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Eighth Circuit Finds ‘Hot Pocket’ Patents Were Not Fraudulently Obtained

CoffyLaw, LLC June 30, 2020

“[T]he circuit court explained that there was no need to determine whether the prior sales were material because Inline did not present clear and convincing evidence that any Graphic employee who owed a duty of candor to the USPTO ‘knew that the prior sales were material [and] deliberately chose not to disclose them.’”

On June 18, the U.S. Court of Appeals for the Eighth Circuit (the circuit court) affirmed the district court’s grant of summary judgment in Inline Packaging, LLC v. Graphic Packaging International, LLC, holding that the district court properly concluded that there was no genuine dispute of material fact regarding whether Graphic fraudulently obtained its patents through false claims of inventorship or through concealing prior sales.

Susceptor Sleeves

Inline Packaging, LLC (Inline) and Graphic Packaging International, LLC (Graphic) are both in the business of producing susceptor-packaging, which is a type of specialized food packaging capable of converting microwave energy into high temperatures to heat, crisp and brown frozen food. In 2001, Graphic and Chef America (Nestlé’s predecessor) partnered on the development of two projects related to susceptor sleeve packaging. Graphic created and sold 500 drawing sample sleeves of the original susceptor sleeve designs (50019D and 50019F) to Chef America. In 2005, Graphic and Nestlé entered into a Joint Development Agreement (JDA) to redesign the susceptor sleeve and Graphic obtained several patents claiming the redesigned susceptor sleeves, including Hot Pocket sleeves. The sole inventor listed on the patents was Kelly Fitzwater, a computer aided design drafter, even though others provided concepts and feedback to Fitzwater during the redesign process.

Inline secured Nestlé’s susceptor-sleeve business for its Kahiki product line for 2012 and 2013, which caused Graphic to acknowledge Inline as a “serious competitor in the susceptor packaging market.” Then, in 2014, Nestlé held an auction and awarded Inline Nestlé’s entire susceptor-sleeve business, including for its Kahiki, Croissant Pockets, and Hot Pockets product lines. However, after learning that Graphic owned patents on the susceptor sleeves and “that a new supplier would likely be infringing those patents if Nestlé elected to steer its susceptor business away from Graphic”, Nestlé decided to award Inline its Kahiki and Croissant Pockets product lines and to award Graphic its Hot Pockets line, “which represented about 90 percent of Nestlé’s entire susceptor-sleeve business.”

In June 2015, Graphic filed a patent infringement suit against Inline based on its susceptor-sleeve patents. In July 2015, Inline filed an antitrust suit against Graphic alleging that “Graphic monopolized the susceptor-packaging market using anticompetitive conduct in response to competition from Inline and other competitors” by fraudulently procuring the asserted patents, making baseless litigation threats relating to the asserted patents, and using predatory-discount bundling in Graphic’s supply agreements. In 2018, the district court granted a motion for summary judgment in favor of Graphic and dismissed all of Inline’s claims. Subsequently, Inline appealed to the circuit court.

Fraudulent Procurement

On appeal, Inline argued that the “district court erred in not finding, at the very least, a genuine factual dispute as to whether Graphic fraudulently ‘procured patents on packaging concepts and designs through false claims of inventorship’ of the asserted patents and fraudulently concealed prior sales of drawing sample sleeves 50019D/F.” The circuit court noted that in order to establish patent fraud, i.e. Walker Process fraud, Inline must show that Graphic obtained the relevant patents by knowing and willful fraud on the United States Patent and Trademark Office (USPTO) by showing an “intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to be the equivalent of intent (scienter).”

With respect to inventorship, Inline argued that Fitzwater’s contribution to the development of the patented sleeve designs was insufficient for her to be an inventor because she only provided general assistance. However, the circuit court noted that the record lacked evidence that anyone other than Fitzwater solely or jointly invented the redesigned susceptor sleeve. Citing Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., the circuit court stated that “[w]hen an alleged omitted co-inventor does not claim to be such, it can hardly be inequitable conduct not to identify that person to the [US]PTO as an inventor.” Thus, since no Nestlé employee affirmatively claimed inventorship of the susceptor sleeves covered by the asserted patents, the circuit court “affirmed the district court’s dismissal of Inline’s claim of fraudulent procurement of the asserted patents based on false inventorship.”

With respect to Inline’s argument that Graphic defrauded the USPTO by concealing “highly-material” prior sales to Chef America that occurred more than a year before Graphic filed applications for the asserted patents, Graphic responded that “(1) Graphic’s employees who owed a duty of candor to the USPTO did not know that the prior sales were material, and (2) such sales were indeed immaterial.” Agreeing with the district court, the circuit court explained that there was no need to determine whether the prior sales were material because Inline did not present clear and convincing evidence that any Graphic employee who owed a duty of candor to the USPTO “knew that the prior sales were material [and] deliberately chose not to disclose them.”

Noting that the Graphic employees in question had not been notified of the existence of the prior sales, the circuit court stated that “a finding of deceptive intent may not be based solely on gross negligence, including instances in which . . . [employees were] completely unaware of the existence of specific information later discovered and found to be material.”

The circuit court cited Therasense, Inc. v. Becton, Dickinson & Co. in explaining that in order to meet the clear and convincing evidence standard, the evidence must establish that the “single most reasonable inference” to be drawn was that there was a specific intent to deceive the USPTO and “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” Thus, the circuit court affirmed the district court’s dismissal of Inline’s claim that Graphic defrauded the USPTO by concealing prior sales and held that the record lacked “direct or circumstantial evidence that Graphic’s employees acted with the requisite intent to deceive the USPTO.”

Other Claims

Inline also asserted “claims for sham threats and litigation alleging that Graphic knew the Asserted Patents were invalid when it subsequently asserted the patents in 2014 and 2015.” The circuit court explained that in order for a lawsuit to fall within the sham exception of the Noerr-Pennington doctrine, which “immunizes acts related to the constitutional right to petition the courts for grievance, unless the act is a mere sham”, the lawsuit must “be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits” and it must conceal “an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.” Noting that Inline failed to meet the objectively baseless element of the sham exception, the circuit court reasoned that Inline did not provide evidence of fraud related to Graphic’s procurement of the asserted patents and did not establish why the same set of facts would render Graphic’s patent litigation objectively baseless. Thus, the circuit court affirmed the district court’s dismissal of the sham-litigation claim.

The court also affirmed the district court’s dismissal of Inline’s discount-bundling claim and the district court’s rejection of Inline’s exclusive dealing and tortious interference claims.