The US Court of Appeals for the Federal Circuit upheld the district court’s finding that the patents-in-suit were unenforceable due to inequitable conduct because of a failure to disclose information related to an offer for sale of the claimed invention made more than one year prior to the critical date. GS Cleantech Corp v Adkins Energy LLC, Case Nos. 16-2231, 17-1838; GS Cleantech Corp. et al. v. Big River Resources Galva, LLC et al., Case No. 17-1832 (Fed Cir. March 2, 2020) (Wallach, J.)

David Cantrell founded Vortex Dehydration Technology (VDT) in 2002 with the purpose of selling products and methods for processing factory waste for resale. David Winsness joined as CTO in 2002. Around this time, VDT began a business relationship with Agri-Energy, a company that operated a dry-mill ethanol plant. Starting sometime before June 2003, Mr. Cantrell shifted his focus from meat and fish byproduct processing to the creation of an ethanol oil recovery system. In June 2003, VDT’s oil recovery system was tested on waste by-product provided by Agri-Energy, the findings of which were provided in a report (“June 2003 Report”). In July 2003, another test of the oil recovery system was conducted on Agri-Energy’s facilities (“the July 2003 Test”). Shortly thereafter, VDT prepared a drawing of the ethanol oil recovery system (“Oil Recovery Diagram”). A proposal dated July 31, 2003, was also prepared, in which VDT offered Agri-Energy “a no-risk trial of the ‘Oil Recovery System’” (“the July 2003 Proposal”), after which Agri-Energy could purchase or return the system. The July 2003 proposal was emailed to Agri-Energy on August 1, 2003 (“the August 2003 email”). On August 18, 2003, Cantrell traveled to Agri-Energy to present his proposal, where he asserted that the system worked and that it would generate additional income.

In February 2004, Cantrell and Winsness contacted attorney Andrew Dorisio requesting he prepare a patent application for their method of separating corn oil from concentrated thin stillage using a centrifuge. The inventors told Dorisio about the June 2003 Report and the July 2003 Test, but did not tell him about the Oil Recovery Diagram or July 2003 Proposal. Mr. Dorisio filed a provisional patent application on August 17, 2003. Multiple non-provisional applications claiming priority to the provisional application were subsequently filed.

In 2006, CleanTech acquired VDT’s ethanol oil recovery method patent applications and prosecution of patent applications was subsequently transferred to a new law firm, Cantor Colburn. Cantor Colburn eventually became aware of the Oil Recovery Diagram and the July 2003 Proposal, but Cantrell had claimed that this proposal was hand delivered to Agri-Energy on August 18, 2003. During prosecution, Cantor Colburn filed a First Cantrell Declaration stating that the July 2003 proposal did not violate the on-sale bar because it occurred less than one year prior to the filing date of the provisional application. On the same day, Cantor Colburn also filed a letter indicating that the invention had been reduced to practice sometime in May of 2004.

Starting in 2009 and continuing through 2014, CleanTech filed lawsuits against numerous defendants that ultimately combined into a multidistrict litigation case. The defendants moved for summary judgment of invalidity based on the on-sale bar. The district court granted the motion, finding the claimed invention was the subject of an offer for sale prior to the critical date, because the July 2003 Proposal was delivered more than one year prior to the provisional application filing date. Further, the district court found the claimed invention was ready for patenting prior to the critical date, relying on the June 2003 Report and the July 2003 Test as well as contemporaneous statements from Cantrell and Winsness that the invention was reduced to practice.

Following the summary judgment determination, the district court held an inequitable conduct trial and found the patents unenforceable. The district court found CleanTech offered their invention for sale to Agri-Energy in July/August 2003, and then took affirmative steps to hide that fact from their lawyers when they learned that it would prevent them from profiting from the patents-in-suit. The district court also found Cantor Colburn either purposely evaded disclosing or failed to seek out relevant information, and so participated in the inequitable conduct by choosing advocacy over candor. CleanTech appealed.

On appeal, the Federal Circuit reaffirmed that to prevail on a claim of inequitable conduct in a patent case, the accused infringer must prove that the patentee:

  • Knew of the prior commercial sale;
  • Knew that it was material; and
  • Made a deliberate decision to withhold it.

The Court found that district court did not abuse its discretion in holding the patents-in-suit unenforceable due to inequitable conduct, citing to several supporting facts. Specifically, the Court noted that the district court correctly established:

  • Cantrell and Winsness and Cantor Colburn were in possession of the June 2003 Report, the July 2003 Test, the Oil Recovery Diagram and the July 2003 Proposal, yet did not provide them to the USPTO;
  • Cantrell and Winsness and Cantor Colburn made false representations by implying that the inventions were not reduced to practice until 2004 despite being aware of the June 2003 Report and July 2003 testing;
  • CleanTech and Cantor Colburn “threatened” Agri-Energy to coerce its support regarding the critical date for the patents-in-suit after the July 2003 Proposal surfaced;
  • Cantrell and Winsness and Cantor Colburn made a “patently false” statement by claiming in a declaration to the USPTO that the July 2003 Proposal was delivered to Agri-Energy after the critical date; and
  • Cantrell and Winsness and Cantor Colburn’s failure to correct the false declaration despite knowing “for certain that Mr. Cantrell’s First Declaration was false” was “strong evidence of intentional deceit.” The Court therefore affirmed the inequitable conduct finding.