Pet ID Chip Maker Loses Appeal of Patent Ruling

(CN) - A company that makes pet identification chips lost a patent infringement claim in the Federal Circuit because it withheld information about a trade show demonstration from the U.S. Patent and Trademark Office.

The federal appeals court in Washington, D.C., upheld a lower court's ruling that the patent held by Avid Identification Systems was valid and had been infringed by Datamars Inc., but that the patent was not enforceable based on information the company founder omitted from Avid's patent application.

Avid's founder and president, veterinarian Dr. Hannis Stoddard, came up with the idea for pet ID chips after reclaiming his lost dog at an animal shelter. The chips are implanted in pets, allowing owners and shelters to quickly identify the animals and reunite them with their families.

Stoddard demonstrated some of Avid's technology at a livestock trade show in April 1990. About a year later, Avid applied for a patent on a "multi-mode encrypted chip and reader system."

In 2004, Avid sued Datamars and other pet ID chip makers, alleging patent infringement, unfair competition and false advertising.

All defendants but Datamars settled out of court. The claims against Datamars proceeded to trial, where a jury ruled for Avid and awarded it about $27,000 on the patent infringement claim and $6 million on the unfair competition claim.

Not long after, U.S. District Judge T. John Ward held the patent invalid for "inequitable conduct," which means the patent applicant breached his duty of candor and good faith when applying for the patent. Ward cited Stoddard's failure to mention the trade-show demonstration in the patent application. He said the demo constituted "material prior art," or public information about an invention that's often used to invalidate a patent.

The parties then struck a deal whereby Datamars agreed to pay Avid $3 million on the unfair competition claim and to let Avid appeal the inequitable conduct decision unopposed. If Avid won, Datamars agreed to pay the jury's $27,000 infringement award.

Ward dismissed Avid's motion for reconsideration as moot, because the settlement barred Datamars from objecting to any appeals. This eliminated any live case or controversy, he ruled.

The Federal Circuit disagreed that the case was moot, but upheld Ward's finding that the patent application was deceptive.

"To accept Avid's argument that a person such as Dr. Stoddard owes no duty of candor would allow intentional deception by the types of people most likely to have knowledge of ... prior art, i.e., those on the commercial side of patented product development," Judge Sharon Prost wrote for the three-judge panel.

Judge Richard Linn departed from his colleagues on one issue: that Stoddard owed a duty of candor. Stoddard was not "substantively involved in the preparation or prosecution of the patent application," Linn said.

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