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Only Actions of Legal Patent Owner of Record Examined for Whether Delayed Payment of Maintenance Fee Was Unavoidable

June 10, 2008

Decision icon Decision

Last Month at the Federal Circuit - July 2008

Judges: Newman, Lourie (author), Bryson

[Appealed from: E.D. Va., Senior Judge Hilton]

In Burandt v. Dudas, No. 07-1504 (Fed. Cir. June 10, 2008), the Federal Circuit affirmed the district court’s grant of SJ for the Director, holding that the district court did not err in upholding the Director’s denial of Burandt’s request to reinstate his patent for failure to pay the maintenance fee.

In 1980, Burandt designed internal combustion engines for Investment Rarities, Inc. (“IRI”). In the following year, he entered into an assignment agreement with IRI, which provided that IRI would fund Burandt’s
research efforts in return for the IP rights to any patent applications or patents resulting from that research. In addition, Burandt was entitled to repurchase the patents from IRI in the event that IRI ceased funding his research. Under that agreement, Burandt filed a patent application that issued as U.S. Patent No. 4,961,406 (“the ’406 patent”) on October 9, 1990.

IRI was the legal title holder of the ’406 patent at the time of issuance. Burandt, however, claims he gained equitable title to the ’406 patent by trying to repurchase rights to the patent before it issued. As the legal title holder, IRI was responsible for paying the maintenance fees during the life of the ’406 patent. But because IRI failed to pay the first maintenance fee, the ’406 patent expired on October 9, 1994.

Burandt alleged that he became mentally disabled two years before the ’406 patent expired. Almost seven years after the ’406 patent expired, Burandt learned of the expiration from the PTO. Burandt then gained legal title of the ’406 patent from IRI and filed a petition in the PTO under 37 C.F.R. § 1.378(b) for acceptance of a delayed maintenance fee payment, asserting that the failure to pay the fee was unavoidable. In addition, Burandt argued that he should not be bound by IRI’s actions because he held equitable title in the ’406 patent. When the PTO denied Burandt’s petition, Burandt brought an action in district court against the Director under the APA. Both parties moved for SJ, and the district court awarded SJ to the Director.

On appeal, the Federal Circuit acknowledged that 35 U.S.C. § 41(c)(1) provides the Director with the discretion to accept a late maintenance fee after the six-month grace period if the delay is shown to the satisfaction of the Director to have been unavoidable. Relying on its decision in Ray v. Lehman, 55 F.3d 606 (Fed. Cir. 1995), the Court noted that in determining whether a delay in paying a maintenance fee was unavoidable, one looks to whether the party responsible for payment of the maintenance fee exercised the due care of a reasonably prudent person. Applying this standard, the Court held that IRI, as the legal title holder of the ’406 patent, failed to exercise reasonable care in ensuring that the maintenance fee would be paid in a timely manner. The record indicated that IRI deliberately allowed the ’406 patent to expire. Accordingly, the Court found no clear error in the Director’s conclusion thatunavoidable delay was not shown.

The Court disagreed with Burandt’s argument that the district court erred by focusing on IRI’s actions, stating that the argument “flies in the face of our holding in Ray, where we expressly held that it is the actions of the party responsible for making payments of the maintenance fees, the legal title owner, that must be considered when evaluating [the] unavoidable delay . . . .” Slip op. at 8. In addition, the Court concluded that the Director is entitled to rely on the record and is not required to conduct an equitable analysis to determine who must pay the maintenance fees. Id. at 8-9.

The Court then distinguished the district court cases Burandt cited as nonbinding precedent and factually distinguishable. Furthermore, the Court rejected Burandt’s assertion that the district court erred by giving deferential review to the PTO’s determination of unavoidable delay. The Court found no conflict with its ruling and Congressional intent to avoid the equitable loss of patent rights because Congress expressly gave the Director the responsibility to determine the circumstances under which a late payment may be waived. The Court agreed with the Director that unavoidable delay was not shown in this case. The Court also concluded that Burandt’s mental condition and financial status were irrelevant, given IRI’s status as the legal owner of the ’406 patent at the time the maintenance fee was due. Finally, the Court ruled that there was no error in denying Burandt’s request for waiver under 37 C.F.R. § 1.183 because § 183 is discretionary and the Court found no error in the Director’s decision. Accordingly, the Court concluded that the Director’s decision to deny Burandt’s request for reinstatement was neither arbitrary or capricious, nor an abuse of discretion.