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May 2016: Federal Circuit Affirms Inequitable Conduct and Walker Process Fraud Judgment

May 2016

The firm obtained a unanimous Federal Circuit decision affirming a finding of inequitable conduct before the Patent and Trademark Office (“PTO”) and a $26 million award consisting primarily of trebled attorneys’ fees as antitrust damages based on Walker Process fraud on the PTO.

The firm represents TransWeb, LLC, a manufacturer of respirator filters. TransWeb developed a process for plasma fluorinating filtration media. In 1997, TransWeb distributed filter samples at an industry expo attended by 3M, the only other supplier in the world of similar media. More than one year later, 3M sought its own patents on this technology. Although 3M eventually disclosed the TransWeb samples to the PTO, it falsely asserting that the samples were received pursuant to a confidentiality agreement and thus did not constitute prior art. Several years later, 3M brought suit against TransWeb alleging infringement of the patents. After 3M’s suit was voluntarily dismissed due to personal jurisdiction issues, TransWeb brought a declaratory judgment action in the District of New Jersey and 3M counterclaimed for infringement.

After a two-week trial, the jury unanimously found that 3M’s patents were not infringed but were invalid as obvious. The jury also rendered an advisory verdict that the patents were unenforceable due to 3M’s inequitable conduct by deceiving the PTO regarding the prior art nature of the TransWeb samples. The jury further found that 3M had committed a Walker Process antitrust violation by using fraudulently obtained patents in an attempt to monopolize the relevant filter markets and that TransWeb was entitled to its attorneys’ fees as damages. The district court entered judgment in accordance with the jury verdicts and awarded TransWeb over $26 million in damages, which included lost profits and TransWeb’s trebled attorneys’ fees defending against the patent claims. 3M retained Seth Waxman, a former U.S. Solicitor General, to seek reversal.

The Federal Circuit affirmed. First, the Court affirmed that 3M had engaged in inequitable conduct by failing to disclose to the PTO that its pending patents were based on TransWeb’s prior art samples. In so holding, the Court addressed the “corroboration” standard in patent cases. Oral testimony by an interested party is ordinarily insufficient to invalidate an issued patent; such testimony must be corroborated by other evidence. 3M argued that TransWeb was required to corroborate all material facts. The Court disagreed, noting that “3M’s legal argument attempts to lead us to a legal conclusion that this court has repeatedly rejected.” Instead, the Court reiterated a “rule of reason” approach ensuring that the oral testimony is credible as a whole, noting that “there are no hard and fast rules as to what constitutes sufficient corroboration, and each case must be decided on its own facts.” Applying that flexible standard, the Court found that TransWeb provided sufficient corroborating evidence that its founder distributed prior art samples at the industry expo. Specifically, documentary evidence that TransWeb had produced, distributed, and offered for sale the filter samples as well as sought patent protections was sufficient corroborating evidence.

The Court next affirmed that 3M had engaged in inequitable conduct before the PTO and that its suit violated antitrust laws. In Walker Process, the Supreme Court held that a party could bring an action under the Sherman Act based on the enforcement of a fraudulently obtained patent. See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965). The Federal Circuit held that 3M’s suit was an attempted monopolization that sought to force TransWeb out of the filter markets. The Federal Circuit also confirmed that attorneys’ fees incurred defending against infringement claims based on fraudulently obtained patents qualify as antitrust damages, which are subject to trebling. As the Court noted, “3M’s unlawful act was in fact aimed at reducing competition and would have done so had the suit been successful.” The Court therefore affirmed an award of approximately $26 million to TransWeb, consisting primarily of trebled attorneys’ fees incurred defending against the patent claims. In so holding, the Court retained an important defense for parties confronted with bet-the-company litigation involving fraudulently obtained patents.