Monday, August 8, 2011

Failure to Establish Nexus Between Alleged Misconduct and Prosecution of Patent Rights Sinks Unclean Hands Defense

The court granted plaintiff's motion for summary judgment on defendant's unclean hands defense. "[Defendant] has shown neither a 'direct nexus' between stock options backdating and prosecution of the relevant patents, nor that any stock option backdating 'materially prejudiced' [defendant's] ability to defend itself. Even assuming all of [defendant's] allegations regarding stock options backdating are true, [it] fails to link the propriety of [plaintiff's] employee compensation and accounting practices to acquisition of the patents in suit. . . . Were the Court to accept [defendant's] theory, the direct nexus requirement would be obliterated. In its place would be a test where the defense of unclean hands is available in a patent case whenever a corporation dirties its hands through accounting practices, pays its employees with the 'proceeds' of those practices, and simultaneously happens to be prosecuting new patents."

Broadcom Corporation v. Emulex Corporation, 8-09-cv-01058 (CACD August 1, 2011, Order) (Selna, J.)

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