Lit Alerts—September 2022

Patent Litigation: District Court Denies Claim for “Inequitable Conduct” in Patent Prosecution

This month, the US District Court for Massachusetts rejected an inequitable conduct claim in a patent infringement case involving voice recognition technology. While US District Judge Patti B. Saris denied Nuance’s inequitable conduct claim, she also rejected SynKloud’s motion for sanctions against Nuance for initially bringing an allegedly baseless inequitable conduct claim.

In March 2020, SynKloud Technologies sued Nuance Communications, Inc. for patent infringement of voice recognition technology. Nuance counterclaimed for inequitable conduct alleging that the named inventor on SynKloud’s involved patent intended to deceive the Patent Office when he failed to disclose two relevant prior art references during the prosecution of the patent. SynKloud denied the inequitable conduct claims and moved for partial summary judgment, claiming there was no evidence of an intent to deceive the Patent Office because the inventor did not know of the undisclosed references and the undisclosed references were not material.

The court held that Nuance failed to present sufficient evidence to meet its burden to prove that the named inventor made a deliberate decision to withhold the two references; indeed, the evidence did not support that the inventor even knew about the references, much less that there was a deliberate decision to withhold them. Further, the court held that sanctions for filing the inequitable conduct claim were unwarranted.

This holding reinforces the high burden required to prove the requisite intent to deceive the Patent Office for inequitable conduct claims.

Securities: SEC and Ripple Ask SDNY to Rule on Whether Ripple’s XRP Cryptocurrency Is a Security

After the recent filing of summary judgment motions, a federal judge may be closer to deciding for the first time whether certain cryptocurrencies are securities and subject to regulation by the US Securities and Exchange Commission. On September 17, 2022, both the SEC and fintech firm Ripple filed for summary judgment asking Judge Analisa Torres to determine whether cryptocurrency XRP is a security.

The agency filed its lawsuit in December 2020, arguing that Ripple sold more than $1 billion in XRP without registering the tokens as securities, which would have required them to inform purchasers of the investment risk associated with XRP and the financial condition of Ripple.

XRP denies the tokens are securities, and several investors have decried the SEC’s legal action as against their interest, saying last year that they lost billions of dollars after the suit prompted many exchanges to delist or halt the trading of XRP.

The SEC claims Ripple CEO Bradley Garlinghouse admitted that there was no regulatory uncertainty when it came to the SEC’s oversight of the cryptocurrency market, pointing to a 2018 tweet in which he said “‘regulatory uncertainty’ is just a euphemism for ‘we wish we could ignore SEC regulations.’ . . . Defendants made a calculated decision to risk an SEC or private lawsuit in order to profit by over $2 billion and cannot now feign surprise that their day in court has come," the agency told the court.

Ripple, for its part, maintains that XRP coins do not meet the definition of an investment contract—and, therefore, a security—because there was never a contract between the company and its purchasers that laid out investment-related rights for the purchasers or post-transaction obligations on the company.

The SEC is trying to make an "open-ended assertion of jurisdiction" over all assets, including cryptocurrency, that it feels would benefit from registration, without proving that the elements of an investment contract are present, Ripple argued.

“The SEC's untethered position would convert the sale of all types of ordinary assets—diamonds, gold, soybeans, cars, and even works of art—into sales of securities,” according to the company’s summary judgment motion. “Congress has given the agency no such authority.” 

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.