A PATENT LAWYER CONSIDERS
THE ROSSI / INDUSTRIAL HEAT LAWSUIT
An Interview with David French by Marianne Macy
David French is a patent attorney from Ottawa, Canada. After receiving degrees in Engineering Physics and Law he worked at the firm of Gowling & Henderson in Ottawa for four years and then joined the Canadian government for six years’ work on patent law reform. He thereafter practiced his specialty of patent law for 30 years, acting for Canadians before the U.S. and Canadian Patent Offices as well as maintaining a general practice in the field of Intellectual Property Law.
French has followed developments in LENR technology since 2011 and has attended major meetings and conferences in the field since 2013. He has written extensively on patents and related LENR topics for ColdFusionNow.org and presented at a number of meetings.
French spoke with Marianne Macy for Infinite Energy. Michael Melich participated in a first interview, then the process evolved over a multiple series of edit and interview/discussion sessions with both Macy and French making their best effort for a balance of material. The topics include the lawsuit Andrea Rossi and his company filed against Industrial Heat and others, aspects of procedure in cases involving patent law, and related factors.
French’s comments in this report are not to be taken as legal advice. They constitute personal speculation as to what the law and facts might be in respect to this case, based on his years of experience as a lawyer in the Province of Ontario, Canada, and as a Registered Patent Agent practicing on behalf of Canadians before the Canadian and U.S. Patent Offices.
David French began by commenting on the wide variety of scenarios people had proposed online relating to the lawsuit. “I recognize that people are very curious about the ongoing developments,” he says. “Many opinions have been expressed about what is going on. Some may be true, but for myself, I choose not to believe things until there is a firm foundation for doing so. All the rest is speculation and surmise.”
French stated his greatest concern is the advancement of the science and technology of LENR. He believes that Andrea Rossi has opened the gate to the field of possibilities that LENR can be based on the reaction of ordinary hydrogen with metals such as nickel. “Whatever the justice of the issues between the parties,” French observed, “I would like to be reassured that there is real science behind events that have occurred over the past three years and that there is a future for LENR, particularly in respect to the type that Andrea Rossi has popularized.”
Procedures After a Lawsuit is Filed
Macy: What are the procedures that will occur now that Rossi has initiated this lawsuit?
French: What happens next is that Industrial Heat and other defendants will each file an Answer setting out their defenses, normally within 21 days, extendable with the permission of a judge or on consent of the parties. In this case a stipulation has been entered on the Court docket that the answers are due by June 12. Further, the Court has set June 30 as the date for a joint scheduling hearing to set a time table for the proceedings.
This second document, the Answer, will allege the facts according to Industrial Heat and the other defendants’ perspectives. This too may be a posturing document in some respects. It may exaggerate what is wrong with the allegations made by the other side. Perhaps. That is the style of some legal drafting.
What you do when you draft a pleading is you draft what you think you might be able to prove. You shouldn’t make statements that are false. You will be embarrassed if you do. So all your statements of facts about what occurred should be true. But pleadings don’t always allege all facts. As an example, there may be more than one interpretation of the quality of the behavior that has occurred.
Macy: What is “quality of behavior”? What does that term mean?
French: You are going to see assertions in the defenses of a whole bunch of things that Rossi didn’t mention. Rossi may have alleged facts that are true, but he may not have alleged all of the facts. Further facts raised in the defense could change the interpretation as to what has occurred.
Macy: What sort of things show up in defense of such cases?
French: We can wait for the IH defense to see. I can’t imagine all the possibilities. But an example might be that Rossi was warned, or that he was advised and consented. This would change the interpretation of events that otherwise might make Industrial Heat look bad.
Macy: What is the procedure we can expect to see at the court?
French: The procedure is that after 21 days, now June 12, Industrial Heat will file an Answer, which will give their version of what happened. Rossi would typically have another 21 days to deal with any new issues raised by Industrial Heat by filing, with the Court’s consent, a further document called a Reply. Both parties are then expected to provide the other side with “Discovery.” Discovery starts with the following:
(i) the name and, if known, the address and telephone number of each individual likely to have discoverable information—along with the subjects of that information—that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment;
(ii) a copy—or a description by category and location—of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses, unless the use would be solely for impeachment;
(iii) a computation of each category of damages claimed by the disclosing party—who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered; and
(iv) for inspection and copying as under Rule 34, any insurance agreement under which an insurance business may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.
The important item is the lists of documents that they have in their possession. Technically all they have to do is say “Here are the documents we have.” These could include: “The letters you sent us, the copies of the letters we sent you.” This document production list would then end with: “You are welcome to come and look at them.”
The documents themselves are not filed in Court in typical judicial proceedings which, I am only assuming, will apply in the Federal Court District in Florida.
Macy: What we will we be able to learn from the trial proceedings as they go forward?
French: Typically in Courts, the pre-trial disclosure of documents and information exchanged in “deposition” examination of representatives of the other side and relevant witnesses are not open to the public. Under these principles, if Rossi is being examined on a pre-trial deposition, then what he says will not be part of the public court record. The actual bundle of documents identified in document production will not normally be filed in court prior to trial; and neither are the transcripts of the pre-trial depositions unless there is a leak.
Prospects for Settlement
Macy: How likely is it that Rossi and Industrial Heat will settle?
French: Oh, probably it is at least 50% likely they will settle. It could be as high as 80%; the majority of cases filed in Courts are settled. One of the reasons people may file a lawsuit in Court is that they want to explain there has been a falling-out and then use the court case as a free billboard to say the other person has been bad. There is no liability for what is said in a Complaint. Industrial Heat is not able to sue for slander and libel, libel being the written form of slander which is verbal. You can’t sue for someone being libelous in court documents.
Patent Background to the Litigation
Macy: What are the relevant factors of the ongoing action and sequence of events related to the case that involve patents?
French: U.S. patent 9,115,913 was granted to Leonardo Corporation on an application naming Andrea Rossi as the sole inventor on August 25, 2015. This was a very straightforward patent application stipulating for the combination of finely powdered nickel with lithium aluminum hydride to produce heat. No reference to Industrial Heat appears in this application and granted patent. It was filed March 14, 2012 by Andrea Rossi personally and then assigned to Leonardo Corporation. It was filed without any claim to foreign or domestic/U.S. priority and, unusually, was kept in secrecy until just before it was granted.
Interestingly, this chemical formula was the one guessed-at by the witnesses to the Lugano demonstration that was reported on October 6, 2014 at page 28: “It is plausible that the fuel is mixed with the standard lithium aluminum hydride, LiAlH4. Further evidence of that is obtained from the ICP-AES analysis which shows that the mass ratio between Li and Al is compatible with a LiAlH4 molecule.”
Andrea Rossi expressed in an October 6, 2015 interview on the Huffington Post that he is very proud of this patent application (Question 9). He also provided a succinct summary of his theory as to what is happening in terms of the science of the effect (Question 4).
There are possibly great benefits to be gained by studying more carefully this issued patent. And there are other patent applications still pending that involve Andrea Rossi. Over the past three years Industrial Heat has initiated a number of patent filings that include the name of Andrea Rossi, at least as a co-inventor.
Macy: That addresses Rossi’s issued U.S. patent. What other patents are involved?
French: The Complaint in the litigation refers to a number of patents and patent applications filed by Rossi abroad. They are irrelevant to a suit before the U.S. Federal Court in the Southern District of Florida. But the Complaint itself also refers to a number of patent applications filed by Industrial Heat.
Filing of Patent Applications by Industrial Heat Naming Rossi
French: In the Suit by Rossi and Leonardo Corporation against Industrial Heat and others, the Plaintiffs have alleged as follows:
5. Moreover, Defendants IH and IPH have misappropriated the E-Cat IP; illegally copied ROSSI’s innovative technology and products, features, designs; and, have wrongfully attempted to obtain a patent for ROSSI and LEONARDO’s intellectual property. … Furthermore, IH has infringed upon ROSSI and LEONARDO’s intellectual property rights by actively pursuing patents in foreign jurisdiction predicated upon the innovations and technology developed by ROSSI and LEONARDO including the E-Cat IP.
86. IH and/or IPH have breached the License Agreement by exceeding the scope of their license including, but not limited to:
a. publically claiming an ownership interest in the underlying E-Cat IP;
b. attempting to use the E-Cat IP outside of its limited Licensed Territory including attempting to obtain a European Patent in its name using the E-Cat IP; and
c. wrongfully applying for a United States Patent for the E-Cat IP and falsely asserting that one of its agents, contractors and/or employees, Mr. Thomas Barker Dameron, was a co-inventor of the E-Cat IP so as to enable IH and/or IPH to misappropriate ROSSI and LEONARDO’s intellectual property.
125. Moreover, DARDEN, VAUGHN, IH and IPH began attempting to misappropriate ROSSI and LEONARDO’s intellectual property and trade secrets by submitting patent and PCT applications, in the name of IH and IPH, claiming ROSSI and LEONARDO’s intellectual property as their own.
132. Specifically, IH and IPH have submitted patent applications and/or PCT applications to at least the United States Patent and Trademark Office, as well as the Russian Patent Office and the European Patent Office, attempting to patent the exact same claims as set forth in ROSSI and LEONARDO’s U.S. Patent.
133. Among other things, on or about November 6, 2014, IH filed a patent application with the USPTO, without LEONARDO and/or ROSSI’s consent, naming IH as the applicant, which was titled “Devices and Methods for Heat Generation”. The application was based entirely upon ROSSI and LEONARDO’s E-Cat intellectual property which IH had been provided pursuant to the License Agreement, and which was protected by the aforementioned patents, including the U.S. Patent.
U.S. patent application published as 20140326711 on November 6, 2014 has the title referenced in paragraph 133 of the Complaint (shown above). Particulars of this application are as follows:
Inventor: Rossi, Andrea
Applicant: Industrial Heat, Inc. (Raleigh, NC)
Assignee: LEONARDO CORPORATION (Miami Beach, FL)
Appl. No.: 14/262740
Filed: April 26, 2014
Related U.S. Provisional Applications 61/818553 filed May 2, 2013; 61/819058 filed May 3, 2013
A reactor device includes a sealed vessel defining an interior, a fuel material within the interior of the vessel, and a heating element proximal the vessel. The fuel material may be a solid including nickel and hydrogen. The sealed vessel may be sealed against gas ingress or egress and may contain no more than a trace amount of gaseous hydrogen. The sealed vessel is heated with an input amount of energy without ingress or egress of material into or out of the sealed vessel. An output amount of thermal energy exceeding the input amount of energy is received from the sealed vessel. The fuel material has a specific energy greater than that of any chemical reaction based energy source.
The first Provisional application for this invention, leading to the above publication, was made by Industrial Heat on May 2, 2013. This is near the beginning of the relationship between Industrial Heat and Rossi as they signed their License Agreement on October 26, 2012.
An apparently corresponding PCT application by that title was also published on November 6, 2014.
The Complaint alleges that an unauthorized application was filed on November 6, 2014. The above referenced application was published both in the U.S. and released under the PCT on November 6, 2014. If this is the intended reference then the Complaint needs to be amended.
As an aside it is interesting to note that the PCT filing was based on three earlier U.S. Provisional filings made as follows:
61/818,553 02.05.2013 US
61/819,058 03.05.2013 US
61/821,914 10.05.2013 US
The U.S. filing claimed the benefit of only the first two of these prior dates. Why this occurred is unclear.
Analysis of Industrial Heat Patent Filings
Macy: Can you comment on the significance of these patent filings by Industrial Heat?
French: The Complaint alleges that these filings have violated the rights of Rossi and Leonardo Corporation summarized in the following manner (see full descriptions above):
a) Misappropriating Rossi and Leonardo’s intellectual property and trade secrets by submitting patent and PCT applications, in the name of IH and IPH, claiming Rossi and Leonardo’s intellectual property as their own. (125)
b) Submitting patent applications and/or PCT applications to at least the USPTO, as well as the Russian Patent Office and the European Patent Office, attempting to patent the exact same claims as set forth in Rossi and Leonardo’s U.S. Patent. (132)
c) On or about November 6, 2014, IH filed a patent application with the USPTO, without Leonardo and/or Rossi’s consent, naming IH as the applicant, which was titled “Devices and Methods for Heat Generation.” The Complaint notes that the application was based entirely upon Rossi and Leonardo’s E-Cat intellectual property which IH had been provided pursuant to the License Agreement, and which was protected by the aforementioned patents, including the U.S. Patent. (133)
This first of the two U.S. and PCT Industrial Heat application names only Andrea Rossi as the inventor. It is hard to imagine how the Patent Attorney acting for Industrial Heat managed to obtain the information contained in this application without talking to Andrea Rossi as the sole named inventor. A review of the disclosures in these Industrial Heat-originating applications shows that the presentation is much less directed and focused than the one presumably commissioned by Rossi himself that resulted in the August 25, 2015 issued U.S. patent. In fact, this first Industrial Heat patent application has a very serious flaw.
The U.S. Examiner has not yet reached this application. However, when he does, he will be confronted with these phrases in the text:
 The reactor devices illustrated in the drawings and detailed here can be described as energy catalyzer HT reactor devices, where HT stands for high temperature. In a reactor device disclosed herein, an exothermic reaction is fueled by a mixture of nickel, hydrogen, and a catalyst.
 Each reactor device, according to these descriptions, includes a reaction chamber in which nickel powder and hydrogen react in the presence of a catalyst.
There is no other teaching in the application as to the nature of this “catalyst.” Accordingly, this application is doomed to be rejected by the U.S. Examiner because it fails to “enable” others to implement the invention. The disclosure is inadequate. This is quite apart from the fact that the claims are naïve.
Macy: Why do you say the disclosure is inadequate and if it is, what is the significance of this flaw?
French: The disclosure is inadequate because it fails to meet the following requirement of the U.S. Patent Act:
35 U.S. Code § 112 - Specification
§ 112. Specification
(a) In General.—
The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor or joint inventor of carrying out the invention.
Without an identification of the catalyst skilled persons will not be able to carry-out the invention. If an inventor fails to comply with this section his application should be refused; and if a patent accidentally issues without meeting this requirement, then such patent is invalid.
I originally mentally implicated Andrea Rossi in having given instructions for this application to be prepared in this manner. That may, in fact, have occurred. But another possibility now arises: this application may have been prepared, as alleged in the Complaint, without the review and approval of Andrea Rossi. The failure to name the catalyst may have arisen because the patent attorney, presumably hired by Industrial Heat, just didn’t know what the catalyst was.
I’m surprised that such an application could have been filed. Mentioning the need to have a catalyst and then failing to identify it condemns the application, and any patent that might slip through based on it, to eventual failure for non-compliance with Section 112. I have questioned in the past how any patent attorney could have filed an application containing such a feature! I’m still puzzled by this issue.
In all events, this application was assigned to Leonardo Corporation just before it was published. It is therefore hard to conceive how it can be part of a Complaint filed by Rossi and Leonardo Corporation. I have never understood why an application filed by Industrial Heat was then transferred to Leonardo Corporation. If this application is, indeed, the one referenced in the Complaint as a breach of confidentiality by Industrial Heat, then at least a partial remedy was given to Leonardo Corporation by the assignment of this application to that company.
It may be that Industrial Heat erred in the filing of the earlier application naming Rossi as the sole inventor, but the parties dealt with the matter by assigning the application to Rossi’s company, Leonardo Corporation.
There may be an error in the Complaint naming this 2014 patent application. Perhaps Rossi’s real objection concerns the more recent, additional, Industrial Heat application naming a co-inventor. To date, that application has not been assigned to Leonardo Corporation.
The Complaint does not close-the-book on allegedly abusive patent filings by Industrial Heat, with its reference to the first filing. It uses the language: “at least” and “among other things.” An example may be the additional patent filings including a co-inventor made by IH.
Additional Industrial Heat Patent Filings
Macy: What additional patent filings has Industrial Heat made?
French: Paragraph 86 of the Complaint alleged as follows:
86. IH and/or IPH have breached the License Agreement by exceeding the scope of their license including, but not limited to: … c. wrongfully applying for a United States Patent for the E-Cat IP and falsely asserting that one of its agents, contractors and/or employees, Mr. Thomas Barker Dameron, was a co-inventor of the E-Cat IP so as to enable IH and/or IPH to misappropriate …
As a first observation, “exceeding the scope of their license” cannot by itself be an offense. A license is permission to do something. It does not impose a duty to refrain from doing everything else. If you receive a fishing license and then decide to go hunting (with a hunting license) then you have not breached your fishing license. That part of this allegation has no legal merit. But there is a further objection that the defendants have filed a patent application and that this has violated the rights of the plaintiffs.
Macy: Is there any basis to this further objection?
French: On February 25, 2016 a U.S. patent application (20160051957) filed by Industrial Heat and naming Andrea Rossi as a co-inventor along with Thomas Barker Dameron was published. The invention disclosed is titled “Energy-Producing Reaction Devices, Systems and Related Methods” and is further identified as follows:
Inventors: Rossi, Andrea (Miami, FL); Dameron, Thomas Barker (Raleigh, NC)
Applicant: Industrial Heat, LLC (Raleigh, NC)
Appl. No.: 14/627828
Filed: February 20, 2015
Related U.S. Patent Documents: US priority applns 61/943016 Feb 21, 2014; 62/060215 Oct 6, 2014
A reactor device includes a reaction chamber; one or more thermal units in thermal communication with the reaction chamber configured to transfer thermal energy to the reaction chamber; and a refractory layer between the reaction chamber and the one or more thermal units.
This application is probably a sample of the further patent filings objected-to by the Plaintiffs. See the corresponding Patent Co-operation Treaty (PCT) filing published August 27, 2015. Accordingly, I doubt Rossi was surprised to see the publication of this U.S. patent.
Macy: Rossi has claimed that Industrial Heat filed patent applications without his consent. Can Industrial Heat file a patent application naming Rossi as a co-inventor without his consent?
French: That could certainly happen. In fact, I have not researched cases, but it could have happened many times. Somebody visits a laboratory, like that of Polaroid Corporation, has a conversation with the famous Dr. Land, and then goes off and files a patent application naming Dr. Land and himself as co-inventors of a new idea. Dr. Land may say, “That’s not a new idea! It is my idea and I told it to you. You are not a co-inventor! You are a person who I told it to while we were talking!” But the co-inventor may say: “I thought of it, as we were talking together.”
This kind of situation is a tangled one. You cannot be an inventor on a patent application unless you contributed to the original conception of an idea. In the case of this second Industrial Heat patent filing, what is the idea? You have to find out what the idea is by going through 59 pages of the long “recipe” of the patent. What is the idea that has been invented? It has to be new or a patent application would not have been filed. This subsidiary question may not get resolved until deep into the patent application process.
Here are the principles, as I understand them:
1) The correct inventors of an invention must always be identified on filing a U.S. patent application.
2) Since September 16, 2012 the U.S. Patent Office has changed from requiring inventors themselves to originate U.S. patent filings to allowing Assignees (companies) to initiate filings. Almost all countries allow Assignees to initiate a patent filing.
3) Where an Applicant company has filed based upon an assignment from one of several co-inventors, the filing of Declarations by the inventors affirming their status as inventors is deferrable at the USPTO until an application has been processed to the point of being Allowable. That could occur years after the filing date.
4) Therefore it is possible for Industrial Heat to have filed a patent application naming one of its employees, possibly Thomas Barker Dameron, as a co-inventor with Andrea Rossi. For this to occur Dameron will have either assigned or be under an obligation to assign his rights to the company.
5) After such a filing has been made, the non-cooperating co-inventor may or may not choose to participate in obtaining the patent. But the fact that the application has been filed cannot be reversed.
6) The U.S. Patent Trial and Appeal Board was established in 2012-2013 to deal with “Derivation” issues amongst other matters. See:
It is not clear to me whether the present situation is an example that is assigned to the PTAB to resolve.
7) The procedures are new and complex. It is possible that the USPTO will be perplexed by the objection by Rossi to his being named in the patent filing made by Industrial Heat.
Macy: How would the U.S. Patent Office handle a filing naming a co-inventor who claims he hasn’t given his consent?
French: The party filing the application may have a duty of secrecy and may have breached their duty of secrecy, but that doesn’t cut any ice with the U.S. Patent Office. The other applicant is a co-inventor until proven otherwise. A co-inventor, as far as the Patent Office is concerned, has a right to file. If you are claiming he has broken a secrecy obligation, that is not their problem. You would have to go to a judge and get an order for the Patent Office not to publish if you knew in advance. Well, in this case it is too late. It has been published. The application will go forward. Industrial Heat will be able to stand in the shoes of the co-inventor, their employee. Eventually, Industrial Heat will be able to obtain the patent in its own name if Rossi refuses to join in.
Allegations of Fraud in the Suit
Macy: What about the effect of alleging fraud?
French: Rossi’s lawyer has done something which ordinary observers may not fully appreciate. When you allege fraud by someone, Canadian courts, and all of this is rooted in common law tradition, are very reluctant to find fraud. Their attitude is that they want rock solid proof of fraud. That’s almost part way to being the criminal standard, not all the way. It will be hard to prove fraud. Rossi will be going in front of a jury. But a jury is instructed. A judge will say: “An allegation of fraud is a very serious allegation and you must be careful, be especially confident, on a balance of probabilities, in your belief that fraud has occurred.”
Rossi is claiming enhanced or triple damages, which is a marker of fraud. It is very rare that fraud allegations are properly made out, but this threat is hanging over Industrial Heat’s head.
Macy: How are the allegations of fraud presented in the Complaint?
French: In the Complaint under the title—COUNT VI: FRAUD AND DECEIT (IH,IpH, CHEROKEE, DARDEN & VAUGHN)—paragraphs 111 to 117 assert essentially that the Defendants never really intended to pay the full amount, totalling over $100 million.
Under the further title—COUNT VII: CONSTRUCTIVE & EQUITABLE FRAUD (IH,IPH, DARDEN & VAUGHN)—paragraphs 118 to 127 assert essentially that the Defendants were tricked into disclosing “their valuable intellectual property and trade secrets,” followed by the defendants setting-up offshore companies, supporting competitors and filing patent applications “claiming ROSSI and LEONARDO’s intellectual property as their own.”
In the Prayer for Relief, the Plaintiffs have requested the following:
WHEREFORE, Plaintiffs ANDREA ROSSI and LEONARDO CORPORATION pray for judgment as follows:
A. That IH and IPH have breached the License Agreement:
B. That ROSSI and LEONARDO be awarded all damages adequate to compensate them for IH and IPH’s breach of the License Agreement; such damages to be determined by a jury;
C. That IH and IPH have been unjustly enriched by utilizing the E-Cat IP without compensating ROSSI and LEONARDO for use of the same;
D. That ROSSI and LEONARDO be awarded all damages adequate to compensate them for IH and IPH unjust enrichment occasioned by the use of ROSSI and LEONARDO’s intellectual property;
E. That IH, IPH, DARDEN, VAUGHN and CHEROKEE both conspired to misappropriate, and misappropriated ROSSI and LEONARDO’s trade secrets;
F. That ROSSI and LEONARDO be awarded all damages adequate to compensate them for the Defendants’ conspiracy and misappropriation of trade secrets, such damages to be determined by a jury;
G. That IH, IPH, DARDEN, VAUGHN and CHEROKEE engaged in fraud, and that IH, IPH, DARDEN and VAUGHN engaged in constructive fraud with the intent that ROSSI and LEONARDO rely upon their fraudulent statements and/or omissions to their detriment;
H. That ROSSI and LEONARDO be awarded damages adequate to compensate them for the Defendants’ fraud, such damages to be determined by a jury;
I. That IH and IPH have infringed upon ROSSI and LEONARDO’s U.S. Patent;
J. That ROSSI and LEONARDO be awarded all damages adequate to compensate them for IH and IPH’s infringement of the U.S. Patent, such damages to be determined by a jury;
K. That the damages awarded to ROSSI and LEONARDO for the patent infringement be trebled, pre-judgment and post-judgment interest;
L. That the case be declared an exceptional case within the meaning of 35 U.S.C. S285 and that ROSSI and LEONARDO be awarded their attorneys’ fees, costs and expenses incurred in connection with this case;
M. That this Court enter a permanent injunction enjoining IH and IPH from continuing to infringe upon ROSSI and LEONARDO’s patent; and enjoining IH, IPH, DARDEN, VAUGHN and/or CHEROKEE from further disclosing any of ROSSI and LEONARDO’s trade secrets, including intellectual property, to any other party; and
N. That ROSSI and LEONARDO be awarded such other relief as this Court deems just and proper.
The request for the tripling of damages in subparagraph K could be construed as a request for enhanced damages based on highly inequitable behavior according to the common law. A section of the U.S. Antitrust laws stipulates specifically for the awarding of up to triple damages in the following terms (U.S. Antitrust Code):
§ 15. Suits by persons injured
(a) Amount of recovery; prejudgment interest Except as provided in subsection (b), any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.
The U.S. patent code also provides as follows:
§ 284. Damages
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed. Increased damages under this paragraph shall not apply to provisional rights under section 154(d).
This section on tripling damages only applies when the behavior of the infringers has been highly inequitable. It is hardly ever applied.
As a last allegation the Complaint asserts in COUNT VIII: PATENT INFRINGEMENT (U.S. PATENT) (rH & rPH):
130. Various embodiments of ROSSI and LEONARDO’s inventions described in the U.S. Patent have been adopted and utilized in, among other things, the E-Cat Unit and other similar devices designed and developed by ROSSI and LEONARDO.
131. IH and IPH infringed upon the inventions claimed in the U.S. Patent, at least
through their attempts to wrongfully obtain patents and other intellectual property rights for ROSSI and LEONARDO’s patented inventions.
132. Specifically, IH and IPH have submitted patent applications and/or PCT applications to at least the United States Patent and Trademark Office, as well as the Russian Patent Office and the European Patent Office, attempting to patent the exact same claims as set forth in ROSSI and LEONARDO’s tJ.S. Patent.
133. Among other things, on or about November 6,2014, IH filed a patent application
with the USPTO, without LEONARDO and/or ROSSI’s consent, naming IH as the applicant, which was titled “Devices and Methods for Heat Generation.” The application was based entirely upon ROSSI and LEONARDO’s E-Cat intellectual property which IH had been provided pursuant to the License Agreement, and which was protected by the aforementioned patents, including the U.S. Patent.
134. Moreover, IH and IPH have solicited millions of dollars in investments predicated
upon their claim that they have acquired and now own ROSSI and LEONARDO's intellectual property rights to the E-Cat IP.
These allegations are so ill-conceived that it’s almost an embarrassment to criticize them.
If these are intended to be paragraphs alleging patent infringement, none of them meet the standards recently adopted by the Courts requiring allegations of patent infringement to be particularized. As stated earlier, it is not an infringement of a U.S. patent to file another U.S. patent application (paras 131, 133). Much less is it an infringement of a U.S. patent to file patents in other countries (para 132). The fact that the defendants have been raising funds from third parties is totally irrelevant (134) as a patent issue.
It may be important for the Plaintiffs to retain an allegation of patent infringement, properly presented, in the case in order to ensure that the U.S. District Court has jurisdiction. U.S. courts have exclusive jurisdiction to address patent infringement matters.
The impression created, however, is that these sections were not seriously intended to support actually going to trial on the basis that there has been a violation of the plaintiff’s patent rights.
Proving Fraud or Theft of Intellectual Property
Macy: How hard it is to prove such allegations as saying that they had shared his Intellectual Property and stolen his Intellectual Property and intended to do so? How is fraud defined?
French: Fraud involves intentional misbehavior planned ahead of time. Planning ahead of time is not an essential but is a persuasive indicator of fraud. It generally involves an intention to deceive. That is a key characteristic of fraud.
However, when you say there has been a theft of “Intellectual Property,” that’s a tough one. Involving Intellectual Property makes it complicated because this is a very woolly concept.
Macy: Why is it tough to prove a claim of theft of IP?
French: What does the phrase “Intellectual Property rights” mean? Think about it first before reading further. Get a sense of what this phrase has meant to you. You may be surprised to realize that you don’t really know what it means. Here is an answer: Intellectual Property rights in commercial articles relate to:
1) patent rights
2) know-how: information that can be written down, or should have been written down but was overlooked, but which is not generally available to the public. Know-how often arrives in the form of a bound book. “Here’s how to build it.” The information is special because it has not yet been made available to the public. Sometimes it is called a “trade secret.”
3) show-how: assistance when there is a new problem to be solved. When you can’t get something to work you ask the other guy to show you how to get it to work.
Items 2 and 3 can be discovered/identified and then publicly disclosed independently by competent third-party researchers. Once that occurs, there are no “rights” left in those categories. Once information has become public, there is no “trade secret” left. Persons buying items 2 and 3 are really only purchasing a head start.
The vulnerability of Show-how and Know-how is that others can independently learn how to do everything. Once they have done so, so long as they didn’t steal it, they are free to use it. Show-how and Know-how evaporate as other people learn the so-called “intellectual property.” Where’s the Know-how on how to change a flat tire? How much would you pay someone to show you how to change a flat? Maybe $20 if you have trouble on the highway, but you would not pay someone $100,000 to show you how to change a flat tire. Once everything is known there is hardly any Intellectual Property left. Except for patents.
Patents are identified as item 1, above. Well, there are good patents and bad patents. Paraphrasing Tolstoy, good patents are always good in the same way – they keep out competition. Bad patents are always bad each in their own way. However, bad patents always share one thing in common: they fail to keep out competition. These distinctions will become more clear as this litigation unfolds. And of course, we have a contractual issue involved in this case.
Relevance of Contract Law
Macy: What do you mean by a “contractual issue”?
French: There is another issue involved in this case which may look like “intellectual property” but is really a matter of contract. “Property” is a right that you can assert against strangers. But when someone says that they are promising to keep your ideas secret, then they are making a contractual commitment, which is personal between yourself and the other person. When you say that somebody has breached their commitment of confidentiality, this is somewhat inaccurately described as a “violation of intellectual property.” In reality, it’s a breach of the contractual commitment to keep something secret, a promise. Unless a license has been issued.
Meaning of Licensing
Macy: The lawsuit deals with issues around Rossi “licensing” something to Industrial Heat. It is some kind of recipe to build the E-Cats. What does it mean to license to someone?
French: A “license” means: “I promise not to object.” A license presupposes some sort of prohibition exists. A fishing license is needed because it is prohibited to fish without a license. A patent license is needed because it is an infringement to make, use or sell a patented product without the permission of the patent owner. Rossi makes an agreement with someone such as Industrial Heat promising to tell them his recipe, information that has been kept secret. Normally, people are supposed to respect the secrecy of special formulas. They exchange a disclosure in return for a promise to pay. With the disclosure goes the right to make the secret public by selling product that incorporates the secret feature. When this occurs, the person supplying the license has agreed in advance that he will not object.
Colloquially, this is often called a “license.” License means that I give you permission to do something that you otherwise would not be permitted to do. Classically, a patent owner can give you a license to make and sell a patented invention. A license often sets out the terms and limitations under which someone can operate or use a secret recipe.
So the distinction to sort out is that Rossi is acting as if his “IP”—his secret recipe—is somehow a separate “property” that he still retains. He acts as if he has the exclusive right to produce a machine similar to the one that he has designed and built.
Macy: What do we mean when we refer to “property”?
French: “Property” is a right over something that allows you to exclude others. Generally, it involves possessing the object. But there’s nothing tangible to “possess” in the case of Intellectual Property. There have actually been judicial discussions about whether the right to have something kept secret is a “property” right.
You could interpret the “property” in this case as the information that you have kept secret. But in fact, if Rossi and Leonardo Corporation have any claims against Industrial Heat, it is for breach of contract. The law will give you compensation for a breach of contract. The compensation awarded may allow for the fact that if secrecy is somehow spoiled, something of value has been destroyed. If you allow someone to learn about secret information on a confidential basis, then as long as it is still secret you are entitled to have that secrecy respected. People who damage the secrecy by disclosing it have destroyed your “property,” in a sense, but this is a sloppy use of the word “property.” You can ask for money in compensation. But once the secret is out, the “property” has come to an end.
Macy: What is confusing is that Rossi is saying, “They are in trouble for using my IP. They have to stop. And they also have to pay.” I find that very contradictory. Does my confusion make sense?
French: Yes, your confusion is understandable. He still wants his $89 million dollars but he’s also asking for an Order that Industrial Heat not make use of the information that he has provided to them. This is inconsistent. If they pay, then they are entitled to have the full benefit of all his Know-how. In fact Industrial Heat may have acquired the right to use all this know-how when they paid the $10,000,000.
Macy: How could that be?
French: Paragraph 3.2 of the License Agreement provides as follows:
(b) … On the date the Escrow Agent pays $10,000,000 to Leonardo, the License will commence and Leonardo and Rossi will immediately transfer … to the Company all E-Cat IP…
The Complaint acknowledges that the $10,000,000 has been paid. Therefore, it is unclear how the Complaint can object that the defendants are improperly using the “intellectual property” that they have paid for previously. Their failure to pay the further $89 million simply looks like a collection issue.
And there is the question as to whether there is any secrecy left once Industrial Heat starts marketing product based on the technology that they have paid for. Rossi cannot consent to his secret information being used in order to publicly market a product under “license” and at the same time demand that secrecy be maintained.
Relevance of Rossi’s U.S. Patent
Macy: Rossi is claiming that he has Intellectual Property rights in his special knowledge relating to his E-Cat heat generator. But he also obtained a U.S. patent on August 25, 2015. How do these two issues relate to each other?
French: A patent is supposed to show the recipe to put the invention into effect. The contract between the government and the inventor is: “You tell us the recipe and we will protect you for 20 years.”
If you go to the August 25, 2015 Rossi patent, read it and ask: “Is this a recipe that will work?” The recipe has to work for the patent to be valid. Are there some secrets held back in the disclosure of this patent? I don’t know. You can hold back a different way to do it. But one thing is for sure, the recipe of the patent has to work or the patent is invalid.
Whether Rossi’s patent is valid or not, everything disclosed in that document has to be subtracted from the so-called “secret, proprietary information” that Rossi is calling his Intellectual Property.
Macy: Along those lines, there has been much online discussion claiming Industrial Heat has not been able to replicate Rossi’s technology, even after having been given the recipe.
French: I don’t know whether this is true. Perhaps Industrial Heat has been struggling to understand this technology. If so, Rossi’s April 25, 2015 patent may be invalid. On the other hand, Rossi’s patent may be valid and the Industrial Heat U.S. application published on February 25, 2016 may reflect on the approach Industrial Heat was having before the Rossi patent was published. This last Industrial Heat application may be focused on the work that has been done by the named co-inventor, presumably an employee of Industrial Heat, in trying to understand this phenomenon. Normally the disclosure teaches that something useful can be done, or there would be no point in filing a patent application. This application may be well worth reading. It is certainly long and complex.
Macy: A “double patent rejection.” What is that and why might it happen?
French: It has been suggested in online discussions that there might be a “double patenting rejection.” The Complaint alleges that the Industrial Heat U.S. patent application is directed to the same invention that Rossi has already patented. When the same inventor tries to patent the same invention twice that is when a “double patenting rejection” may issue.
I have looked at the now-published U.S. Industrial Heat patent applications. It doesn’t look as if they are directed to the same invention that was patented by Rossi on August 25, 2015. Maybe they have some similar material. But you don’t know what a patent application is really directed to until the claims are put into final form. It is premature to conclude that the Industrial Heat U.S. patent filings are directed to the “same invention” as disclosed in the Rossi patent.
It is perfectly legitimate for anyone to file a patent application directed to an “improvement” on an invention described in an earlier patent. In such a case, much of the disclosure may be similar to that in the earlier document. I would imagine that this Industrial Heat application is directed to an improvement concept.
Liability of Individuals in the Litigation
Macy: Why are individuals identified in the Complaint as defendants?
French: Normally, the employees of corporations are not liable for the acts of the Corporation. They cannot be held responsible when the corporation causes damage. But there are exceptions, and the Complaint endeavors to extend liability beyond Industrial Heat to include key personnel, such as Tom Darden and John Vaughn. Sometimes this is done as a tactic to put pressure on the other party. By including individuals in the action these individuals will be motivated to consider settlement more favorably if only out of personal interest.
Macy: What are the prospects of the individuals being held liable?
French: Corporate officers are only rarely held liable for the acts of a corporation. This can occur where the corporation is acting as the “alter ego” or “other personality” of the individuals themselves. Particularly where a corporation has been formed by individuals to do a specific task and the individuals are completely in control of the activities of the Corporation in pursuing this task, there is a prospect that the “corporate veil” could be penetrated. If that were to occur then the individuals would be held personally responsible for the acts of the Corporation. This is more likely to happen where there has been “nefarious” behavior personally pursued by the individuals. This may explain the extended references in the Complaint to “misrepresentation” etc.
A contrasting situation that we could use as a hypothetical is the pending litigation against various Volkswagen corporations based on the loss of value of diesel-engined Volkswagens. These vehicles have dropped in value due to the “tricks” used when such vehicles were tested for unauthorized emissions. Assuming something improper was done within the organization, is it realistic to hold the President of such a company personally liable to the hundreds of thousands of plaintiffs represented by a Class Action suit? That seems unlikely. The President may not have even known that this was being done; or he may have given a nod of approval after receiving advice that it would be a legitimate practice. It’s only in exceptional cases where there has been personal involvement as well as inequitable behavior that corporate officers are held liable for the behavior of their corporation.
Macy: Is there anything that Tom Darden and the other individuals can do about the situation?
French: Well, they are stuck as defendants in the suit. They have to hang in for the duration. If this case goes to trial, they will have to present evidence as to why the situation is not exceptional and the normal presence of the corporate veil should be respected. Although the risk of personal liability is small, many senior corporate officers insist that a corporation must maintain personal liability insurance coverage to apply precisely in these cases. One feature of such insurance is that an individual such as Tom Darden will be able to hire, at the cost of the insurance company, legal representation for himself personally. If this case goes to trial, there may be quite a few lawyers present.
Macy: Is there anything you would like to say by way of a conclusion?
French: This Complaint is so flawed that we might see Court Motions to have it clarified before the defendants file their Answers.
As for the merits of the case I see this basically as a collection action: “Pay us our $89 million dollars!” On the question of where Justice lies, I prefer to await the version of the facts according to the Defendants, as well as any Reply by the Plaintiffs. Ultimately I would like to reserve judgment until all the evidence has been presented at trial. I believe in: Audi alteram partem (hear the other side’s point of view).