January 2010
China IP News
Authored by Esther H. Lim and Michael J. McCabe II
In the United States, infringers of valid patents can escape judgment by proving that a patent asserted in litigation is unenforceable. Accused infringers routinely argue that asserted patents are unenforceable due to inequitable conduct. Indeed, more than twenty years ago, the Federal Circuit acknowledged that “the habit of charging inequitable conduct in almost every major patent case has become an absolute plague.” Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988). Despite changes in the law designed to reduce the number of inequitable conduct allegations, the inequitable conduct defense continues to be raised in most cases. Indeed, some Federal Circuit judges have openly lamented the resurrection of the “plague.” See, e.g., Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1196-97 (Fed. Cir. 2006) (J. Newman dissenting).
As the number of inequitable cases has grown, so too has the list of improper conduct and activities deemed sufficient to render a patent unenforceable. It is critical that patent applicants be aware of and avoid the conduct and activities that might ultimately render their patent unenforceable. Likewise, those with already issued patents must have an understanding of what conduct has been deemed “inequitable” in order to properly evaluate the worth of their patents. No patentee should even contemplate litigation in the United States without first evaluating the strength of all inequitable conduct allegations an accused infringer is likely to raise.
As the test for inequitable conduct is currently formulated, ‘“[a] patent may be rendered unenforceable for inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO [the United States Patent and Trademark Office] during prosecution.’ To successfully prove inequitable conduct, ‘the accused infringer must present evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the [PTO].’” Larson Mfg. Co. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1326 (Fed. Cir. 2009) (Linn, J., concurring) (internal citations omitted). The accused infringer must prove materiality and intent by clear and convincing evidence. Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008). “[I]nformation is material when a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.” Id. at 1367. Intent to deceive requires proof of an intent to deceive the PTO, not merely an intent to withhold material information. Dayco Prods., Inc. v. Total Containment, Inc., 329 F.3d 1358, 1367 (Fed. Cir. 2003). In the absence of “smoking gun” evidence, intent to deceive is normally inferred from the facts. Larson, 559 F.3d at 1327. “If the requirements of materiality and intent are met, [t]he court must then determine whether the questioned conduct amounts to inequitable conduct by balancing the levels of materiality and intent, with a greater showing of one factor allowing a lesser showing of the other.” Id.
While the test for inequitable conduct is relatively straightforward, the application of that test is not. The outcome of an inequitable conduct defense often turns on a subjective analysis of the level of materiality and whether intent to deceive should be inferred from the facts of the case. What is clear is that conduct sufficient to render a patent unenforceable is broader than deliberate fraud. J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559 (Fed. Cir. 1984). Indeed, as reflected in cases below, negligent conduct has, at times, been deemed sufficient to render a patent unenforceable. See Larson Mfg., 559 F.3d at 1343 (“in seeming contradiction with [controlling authority], a standard even lower than ‘gross negligence’ has propagated through our case law”) (Linn, J., concurring).
Failure to Disclose Material Information. Perhaps the most common allegation of inequitable conduct involves failure to cite material information such as prior art. “Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [PTO], which includes a duty to disclose to the [PTO] all information known to that individual to be material to patentability . . . .” 37 CFR § 1.56(a) (2008). “Section 1.56(a) is not limited to information which would render the claims unpatentable, but extends to any information ‘where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.’” McKesson Info. Solutions, Inc. v. Bridge Med., Inc., 487 F.3d 897, 922-23 (Fed. Cir. 2007), citing MPEP § 2001.04 (5th ed.) Moreover, the duty of disclosure continues throughout prosecution and includes information acquired during pendency of the application. Id. at 923. Thus, inventors, patent attorneys, and all those involved in prosecution of a patent application should be continually diligent in determining what information is known and material to a patent application and disclosing that information to the PTO.
In determining whether to disclose known information to the PTO, the patent applicant should err on the side of disclosure. A patent applicant might think that a good faith belief that information is not material would suffice to avoid an unenforceability ruling because intent to deceive is required to prove inequitable conduct. But the Federal Circuit has found inequitable conduct where the patentee “should have known” information was material to patentability. See, e.g., Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256-57 (Fed. Cir. 1997) (inferring intent where applicant was aware of a prior art reference and “knew or should have known” that information in that reference was relevant to a claimed point of novelty). The court in the Critikon case explained that “a patentee facing a high level of materiality and clear proof that it knew or should have known of that materiality, can expect to find it difficult to establish ‘subjective good faith’ sufficient to prevent the drawing of an inference of intent to mislead.” Id. at 1257. Thus, if there is any doubt about whether information is material to patentability of a pending patent application, the best practice is to disclose the information to the PTO.
Moreover, patent applicants should be aware of information used or acquired in other proceedings and evaluate that information for potential disclosure to the PTO. For instance, communications with other U.S. agencies might generate or reveal material information. See, e.g., Bruno Indep. Living Aids, Inc. v. Acorn Mobility Servs. Ltd., 394 F.3d 1348, 1350-54 (Fed. Cir. 2005) (finding inequitable conduct for failure to cite reference disclosed in proceedings with the U.S. Food and Drug Administration).
One of the most common sources of information is patent proceedings involving related patent applications. Indeed, foreign search reports and office actions are common documents accused infringers frequently cite to show that a patentee had knowledge of information material to a U.S. patent application. U.S. patent proceedings involving related patent applications can also generate information that should be disclosed in an application, even if the examiner of the application is also the examiner for the related application. The Federal Circuit’s decision in McKesson is instructive.
In McKesson, the court affirmed a finding of inequitable conduct based on the patentee’s failure to fully disclose material information from related patent applications. McKesson, 487 F.3d at 913-26. The court cited three nondisclosures that “individually and collectively” supported the inequitable conduct finding. Id. at 901. First, while the patentee had notified the examiner of the asserted patent of the existence of a co-pending related application being handled by a different examiner, the patentee failed to cite in prosecution of the asserted patent one reference used to reject the co-pending related application. Id. at 913-19. Second, the patentee failed to disclose rejections made in the co-pending related application based on art already before the examiner of the asserted patent. Id. at 919-25. The court concluded that the patentee’s disclosure of the co-pending application was some evidence of good faith, but nevertheless found an intent to deceive based on the patentee’s failure to disclose specific information generated during prosecution of the co-pending application. Id. Finally, the patentee failed to disclose the allowance of a continuation-in-part application that could have formed the basis for a double patenting rejection of the asserted patent. Id. at 925-26. The court found that this nondisclosure alone supported an inequitable conduct finding even though the examiner of the asserted patent was also the examiner of the continuation-in-part application and, thus, was already aware of its allowance. Id. As McKesson demonstrates, patent applicants should be particularly aware of information acquired during prosecution of related patent applications and vigilant in disclosing that information if there is any question regarding its materiality.
Omissions and Errors During Prosecution. Patent applicants should also be keenly aware of the need to disclose all information material to arguments and representations being made during prosecution. One activity that often gives rise to allegations of inequitable conduct is the submission of technical data supporting patentability. Accused infringers will argue inequitable conduct if the patentee was in possession of information that even appears to contradict or call into question the data or arguments made using the presented data.
For instance, in Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1366 (Fed. Cir. 2007), the Federal Circuit affirmed a finding of inequitable conduct based on the patentee’s failure to disclose test data concerning stability of a reference oil that arguably was inconsistent with data contained in the specification and used by applicants to gain allowance of claims to a unique canola oil. The court rejected the patentee’s arguments that the reference oil data was immaterial even though the applicant explained that the withheld data was not comparable or inconsistent with the submitted data because the reference oil that produced the withheld data was processed differently from the oils in the comparison presented to the PTO. Id. at 1365-66. The court concluded that the applicant “should have been aware of the materiality of the omitted test data” and inferred an intent to deceive based on a high level of materiality Id. at 1366. Like McKesson, Cargill demonstrates the wisdom of disclosing information whenever it is arguably material to prosecution.
Another activity that accused infringers often scrutinize for conduct that might support an inequitable conduct defense is the submission of declarations. Applicants should take care to ensure that all declarations are truthful, accurate, and free from ambiguity that could support an inequitable conduct allegation. For example, in Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181 (Fed. Cir. 2006), the Federal Circuit found inequitable conduct where the applicant submitted technical declarations from outside experts but did not disclose that some of those experts had been previously employed by the applicant.
Applicants should also be careful in seeking special treatment from the PTO. For example, in Gen. Electro. Music Corp. v. Samick Music Corp., 19 F.3d 1405 (Fed. Cir. 1994), the Federal Circuit found inequitable conduct where the applicant submitted a declaration supporting a petition for expedited examination, stating that the applicant had made a careful and thorough search of the prior art, but later conceded that it actually had only conducted an informal search as opposed to a formal search. Id. at 1407. And in Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007), the Federal Circuit found inequitable conduct where the applicant improperly claimed small entity status.
Few things are worse than having a valid patent infringed by a competitor deemed unenforceable by a court after a lengthy and expensive litigation. It is highly likely that a patentee will face a charge of inequitable conduct during litigation, especially given recent Federal Circuit decisions holding patents unenforceable. Careful prosecution and diligent disclosure of material information will minimize the risk that such charges will render an otherwise valuable patent unenforceable.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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