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Ignoring Materiality Prong and Misapplying Intent Prong of Inequitable Conduct Test Requires Reversal

August 01, 2008

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Last Month at the Federal Circuit - September 2008

Judges: Newman, Friedman, Rader (author)

[Appealed from: D. Ariz., Judge Real]

In Research Corp. Technologies, Inc. v. Microsoft Corp., No. 06-1275 (Fed. Cir. Aug. 1, 2008), the Federal Circuit reversed a district court’s finding of inequitable conduct and grant of SJ of invalidity and noninfringement. The Court also vacated the award of attorneys’ fees based on the district court’s exceptional case finding.

Research Corporation Technologies, Inc. (“RCT”) sued Microsoft Corporation (“Microsoft”) for infringement of six patents that relate to image halftoning technology used in computers and printers. While RCT was originally awarded partial SJ of infringement, the case was transferred to a new trial judge who, without opinion, reversed the prior judge’s grant of SJ to RCT and instead granted Microsoft’s motions for SJ of noninfringement and invalidity. At Microsoft’s request, the new judge also held a one-hour trial on inequitable conduct. At this trial, RCT was barred from presenting expert testimony on materiality and was allowed to present only inventor testimony about candor and good faith. After the trial, the judge ruled from the bench that RCT’s patents were unenforceable due to inequitable conduct based on the inventors’ failure to disclose postfiling tests to the PTO.

On appeal, the Federal Circuit began by examining inequitable conduct, noting that a finding of inequitable conduct requires clear and convincing evidence that the patent 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. Here, the Court held that the district court committed clear error because it neglected to consider both prongs of the two-pronged test by focusing solely on intent to deceive and completely ignoring materiality. The Court noted that even in its sparse articulation of reasons for the decision, the district court itself had stated, “I am not trying a patent case I am trying a particular matter that has been presented to me having to do with candor and good faith [sic].” Slip op. at 8-9.

The Court explained that, had the district court properly considered both prongs of the analysis, the only reasonable conclusion would be that the withheld information was not material to the patented invention. Specifically, while the trial judge found inequitable conduct because the inventors did not disclose postfiling tests to the PTO, the Court held that these postfiling tests were not material because they occurred after the inventors had filed the patent application. The Court also noted that, while these postfiling tests were conducted on a scaling factor related to halftoning, the scaling factor was not mentioned in the patent and was unnecessary to practice the patented invention. Finally, the Court pointed out that the inventors had published the postfiling tests, and that “[p]ublication is an act inconsistent with an intent to conceal data from the [PTO].” Id. at 8.

In addition to missing the materiality prong, the Court held that the district court clearly erred in its analysis of the intent prong. First, the Court noted that the district court improperly focused on comments that an inventor made at trial regarding the purposes of the patent system. The Court stated that an inventor’s motives in applying for a patent or his views on the purposes of the patent system are generally irrelevant to a proper determination of inequitable conduct, and that any likely financial reward from the patent does not alone show an intent to deceive the PTO. Second, the Court also maintained that the district court erred in relying on an e-mail exchange between the inventor and another scientist, where the inventor did not disclose the status of his research. The Court stated that an e-mail from one scientist to another scientist in a competitive field that does not disclose the actual status of research is hardly dispositive proof that the inventor was not in possession at the time of filing. Here, the Court determined that the inventor’s incomplete casual e-mail was simply an attempt to initiate scientific discussions with a competitor while at the same time withholding confidential information from that competitor.

Based on the Court’s holding that the district court clearly erred by ignoring the materiality prong and misapplying the intent prong of the inequitable conduct test, the Court reversed the finding of inequitable conduct. Because the Court vacated the district court’s determination of unenforceability due to inequitable conduct, the Court also vacated the exceptionality finding and the grant of attorneys’ fees. In addition, the Court vacated and remanded for a proper determination on the issues of invalidity and noninfringement because the record showed many potential issues of fact that would prevent entry of SJ. The Court also vacated the district court’s decision to grant Microsoft’s motions in limine because there was not an adequate record in light of the overall procedural status of the case.

Finally, the Court evaluated whether the case should be transferred to a different judge, noting that a transfer request should be granted only in unusual circumstances. After reviewing the evidence, testimony, and the facts of the case, the Court concluded that the strongly expressed convictions of the district court may not be easily and objectively reconsidered. Accordingly, the Court remanded with instructions to reassign the case.