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.)