August 25, 2009Client Alert

Pleading Inequitable Conduct: Be Particular About the Who, What, Where, Why, and How

<i>Exergen Corp. v. Wal-Mart Stores, Inc.,</i> --- F.3d ----, 2009 WL 2366535 (Fed. Cir. Aug. 4, 2009)

The United States Court of Appeals for the Federal Circuit recently clarified the heightened requirements for pleading inequitable conduct under Federal Rule of Civil Procedure 9(b). In Exergen Corp. v. Wal-Mart Stores, Inc., et al., S.A.A.T. Systems Application of Advanced Technology, Ltd. and Daiwa Products, Inc. (collectively, “SAAT”) appealed several of the district court’s rulings, including the court’s denial of SAAT’s motion for leave to add inequitable conduct as an affirmative defense and counterclaim against the patents-in-suit. The Federal Circuit affirmed this portion of the district court’s ruling, holding that SAAT’s proposed inequitable conduct allegations did not satisfy the heightened pleading requirements of Rule 9(b).

To prove inequitable conduct, a party must demonstrate by clear and convincing evidence (i) an omission or misrepresentation of a material fact during patent prosecution, and (ii) an intent to deceive the United States Patent and Trademark Office (“USPTO”). See Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008).

In Exergen, the Federal Circuit stated that Rule 9(b) requires the party alleging inequitable conduct to specifically plead the “who, what, where, why, and how” of the material omission or factual misrepresentation. The allegations also must include facts sufficient to infer reasonably that a specific individual knew of the material omission or factual misrepresentation and withheld or misrepresented it with a specific intent to deceive the USPTO. Therefore, the Federal Circuit agreed with the district court’s determination that SAAT’s allegations were deficient with regard to both the facts alleged and the reasonableness of alleged inferred intent.

The factual allegations were deficient for three reasons. SAAT failed to:

  1. Name the specific individual associated with the prosecution of the asserted patent who both knew of the material information and deliberately withheld it from or misrepresented it to the USPTO (the “who”);
  2. Identify the specific claims and claim limitations to which the withheld references are relevant and where in those withheld references the material information is found (the “what” and “where”); and
  3. Identify the particular claim limitations or combination of claim limitations that are supposedly absent from the information already disclosed to the USPTO (“why” and “how”).

With regard to (1), the Federal Circuit held that the accused infringer must identify specific individuals – simply referring to “the patentee, its agents and/or attorneys” is insufficient. In (2), the Federal Circuit explained that accused infringer must tie specific claim limitations to the undisclosed information because information is only material if a reasonable patent examiner would have considered it important to the patentability of a specific claim. Finally, as to (3), general allegations that the withheld information is “material” and “not cumulative to the information already of record” are not sufficient. The accused infringer must explain “why” the withheld information was material and “how” a patent examiner would have used the missing information when assessing the patentability of the claims.

The Federal Circuit also concluded that SAAT’s knowledge and intent allegations lacked sufficient particularity. SAAT alleged that Exergen was aware of undisclosed references because it had disclosed those references in a related application and the contradictory information was available on Exergen’s own website. SAAT based its deceptive intent allegations, however, solely on “information and belief.” And SAAT did not provide the “information” on which it relied or plausible bases for its “belief.”

The Federal Circuit explained that SAAT’s allegations regarding knowledge lacked particularity because it failed to plead facts showing that the individual associated with the prosecution not only knew of the prior art reference, but also knew of the specific material information contained in that reference. As to the contradictory information available on Exergen’s website, SAAT needed to plead facts sufficient to raise an inference that the individual was actually aware of the allegedly contradictory statement at the time of making the statement.

With regard to intent, the Federal Circuit stated that the party alleging inequitable conduct must show that the applicant made a deliberate decision to withhold a known material reference from the USPTO. While deceptive intent may be based upon “information and belief” when essential information is within another party’s control, the pleading must still set forth the specific facts upon which that belief is based. The mere fact that an applicant failed to disclose a prior art reference disclosed in a related application is insufficient to meet the threshold level of deceptive intent.

Practical Considerations: Although Exergen may not have changed the standard for proving inequitable conduct, the Federal Circuit’s decision makes it more difficult and expensive to plead inequitable conduct. For instance, the accused infringer will have to spend more time gathering the facts needed to plead inequitable conduct properly and, therefore, the cost of pleading inequitable conduct will increase. This increased cost must be weighed against the possible benefits for the accused infringer’s case. At the same time, patentees have more incentive to file motions to dismiss inequitable conduct claims – further increasing the cost of alleging inequitable conduct.

Exergen also will impact the timing of inequitable conduct allegations. Accused infringers rarely will have enough information to plead inequitable conduct at the outset of a case in light of these strict pleading requirements. Instead, accused infringers will have to conduct discovery in order to develop inequitable conduct claims, including defeating the patentee’s likely objections that such discovery is not relevant to the claims or defenses at issue in the case and not reasonably calculated to lead to the discovery of admissible evidence. Moreover, once an accused infringer has gathered particularized facts, it will have to convince the court to allow amendment of the pleadings at that stage of the case under Rule 15.

All together, the Federal Circuit has made it much more difficult for accused infringers to defend themselves via a claim of unenforceability due to inequitable conduct.

For more information, please contact one of the authors of this alert or your Michael Best attorney.

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