Federal Circuit Draws the Equitable Estoppel Line Before a CIP Patent

14 March 2013 PharmaPatents Blog

In Radio Systems Corp. v. Lalor, the Federal Circuit held that equitable estoppel barred Bumper Boy’s infringement charges based on one patent, but did not preclude infringement charges based on a continuation-in-part (CIP) patent, even though the asserted claims of the CIP patent were supported by the first patent. The court also held that Radio Systems could not challenge the district court’s decision upholding the validity of the CIP patent because it had not filed a cross-appeal.

The Patents at Issue

The Bumper Boy patents at issue relate to electronic animal collars. U.S. Patent No. 6,830,014 (issued in December of 2004) and U.S. Patent No. 7,267,082 (issued in 2007). The ’082 patent is a CIP of the ‘014 patent, but the asserted claims are directed to subject matter disclosed in the ‘014 patent.

The Demand Letter

In February of 2005, Bumper Boy sent Innotek, Inc. a demand letter asserting that “Innotek’s UltraSmart collar infringed the ’014 patent and that Innotek must take a license or cease all manufacturing and destroy all sales inventory.” Innotek responded in April of 2005, asserting that one of its products was prior art that invalidates the ’014 patent. As noted in the Federal Circuit decision, “Bumper Boy took no subsequent action for over four years.”

Innotek continued making and selling the UltraSmart collar and developed other similar products. In September of 2006, Radio Systems acquired Innotek and released its own animal collar “based on an earlier Innotek design.”

The District Court Decision

The district court denied Radio System’s motion for summary judgment of invalidity, but granted its motion for summary judgment of noninfringement, finding that the later products did not infringe on the merits and that Bumper Boy was barred by equitable estoppel from asserting infringement by the UltraSmart collar.

The Federal Circuit’s Equitable Estoppel Decision

At the outset, the Federal Circuit notes that equitable estoppel is an issue that is “committed to the sound discretion of the trial judge,” and so is “reviewed by this court under the abuse of discretion standard.”

As summarized by the court, “[t]hree elements are required for equitable estoppel to bar a patentee’s suit:

  1. the patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer;
  2. the alleged infringer relies on that conduct; and
  3. the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

The district court found that prong (1) was satisfied by Bumper Boy’s “2005 demand letter and subsequent silence for over four and a half years.”

The district court found that prong (2) was satisfied by Innotek’s expansion and acquisition by Radio Systems.

The district court found that prong (3) was satisfied by “Innotek’s investment in new products.”

The district court also found that equitable estoppel barred Bumper Boy’s claims against Radio Systems because it

  1. wholly owns Innotek;
  2. is headed by the same individual as Innotek;
  3. purchased Innotek to incorporate its designs and products into its own product lines, and
  4. exerts substantial control over Innotek.

On appeal, Bumper Boy challenged the applicability of equitable estoppel to Radio Systems, because it is a separate legal entity that never relied on Bumper Boy’s conduct. Bumper Boy also challenged the applicability of equitable estoppel to the ’082 patent, because it was not granted when the demand letter was sent.

The Federal Circuit quickly disposed of the first argument:

We … hold that the district court did not abuse its discretion in concluding that equitable estoppel barred Bumper Boy’s infringement claims against Radio Systems, Innotek’s successor-in interest. Our precedent confirms that equitable estoppel applies to successors-in-interest where privity has been established.

However, the Federal Circuit sided with Bumper Boy on the ‘082 patent:

The first notice of infringement to Radio Systems regarding the ’082 patent was in Bumper Boy’s November 2009 demand letter…. As a result, the elements of equitable estoppel are not present with respect to the ’082 patent. There is simply no misleading conduct or silence by Bumper Boy to indicate that it did not intend to enforce the ’082 patent against Radio Systems. Not surprisingly, there is also no evidence that Radio Systems actually relied on such misleading conduct or silence.

The court explained,

Regardless of whether the ’082 patent claims are supported by the subject matter in the ’014 patent—and therefore entitled to claim priority to its filing date—the patents contain claims of different scope. Quite simply, the ’082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued.

Thus, the Federal Circuit found that the district court had abused its discretion by granting summary judgment of noninfringement for the UltraSmart collar on the basis of equitable estoppel with regard to the ‘082 patent.

The Cross-Appeal Issue

Radio Systems raised the invalidity of the Bumper Boy patents in its Reply Brief on appeal, as an alternative basis for affirming the judgment. Bumper Boy moved to strike those arguments, because “such an affirmance would enlarge the scope of the district court’s judgment” and Radio Systems had not raised invalidity in a cross appeal.

The Federal Circuit agreed with Bumper Boy. The court cited Supreme Court precedent for the proposition that “[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary” (alterations as present in the Federal Circuit opinion), and cited its own precedent for the proposition that “a judgment of invalidity is broader than a judgment of noninfringement.”

Judge Newman’s Dissent

Judge Newman disagreed with both rulings of the majority decision (by Judge Moore and Judge Reyna).

With regard to equitable estoppel, she would have applied it to the ‘082 patent:

The subject matter of the ’082 claims in suit is disclosed and described in the ’014 patent, and these claims do not draw on any new matter. …. The force of equitable estoppel cannot be escaped by including previously disclosed but unclaimed subject matter in a continuation-in-part patent.

With regard to the requirement for a cross-appeal, she would have considered Radio System’s arguments:

The prevailing party need not file a cross-appeal in order to defend a judgment in its favor on any ground that is supported by the record.

The Narrow Scope of Equitable Estoppel

This decision is a reminder of the narrow scope of equitable estoppel. It is not unusual for a patent owner to obtain several patents relating to its technology, such as genus and species patents, product and method patents, and/or basic and improvement patents. Under this decision, a patent owner’s conduct after sending a demand letter regarding one patent would not give rise to equitable estoppel regarding the other patents, at least if the other patents were not granted when the demand letter was sent.

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