Exergen Corp. v. Wal-Mart Stores, CVS, and SAAT, ___ F.3d ___, 2009 U.S. App. LEXIS 17311 (Fed. Cir. 2009)
This case focuses only on procedure and does not alter the substantive law of inequitable conduct. However, it is likely to have an important impact on patent litigation by tightening the pleading requirements for anyone attempting to plead inequitable conduct.
Exergen's patents cover infrared thermometer technology. U.S. Patents Nos. 5,012,813, 6,047,205, and 6,292,685. A jury found SAAT liable for willful infringement and also awarded lost profits to Exergen. On appeal, the Federal Circuit Reversed-in-Part
Pleading Inequitable Conduct: At some point during the litigation – well after submitting its initial answer to the complaint – SAAT moved to add inequitable conduct as an affirmative defense and counterclaim. The District Court denied that request – properly holding that inequitable conduct is a form of fraud that must be pled "with particularity" under Fed. R. Civ. Pro. 9(b). On appeal, the Federal Circuit affirmed, but in the process provided guidance for how to properly plead inequitable conduct. Notably, "Rule 9(b) requires identification [in the pleading] of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." (refrain)
- The pleading must set forth "the particularized factual bases" that a court would rely upon to decide the substantive elements of inequitable conduct. Here, particularity should be equated with "'in detail . . . the who, what, when, where, and how' of the alleged fraud" Quoting DiLeo v. Ernst & Young, 901 F.2d 624 (7th Cir. 1990).
- When the allegation is failure to disclose, the pleadings must "identify the specific prior art that was allegedly known to the applicant and not disclosed." See Cent. Admixture, 482 F.3d 1356.
- When the allegation is intentional misleading of the PTO, the pleading must identify the particular misleading actions.
- Although Rule 9(b) allows mal-intent to be "averred generally," the pleading must still "allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind."
The court found four specific failings in SAAT's pleadings:
- WHO: Failure to "name the specific [duty bound] individual … "who both knew of material information and deliberately withheld or misrepresented it."
- WHAT and WHERE: Failure to "identify which claims, and which limitations in those claims, the withheld references are relevant to, and where in those references the material information is found."
- WHY and HOW: Failure to provide evidence of materiality by, for instance, identifying the claim limitations absent from information of record.
- SCIENTER: Failure to allege facts that "give rise to a reasonable inference of scienter, including both (1) knowledge of the withheld material information or of the falsity of the material misrepresentation, and (2) specific intent to deceive the PTO." Rather, the pleadings merely state that "Exergen was aware" of the prior art without explaining that a particular duty bound person was aware of the relevant portion of the reference.
SAAT based its inference of deceptive intent on the fact that the patentee had cited a particular prior art reference during prosecution of only one of the three patents. The court rejected that factual description – finding it insufficient even for the pleadings:
SAAT's purported basis for inferring deceptive intent is that Exergen had cited the '998 patent when prosecuting the '205 patent but then failed to cite it when prosecuting the '685 patent. 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. Indeed, SAAT's pleading does not contain specific factual allegations to show that the individual who had previously cited the '998 patent knew of the specific information that is alleged to be material to the '685 patent and then decided to deliberately withhold it from the relevant examiner.
The mere fact that an applicant disclosed a reference during prosecution of one application, but [*45] 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. Indeed, SAAT's pleading does not contain specific factual allegations to show that the individual who had previously cited the '998 patent knew of the specific information that is alleged to be material to the '685 patent and then decided to deliberately withhold it from the relevant examiner.
Although the Federal Circuit affirmed the fraud-pleading holding, it also reversed the final judgment – finding one patent invalid and the other two not infringed.