Fraud on the Patent Office: Federal Circuit Emphasizes Rule 9(b) Heightened Pleading Requirement for Defense of Inequitable Conduct

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.

Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

29 thoughts on “Fraud on the Patent Office: Federal Circuit Emphasizes Rule 9(b) Heightened Pleading Requirement for Defense of Inequitable Conduct

  1. At least there used to be a difference between Inequitable Conduct to hold a patent void and Inequitable Conduct to say that the people involved are bad people. The entire Inequitable Conduct body of case law seem to have failed to make a distinction and the courts now are resloved to raise the bar. It seems that the baby can be split by changing the name to void a patent from inquitable conduct to something like “acts that will void a patent” to get away from tying the proof need to show a bad person to that needed to show bad patent prosecution.

  2. “it seems appropriate that the patentee should have to provide a rational explanation for its conscious choice. After all, submitting an IDS is a conscious act. If the applicant carries out that conscious act differently in two related applications, it’s the applicant who should have to explain her suspicious conduct.”

    I wanted to respond to this, but it’s hard to without specific facts. Oh, that’s what the holding was about. For example, let’s suppose there is a 50-reference IDS in the parent. The parent is issued and in litigation. The child, now a candidate for entry to litigation when it issues, gets closer scrutiny. The 50-reference IDS is gone over more closely, and it turns out that 1 of the references is not even a publication, it turns out that another reference is completely irrelevant to the claims of the child (this is entirely possible, applications are related by the specification, not the claims), and another ref in the IDS is accidentally omitted because the child case was transferred to another firm and they had to build the IDS from scratch, and the secretary made a mistake that the attorney did not catch. Seems fair that the pleader, who is alleging a wrongdoing, should allege the specific facts to support the accusation.

    I’ll share something from the inside of an IC allegation. Partner at law firm, straight-laced and as cautious an attorney that you could find. A belts-and-suspenders, look-both-ways-when-crossing-a-one-way-street kind of guy. Family of patents he prosecuted end up in litigation. Defendant alleges IC (I forget the basis, but my point is not about the merits but rather is about the affect that an IC pleading can have). Client’s president (patent owner/complainant) calls up attorney and wants to know why they are accused of doing something “inequitable”, which president notes his in-house counsel described as similar to fraud. Fraud?! Attorney is stressed, has reputation tainted, almost loses client, spends much unbillable time working with client including attending depositions on the other coast, etc. It’s a big personal hit on the attorney, in terms of time, money, stress, and reputation. The IC defense was dropped and never went to trial. For those of you who are litigants, as you advise your client to plead IC as a matter of course, maybe you could consider how you would be affected if you were sued for professional malpractice.

  3. “the defendant only needs to show that the omission was highly material.”

    This is not the law according to the CAFC. Sometimes judges accuse their fellow panel members of finding intent strictly from materiality, but it is quite clear that doing so is wrong.

    Some evidence other than materiality is *always* required to show intent. The lack of an excuse might constitute such evidence. However, carelessness might be a sufficient explanation.

  4. This case seems to cut against the CAFC’s existing case law. For “highly material” omissions, after all, the defendant only needs to show that the omission was highly material. The highly material nature of the omission or misstatement provides a sufficient basis from which a court can infer deceptive intent. At that point, the patentee must articulate a reasonable excuse (i.e., something other than carelessness) for the omission or misstatement.

    When there are unexplained inconsistencies in what references the applicants has chosen to make of record in the prosecution of related applications, it seems appropriate that the patentee should have to provide a rational explanation for its conscious choice. After all, submitting an IDS is a conscious act. If the applicant carries out that conscious act differently in two related applications, it’s the applicant who should have to explain her suspicious conduct.

  5. If it’s a PCT, the search report will be with the case if the applicant submitted it, but even if it’s not the examiner should know to look for it since it’s a PCT. If the foreign priority case is from Japan, Korea, or the EPO, we can see file wrapper info via Prosecution Passport. Otherwise, we have no good way of determining if a patent family exists and seeing any prior search results (unless Derwent has indexed the PGPub, in which case it will list the patent family).

  6. >>Why shouldn’t this just be automatic procedure >>for examiners?

    Takes time. Plus you can’t be sure of all the places an application has been filed. Better to make it the responsibility of the applicant, or to build a world-wide system where the examiners could quickly get the information and be sure it is accurate.

  7. I agree entirely, curious. First thing an Australian examiner does is check corresponding cases. And if it’s a PCT, why isn’t the search report on the file when the examiner gets the thing?

  8. “check wipo and esp@cenet for family applications and completed searches.”

    Why shouldn’t this just be automatic procedure for examiners?

  9. “you really can’t prove intent to decieve”

    Welcome to Fantasy Island. Smiles, everyone! Smiles!

  10. an alleged examiner: “For instant a corporation that sends in many applications to my unit sometimes ‘forgets’ to cite docs that the Europeans or PCT searches found as X or Y references, even a year after the search was complete.”

    Is this the corporation that amends its claims in the EP to get around the art (and the EP Examiner’s rejection), but doesn’t cite the art or the rejection in its US case, thereby obtaining broader claims in the US? Yeah, that happens “accidentally” with that corporation all the time. I know the one you’re talking about. What’s odd is that they can afford to do better, but don’t. Isn’t that interesting?

  11. “Anyway I know if I see an application from them I have to be extra careful and check wipo and esp@cenet for family applications and completed searches.”

    What’s the name of the corporation?

  12. Malcolm,

    What do you consider specifically ‘fishy’ about a patent that was allowed with a 131 or 132 declaration?

    As for IDSs how can you really prove intent to deceive on the part of the applicant on leaving out a reference?

    For instant a corporation that sends in many applications to my unit sometimes ‘forgets’ to cite docs that the Europeans or PCT searches found as X or Y references, even a year after the search was complete. I even recently found for the same corp a treasure trove of prior art filed by another corporation in an opposition hearing for a granted European patent.

    Perhaps, the Euopean lawyers don’t talk to the American lawyers, or they forgot to file, you really can’t prove intent to decieve.

    Anyway I know if I see an application from them I have to be extra careful and check wipo and esp@cenet for family applications and completed searches.

  13. Mooney (in part): “I have yet to see a patent tanked by IC that made me feel bad for the applicant”.

    The McKesson decision makes me feel bad for the applicant. The patent attorney was held to be the bad guy. It’s very unlikely that an applicant could ever recognize any error in what that patent attorney was held to have done wrong.

    (My apologies to Mooney if I misinterpreted the conjunctive “or” in your original sentence.)

  14. Leopold: Maybe Malcolm will let you pay to borrow his. Then you can say with confidence that you rent your vest.

    Thanks, I’ll be here all biweek. Don’t forget to tip your waitstaff!

  15. “The whiners here will disagree but I have yet to see a patent tanked by IC that made me feel bad for the applicant or made me rend my vest because patent prosecution was going to be impossible given the ‘holding’ of the case.”

    I’m a whiner, but I agree. But then I don’t wear a vest.

  16. “an en banc CAFC decision is still badly needed”

    The whiners here will disagree but I have yet to see a patent tanked by IC that made me feel bad for the applicant or made me rend my vest because patent prosecution was going to be impossible given the “holding” of the case. I am also certain there are plenty of district course cases where IC is *not* found where it should have been found but we never hear about them.

    On the other hand, I know of quite a few issued patents of notorious value whose prosecution histories reek of IC (and I recently learned of a few more). It would be quite an interesting analysis to take, say, 100 recently issued patents that (1) cite less than five non-patent references and (2) contain a Rule 131 or 132 declaration and “scope them out.” I wonder what would be found?

    An even easier math problem is to ask which is worth more: a patent application reciting claims with little hope of allowance or an otherwise identical issued patent with some enforceability issues? And how does the value change if the enforceability issues are rendered moot because IC is increasingly difficult to prove?

  17. This is particular CAFC panel was MICHEL, Chief Judge, LINN, Circuit Judge, and ST. EVE, a visiting District Court Judge.
    But the main problem with “inequitable conduct” law has been the wide decisional variances between different panels with different judges as to the extent of proof of intent required. Some allowing intent to be liberally implied just from the alleged materiality. Plus, no clear consistent test standard – accepting allegations under old Rule 56 OR new Rule 56 OR OTHER standards. So an en banc CAFC decision is still badly needed.

  18. >>Here however, the pleading has to find out the >>specific person within the “person” of the >>corporation commited the offense.

    Wow, I actually agree with 6. I am going to shot myself now.

  19. “how does one get to discovery?”

    You don’t have to plead IC upfront. You can amend your pleadings after some discovery. If you’re an infringer filing a DJ action, perhaps you’d better have some other defense other than a guess about inequitable conduct.

  20. Med, I think you will find that this decision is the huge sea change that some people think it is. At least so far as I can tell.

    “For instance, if you can prove that a piece of prior art went into a law firm with some information of how it was material to the patentability of application X, and it never re-emerged in the PTO’s case file, then I don’t think you need a particular name attached to the omission to show that there could have been an omission (if it was truly material, etc., etc.). Of course, yea, then you’ve then got to continue digging to show scienter.”

    I agree with the former, and as to the scienter, it seems like that sort of thing needs to have discovery, but without the ability to plead IC in the first instance, how does one get to discovery? I don’t know, you’re a lawyer, maybe you can tell me.

    To me all this is rather ridiculous, they’re throwing up procedural nonsense which seems, to me, like it is overly restricting pleading even when legitimate concerns of IC having happened come up. But, I will gladly defer to people who are lawyers that have no interest in the issue at hand (i.e. people who are not patent prosecutors/litigators) but whom are familiar with the issue. People who, I’d say, are in short supply on this board.

  21. Not a serious impediment, but it is another one of those cases that stratifies litigators. If your counsel fails to meet the well-defined Exergen standard in the pleading, then I’d be concerned that counsel wasn’t aware of it. The you ask, what other esoteric aspects of patent litigation does counsel not know?

  22. It seems clearly a higher pleading standard than before. Before different circuits had their own standard for pleading with particularity. Now it is a matter of Federal Circuit law and the Federal Circuit has explicitly adopted a specific standard to be used (the seventh circuit’s). Some other courts were applying relatively low pleading standards before, i.e., the District of Delaware. IC will have to be plead later as a general matter after some discovery has confirmed suspicions or uncovered previously unknown IC in order to safely avoid either having the allegation stricken for failing to comply with Rule 9 or running afoul of Rule 11, especially when you have to name drop allegations of fraud.

  23. 6: “Here however, the pleading has to find out the specific person within the ‘person’ of the corporation committed the offense.”

    Starting with the disclaimer that I haven’t read the case, does it really say that you need a specific name?

    As an attorney, I’ve always read 37 CFR 1.56 broadly, especially 1.56(c) and (c)(3), to include unregistered tech specs, secretaries, clerks, clerical staff, etc. For instance, if you can prove that a piece of prior art went into a law firm with some information of how it was material to the patentability of application X, and it never re-emerged in the PTO’s case file, then I don’t think you need a particular name attached to the omission to show that there could have been an omission (if it was truly material, etc., etc.). Of course, yea, then you’ve then got to continue digging to show scienter.

    That’s always the trick. But then, that’s what discovery is for. In fact, it almost sounds like the CAFC could very well be slamming SAAT for not doing that discovery. Again, I haven’t read the case, but maybe this isn’t the huge sea change some people seem to think it is.

  24. “Here however, the pleading has to find out the specific person within the “person” of the corporation commited the offense. ”

    6 – not sure I take your complaint here. Unless you are going to do away with the scienter requirement, you need a human mind to get into.

    This is not really different than when a corporation is defending itself of certain tort or product liability claims, employment/discrimination issues, etc.

  25. This case is a step in the right direction, in that it substantially raises the cost to the party pleading IC. Presumably, therefore, there will be a winnowing out of cases, so that IC will be pled only where a colorable case for such can be shown. That’s already a dramatic improvement.

    Nevertheless, as Dennis noted, this decision doesn’t change the substantive law of IC. Thus it appears that, for example, failure to disclose to the USPTO an OA issued by the USPTO itself in a corresponding case could still be deemed IC, as could failure of an affiant to identify a previous relationship with the applicant. So while IC may no longer be a scourge, prep/pros practitioners still need to concern themselves with a potential finding of IC where none exists. Being excessively cautious in IDSing and other aspects of prosecution, with the extra burdens that places on applicants, their attorneys, and the USPTO (without providing any real benefit to the prosecution process), will remain the norm.

  26. The problem with this ruling, well, let’s say “a” problem, is that it doesn’t treat corporations properly. We’ve had our laws misshapen and bent beyond all recognition by SCOTUS in order to allow the corporation to have “rights” like an individual, and act like an individual in court. Here however, the pleading has to find out the specific person within the “person” of the corporation commited the offense.

    Something just isn’t right with this scenario. Corps keep their cake and eat it too.

  27. I do hope that Exergen is the coming trend from the Federal Circuit on how “particularly” inequitable conduct must be pled and must also be factually proved, especially with regard to the “intent” prong. We might not even need legislation on this “plague.” And if the Federal Circuit would add some FRCP 11 and 35 USC 285 bite when inequitable conduct is pled “friviously” the “plague” might even go back in the bottle where it belongs.

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