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Federal Circuit Warns Against Inference Of Intent To Deceive Patent Office, Stresses That Evidence Of Intent Is Always Necessary For Inequitable Conduct

Todd Cason

In Larson Manufacturing Company of South Dakota, Inc. v. Aluminart Products Limited, No. 2008-1096, -1174, 2009 WL 691322 (Fed. Cir. Mar. 18, 2009), a panel of the United States Court of Appeals for the Federal Circuit recently addressed the interrelationship between the necessary respective levels of intent and materiality of an inappropriate representation or omission by a patent applicant as required to justify a finding of inequitable conduct. Addressing a lower court’s finding of inequitable conduct, the Court reiterated that failure to disclose a material reference is not sufficient to establish deceptive intent. Even absent a good faith explanation for such a failure, non-disclosure of even a significantly material reference cannot, by itself, sustain an inequitable conduct finding without clear and convincing evidence of a threshold level of intent. Thus, according to the rationale of the Larson panel, materiality alone — even a high level of materiality — is not sufficient to establish inequitable conduct.

In Larson, the Federal Circuit reviewed a district court finding of inequitable conduct that cited the patentee’s failure to identify five references that the lower court deemed material. The appellate court rejected the district court’s determination that three of the references were material, finding the three to be cumulative of other references considered during examination of the patent. Although agreeing that the remaining two references were material, the panel found error in the district court’s failure to analyze the patentee’s allegedly-deceptive intent separately for each of the references considered. As a result, the court vacated the lower court’s finding of materiality with respect to the first three references and remanded the case so that the district court could reconsider its intent finding.

Larson Manufacturing, the patentee, initially brought suit in October of 2003 in the District of South Dakota, alleging that the defendant, Aluminart Products, had infringed Larson’s U.S. Pat. No. 6,618,998 (the “‘998 Patent”). The ‘998 Patent disclosed various embodiments of a door having a glass insert configured to move along an opposing pair of tracks inset in the door’s frame. Larson asserted that storm doors manufactured and sold by Aluminart infringed various claims of the ’998 Patent. On September 28, 2004, Aluminart filed a request for reexamination with the United States Patent and Trademark Office (the “PTO”), alleging that a particular prior-art reference not considered during prosecution of the ’998 Patent raised substantial new questions as to its patentability. The PTO granted the reexamination request and the trial court stayed the infringement proceeding on October 4, 2004.

While the reexamination was pending, Larson continued its prosecution of U.S. Pat. Appl. No. 10/606,039 (the “‘039 Application”), a continuation of the ’998 Patent. In September 2004, the PTO issued a first office action (the “First Office Action”), rejecting various claims of the ’039 Application, and followed it with a second office action on May 3, 2005 (the “Second Office Action”), a third on September 21, 2005 (the “Third Office Action”) and a fourth on June 23, 2006 (the “Fourth Office Action”). Aluminart disclosed the First Office Action to the PTO in its reexamination request, and, on June 10, 2005, Larson submitted an Information Disclosure Statement disclosing the Second Office Action to the PTO.

On September 13, 2005, the PTO issued a reexamination certificate that included amended versions of the ’998 Patent’s originally-issued claims. The reexamination certificate issued without Larson ever disclosing the Third Office Action or the Fourth Office Action to the PTO as part of the reexamination proceedings.

After the reexamination certificate was issued, the district court withdrew its stay of the infringement proceedings, and the parties resumed litigation of Larson’s claims. Following a bench trial, the district court determined that the ’998 Patent was unenforceable due to inequitable conduct committed by Larson during the reexamination. In particular, the district court determined that the Third Office Action and the Fourth Office Action were both significantly material to the patentability of the ’998 Patent’s reexamined claims, as were three prior-art items Larson also failed to disclose to the PTO — marketing materials published by a company called Genius (the “Genius Literature”), marketing materials published by a company named Preferred Engineering (the “Preferred Engineering Literature”) and German Patent 19639478 (the “DE ‘478 Patent”).

The district court determined that because of the high materiality of these prior-art items and because Larson failed to offer any explanation for withholding this information, Larson had committed inequitable conduct by failing to disclose the materials to the PTO during the reexamination proceedings and held the ‘998 Patent unenforceable on these grounds.

Larson subsequently appealed the district court’s unenforceability finding. On appeal, the Federal Circuit reversed the lower court’s determination that the Genius Literature, the Preferred Engineering Literature and the DE ’478 Patent were material, finding all of these references to be cumulative over references considered during reexamination. The court, however, upheld the district court’s determination that the Third Office Action and the Fourth Office Action were not cumulative and did not challenge the characterization of these references as highly material. Nonetheless, the court ruled that these facts were not dispositive for purposes of an inequitable conduct finding.

Instead, the court remanded the case for further consideration of Larson’s allegedly-deceptive intent in not disclosing the highly material references. Because the lower court had originally made their deceptive intent finding based on Larson’s non-disclosure of all five references and the references’ high level of materiality, the Federal Circuit determined that Larson’s deceptive intent would have to be reconsidered with respect to just the Third Office Action and the Fourth Office Action. Additionally, “in the interest of judicial economy,” the Federal Circuit chose to provide “some guidance to the district court with respect to the issue of deceptive intent.”

First, the Court noted, materiality cannot be considered dispositive of intent. Nondisclosure of material information is not alone determinative of the deceptive intent element. This is true, the Court emphasized, even when the patentee lacks a credible good faith explanation for withholding the relevant information.

Second, any evidence of good faith must be considered, and such evidence weighs against a finding of deceptive intent. The patentee is not required to provide evidence of good faith, however, unless the accused infringer first meets its burden of establishing deceptive intent by clear and convincing evidence. On this point, the Court noted that the district court should consider whether Larson’s disclosure of the parallel continuation proceedings suggests that Larson lacked deceptive intent.

According to the Larson panel rationale, if a defendant is able to “establish[] a threshold level of intent by clear and convincing evidence,” the district court will “then be required to balance the levels of materiality and intent to determine if a finding of inequitable conduct [is] warranted.” Specifically, the district court must then “balance the substance of those threshold levels — with a higher level of materiality permitting a lower level of intent, and vice versa” (emphasis in original). In particular, the Federal Circuit advised the lower court to consider the fact that the DE ’478 Patent was not material when determining the level of materiality of the Fourth Office Action, which cited the DE ’478 Patent. The court then remanded the case for a reconsideration of the inequitable conduct finding consistent with its opinion.

Arguably, the majority’s opinion only reiterated previous Federal Circuit precedent on inequitable conduct — albeit precedent that had been brought into question by cases such as Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997) and Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306 (Fed. Cir. 2008), which suggested that an extremely high level of materiality could justify a reduction, perhaps a significant one, in the quantum of proof required as to intent.

Equally of interest was the concurring opinion offered by Judge Linn in which he derided what he (echoing earlier Federal Circuit decisions) referred to as the “plague” of tactical inequitable-conduct accusations. Using the patent-in-suit as an example, Judge Linn noted that 143 references had been considered during original examination and that an additional 210 references had been identified in Larson’s first IDS. Emphasizing the fact that the lower court had, so far, only addressed the defendant’s inequitable conduct allegations at the expense of Larson’s infringement claims, Judge Linn presented the case as a compelling example of “[t]he ease with which inequitable conduct can be pled, but not dismissed.”

In particular, Judge Linn argued that the relatively high standard for proof of inequitable conduct created by the en banc holding in Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) had been effectively whittled away by the rationale applied in several intervening panel opinions, including Critikon and Praxair. Judge Linn argued that these cases ran contrary to Kingsdown on several points.

First, these cases mistakenly conflated materiality and intent, such that a sufficiently high level of materiality could, de facto, serve as a full substitute for a showing of intent.

Second, Critikon and similar holdings had purported to establish a “should have known standard” for the patentee with regards to materiality, a standard that was lower than the gross-negligence standard explicitly rejected in Kingsdown.

Finally, Judge Linn noted that such post-Kingsdown panel decisions had “effectively shift[ed] the burden to the patentee to prove a negative: that it did not intend to deceive the PTO.” Although agreeing with the majority’s ruling, Judge Linn concluded that “[t]he facts of this case suggest that the time has come for the court to review the issue en banc.”

Thus, overall, Larson appears to signal a growing desire by at least certain members of the Federal Circuit to raise — or re-emphasize — a high bar for proof of inequitable conduct allegations. At a minimum, Larson should provide support for subsequent panel decisions that might seek a return to the standard articulated in Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008), under which rationale the materiality of undisclosed information very clearly cannot alone satisfy the deceptive intent prong (the Star Scientific decision generally took a very skeptical view of inequitable conduct allegations in general, setting forth a presumption that inequitable conduct should be found only when the patentee had been given an opportunity to explain a good-faith basis for an inaccurate or misleading statement or omission, but intentional deceit still remained the most likely cause that could be ascribed to his conduct).

Alternatively, if the remainder of the court heeds Judge Linn’s call, and an appropriately-situated patentee seeks plenary review, the Federal Circuit may soon address the issue of inequitable conduct en banc once again to reconcile the sometimes-seemingly-divergent versions of the materiality/intent calculus that have emerged in various panel decisions.