Chill: Full Recoupment of Investment Not a Bar to Equitable Intervening Rights

By on March 4, 2021
Posted In Patents

The US Court of Appeals for the Federal Circuit affirmed the district court’s grant of summary judgment of equitable intervening rights, protecting an alleged infringer from liability for activity that would otherwise infringe patent claims that were substantively and substantially altered during re-examination of the patent. John Bean Technologies Corp. v. Morris & Associates, Inc., Case No. 20-1090, -1148 (Fed. Cir. Feb. 19, 2021) (Reyna, J.)

John Bean and its only domestic competitor, Morris, manufacture chillers for processing poultry. John Bean told its customers that Morris’s competing chillers infringed John Bean’s patent. Morris sent John Bean a letter demanding that it stop making infringement allegations, and identifying prior art that Morris contended rendered the patent invalid. John Bean never responded to Morris’s demand letter, and Morris continued to manufacture and sell its competing poultry chillers.

Eleven years later, John Bean submitted its patent for ex parte re-examination. During reexamination, John Bean’s only original claims were substantively and substantially amended. After its reexamination certificate issued, John Bean sued Morris for infringement.

In 2016, the district court granted Morris’s motion for summary judgment with respect to the affirmative defense of equitable estoppel. The Federal Circuit reversed on appeal, holding that equitable estoppel did not apply because Morris’s unanswered demand letter related solely to the patent’s original claims and not to the altered and new claims that Morris was accused of infringing in the later-filed suit.

On remand, the district court granted Morris’s motion for summary judgment that John Bean’s infringement claims were barred by equitable intervening rights. The district court weighed seven factors in analyzing Morris’s equitable intervening rights defense and found that Morris engaged in substantial preparation prior to the re-examination, including years of research and development, and the conversion of almost two-thirds of its business to selling the accused chillers. The district court also found that John Bean acted in bad faith by failing to dispute Morris’s contentions of invalidity until after Morris had built its business manufacturing and selling the chillers accused of infringement. John Beam appealed.

Under 35 USC § 252, a court has the discretion to permit an accused infringer to continue to manufacture and sell an otherwise infringing product if the accused infringer made substantial preparation to commercialize the product prior to the re-examination of the patent. The policy rationale underlying equitable intervening rights is that the public has a right to use anything that is not specifically claimed in the original patent. John Bean’s suit only accused Morris of infringing claims that were added or substantially altered during re-examination.

In the present appeal, John Bean argued that the district court improperly weighed several of the equitable intervening rights factors. In particular, John Bean argued that the district court failed to give sufficient weight to the fact that Morris had already recouped the cost of its substantial preparations through sales of its otherwise infringing chiller, and was thus not entitled to the equitable remedy Morris sought from the court.

The Federal Circuit rejected John Bean’s argument that the equitable remedy should be denied because Morris’s monetary recoupment of its investments made prior to the reexamination was sufficient to protect those investments. The Federal Circuit noted that this case was the first time the Court had examined the boundaries of the phrase “protection of investments” in § 252. The Court held that the analysis of an accused infringer’s entitlement to equitable intervening rights is broader than merely determining whether the accused infringer has fully recouped its monetary investment. Noting that recoupment is neither “the sole objective of § 252’s protection of investments made or business commenced before the claims’ alteration” nor “a factor that must be weighed more heavily” when balancing the equities, the Court affirmed the grant of summary judgment of equitable intervening rights.

A. Shane Nichols
A. Shane Nichols focuses on helping clients find the most effective and efficient strategies for resolving patent infringement and trade secret disputes. Shane serves as lead litigation and trial counsel for clients across several industries, including the food and beverage, telecom and petrochemical industries. In addition to his trial court experience, he has made arguments before the US Courts of Appeals for the Federal Circuit and the Eleventh Circuit. Read A. Shane Nichols's full bio.