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Award of Attorney Fees Reversed Due to Inequitable Conduct and Vexatious Litigation

May 28, 2010

Decision icon Decision

Last Month at the Federal Circuit - June 2010

Judges: Michel (author), Prost (dissenting), Moore

[Appealed from: D. Md., Judge Davis]

In Leviton Manufacturing Co. v. Universal Security Instruments, Inc., No. 09−1421 (Fed. Cir. May 28, 2010), the Federal Circuit vacated the district court’s award of attorney fees based on inequitable conduct and vexatious litigation. 

Shanghai Meihao Electric, Inc. (“Meihao”) argued to the district court that U.S. Patent No. 6,864,766 (“the ’766 patent”), owned by Leviton Manufacturing Company, Inc. (“Leviton”), was unenforceable due to inequitable conduct.  The ’766 patent was filed six months prior to another Leviton application 
(“the Germain application”) filed by the same patent attorney.  The ’766 patent and the Germain application contained nearly identical independent claims and identical dependent claims.  Neither claimed priority to the other, no inventors were named on both, and the inventors of each submitted sworn declarations to the PTO stating that they were the correct inventors.  Leviton did not disclose the Germain application during the prosecution of the ’766 patent.  After issuance of the ’766 patent, Leviton disclosed the ’766 patent to the PTO in the Germain application’s prosecution.  The PTO issued a double−patenting rejection based on the similar claims in the Germain application. 

In a subsequent reexamination of the ’766 patent, Leviton did not disclose the Germain application or the litigation of parent patents related to the ’766 patent (where inequitable conduct accusations had been lodged) to the PTO until after the examiner confirmed the claims, the requester appealed, and appeal briefing to the Board was complete.  When Leviton did disclose the Germain reference to the PTO, Leviton used a nontraditional IDS “memorandum” that did not meet the requirements for an IDS. 

While motions to compel testimony by the ’766 patent’s prosecuting attorneys remained pending, Leviton moved to dismiss the litigation against Meihao, explaining that Meihao stopped selling infringing products.  Accordingly, the district court dismissed the case.  Meihao then filed a motion for attorney fees and costs based on allegations of inequitable conduct and vexatious litigation by Leviton.  The district court granted SJ of inequitable conduct and awarded over $1 million in fees and costs.  Leviton appealed.

The Federal Circuit found that the district court improperly granted SJ of inequitable conduct because the materiality of both the Germain application and the related litigation was in dispute.  The Federal Circuit first evaluated the four reasons provided by the district court in support of the materiality of the Germain application.  The Court agreed with two of the reasons and disagreed with the other two. 

First, the Federal Circuit agreed with Leviton that the provision on copying claims in 37 C.F.R. § 10.23(c)(7) applies primarily in the context of interferences and was not relevant to the materiality of the Germain application.  Second, the Court agreed with Meihao that the Germain application was material to inventorship (and therefore patentability) because the examiner would need to evaluate which set of inventors actually conceived of the inventions in question.  Third, the Court held that the copying of claims would be material to the issue of double patenting because a reasonable examiner would want to consider both applications and, as a result, knowledge of the Germain application during the prosecution of the ’766 patent would be material.  Fourth, the Court agreed with Leviton that the Germain application was not relevant to whether or not the ’766 patent satisfies the written description requirement because the ’766 patent’s specification must support its own claims.

Turning to the materiality of the roughly one dozen related litigations, the Federal Circuit found that Leviton violated the requirements of MPEP § 2001.06(c) and the Court’s precedent by failing to bring the related litigations to the PTO’s attention.  The Court rejected Leviton’s argument that it did not need to disclose the related litigations because it had prevailed in those litigations on validity issues.  Regardless of the outcome of those cases, the Court found that Leviton should have disclosed the existence of and material information from those cases, including allegations of invalidity and unenforceability.

Having determined that both the Germain application and the related litigations were material, the Federal Circuit turned to the intent prong of its inequitable conduct inquiry.  The Court noted that it “rarely affirm[s] a grant of summary judgment of inequitable conduct, and in those cases where [it] affirmed, the applicants did something other than fail to disclose a commonly owned application or related litigation.”  Slip op. at 15−16.  The Federal Circuit held that there were genuine issues of material fact precluding SJ and rejected the district court’s finding of intent to deceive the PTO.  In particular, the Federal Circuit noted that it had not previously affirmed a grant of SJ based on a failure to disclose a commonly owned application or related litigation, and declined to do so in this case.  The Court explained that the district court could have made other reasonable inferences besides an inference of intent to deceive, highlighting the prosecuting attorney’s explanation that the Germain application was not prior art to the ’766 application.  The Court also explained that “failure to provide an explanation is not independently dispositive of whether a patent prosecutor intended to deceive the PTO.”  Id. at 17.  The Court further stated that Leviton’s memorandum disclosure of the Germain application during reexamination may be evidence of good faith.  Significantly, the district court did not hear testimony from Leviton’s prosecuting attorney.  Although Meihao argued Leviton never sought to provide live testimony and should not be allowed to request the opportunity to do so on appeal, the Court explained that Leviton had raised this issue in its briefing to the district court on Meihao’s motion for costs and fees, and further agreed with Leviton that such testimony must be allowed.  Accordingly, the Court vacated the district court’s SJ ruling and remanded for a bench trial on inequitable conduct. 

The Federal Circuit also vacated and remanded the district court’s decision and award with respect to vexatious litigation because that decision depended in part on the holding of inequitable conduct.  The Court also raised a concern with the district court’s characterization of one of Leviton’s litigation arguments about the scope of the work−product doctrine as vexatious.  Specifically, the Court explained that “Leviton cannot be required to concede that Meihao satisfied the ‘substantial need’ and ‘undue hardship’ exceptions [to the work−product doctrine] simply because a defense of inequitable conduct was raised.”  Id. at 20.  Accordingly, the Court concluded that the district court clearly erred by finding that Leviton’s work−product objections constituted vexatious litigation. 

Judge Prost dissented, stating that “[a]lthough I am cognizant of this court’s rightful hesitance to allow a finding of inequitable conduct on summary judgment and agree with our precedent establishing that such a finding is reserved for a rare case, I firmly believe that this is that rare case.”  Prost Dissent at 2.  Judge Prost’s chief point of disagreement related to the panel’s refusal to infer an intent to deceive.  In that regard, Judge Prost viewed the panel as taking the “burden to establish deceptive intent to an unprecedented level.”  Id. at 26.  While the panel viewed deceptive intent as one of multiple possible inferences, Judge Prost viewed deceptive intent as the only reasonable inference to be drawn.  She was swayed by the prosecuting attorney’s experience and admissions that he knew about the duty of disclosure and about double−patenting issues.  Unlike the panel, Judge Prost believed Meihao met its threshold burden to prove intent and Leviton failed to provide any good−faith explanation to rebut Meihao’s evidence of deceptive intent.  Judge Prost opined that the panel should have rejected as implausible the prosecuting attorney’s explanation that the Germain application was not disclosed because it was not prior art.  That explanation was not sufficient, Judge Prost opined, because materiality is not limited to prior art.  Furthermore, Judge Prost argued that Leviton failed to rebut Meihao’s threshold showing of deceptive intent with regard to the undisclosed related litigations.  Finally, Judge Prost took issue with the panel’s willingness to find evidence of good faith in Leviton’s actions taken in the reexamination, noting that disclosure of withheld information in a reexamination should be irrelevant to inequitable conduct committed during the original prosecution. 

As for Leviton’s complaint that it had no opportunity to present testimony to support its argument against inequitable conduct, Judge Prost suggested that Leviton missed its opportunity to create a genuine issue of material fact by failing to submit an affidavit with its SJ briefing.  Judge Prost argued that this was a strategic choice for which Leviton should have to suffer the consequences.


Summary authored by John S. Sieman, Esq.