APaTS : Inequitable Conduct

Journalism 101

admin — Mon, 10 Aug 2009 13:17:00 GMT

Budding members of the fourth estate are schooled in the art of information gathering through the use of the formula known as the "five W's" - who, what, when, where, why and how (go figure on the "how" part . . . it's journalistic license). Although lawyers and the press have been known to clash from time to time, the Federal Circuit has recently adopted this journalistic rubric as the yardstick for evaluating the pleading requirements of inequitable conduct allegations.

In Exergen Corporation v. Wal-Mart Stores, Inc., the Federal Circuit affirmed the district court's denial of a motion for leave to amend to assert a charge of inequitable conduct. Specifically, the court ruled that, in order to plead allegations of inequitable conduct with the requisite particularity, "the pleading must identify the specific who, what, when, where and how" related to the alleged material misrepresentation or admission. Apparently, seasoned patent practitioners can still learn a thing or two from their non-lawyer colleagues.

The case involved Exergen's patents for infrared thermometers. The defendants challenged Exergen's claim on non-infringement, validity and enforceability grounds, and the bulk of the opinion is directed to the first two defenses. However, the defendants also sought review of the district court's denial of their motion to add inequitable conduct as an affirmative defense. The proposed amendment was actually fairly detailed, yet the court found it did not pass muster.

The court began its analysis by embracing Rule 9(b) of the Federal Rules of Civil Procedure which requires that allegations of fraud must be plead with "particularity." The court then noted that application of Rule 9(b) to the patent context was controlled by Federal Circuit, not the regional circuits, due to the unique nature of an inequitable conduct charge. Armed with these investigative tools, the judges proceeded to take apart the proposed pleading. First, as to the "who," the proposed amendment referred generally to "Exergen, its agents, and/or attorneys" and did not name a specific individual associated with the application who both knew of the material information and deliberately withheld or misrepresented it. Second, as to the "what" and "where," the new claim failed to identify which claims and which limitations in those claims the withheld references were relevant to, and where in those references the material information was found. Finally, the proffered pleading stated generally that the withheld references were material, but did not identify why that information was material and how an examiner would have used the information in assessing the patentability of the claims.

The court acknowledged that allegations of deceptive intent can be plead generally, but emphasized that a pleading must set forth sufficient facts from which deceptive intent can reasonably be inferred. Ultimately, the absence of such facts in the pleading, while fatal in and of themselves, also doomed the proposed amendment because there was not enough upon which to base a specific intent to deceive. The court reminded the bar that these specific requirements were necessary to avoid situations where "inequitable conduct devolved into a magic incantation to be asserted against every patentee," leading to wasteful and frivolous litigation.

Our take? Allegations of inequitable conduct - where properly supported - are an important responsive weapon in a defendant's arsenal, but pro forma allegations are a disservice both to a lawyer's role as officer of the court and to the ultimate interest of his or her client. In embracing a Rule 9 approach to such allegations, the Federal Circuit reminds the litigants to use an appropriate check list for determining if they have "just the facts," thus serving both these goals.

Rudyard Kipling - who started off his career as a journalist - penned the following poem regarding his experiences as a newspaper man:

I keep six honest serving-men:
(They taught me all I knew)
Their names are What and Where and When
And How and Why and Who.

Like their journalistic colleagues then, lawyers can now rely upon the five W's to keep them honest with regard to allegations of inequitable conduct.

Patent-'Round-the-Rosy

admin — Wed, 15 Apr 2009 21:08:00 GMT

Is Larson Manufacturing Co. v. Aluminart Products Ltd. the end of what has been, for some, the classic patent game of asserting inequitable conduct? In an effort to stop one of the favorite pastimes of some accused infringers, the Federal Circuit in Larson puts a pox on lower courts' use of loose evidentiary inferences when considering claims of deceptive intent. It's too soon, however, to shout "All fall down." The court's comments on the issue of deceptive intent were dicta, issued as "guidance" to the lower court on remand following a determination that the dismissal of the patent holder's infringement claims on inequitable grounds was not supported by material evidence. Further, the concurrence points out the flaws of the entire test used to decide inequitable conduct cases and calls for an en banc review and recasting of the same-leaving pocketfuls of unresolved questions when it comes to inequitable conduct.

The patents at issue in Larson covered a retractable screen door system. The alleged infringer claimed inequitable conduct during two patent reexaminations and in the infringement action brought by the patent holder. The district court dismissed the patent infringement claims on grounds of inequitable conduct because it found that the patent holder had intentionally withheld material information during one of the reexaminations. The Federal Circuit found that the district court was mistaken as to the materiality of some of the information at issue and that, therefore, its finding of inequitable conduct could not stand. Vacating the lower court's dismissal, the Federal Circuit offered some instructive guidance on how to address the issue of deceptive intent when reviewing the remaining two material nondisclosures on remand.

The court said "materiality does not presume intent and nondisclosure, by itself, cannot satisfy the deceptive intent element." Rather, the party alleging it bears the burden of proving intent with clear and convincing evidence. Courts should also consider any evidence of good faith which points away from deceptive intent. Only then, once a satisfactory threshold level of intent has been established, should courts engage in the final step, balancing materiality and intent, with a higher level of materiality permitting a lower level of intent and vice versa.

Larson makes clear that courts are not going to "spot" litigants' intent. Now, more than ever, proving inequitable conduct will require a fully developed record and litigants must plan on mustering sufficient evidence to make out intent. Relying on inferences alone won't work because the patent holder is sure to counter with evidence of good faith. Moreover, if an inference is to be used, not only must it be based on sufficient evidence and be reasonable in light of that evidence, it also must be the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard. This sets the bar pretty high, and means that litigants need to come prepared to marshal all the facts and counter inferences helpful to the other side.

Our spin? Inequitable conduct claims have never been child's play, and with Larson they are now about as welcome as the plague. Unless and until another decision on the topic comes along, Larson may mean that any but the most egregious and material of such claims will quickly find there's little chance of remaining standing once the patent litigation music stops.

Up in Smoke

admin — Mon, 29 Sep 2008 16:22:00 GMT

Death of lower court victories can be a side effect of appeals, so perhaps the accused patent infringer in Star Scientific Inc. v. R.J. Reynolds Tobacco Co. shouldn't have inhaled their district court win. RJR, the accused infringer, obtained an order for summary judgment in the district court based on the inequitable conduct of patent holder Star Scientific. On appeal, the Federal Circuit made RJR cough up that win. It found that RJR had failed to meet the requisite burden of proof on intent to deceive and sent the case back to the district court for further consistent proceedings-a reversal and remand that surely had to burn.

In Star Scientific, the patents at issue covered a process for curing (drying) tobacco in a way that significantly reduced dangerous chemical by-products. At the center of the dispute was a letter from a Star scientist conveying information that certain foreign tobacco already existed with lower levels of nitrites-the chemical by-product the patent claimed to eliminate. RJR alleged that Star switched law firms in the middle of the patent prosecution in order to avoid disclosing the letter. Star representatives testified that the change was motivated both by the death of a partner at its first firm and its observation of a poor performance by another attorney from that firm in an unrelated prosecution.

Rejecting the testimony as unbelievable, the district found that Star changed law firms in order to "quarantine" the letter from disclosure to the PTO-conduct, it believed, sufficient to demonstrate the requisite deceptive intent necessary to invalidate the patents on equitable grounds. On appeal, the Federal Circuit strongly disagreed and snuffed out the entirety of the lower court's analysis, despite its nod to the district court's ability to make credibility determinations.

Instead, the Star Scientific court reasoned that since inequitable conduct can only be established by clear and convincing evidence and that the accused infringer bears the burden of proof, a patent holder's failure to offer a credible alternative explanation of fact is not enough to shift that burden. Review of the record here showed that RJR had "failed to elicit any testimony or submit any other evidence" regarding a deceptive intent around the disputed letter-despite being specifically asked by the court to do so in supplemental briefing. The record revealed that one key Star witness had never even seen the disputed letter until it was presented to him at his deposition and another was never asked any questions about it. The Federal Circuit said that without any evidence supporting the requisite threshold level of intent, the district court simply did not have the discretion to exercise any equitable inquiry into the patent's enforceability.

And-at least according to Star Scientific -if intent can only be established by indirect or circumstantial evidence (as is often the case), the proffered explanation regarding deception must be the single most reasonable inference able to be drawn from that evidence or the requirements of the clear and convincing standard are not met. Further, patent holders only need to offer rebuttal evidence regarding their good faith once the accused infringer has met its evidentiary burden. Even then, the patent holder may have the right to argue for a "balancing of the equities" to determine whether the conduct alleged was egregious enough to warrant holding the entire patent unenforceable.

With Star Scientific -whose holding takes one of the most conservative recent approaches regarding deceptive intent-patent holders may have an easier time blowing away allegations that their conduct should be construed as intentionally deceptive. We also wonder whether a deposition strategy that might have sought to avoid developing good facts for the other side may have proved fatal in this case. Perhaps the inequitable conduct pack needs a new warning-one that informs accused infringers that their deceptive intent claims could very possibly end up in smoke.

That's Incredible!

admin — Fri, 08 Jun 2007 19:36:00 GMT

McKesson Information Solutions, Inc. v. Bridge Medical, Inc....(read more)