Federal Circuit Overturns Summary Judgment Finding of Inequitable Conduct

The dissent also agrees that no plausible excuse has been given to explain the withholding of the related litigations. Throughout discovery and during the proceedings before the district court, applicants were afforded numerous opportunities to explain the failure to disclose the related litigations. Each time, applicants countered with privileged-advice and work-product objections. Accordingly, the dissent would require applicants to suffer the consequences of their strategic decision not to offer an explanation of the failure to disclose the related litigations when they had the opportunity to do so. No new evidentiary hearing was deemed necessary, and there was more than enough evidence to support a finding of inequitable conduct on summary judgment. Judge Prost acknowledged that affirming a finding of inequitable conduct on summary judgment is rare, but found this to be that rare case.

Donald J. Firca, Jr. is an associate at Pearne & Gordon LLP, where he focuses his practice on patent prosecution in the electronic and software arts.

The Federal Circuit recently agreed to an en banc review of the admittedly scattered precedents concerning inequitable conduct. Therasense, Inc. v. Becton, Dickinson & Co., 2010 U.S. App. LEXIS 9549 (April 26, 2010). In vacating its earlier panel decision in Therasense, Inc. v. Becton, Dickinson & Co., 593 F.3d 1289 (Fed. Cir. 2010), the rehearing order sets out six issues surrounding the materiality-intent standard at the core of any inequitable-conduct analysis. In the meantime, the current materiality-intent standard continues to result in drastically different outcomes, even among members of the same panel. Such was the result in the Federal Circuit's split panel decision in Leviton Mfg Co. Inc. v. Universal Security Instruments, Inc., 2009-1421 (Fed. Cir. May 28, 2010).

The Leviton Case

In Leviton, the majority decision overturned a finding of inequitable conduct on summary judgment, remanding the case for an evidentiary hearing. Prosecution counsel was found to have withheld material information from the Examiner during prosecution with full knowledge of his obligation to disclose such information. Despite prosecution counsel's knowledge and the materiality of the withheld information, however, the majority was reluctant to conclude that prosecution counsel withheld the information with an intent to deceive. The court reasoned that in instances where summary judgment of inequitable conduct has been affirmed, the intent to deceive was inferred from an affirmative act on the part of the applicants and the misleading nature of such acts.

In her dissent, Judge Sharon Prost found the withheld information was not only material, as did the majority, but agreed with the district court that the information was highly material. According to the dissent, the highly material nature of the withheld information diminished the level of intent required to a level that was satisfied by prosecution counsel's omissions.

In Leviton, several co-pending, commonly owned applications were directed toward related subject matter. One or more of the applications was not disclosed to the U.S. Patent and Trademark Office (“PTO”) during prosecution of each other application. The first such application, filed in August 1998, was directed toward an aspect of a ground-fault circuit interrupter (“GFCI”) and listed Nicholas DiSalvo as the sole inventor. This application eventually issued into U.S. Patent No. 6,040,967, which was assigned to Leviton Manufacturing Company (“Patentee”).

Subsequently, a series of continuing applications were filed, forming an extensive patent family including a continuation application filed in April 2004, listing DiSalvo as a co-inventor along with William Ziegler. This continuation application issued into U.S. Patent No. 6,864,766, which has a priority date that can be traced back at least as early as a previously filed continuation-in-part (“CIP”) application listing both DiSalvo and Ziegler as co-inventors. The CIP application was filed in September 1999, and claimed priority back to the original patent application that issued into the '967 patent.

Another application directed toward GFCI technology was filed by the Patentee, listing Frantz Germain as the first inventor (the “Germain Application”). The Germain Application was filed on Oct. 22, 2003 with a claim of priority dating back to Feb. 3, 2003. There are no inventors in common between the Germain Application and the application that issued into the '766 patent. However, several claims in the application for the Germain Application were identical, or virtually identical to claims in the '766 patent, differing by only a few insignificant words. The claims in both the Germain Application and the application for the '766 patent were written by the same attorney, who was also actively involved in the prosecution of both applications.

The Germain Application, despite having claims identical and nearly identical to claims in the '766 patent, was not disclosed to the Examiner by prosecution counsel during prosecution of the '766 patent. Additionally, 12 previous and pending litigations involving the parent patents of the '766 patent were not disclosed during prosecution of the '766 patent, even though the validity and/or enforceability of those patents was challenged in eight of the 12 litigations.

The '766 patent issued on March 8, 2005, and the Patentee filed suit to assert the '766 patent on March 31, 2005. The Patentee's case was later dismissed, with prejudice. The Counterclaim-Plaintiff (“Meihao”) filed a motion for summary judgment to recover attorneys' fees because of the exceptional circumstances of the case, based in part on inequitable conduct committed during prosecution of the '766 patent.

Meihao based its claim of inequitable conduct on: 1) the failure to disclose the Germain Application during prosecution; and 2) the failure to disclose related litigation involving the '766 patent. The district court agreed with Meihao and found each of the withheld pieces of information to be highly material.

The district court then evaluated the intent of prosecution counsel by considering factors such as his experience in the field and knowledge of his obligations to the PTO. Prosecution counsel was well seasoned, and admitted to knowing his obligations.

Possible motives for withholding the information were also considered. The district court was particularly bothered by the claims of the '766 patent that were identical and/or nearly identical to claims of the Germain Application. A substantial library of potentially invalidating prior art was disqualified by the priority date of the '766 patent as opposed to that of the Germain Application. But perhaps more damning in the eyes of the district court, the accused product against which the '766 patent was eventually asserted was first imported into the United States between the priority dates of these two applications. It was reasoned that prosecution counsel may have attempted to avoid any difficulties that could have arisen from disclosing at least the Germain Application. According to the district court, the only inference that can be drawn from these facts is that prosecution counsel acted with the intent to deceive.

The district court granted Meihao's motion for summary judgment, awarding costs and attorneys' fees in excess of $800,000.

The Federal Circuit Appeal

On appeal to the Federal Circuit, the Patentee challenged each of the grounds on which the district court found inequitable conduct. The majority decision of the Federal Circuit agreed with the district court's use of the “reasonable examiner” test to determine materiality. Under the reasonable examiner test, omissions and misstatements are material if “a reasonable examiner would have considered such [information] important in deciding whether to allow the ' application.” Digital Control, Inc. v. Charles Machine Works, 437 F.3d 1309, 1314 (Fed. Cir. 2006). Such withheld information “may be material even though it would not invalidate the patent.” Larson Mfg. Co. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1327 (Fed. Cir. 2009). Using the reasonable examiner test, it was determined that both the Germain Application and the related litigations were material. Even though not prior art, the Germain Application could have given rise to a double-patenting rejection. The related litigations could also have alerted the reasonable examiner to prior art that would not ordinarily be available to the examiner during prosecution.

In evaluating prosecution counsel's deceptive intent in withholding the information, the majority observed that a plausible, good-faith explanation for withholding the information from the PTO would avoid a finding of inequitable conduct, citing Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326, 1348 (Fed. Cir. 2005). Deposition testimony from prosecution counsel explained that the Germain Application was withheld from the PTO because it was not prior art to the '766 patent. No explanation was given for the failure to disclose the related litigations. Although the applicants' duty of disclosure is not limited to prior art, the Federal Circuit determined that the explanation for not submitting the Germain Application was plausible, albeit misguided. And since there was no explanation given for failing to disclose the related litigations, the Federal Circuit remanded the case for further discovery regarding the reasons surrounding the withholding of the Germain Application and related litigations.

The Dissent

Dissenting, Judge Prost points out that the majority overlooks the fact that the district court not only found the withheld information to be relevant, but highly relevant. Accordingly, a lesser showing of intent should be required by the current materiality-intent balancing standard. According to the dissent, prosecution counsel's experience and knowledge of his obligations to disclose relevant information, and the possible motives for withholding that information were enough to support a finding of inequitable conduct on summary judgment.

The dissent also agrees that no plausible excuse has been given to explain the withholding of the related litigations. Throughout discovery and during the proceedings before the district court, applicants were afforded numerous opportunities to explain the failure to disclose the related litigations. Each time, applicants countered with privileged-advice and work-product objections. Accordingly, the dissent would require applicants to suffer the consequences of their strategic decision not to offer an explanation of the failure to disclose the related litigations when they had the opportunity to do so. No new evidentiary hearing was deemed necessary, and there was more than enough evidence to support a finding of inequitable conduct on summary judgment. Judge Prost acknowledged that affirming a finding of inequitable conduct on summary judgment is rare, but found this to be that rare case.

Donald J. Firca, Jr. is an associate at Pearne & Gordon LLP, where he focuses his practice on patent prosecution in the electronic and software arts.