Antitrust Law Daily Wrap Up, ANTITRUST—D. Minn.: Arctic Cat’s counterclaims in patent dispute skid away, (Aug 7, 2015)

By Peter Reap, J.D., LL.M.

Arctic Cat’s inequitable conduct and antitrust counterclaims against competing ATV maker Polaris have been dismissed by the federal district court in Minneapolis because Arctic Cat failed to adequately plead materiality and a specific intent to deceive the U.S. Patent and Trademark Office (USPTO) (Polaris Industries Inc. v. Arctic Cat Inc., August 4, 2015, Tunheim, J.).

Background

Polaris’s U.S. Patent No. 8,827,028 (“‘028 Patent”), used in its “Wildcat” line of ATVs, forms the basis for this particular action. On August 29, 2014, just over one week before the ‘028 Patent was scheduled to issue, Arctic Cat filed two petitions for inter partes review of another Polaris patent, U.S. Patent No. 8,596,405 (“‘405 Patent”), asserting that it was “render[ed] obvious” by existing patents. The ‘028 Patent is not mentioned in Arctic Cat’s petitions for inter partes review of the ‘405 Patent. Nonetheless, on September 4, 2014, Eric Groen, the attorney prosecuting the ‘405 Patent on behalf of Polaris, filed an Information Disclosure Statement (“IDS”) to the USPTO for the ‘028 Patent to make a record of the ‘405 inter partes review petitions. On September 9, the ‘028 Patent issued as scheduled. That same day, Polaris brought this action against Arctic Cat, alleging that many of Arctic Cat’s products, including its “Wildcat” line of ATVs, infringe on the ‘028 Patent.

Inequitable Conduct Counterclaim

In response to Polaris’s accusations of infringement, Arctic Cat filed a counterclaim alleging that Polaris made several material misrepresentations in pursuit of the ‘028 Patent. Arctic Cat maintained that Groen should have ensured that the ‘405 inter partes review material was considered by the USPTO, by submitting the material along with a Petition to Withdraw the pending patent application for the ‘028 Patent under 37 C.F.R. §1.313(c) and filing a Request for Continued Examination under 37 C.F.R. §1.114. Arctic Cat asserted that “[t]he specifications of the ‘028 and ‘045 Patents are the same, with the exception of minor variations in some of the drawings.” Because of this, Arctic Cat argued that prior art references, and prior art reference combinations, material to the patentability of the ‘405 Patent “are also material to the patentability of at least some claims of the ‘028 Patent, including at least claim 87.”

Arctic Cat alleged that Groen made three material misrepresentations or omissions during the submission of the IDS that serve as evidence of misconduct. Polaris did not dispute that Groen committed the three actions, although they described them as “scrivener’s errors.” First, in submitting the IDS to disclose Arctic Cat’s ‘405 Patent inter partes review petition, Groen represented to the USPTO that the ‘405 Patent “is a related application to the [‘028 Patent] pending application.” That representation, Arctic Cat claimed, was false. Polaris agreed, explaining that although the two patents cover related subject matter, the specifications are not the same.

The second and third misrepresentations alleged by Arctic Cat are related. The second is that, although the issue fee for the ‘028 Patent had already been paid on July 30, 2014, Groen erroneously stated in the IDS on September 4, 2014: “Applicants note that this submission is made before the payment of the issue fee.” At the same time, Groen stated that the IDS was being filed pursuant to 37 C.F.R. §1.97. This statement is untrue, because 37 C.F.R. §1.97(d) provides that an IDS will be considered by the USPTO if, among other requirements, it is “filed on or before payment of the issue fee . . . .” 37 C.F.R. §1.97(d). This, Arctic Cat alleged, is the third misrepresentation.

The party asserting inequitable conduct, Arctic Cat, bears the burden of proving inequitable conduct, the court noted. In order to succeed on its claim, Arctic Cat must prove that in the prosecution of its patent, Polaris (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the USPTO.

As an initial threshold, an inequitable conduct pleading must include a specific assertion of who, what, when, where, and how the material misrepresentations were made during the patent prosecution. Arctic Cat satisfied these initial requirements, based on allegations about Groen’s misrepresentations—that in early September 2014, Groen improperly filed an IDS after the PTO would no longer consider additional materials and that he wrongly stated that the issue fee had already been paid.

Polaris moved to dismiss Arctic Cat’s inequitable conduct counterclaim and defense, arguing that Arctic Cat failed to plead sufficient facts from which the court could infer that Groen’s misrepresentations were material, or whether Groen acted with specific intent to deceive the USPTO.

Materiality. To determine whether Arctic Cat adequately pled materiality, the court looked to Arctic Cat’s Answer and Counterclaims, as well as the attached exhibits. In those materials, Arctic Cat alleged that the USPTO would have refrained from issuing the ‘028 Patent had the ‘405 IDS been properly submitted, but they did not specify how the USPTO would use this prior art related to the ‘405 Patent in its evaluation of the ‘028 Patent, when the parties agreed that the two patents are not “related.” Arctic Cat asserted that at least claim 87 of the ‘028 Patent is similar to, and would be rendered obvious by, the ‘405 Patent and other prior art, but Arctic Cat did not explain why claim 87 would be rendered obvious or how the content in the ‘405 Patent inter partes review petitions would relate to the ‘028 Patent in a way that would make the USPTO less likely to issue the ‘028 Patent, the court observed.

Further, it appeared the PTO did in fact consider these references during the prosecution of the ‘028 Patent and found them to be not material, the court explained. Because the documents Arctic Cat submitted to the court as exhibits to their counterclaims indicated that the USPTO considered the prior art references and then issued the ‘028 Patent, it was impossible to conclude that Arctic Cat adequately pled that, had the USPTO considered the references, it would have declined to issue the ‘028 Patent, the court held.

Intent. Arctic Cat did not allege any facts to support the contention that Polaris’s attorney acted with specific intent to deceive the USPTO, the court reasoned. Instead, Arctic Cat pointed to the fact that “Mr. Groen has been a patent attorney for nearly 30 years” and has extensive experience in patent prosecution. For this reason, and because there were no “objective indicators of good faith” on the part of Groen, Arctic Cat asked the court to conclude that the “only reasonable inference” to be drawn from Groen’s failure to withdraw the ‘028 Patent upon receiving notice of the inter partes review of the ‘405 Patent, was that he specifically intended to deceive the patent office.

These allegations were too attenuated to support a finding that Groen deliberately withheld material information from the relevant examiner, the court determined. There were no specific factual allegations that indicated Groen knew the ‘405 Patent inter partes review petition contents were material to the ‘028 Patent and deliberately withheld those materials from the USPTO examiner. Furthermore, both the patents and the public record of the ‘028 Patent prosecution reflected that the patent examiner did consider each of the four references Arctic Cat cited.

Because Arctic Cat did not adequately allege either materiality or intent, Polaris’s motion as to these issues was granted and Arctic Cat’s inequitable conduct counterclaim and defense were dismissed.

Walker Process Antitrust Counterclaim

Arctic Cat’s fourth counterclaim alleged that Polaris engaged in monopolization and attempted monopolization of the market for 4x4 Trail ATVs in violation of Section 2 of the Sherman Anti-Trust Act. Arctic Cat argued that because a patent is “an exception to the general rule against monopolies . . . the public [has] a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct . . . .” Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965). Under this standard, otherwise known as the Walker Process doctrine, a patentee who brings an infringement suit may be subject to antitrust liability for the anticompetitive effects of that suit if the alleged infringer (the antitrust plaintiff) proves that the asserted patent was obtained through knowing and willful fraud.

A claim of Walker Process fraud cannot be sustained in the absence of inequitable conduct, the court noted. Because the court dismissed Arctic Cat’s unenforceability defense and counterclaim in which Arctic Cat raised its inequitable conduct claims, Arctic Cat’s fourth counterclaim alleging Walker Process fraud was also dismissed.

Sham Litigation Antitrust Counterclaim

In addition to a Walker Process claim, a plaintiff may attempt to assert antitrust liability against a patent holder by way of a “sham” litigation claim. The first requirement is that the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. Second, courts must determine whether the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor.

With respect to the first requirement, it would be inappropriate to make a determination that no reasonable litigant could expect success on the merits of patent infringement claims of the nature Polaris has alleged, the court held. Arctic Cat neither pleaded nor argued how its Wildcat products did not infringe Polaris’s ‘208 Patent. Arctic Cat alleged generally that “Polaris has sought to monopolize the market for 4x4 Trail ROVs, including by pursuing objectively baseless litigation claims against Arctic Cat.” Arctic Cat’s allegations were no more than a recitation of the elements necessary to establish a sham litigation claim, according to the court. Arctic Cat alleged no factual basis to support an inference that Polaris brought its action with knowledge that its ‘028 Patent was invalid.

Moreover, in its October 20, 2014 Order, this court dismissed Arctic Cat’s sham litigation claim in a related action for failing to plead any facts suggesting that Polaris’s action was objectively baseless. Because the pleadings in the two cases were identical and Arctic Cat offered no additional argument in support of allowing its sham litigation claim to proceed in this action, the court granted Polaris’s motion on this issue and dismissed the sham litigation counterclaim.

The case is No. 0:14-cv-03412-JRT-FLN.

Attorneys: Douglas C. Bremer (Carlson, Caspers, Vandenburgh, Lindquist & Schuman, P.A.) for Polaris Industries Inc. John C. Adkisson (Fish & Richardson P.C.) for Arctic Cat Inc.

Companies: Polaris Industries Inc.; Arctic Cat Inc.

Cases: Antitrust MinnesotaNews