Opinion ID: 210293
Heading Depth: 2
Heading Rank: 2

Heading: Improper Payment of Small Entity Maintenance Fees

Text: Different facts are relevant to the consideration of the appropriate maintenance fee payments and Nilssen's intent for the time period prior to late 2000 when Nilssen made the agreements concerning his patents and the following time period when Geo began to license Nilssen's patents to others. We therefore treat these two time periods separately.
Certain entities, including independent inventors, are entitled to pay reduced patent maintenance fees, see 35 U.S.C. § 41(h)(1). The relevant PTO regulation defines independent inventors as any inventor who (1) has not . . . licensed, and (2) is under no obligation under contract or law to . . . license, any rights in the invention to any person who could not likewise be classified as an independent inventor . . ., or to any concern which would not qualify as a small business concern or a nonprofit organization, see 37 C.F.R. § 1.9(c) (July 1, 2000). Appellants argue that the CFLA did not constitute such an obligation to license, so that it did not remove Nilssen from the definition of an independent inventor entitled to pay small entity maintenance fees for the patents included in the agreement. The payments to which this argument applies are the issuance fee for the '681 patent in December 1997, and the four-year maintenance payment for the '270 patent in January 1997. The only patents in suit covered by the CFLA, but not included in the PLA, are the '270 and '123 patents, and no payment was due for the '123 patent during the time period in question. Although it was covered by both the CFLA and the PLA, the issuance fee was paid for the '681 patent in late December of 1995 after execution of the CFLA but before execution of the PLA. Osram responds that the CFLA created an obligation to license Philips within the plain meaning of the regulation, and that whether the obligation had vested or not is irrelevant. We conclude that the district court did not abuse its discretion in holding that the CFLA precluded Nilssen from being eligible to pay small entity fees on the patents covered by that agreement. Interpretation of a contract is a question of law that we review de novo. Carnes Co. v. Stone Creek Mech., Inc., 412 F.3d 845, 853 (7th Cir.2005); Cyrix Corp. v. Intel Corp., 77 F.3d 1381, 1384 (Fed.Cir.1996). This court reviews a district court's interpretation of agency regulations without deference. Shockley v. Arcan, Inc., 248 F.3d 1349, 1357 (Fed.Cir.2001). The clear import of the PTO regulation benefiting small entities is to ensure that inventors currently receiving a revenue stream from or reasonably expected to receive a revenue stream from an entity that is not itself entitled to pay small entity fees should not be able to claim that right. While the CFLA first uses the future tense to describe a possible license agreement, stating that Nilssen will offer and Philips will take a license, it follows up that sentence by providing that no royalties or payments will accrue under such license until Nilssen has licensed one CFL competitor, indicating that such a license was intended to be a present one but that royalties would not accrue until other conditions were satisfied. We do not believe the district court erred when it interpreted that contract to mean that Nilssen had in effect licensed Philips on December 7, 1995. In fact, the PLA, which unequivocally was a license, was executed less than one month after the CFLA, covering most of the same patents as the CFLA. Obviously the parties considered the CFLA to be at least an agreement, or obligation, to license. Appellants argue that the payment of small entity maintenance fees for the '806 patent in February of 1997 and for the '160 patent in June of 1999 were simple oversights by Nilssen. Appellants point to the fact that Nilssen made eight large entity maintenance fee payments for seven of the patents in suit between 1996 and 2000 to demonstrate that Nilssen paid large entity fees when he believed they were required. Appellants add that the title of the '806 patent, Self-Ballasted Screw-In Fluorescent Lamp, makes it appear upon a superficial examination that the patent relates to a CFL rather than a ballast design that falls within the scope of the PLA. Osram responds that the district court made credibility findings regarding Nilssen's knowledge of the patents covered by the agreements with Philips and that appellants' argument asks this court to overrule the district court's credibility findings, despite the substantial deference we give to such findings. While a misrepresentation of small entity status is not strictly speaking inequitable conduct in the prosecution of a patent, as the patent has already issued if maintenance fees are payable (excepting an issue fee), it is not beyond the authority of a district court to hold a patent unenforceable for inequitable conduct in misrepresenting one's status as justifying small entity maintenance payments. Ulead Sys., Inc. v. Lex Computer & Mgmt. Corp., 351 F.3d 1139, 1146 (Fed.Cir.2003). The district court found clear and convincing evidence of Nilssen's obvious intent to mislead. The court also found Nilssen's exculpability statements not credible. While an opposite conclusion could have been reached, it is not the function of a court of appeals to override district court judgments on close issues, where credibility findings have been made. Thus, we affirm the district court's holding that the '681, '270, '806, and '160 patents are unenforceable.
Appellants argue that the district court's conclusion that Geo could not be considered a not-for-profit organization is entirely unsupported because the court cited no law in support of its conclusion and Nilssen gave unrebutted testimony that he relied upon the advice of competent counsel that Geo was a proper nonprofit entity. Appellants thus argue that Nilssen's explanation for paying small entity maintenance fees for the patents licensed by Geo was reasonable. Because the PTO regulations explicitly excluded an inventor who had licensed his patents to a large company from the definition of an independent inventor eligible to pay small entity fees, see 37 C.F.R. § 1.9(c) (July 1, 2000), but did not explicitly state the same exclusion for a nonprofit organization, see 37 C.F.R. § 1.9(e) (July 1, 2000), Nilssen testified that he believed that a nonprofit organization that licensed patents to a large company was still eligible to pay small entity fees. Appellants further argue that the fact that the PTO changed the regulation for nonprofits in late 2000, specifically noting the confusion created by the prior inconsistent definitions, to explicitly exclude nonprofits licensing to large companies, see 37 C.F.R. § 1.27(a)(3)(i), demonstrates the prior ambiguity of the regulation. Nilssen also stated that he was simply not aware of the rule change in 2000 because he had continued to rely on a pre-2000 version of the MPEP as his primary reference. In response, Osram argues that the district court did not find Nilssen's testimony credible, particularly as to whether he was unaware of the clarification of the regulation defining a nonprofit organization. Osram also states that the district court properly found Geo to be a sham, but provides no support for that conclusion. We agree with Osram that the district court did not abuse its discretion in finding all of the patents in suit unenforceable because Nilssen claimed small entity status after the date Geo licensed [1] the patents in suit. The PTO relies on applicants to accurately represent their fee status, and it is for a fact-finder to evaluate whether any intentional misrepresentations occur in doing so. The district court did not credit Nilssen's testimony that he was aware of the pre-2000 fee regulations, but yet not aware of the clarification of the relevant regulation in 2000. While the PTO's own admission of ambiguity in the regulation prior to 2000, see Changes to Implement the Patent Business Goals, 65 Fed.Reg. 54613 (September 8, 2000), may have made a belief that nonprofits were subject to different treatment than independent inventors reasonable during that time frame, we see no clear error in the district court's finding that it was not believable that Nilssen was aware of a specific alleged ambiguity in his favor but ignorant of a change that eliminated the alleged ambiguity shortly thereafter. We therefore affirm the district court's decision finding that all of the patents in suit are unenforceable due to inequitable conduct in improperly claiming small entity status.