Price Tag for Patent Invalidity Ruling in Inequitable Conduct Case is $26 Million
Affirming a ruling of invalidity and an antitrust damages award of trebled attorneys’ fees in a patent abuse case, the US Court of Appeals for the Federal Circuit highlighted the severe penalties that may befall patent owners that pursue anticompetitive suits based on unenforceable patents. TransWeb, LLC v. 3M Innovative Properties Co., Case No. 2014-1646 (Fed. Cir., Feb. 10, 2016) (Hughes, J). Finding no error or abuse of discretion with the district court’s ruling that the two 3M patents at issue were unenforceable because of inequitable conduct, the Federal Circuit affirmed the district court’s finding that 3M had committed a Walker Process antitrust violation and upheld $26 million in antitrust damages.
This litigation stems from a patent dispute surrounding plasma-fluorinated filter media used in respirators. In spring 1997, the founder of TransWeb allegedly handed out samples of his company’s plasma-fluorinated product at a filtration industry expo. In 1998, 3M obtained patents on its plasma-fluorinated media, asserting to the examiner that TransWeb’s product was not prior art. 3M later used its patents to initiate an infringement suit against TransWeb.
After 3M voluntarily dismissed its suit, TransWeb filed its own suit against 3M asserting unenforceability, invalidity and a Walker Process antitrust violation. The case resulted in a jury verdict invalidating 3M’s patents for obviousness and finding those patents unenforceable because of inequitable conduct. The jury also found 3M liable for a Walker Process violation and awarded TransWeb lost profits and attorneys’ fees ($3.2 million in cost-of-antitrust-suit fees and $23 million in the form of treble antitrust damages for the cost of defending the earlier infringement suit). 3M appealed.
Evaluating the inequitable conduct ruling for abuse of discretion or clear error in factual determinations, the Federal Circuit noted that the facts of this case presented a “definitional case of but-for materiality” because of the patent examiner’s statement that 3M’s patent claims would not have been allowed but for statements by 3M during prosecution that the TransWeb samples were not prior art. Walking through extensive evidence of 3M’s intent to deceive the examiner, the Federal Circuit found no clear error or improprieties in the district court’s analysis.
3M also appealed the ruling that it committed a Walker Process violation. In Walker Process, the Supreme Court of the United States held that a plaintiff may bring a § 2 Sherman Act claim (monopolization or attempted monopolization) on the basis of maintenance and enforcement of a fraudulently obtained patent. To do so, a plaintiff must show (1) that the defendant obtained the patent by knowing and willful fraud on the patent office, and maintained and enforced the patent with knowledge of the fraudulent procurement; and (2) all other elements required by § 2 of the Sherman Act, such as anticompetitive harm to a relevant market. 3M challenged the antitrust market definition adopted by the district court. On review, the Federal Circuit found sufficient evidence to support the jury’s finding of fact regarding the relevant market.
As to the damages award, the issue on appeal was whether the $23 million in-defense-of-suit damages were correctly deemed an antitrust injury, which requires a sufficient link to an anticompetitive action by 3M. The Federal Circuit upheld the monetary award, finding that 3M’s anticompetitive lawsuit forced TransWeb to either (1) forfeit the suit and lose profits, or (2) defend against the suit. The Court ruled that either choice would result in antitrust injury, which could form the basis of a damage award under Clayton Act § 4. The Federal Circuit noted that it “furthers the purpose of the antitrust laws to encourage TransWeb to bring its antitrust suit . . . instead of waiting to be excluded from the market[.]”
Practice Note: In defending a patent claim, defendants should consider whether to bring antitrust counterclaims when asserting affirmative defenses such as patent misuse and inequitable conduct. This case shows that such defenses and corresponding antitrust counterclaims for damages can have powerful results, as the costs of defending, i.e., attorneys’ fees, can form the basis of automatically trebled damages.