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Judge Linn Calls for En Banc Review of Inequitable Conduct Standard After Court Reverses Finding of Inequitable Conduct Elisabeth Jaffe Barek

March 18, 2009

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Last Month at the Federal Circuit - April 2009

Judges: Schall (author), Clevenger, Linn (concurring)

[Appealed from: D.S.D., Judge Piersol]

In Larson Manufacturing Co. of South Dakota, Inc. v. Aluminart Products Ltd., Nos. 08-1096, -1174 (Fed. Cir. Mar. 18, 2009), the Federal Circuit affirmed the District Court of South Dakota’s finding that plaintiff-appellant failed to disclose to the Reexamination Panel two Office Actions issued in the prosecution of a continuation application that were noncumulative and material, reversed the district court’s finding that plaintiff-appellant failed to disclose to the Reexamination Panel three pieces of prior art that were noncumulative and material, and vacated the district court’s finding of inequitable conduct and its ultimate determination that the patent at issue was unenforceable. The case was remanded for further proceedings.

The patent at issue, U.S. Patent No. 6,618,998 (“the ’998 patent”), is directed to a storm door with a moving glass insert and a retractable screen feature. The screen module can be attached to the door’s header, jambs, or sill. A free end of the screen is attached to the upper end of the glass panel insert. In operation, the rolled screen retracts into the screen module and is hidden from view when the glass insert is raised toward the header and the screen module. When the glass insert is lowered toward the door sill, it travels into a hollow panel, allowing the screen to unroll into service. The insert travels up and down in weather stripping-lined tracks located in the doorjambs.

The ’998 patent issued from the prosecution of U.S. Application No. 10/212,465 (“the ’465 application”). Once the ’998 patent issued, Larson Manufacturing Company of South Dakota, Inc. (“Larson”) filed a continuation application No. 10/606,039 (“the ’039 continuation”) directed toward similar screen door technology. Larson filed suit against Aluminart Products Limited (“Aluminart”), alleging that one of its products, a storm door with a retractable screen, infringes the ’998 patent. In response, Aluminart contended that Larson engaged in inequitable conduct during the prosecution of the ’465 application. Aluminart also filed a request for reexamination, arguing that there was a substantial new question of patentability based on prior art not considered during prosecution. The PTO simultaneously conducted the prosecution of the ’039 continuation and the reexamination of the ’998 patent. In both proceedings, the same patent attorney represented Larson. The district court stayed the litigation during the pendency of the reexamination. Once the PTO issued the reexamination certificate, the district court lifted the stay. Subsequently, Aluminart amended its pleadings to include a counterclaim alleging that Larson engaged in inequitable conduct during the reexamination of the ’998 patent.

After a bench trial, the district court found that Larson had deliberately withheld several material references from the Reexamination Panel: (1) product and marketing materials for screen configurations produced by a company named Genius (“Genius literature”); (2) German Patent No. 19639478 (“the DE ’478 patent”); (3) product and marketing materials for screen configurations produced by a company named Preferred Engineering (“Preferred Engineering literature”); and (4) Third and Fourth Office Actions from the ’039 continuation. The district court ruled that Larson had withheld the material with the requisite intent, and that deceptive intent could be inferred from the circumstances. Each reference was considered to be material and not cumulative of prior art already before the Reexamination Panel. The district court determined that the threshold levels of materiality and intent had been satisfied, and balanced the two factors. The district court found that Larson engaged in inequitable conduct before the PTO, and held unenforceable the ’998 patent.

On appeal, Larson argued that the references were cumulative of prior art that was already before the Reexamination Panel, and contended that the district court erred in finding, without direct evidence, that it intended to deceive the Reexamination Panel. Specifically, Larson argued that the district court improperly inferred intent merely because of the nondisclosure of references. Larson also argued that even if the district court’s findings of materiality and intent were correct, the court abused its discretion in balancing the two factors in ultimately ruling that the ’998 patent was unenforceable.

The Federal Circuit first considered the Genius literature and the DE ’478 patent. The Court found the Genius literature and the DE ’478 patent cumulative of another patent, U.S. Patent No. 6,082,432 (“the Kissinger patent”), before the Reexamination Panel, as the specific features in the two pieces of prior art that the district court had found to be material were disclosed by the Kissinger patent.

Next, the Federal Circuit considered the Preferred Engineering literature. Again, the Court held that the district court clearly erred in its ruling. Specifically, the Federal Circuit found that the Preferred Engineering literature was cumulative of another patent, U.S. Patent No. 2,107,755 (“the Kemp patent”), before the Reexamination Panel, as the specific feature in the prior art deemed to be material was disclosed by the Kemp patent.

Finally, the Federal Circuit considered the Third and Fourth Office Actions from the ’039 continuation. The Federal Circuit concluded that the withheld Office Actions were material because they contained another examiner’s adverse decisions about substantially similar claims, and because they were not cumulative to the First and Second Office Actions. Thus, even though Larson disclosed each material reference disclosed in the Office Actions, and even though it had clearly notified the Reexamination Panel that the ’039 continuation was pending, Larson should have disclosed the Third and Fourth Office Actions, because those Office Actions contained “information that an examiner could consider important.” Slip op. at 33 (quoting Dayco Prods., Inc. v. Total Containment, Inc., 329 F.3d 1358, 1368 (Fed. Cir. 2003)).

The Federal Circuit next considered whether Larson acted with deceptive intent. The Court concluded that because the Genius literature, the DE ’478 patent, and the Preferred Engineering literature were not material, the district court’s finding of deceptive intent could not stand. Accordingly, the Court vacated the district court’s determination of inequitable conduct and remanded for determination of whether Larson withheld the only remaining material items—the Third and Fourth Office Actions—with a threshold level of deceptive intent and, if so, whether balancing that level of intent with the level of materiality warranted holding the ’998 patent unenforceable.

Finally, the Federal Circuit provided detailed guidance to the district court with respect to the issue of deceptive intent: (1) the court should not accept additional evidence and should analyze all the evidence of record; (2) materiality does not presume intent, and nondisclosure, by itself, cannot satisfy the deceptive intent element—deceptive intent can be inferred from circumstantial evidence, but the circumstantial evidence must be clear and convincing; (3) the court should take into account any evidence of good faith, including Larson’s notification to the Reexamination Panel of the simultaneous prosecution of the ’039 continuation; and (4) after all the above evidence is analyzed, the court must then conduct the balancing test.

In a concurring opinion, Judge Linn called for an en banc review of the standard for inequitable conduct. In Judge Linn’s view, a lower standard than “gross negligence” has propagated through Federal Circuit case law, permitting an inference of deceptive intent when “(1) highly material information is withheld; (2) ‘the applicant knew of the information [and] . . . knew or should have known of the materiality of the information; and (3) the applicant has not provided a credible explanation for withholding.’” Linn Concurrence at 3 (alterations in original) (quoting Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1313-14 (Fed. Cir. 2008)).

Judge Linn finds this test problematic for several reasons. First, according to Judge Linn, the “high materiality” prong of the intent element simply repeats the materiality element, impermissibly conflating materiality and intent. Next, Judge Linn finds that the “should have known” prong sets forth a simple negligence standard that was expressly rejected in Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc). Judge Linn also questions whether a fact-finder who has deemed information “highly material” would not also be compelled to conclude that a reasonable patentee “should have known of the materiality,” at least when the patentee “knew of the information,” as prong two requires. Third, Judge Linn finds that the “credible explanation” prong impermissibly shifts the burden to the patentee to prove a negative—that it did not intend to deceive the PTO—when it is the accused infringer, not the patentee, who must prove by clear and convincing evidence that the material information was withheld with the specific intent to deceive the PTO. Finally, because the test generally permits an inference of deceptive intent to be drawn whenever the three prongs are satisfied, Judge Linn finds tension with the rule that “the inference must not only be based on sufficient evidence and be reasonable in light of that evidence, but it must also be the single most reasonable inference able to be drawn from the evidence.” Linn Concurrence at 5 (quoting Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357 (Fed. Cir. 2008)). In Judge Linn’s view, it cannot be said that deceptive intent is the “single most reasonable inference” when all that prong two shows is that the patentee “should have known” that the information was material. Judge Linn believes that an equally reasonable inference under this test is that the patentee incorrectly believed that the information was material, or that the patentee was negligent or grossly negligent.

For these reasons, Judge Linn concluded that “the test for inferring deceptive intent, as it currently exists, falls short of the standard ‘need[ed] to strictly enforce the burden of proof and elevated standard of proof in the inequitable conduct context.’” Id.