Federal Circuit Closely Scrutinizes Inequitable Conduct Charges

Tuesday, September 1, 2009 - 01:00

Patent cases frequently include claims that the patentee hid material information from the Patent Office in an attempt to secure issuance of the patent. If proven, inequitable conduct can be a powerful defense, rendering the patent unenforceable. Yet the frequency with which such charges have been levied - and their seriousness - have led the Federal Circuit to describe the defense as nothing short of a "plague."

Taking a significant step to rein in such charges, the Federal Circuit applied the pleading standard for inequitable conduct with rigor in Exergen Corp. v. Wal-Mart Stores , 2009 U.S. App. LEXIS 17311 (Fed. Cir. Aug. 4, 2009). In Exergen , the Court required a defendant seeking to assert inequitable conduct to plead specifics rarely included by defendants in the past, such as the identity of the individual who allegedly committed the fraud on the Patent Office. After Exergen, parties asserting inequitable conduct may face new pleading hurdles, both in terms of the particularity needed and the requirement to allege facts supporting an inference of scienter.

Plaintiff Exergen claimed infringement of three patents covering infrared thermometers. One of the defendants, SAAT, tried to assert inequitable conduct as a defense against two of the patents, but was denied leave to amend its answer for failure to satisfy Rule 9(b) of the Federal Rules of Civil Procedure, which requires that allegations of fraud be pled with particularity. After Exergen won a substantial jury verdict, SAAT appealed on various grounds. The Federal Circuit reversed the judgment against SAAT on all of the patents-in-suit on the merits, but affirmed the denial of leave to amend. Although SAAT was not liable, the Federal Circuit went on to address the rejected inequitable conduct defense and agreed with the district court that the proposed pleading was insufficient.

The Court first made clear that its own law, rather than regional circuit law, governs the pleading requirements for inequitable conduct claims. The Court then held that, when pleading inequitable conduct, "Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." SAAT's proposed defense, which the Federal Circuit set forth at length in its opinion, was found lacking in several respects. SAAT asserted, for example, that "Exergen" knew about several pieces of material prior art but failed to disclose them. These allegations failed to identify the "who," i.e. , the specific individual associated with the filing or prosecution, who both knew of the material information and deliberately withheld or misrepresented it.

As for materiality of omitted prior art, even a statement of the technical relevance may not be enough to satisfy the "what" and "where" elements. Instead, a defendant should state the specific patent claims, and limitations, affected, and where in the omitted references the material information was found. One should also allege "why" and "how" the withheld references were noncumulative, i.e. , the particular claim limitations or combinations that were missing from the art that was considered by the Patent Office during prosecution.

Exergen also may raise the bar for pleading the requisite state of mind for inequitable conduct, namely, "knowledge of the withheld material information or of the falsity of the material misrepresentation" and "specific intent to deceive the PTO." While Rule 9(b) permits state of mind to be averred generally, the Federal Circuit nonetheless required defendant to plead sufficient underlying facts to support a reasonable inference of scienter, including facts that tend to show a person having a duty to disclose knew about the material information and specifically intended to deceive the PTO. Pleading general knowledge that a reference existed, whether a patent many pages long or even a statement made on the plaintiff's own website as in Exergen , may not be enough. Similarly, the common practice of pleading deceptive intent "on information and belief" may not pass muster unless the pleader states the "information" on which it relies and the reasons for its "belief."

What This Means For You

Exergen sends a strong message about the Federal Circuit's disdain for overuse of the inequitable conduct defense, and its preference that such allegations undergo close scrutiny "lest inequitable conduct devolve into 'a magic incantation to be asserted against every patentee.'" In the short term, this likely means increased motion practice as the lines of adequate pleading are redrawn. Patentees bringing infringement suits should be on the lookout for inadequately pled claims, which may be subject to attack. Accused infringers need to have a carefully considered inequitable conduct theory, one that is supportable under the facts, some of which may not be available before taking discovery. All of this should encourage defendants to develop their cases as early as possible and focus on their strongest defenses, leading to better use of resources overall.