Fed. Cir. 2011), that instructed the district court to reconsider in light of the new standard.)

During prosecution of his patent, Powell filed (and was granted) a Petition to Make Special with the Patent & Trademark Office, which means that the PTO accelerated his patent application through the process. The grounds were that he expected to have to produce orders for Home Depot. But after the deal with Home Depot fell through, Powell didn’t notify the PTO as he should have.

The district court found that Powell did intend to deceive the PTO, but it held that his conduct wasn’t bad enough to warrant making the patent unenforceable. There’s some indication in the district court’s opinion that Powell was concerned that Home Depot was stealing his invention and wanted his patent quickly for that reason. Concern about possible infringement is actually another grounds for a Petition to Make Special, so he probably could have gotten it anyway.

The Federal Circuit went even farther. It said that Powell’s failure to update the PTO couldn’t be inequitable conduct under Therasense. The Petition to Make Special had nothing to do with whether the application was allowed, and there was no affirmative misrepresentation, so there couldn’t be inequitable conduct.

This result makes me a little uncomfortable. In Powell’s situation, he was still entitled to accelerated examination, so I think it’s appropriate that his patent remains enforceable. But the Federal Circuit didn’t mention that; it held that a failure to update the PTO on changed circumstances, at least for a Petition to Make Special, can never be inequitable conduct.

The same reasoning would seem to apply if a company didn’t notify the PTO that it was no longer entitled to small entity status (small entities pay lower fees). If true, that would seem to conflict with Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007), which affirmed a finding of inequitable conduct for failing to update the PTO about a change from small entity status. In Nilssen, however, the patent owner paid the lower maintenance fees for a small entity. Then again, losing your entire patent seems like too severe a price to pay when you can just be assessed the correct fees, plus, perhaps, a penalty.

The Therasense decision made a policy choice that in order to stem the tide of inequitable conduct charges, only the most clearly egregious behavior will be punished. And any attorney who has done much patent prosecution can tell you that it’s easy to make a mistake that might look bad to someone who’s inclined to be suspicious. Inequitable conduct accusations were widely abused, so this is probably the right way to go.

I just can’t shake the discomfort, even though I know this is probably the right result. What do you think?

There are a couple of other issues in the opinion (claim construction and damages), but I’ll let you read those for yourself.

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