Defense of Equitable Estoppel Held Not to Apply to Claims Substantively Amended During Reexamination

May 7th, 2018

The U.S. Court of Appeals for the Federal Circuit recently held that the U.S. District Court for the Eastern District of Arkansas abused its discretion in applying the defense of equitable estoppel based on activities that occurred prior to the issuance of the reexamination certificate where the asserted claims were substantively amended during ex parte reexamination. John Bean Techs. Corp. v. Morris & Assocs., No. 2017-1502, 2018 U.S. App. LEXIS 9894 (Fed. Cir. Apr. 19, 2018).

The affirmative defense of equitable estoppel may serve as an absolute bar to a patentee’s infringement action. Scholle Corp. v. Blackhawk Molding Co., 133 F.3d 1469, 1471 (Fed. Cir. 1998). As described by the court in John Bean:

The defense consists of three elements: (1) the patentee engages in misleading conduct that leads the accused infringer to reasonably infer that the patentee does not intend to assert its patent against the accused infringer; (2) the accused infringer relies on that conduct; and (3) as a result of that reliance, the accused infringer would be materially prejudiced if the patentee is allowed to proceed with its infringement action.  Misleading conduct may include the patentee’s “specific statements, action, inaction, or silence where there was an obligation to speak.”

2018 U.S. App. LEXIS 9894, at *9 (citing Scholle, 133 F.3d at 1471).

Ex parte reexamination provides a tool for a patentee to test the validity of its patent prior to bringing suit.  During reexamination, the U.S. Patent and Trademark Office (PTO) examines the claims of the granted patent in view of submitted prior art references. 35 U.S.C. § 302 (2012).  The patentee may amend the claims of the patent, e.g., to overcome rejections, but only narrowing amendments are permitted. See Predicate Logic, Inc. v. Distributive Software, Inc., 544 F.3d 1298, 1302 (Fed. Cir. 2008) (noting that 35 U.S.C. § 305 (2012) does not permit amendments “enlarging the scope of a claim” during reexamination proceedings).  If the PTO deems the claims valid after reexamination, the PTO issues a reexamination certificate. 35 U.S.C. § 307 (2012).

In John Bean, eleven years after issuance of U.S. Patent No. 6,397,622 (filed Aug. 11, 2000) (‘622 Patent), John Bean filed a request for and was granted ex parte reexamination of its ‘622 Patent directed to an auger-type chiller for cooling poultry carcasses. 2018 U.S. App. LEXIS 9894, at *2-4.  In the ex parte reexamination, the original claims were rejected by the PTO, and in response, John Bean amended the claims to overcome the rejections and added new claims. Id. at *4.

Notably, the parties in John Bean had a number of dealings prior to the issuance of the reexamined claims of the ‘622 Patent. Id. at *2-5.  In the same month the ‘622 Patent issued, the defendant, Morris, sent John Bean a letter demanding that John Bean cease notifying its customers that certain Morris poultry chillers infringed the ‘622 Patent and presented multiple prior art references that Morris believed to invalidate the ‘622 Patent, some of which were submitted by John Bean during reexamination eleven years later. Id. at *3-4.  John Bean never replied to Morris’s letter and Morris continued to develop and sell its chillers. Id.

Twelve years after the ‘622 Patent issued and one month after the reexamination certificate issued, John Bean filed suit against Morris alleging infringement of the ‘622 Patent. Id. at *6-7.  John Bean only sought damages for infringement that occurred after the reexamination certificate issued. Id. at *1.  Morris asserted the affirmative defenses of equitable estoppel, prosecution laches, and absolute and equitable intervening rights. Id. at *7.  The district court granted Morris summary judgment, holding that John Bean’s infringement action was barred by equitable estoppel due to John Bean’s misleading conduct, namely its silence in response to Morris’s letter and waiting twelve years to bring suit. Id. at *8 (citing John Bean Techs. Corp. v. Morris & Assocs., Inc., No. 4:14-CV-00368-BRW, 2016 U.S. Dist. LEXIS 193848, at *1-3 (E.D. Ark. Dec. 14, 2016)).

The Federal Circuit noted on appeal that it had “no precedent that presents this factual scenario and provides a clear solution.” Id. at *10.  Utilizing the principles “undergirding the issuance of reexamination claims,” the Federal Circuit held that the district court abused its discretion in extending equitable estoppel to the reexamined claims, concluding that John Bean’s conduct was not misleading, and thus the first element of Morris’s equitable estoppel defense was not met. Id. at *10, 13.

Three principals were utilized by the Federal Circuit to reach its resolution. Under the first principle “undergirding the issuance of reexamination claims,” the court explained that claims amended during reexamination cannot be broader than the original claims. Id. at *10-11.  Accordingly, the court noted that what constitutes an infringing product might change and that the validity analysis of reexamined claims may differ from the analysis of original claims. Id.  Thus, the court reasoned, Morris’s letter challenging the validity of the ‘622 Patent may no longer be accurate. Id. at *11.

Under the second principle, the court identified that patentees cannot assert claims resulting from reexamination to obtain damages prior to issuance of the reexamined claims—except in instances where the reexamined claims are identical in scope to the original claims. Id. at *11.  Claims are identical if they have not been substantively changed. Id.  The court, however, held that John Bean substantively amended the asserted claims in reexamination. Id. at *11-12. Thus, John Bean was only entitled to damages after issuance of the reexamined claims. Id.

Under the third principle, the court recognized that equitable estoppel does not apply to claims pending during examination of an application. Id. at *12-13 (citing Radio Sys. Corp. v. Lalor, 709 F.3d 1124, 1131 (Fed. Cir. 2013)).  The court explained that claims that have not yet issued cannot be asserted, and thus no misleading conduct can be present. Id. (citing Radio Sys., 709 F.3d at 1131). Accordingly, as the reexamined claims had not yet issued at, and were substantively altered since, the time Morris sent the letter to John Bean, the court held John Bean’s silence and delay in bringing suit could not constitute misleading conduct satisfying the first element of equitable estoppel. Id.  As not every element of Morris’s equitable estoppel defense could be met, the Federal Circuit concluded that the district court abused its discretion in extending equitable estoppel to John Bean’s asserted reexamined claims. Id. at *13-14.

Although not part of the holding, the Federal Circuit made two important notes.  First, the court explained that in some cases asserted reexamined claims—albeit amended in reexamination—may not differ in scope from the original claims. Id. at *13.  In such instances, the court observed that the reexamined claims may possibly be considered identical to the original claims for the purposes of patent infringement, and thus activities prior to issuance of the reexamined claims may be applicable for applying equitable estoppel. Id.  Second, the court clarified that its holding did not preclude the district court from entertaining Morris’s defenses of absolute and equitable intervening rights. Id. at *13 n.2.  Absolute intervening rights “abrogate liability for infringing claims added to or modified from the original patent if the accused products were made or used before [the reexamined claims issued.]” Marine Polymer Techs., Inc. v. HemCon, Inc., 672 F.3d 1350, 1362 (Fed. Cir. 2012).  Equitable intervening rights are a matter of judicial discretion and serve to mitigate liability for infringing reexamined claims “even as to products made or used after [issuance of the reexamination certificate] if the accused infringer made substantial preparations for the infringing activities prior to [issuance of the reexamined claims].” Id.  The court hinted that such defenses might provide Morris with some level of recourse given John Bean’s twelve-year delay in asserting the ‘622 Patent. John Bean, 2018 U.S. App. LEXIS 9894, at *13 n.2.

TAKEAWAY: If asserted claims have been substantively amended in reexamination, equitable estoppel may not apply to bar infringement claims when the defense of equitable estoppel is based on activities undertaken prior to issuance of the reexamined claims.  In contrast, if the asserted claims are not substantively amended during reexamination, equitable estoppel may apply and serve as a bar to infringement claims when the defense of equitable estoppel is based on activities undertaken prior to issuance of the reexamined claims.  Further, some defenses may be available even if asserted claims are substantively amended during reexamination, namely intervening rights.