Vague Allegations No Longer Acceptable When Asserting Inequitable Conduct Defense

By John Stickevers.

August 2009 IP Update

Patentees alleging infringement have become accustomed to the defense of inequitable conduct  that defendants almost reflexively raise. Inequitable conduct is found when a patent applicant breaches his duty of candor and good faith to the Patent and Trademark Office while applying for his patent, usually by failing to submit material known to be material to patentability.

The defense, if successful, has a draconian effect: If even one patent claim is held to have been obtained through inequitable conduct, the entire patent is unenforceable.

In Exergen Corp. v. Wal-Mart Stores Inc. and S.A.A.T. Systems, the Federal Circuit recently insisted that the defense of inequitable conduct must be spelled out with particularity in the pleadings. The defendant must specify who was guilty of the inequitable conduct, what precisely that person knowingly withheld or misstated to the PTO, and how the omission or misstatement affected the patentability of individual claims. The defense cannot be pleaded generally, but instead requires the accused infringer to marshal facts before he can assert inequitable conduct.

The Federal Circuit’s opinion reads like a straightforward application of Rule of Civil Procedure 9(b), which requires that allegations of fraud be stated with particularity. Yet, its approach is quite unlike another recent Federal Circuit opinion, and may signal a conscious effort to choke off what many trial judges (and patentees) view as the indiscriminate pleading by accused infringers of inequitable conduct allegations.

Exergen manufactures and sells infrared thermometers that allow a user to determine the temperature of a patient by measuring emitted radiation. Exergen obtained a patent on this scanning technology.

In the trial court, SAAT asserted that, before filing the application that resulted in Exergen’s patent, Exergen was aware of two earlier patents that it failed to cite to the examiner during prosecution. SAAT alleged that the two patents were material to patentability, and taught “a technique of scanning a radiation detector across a target to measure the maximum emitted radiation” and “a technique of swiping a radiation detector across a target,” technology that SAAT believed taught the subject matter of Exergen’s ‘685 patent.

The district court denied SAAT’s motion to add inequitable conduct as an affirmative defense because the allegations were simply not specific enough to meet the particularity requirement.

On appeal, the Federal Circuit agreed, stating that “a pleading that simply avers the substantive elements of inequitable conduct without setting forth the particularized factual bases for the allegation does not satisfy Rule 9(b).” Instead, the defendant must describe specific omissions or misstatements by the patentee, and explain the relevance of the misconduct to the patentability of specific patent claims.

Although “knowledge” and “intent” can be pleaded generally, the defendant must allege enough facts that a reasonable person may infer that a specific individual, either the inventor, his attorney, or some other agent, acted with the required state of mind.

SAAT had failed to identify, among other things, which claims and limitations from the two supposedly withheld  patents were material, who exactly engaged in the decision to withhold material information, or how the examiner would have used the missing information in assessing the patentability of Exergen’s patent claims.

The court noted that SAAT’s pleading of deceptive intent were based solely on information and belief, and concluded that the pleading lacked any “information” on which SAAT relied or any reasonable basis for its belief.

The Exergen opinion represents a striking departure from the Federal Circuit’s earlier view of persons prosecuting related pending applications. In Exergen, the court stated: “The mere fact that an applicant disclosed a reference during prosecution of one application, but did not disclose it during prosecution of a related application, is insufficient to meet the threshold level of deceptive intent required to support an allegation of inequitable conduct.”

Contrast this statement with McKesson Information Solution Inc. v. Bridge Medical Inc ., where the Federal Circuit in 2007 found inequitable conduct because a patent attorney had failed to provide to a first examiner information from an office action in a related case before a second examiner. McKesson focused entirely on the complex facts of the case, without considering whether they had been properly pleaded by the defendant in a manner that could give rise to an inference of intent.

McKesson has forced patent prosecutors to act cautiously and be overly inclusive with their submissions to the PTO for fear that an omission might jeopardize their client’s patent. That case had increased the burden and expense of patent applicants.

In Exergen, the Federal Circuit softened this requirement by requiring particularity in asserting an inequitable conduct defense. Unless a reference is known to be material by someone having a duty to disclose the reference, it does not have to be disclosed to the PTO.

One cannot now assume that a patent practitioner who generally knew that a reference existed also knew of the specific material information contained therein. Inequitable conduct is not measured by a “should have known” standard. There is no duty to know the contents of every reference in the possession of a client or within a patent practitioner’s file.

In the wake of Exergen, accused infringers must be mindful of the burden that they undertake when they choose to allege inequitable conduct. General statements will be rejected as falling short of the particularity requirement. As the Federal Circuit cautions, inequitable conduct is not a “magic incantation to be asserted against every patentee” by a “mere showing that art or information having some degree of materiality was not disclosed.”