Introduction

On March 2, 2020, the United States Court of Appeals for the Federal Circuit made decision in GS CleanTech Corporation v. Adkins Energy, LLC. Starting in 2009 and continuing through 2014, CleanTech Corporation (“CleanTech”) filed lawsuits against Adkins Energy, LLC (“Adkins”) for infringement of U.S. Patent Nos. 7,601,858 (“the ‘858 patent”), 8,008,516 (“the ‘516 patent”), 8,283,484 (“the ‘484 patent”) (together, “the Patents-in-Suit”) in a number of actions that were later combined into a multidistrict litigation case. The Patents-in-Suit share a specification and relate to the recovery of oil from a dry mill ethanol plant’s byproduct, called thin stillage. Particularly, the Patents-in-Suit disclose a method of successful recovery of the valuable oil from the thin stillage byproduct by evaporating the thin stillage to form a concentrate, and then separating the oil from the concentrate using a centrifuge. In 2013, CleanTech moved for summary judgement. Upon review, the U.S. District Court for the Southern District of Indiana (“District Court”) found Appellant CleanTech’s Patents-in-Suit unenforceable due to inequitable conduct, and that therefore, the specified claims in the lawsuit were invalid.

Background

The District Court determined that the on-sale bar applies and invalidates the Patents-in-Suit, supported by undisputed contemporaneous evidence of inequitable conduct. In 2000, David Cantrell founded Vortex Dehydration Technology (“VDT”) with the purpose of selling methods of processing factory waste. In 2002, David Winsness joined VDT as its Chief Technology Officer, and later, Cantrell and Winsness (collectively, “the Inventors”) began developing an oil recovery product, with the help of processing equipment sold by Greg Barlage. During this time, VDT maintained a business relationship with Agri-Energy LLC (“Agri-Energy”), which operated a dry-mill ethanol plant. Mr. Cantrell believed VDT’s oil recovery system might be applicable in an ethanol plant, and later directed Mr. Barlage to conduct tests using samples of Agri-Energy’s thin stillage samples. In his testing report (“June 2003 Report”), Mr. Barlage concluded that VDT’s oil recovery system was successful. On August 1, 2003 Mr. Cantrell emailed several Agri-Energy employees (“August 2003 Email”) and attached a proposal, dated July 31, 2003 (“July 2003 Proposal”). In the July 2003 Proposal, VDT offered Agri-Energy a No-Risk trial of the oil recovery system for 60 days to operate the unit and confirm its value, after which Agri-Energy could purchase the system or return it. Agri-Energy understood the July 2003 Proposal as an offer for sale. On August 18, 2003, Mr. Cantrell traveled to Agri-Energy and presented his proposal to the Agri-Energy Board of Directors, to which the Board of Directors rejected. In early 2004, VDT and Agri-Energy again communicated regarding the oil recovery system, and a centrifuge was installed in the Agri-Energy plant.

In February 2004, the Inventors engaged attorney Andrew Dorisio to prepare a patent application for their oil recovery method. Without being told about the July 2003 Proposal, Mr. Dorisio filed a provisional application with the USPTO on August 17, 2004. In May 2005, Mr. Dorisio filed a non-provisional application, and filed subsequent continuing applications. In 2006, the Inventors joined CleanTech, which acquired VDT’s patent applications. In March 2008, Mr. Winsness transferred the prosecution of the applications to the law firm Cantor Colburn LLP (“Cantor Colburn”). Throughout prosecution of the applications, Cantor Colburn filed two declarations signed by Mr. Cantrell. In the first declaration, Mr. Cantrell stated there was no offer for sale of the claimed invention and that the July 2003 Proposal was actually disclosed on August 18, 2003. In the second declaration, filed during prosecution of the ‘484 patent, Mr. Cantrell stated that he had forgotten about sending the August 2003 Email with the July 2003 Proposal attached. The applications all issued as patents.   

Following its summary judgement determinations regarding the above, the District Court held an inequitable conduct bench trial. The District Court concluded that CleanTech committed inequitable conduct through a complete lack of regard for their duty to the USPTO. The District Court also determined that the Inventors took affirmative steps to hide the offer for sale from their lawyers, then, later from the USPTO. It was decided that the Inventors purposefully acted to deceive the USPTO so they could profit from obtaining patents. Lastly, the District Court concluded that Cantor Colburn participated in the inequitable conduct by choosing advocacy of their clients over candor. In light of such conclusions, the District Court held the Patents-in-Suit unenforceable. CleanTech appealed the District Court’s decision. The Federal Circuit affirms.

Decision

Naturally, the Federal Circuit performed an analysis of all the District Court’s final determinations, as described below:

1.     Inequitable Conduct. In the appeal before the Federal Circuit, CleanTech argues that the District Court made clearly erroneous findings of fact and misapplied the law with respect to its on-sale bar determination, as well as its conclusions regarding the parties’ knowledge of materiality and their intent to deceive. To prevail on a claim of inequitable conduct in a patent case, the accused infringer must prove by clear and convincing evidence that the patentee knew of the prior commercial sale, knew that it was material to patentability and made a deliberate decision to withhold it. Thus, a patent is invalid under the on-sale bar if, before the critical date, the invention was the subject of a commercial sale or offer for sale and was “ready for patenting.” Whether the claimed invention was the subject of an offer for sale involves an assessment of whether the circumstances surrounding the transaction show that the transaction was not primarily for experimentation purposes. An invention is “ready for patenting” when, prior to the critical date, the invention is reduced to practice or is depicted in drawings and/or described in writings of sufficient nature.

CleanTech contends that the July 2003 Proposal was not an offer for sale as it “did not in fact perform the method for Agri-Energy, before the critical date, for a promise of future compensation.” The Federal Circuit finds this counterargument unavailing. As the District Court similarly concluded, the July 2003 Proposal provides an offer of “all items necessary to recover oil and the price” and the Inventors understood the offer to Agri-Energy was a “first sale” that would lead to future sales. In regard to the invention’s readiness for patenting, CleanTech argues that the Inventors had not prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person of ordinary skill in the art to practice it. The District Court determined, however, that while there was no “single reference that specifically delineated” the claimed method, Mr. Barlage’s lab tests and results and “communications from Mr. Cantrell to Agri-Energy would allow one of ordinary skill to practice the invention of the Patents-in-Suit.” The Federal Circuit concludes that the District Court did not abuse its discretion in its on-sale bar determination.  

2.     Duty of Disclosure. In the appeal before the Federal Circuit, CleanTech argues that the District Court erred in its materiality and intent to deceive findings. Second, CleanTech avers that the District Court’s materiality finding violated its right to a jury trial, and that the review of materiality “exceeded the scope of the bench trial, which was only on ‘inequitable conduct.’” The Federal Circuit finds all of these counterarguments unavailing. The Federal Circuit concludes that CleanTech and its attorneys were aware that the claimed invention was ready for patenting, as evidenced by documents belatedly or not given to the USPTO, and that they knew of those documents’ materiality. Second, given that inequitable conduct is based on equity, there is no right to a jury trial. Third, materiality is an element of the inequitable conduct claim, and was thus not outside the scope of the bench trial conducted by the District Court.  

The District Court concluded that CleanTech knew the July 2003 Proposal to Agri-Energy threatened its chances of patenting its method and took affirmative steps to withhold the information from the USPTO. Second, the District Court found that the Inventors and their attorneys withheld evidence of successful testing in 2003 and made false representations by implying that the invention was not reduced to practice until 2004. Mr. Winsness informed Cantor Colburn that the testing done in June 2003 showed that a “sequence of evaporation followed by centrifugation allows for oil recovery.” The Inventors also informed Cantor Colburn that, based on this testing, the Inventors believed that the process would work on a commercial scale. Cantor Colburn was in possession of these test reports as well. Despite possessing this information, Cantor Colburn did not provide it to the USPTO during the prosecution of the Patents-in-Suit. Third, the District Court concluded that the Inventors and Cantor Colburn made “patentably false” statements in the two declarations filed during prosecution, which was “strong evidence of intentional deceit.”

For the reasons above, the Federal Circuit affirms the Federal Circuit’s findings of inequitable conduct and unenforceability of the Patents-in-Suit. More specifically, the Federal Circuit concludes that the District Court did not abuse its discretion in concluding that, by clear and convincing evidence, the single most reasonable inference to be drawn from the record was that the Inventors and Cantor Colburn intended to deceive the USPTO.

Conclusion

It is important to realize and understand the implications of the decision made in GS CleanTech Corporation v. Adkins Energy, LLC. As evidenced by the outcome, withholding vital information regarding patentability of an invention from the USPTO can have dire consequences on patents and patent applications. As discussed, CleanTech’s patents were ruled invalid and therefore unenforceable, thereby stripping CleanTech of any patent rights it previously possessed. As evidenced by this outcome, it is imperative to always disclose pertinent information to the USPTO, even if that information may result in a bar to patentability (e.g., on-sale bar). Additionally, it is imperative that registered patent practitioners respect and honor their duty to the USPTO when practicing before the USPTO. As evidenced by this decision, patent practitioners may be charged with inequitable conduct in relation to individuals they represent. As such, it is important for practitioners to always remember their duty of disclosure to the USPTO (e.g., disclosing knowledge of prior art or sale) and must practice candor to the USPTO over advocacy for their clients.

 Full GS CleanTech Corporation v. Adkins Energy, LLC decision can be read here: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/16-2231.Opinion.3-2-2020_1543098.pdf

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