Cantor had done considerable work prior to patenting, developing its "Super System" and CFTS trading systems. CFTS was put into production prior to New Year's 1996.

The ’580 patent was filed as United States Patent Application No. 09/294,526 (the ’526 application). The ’526 application claimed priority under 35 U.S.C. § 120 to United States Patent Application No. 08/766,733 (the ’733 application). The ’733 application was filed on December 13, 1996. This patent application matured into United States Patent No. 5,905,974 (the ’974 patent) on May 18, 1999. Neither the Super System nor any other version of CFTS was disclosed to the United States Patent and Trademark Office (PTO) during the course of prosecution of the ’733 parent application.

The problems began when Cantor asserted '974.

Shortly after the ’974 patent issued, Cantor asserted the ’974 patent against Liberty Brokerage. In preparing for that lawsuit, Cantor’s outside counsel learned about the Super System and realized that it had not been disclosed to the PTO. Cantor dismissed its suit against Liberty Brokerage after this discovery.

In an effort to purge the possible inequitable conduct with regard to the ’974 patent and avoid a similar problem with any patent that might issue based on the ’526 application, Cantor submitted three declarations and numerous exhibits purporting to describe the Super System to the patent examiner in connection with the ’526 application.

The declarations amounted to 1139 pages. They said "they did not realize that they were under a duty to disclose the Super System during the prosecution of the ’733 application." They said the patented system was different.

The patent examiner considered the materials submitted by Cantor and concluded that the cited papers (presumably referring to the exhibits which were internal Cantor documents) did not constitute prior art, but were “given due consideration.”

Cantor sallied forth again, asserting against Brokertec, Garban, and OM Technology. What eventuated, among other rulings, was unenforceability because of inequitable conduct, for two separate reasons. First, the court considered the Super System highly material, and found intent, viewing the Cantor declarations as inadequate. Second, the declarations were deemed to have wilfull "misrepresentations."

The district court determined that there were two separate grounds for unenforceability and that either, standing alone, rendered the ’580 patent unenforceable. Id. at 599. With respect to the first ground of inequitable conduct, the district court determined that the use of the Super System more than one year prior to the filing date of the ’733 application was material prior art that should have been disclosed during prosecution of the ’733 application. Id. at 589-90, 593. The district court concluded that the inventors intended to deceive the PTO because each of the inventors had a significant role in creating the Super System and because of the Super System’s high materiality. Id. at 594. Moreover, the district court found further evidence of intent when, prior to filing the ’733 application, Lutnick stated that he had “wanted to Patent [Cantor’s] Super System & its rules (in general) for over a year.” Id. The district court found that inequitable conduct during the prosecution of the ’974 patent infected the prosecution of the ’580 patent because the patents were closely related and Cantor failed to cure the inequitable conduct by filing the inventor declarations in the ’526 application. See id. at 595-96.

As the second basis for rendering the ’580 patent unenforceable, the district court concluded that the three inventor declarations submitted to the PTO to disclose the Super System included material misrepresentations. Id. at 597. Specifically, the district court concluded that the declarations included statements “that the Super System did not contain any code for the ‘new rules’ of trading.” Unenforceability Ruling, 417 F. Supp. 2d at 597. This, the district court found, was not true. Id. The district court concluded that although there might have been different “new rules” at different times, all “new rules” had something in common: they limited exclusivity. Id. This was “perhaps the primary object” of the invention claimed in the ’580 patent. Id. Thus, the district court found the misrepresentations in the declarations to be material. Id. at 598. The district court found sufficient facts to infer an intent to deceive, based in part on the fact that the declarations were worded in such a way to make the examiner believe that there were no “new rules” in the Super System. Id. Weighing the materiality with intent to deceive, the district court held the ’580 patent unenforceable. Id.

Cantor appealed [CAFC 06-1835]. The appeals court need only decide on inequitable conduct to squash the whole affair. Cantor had to prove that the district court made a mistake.

“[I]nequitable conduct includes affirmative misrepresentation of a material fact, failure to disclose material information, or submission of false material information, coupled with an intent to deceive.” Pharmacia Corp. v. Par Pharm., Inc., 417 F.3d 1369, 1373 (Fed. Cir. 2005) (quoting Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995)). In cases where the omission or misrepresentation is highly material, “less evidence of intent will be required in order to find that inequitable conduct has occurred.” PerSeptive Biosystems, Inc. v. Pharmacia Biotech, 225 F.3d 1315, 1319 (Fed. Cir. 2000). Once a district court has found a threshold level of both materiality and intent to deceive, the district court must balance the evidence to determine if equity should render the patent unenforceable. See LaBounty Mfg., Inc. v. U.S. Int’l Trade Comm’n, 958 F.2d 1066, 1070 (Fed. Cir. 1992).

The ultimate conclusion that a patent is unenforceable is an equitable decision committed to the discretion of the district court that we review for an abuse of discretion. See Flex-Rest, L.L.C. v. Steelcase, Inc., 455 F.3d 1351, 1357 (Fed. Cir. 2006). “To overturn a discretionary ruling of a district court, the appellant must establish that the ruling is [1] based upon clearly erroneous findings of fact or [2] a misapplication or misinterpretation of applicable law or that [3] the ruling evidences a clear error of judgment on the part of the district court.” Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc in relevant part).

Materiality is determined by the "reasonable examiner" standard.

Under the reasonable examiner standard, information is material when “a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.” A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1397 (Fed. Cir. 1986); see also Digital Control Inc. v. Charles Mach. Works, 437 F.3d 1309, 1316 (Fed. Cir. 2006) (suggesting that the reasonable examiner standard remains the starting point for assessing materiality).

Declarations are necessarily material, and quite damning, if found amiss.

False statements are more likely material when embodied in declarations or affidavits submitted to the PTO. See Refac Int’l, Ltd. v. Lotus Dev. Corp., 81 F.3d 1576, 1583 (Fed. Cir. 1996); Rohm & Haas Co. v. Crystal Chem. Co., 722 F.2d 1556, 1571 (Fed. Cir. 1983). This court has “previously found that the submission of a false affidavit may be determined to be ‘inherently material.’” Digital Control, 437 F.3d at 1318. In Ferring B.V. v. Barr Laboratories Inc., we concluded that the failure to disclose possible bias of the declarants constituted a material omission where the declarations were submitted to overcome a prior art rejection. 437 F.3d 1181, 1190 (Fed. Cir. 2006); see also Refac, 81 F.3d at 1581 (finding declarations submitted to establish enablement but failing to disclose possible bias of declarants were material). Similarly, in Digital Control, we concluded that false statements made in a declaration to antedate prior art were material. 437 F.3d at 1318.

Cantor got caught in a lie about using rules in its Super System.

The issue of materiality here concerns declarations that Cantor submitted to disclose the Super System and attempt to cure the earlier non-disclosure of this system. One of the declarations stated “[t]he Super System . . . did not include new rules” and that “[t]he Super System code was based on ‘old rules’ in which each successive broker had a period of exclusive control over the trade.” Decl. of Bijoy Paul, ¶¶ 11, 20.

Cantor first argues that the statements were not material because there was no evidence that the new rules code was in actual use in its trading rooms. With respect to this argument, the district court found that Mr. Paul’s statement was false and that “[w]hether this code was activated or not, the applicants knew that the Super System contained the [new rules] code.” Unenforceability Ruling, 417 F. Supp. 2d at 598. That the Super System included a form of “new rules” would surely have been important to a reasonable examiner in deciding whether to allow the ’526 application to issue as a patent—in fact, Cantor acknowledges this in its brief to this court. Brief of Appellant at 27, eSpeed, Inc. v. BrokerTec USA, L.L.C., No. 06-1385 (July 14, 2006) (“At most, Super System’s unused code for trading states may represent prefiling experimentation or development that could have been deemed material to the ’733 Application under the broadest, ‘reasonable examiner’ standard.”). Thus, there is no question that the statements at issue here are material. Accord Pharmacia, 417 F.3d at 1373 (“[T]hese misleading declarations go to the very point of novelty.”).

Trying to use the Jedi mind trick of "these are not the droids you're looking for," gets a slash from legal light saber.

This case is similar to Semiconductor Energy Laboratory, where we upheld a finding of inequitable conduct based on the submission of a partial translation of a Japanese prior art reference and a concise statement regarding that reference even though the entire Japanese language reference was submitted to the PTO. 204 F.3d 1368. Although parts of the reference were translated, other, more material sections of the reference remained untranslated. Id. at 1372. We found that “[b]y submitting the entire untranslated . . . reference to the PTO along with a one-page, partial translation focusing on less material portions and a concise statement directed to these less material portions, [the applicant] left the examiner with the impression that the examiner did not need to conduct any further translation or investigation.” Id. at 1377. Even though Cantor provided the examiner with 1139 pages of material describing Super System and its early modifications, we agree with the district court that the “blizzard of paper” submitted to the PTO in conjunction with the declaration stating that the Super System did not include “new rules,” Unenforceability Ruling, 417 F. Supp. 2d at 598, “left the examiner with the impression that the examiner did not need to conduct any further . . . investigation,” Semiconductor Energy Laboratory, 204 F.3d at 1377, including an analysis of the portions of Super System source code provided by Cantor to the PTO. Given the foregoing, the district court’s conclusion that the false statements in the declarations submitted to the PTO were material is not clearly erroneous.

Intent to deceive may be inferred. Lying in a declaration makes for one hell of an inference.

To satisfy the intent to deceive element of inequitable conduct, “the involved conduct, viewed in light of all the evidence, including evidence of good faith, must indicate sufficient culpability to require a finding of intent to deceive.” Kingsdown, 863 F.2d at 876. There is no requirement that intent to deceive be proven by direct evidence; in fact, it is rarely proven by such evidence. Intent to deceive may be “inferred from the facts and circumstances surrounding the applicant’s overall conduct.” Impax Labs. v. Aventis Pharms., 468 F.3d 1366, 1375 (Fed. Cir. 2006) (citing Merck & Co. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1422 (Fed. Cir. 1989)).

An inference of intent may arise where material false statements are proffered in a declaration or other sworn statement submitted to the PTO. For example, in Paragon Podiatry Laboratory, Inc. v. KLM Laboratories, Inc., this court stated that the inference that material false statements contained in an affidavit were made with deceptive intent “arises not simply from the materiality of the affidavits, but from the affirmative acts of submitting them, their misleading character, and the inability of the examiner to investigate the facts.” 984 F.2d 1182, 1188 (Fed. Cir. 1993); see also Refac, 81 F.3d at 1583 (“The affirmative act of submitting an affidavit must be construed as being intended to be relied upon.”); Rohm & Haas, 722 F.2d at 1571 (stating that the submission of affidavits “usually will support the conclusion that the affidavit in which [the material false statements] were contained was the chosen instrument of an intentional scheme to deceive the PTO”).

The CAFC just fell short of open outcry: "lying weasels!"

The applicants submitted the declarations at issue in an apparent attempt to purge possible inequitable conduct in the ’733 application and to disclose the Super System in the ’526 application. Instead of being candid, Paul’s declaration disingenuously states that the Super System did not include new rules. The district court was free to draw an inference that these declarations were “the chosen instrument of an intentional scheme to deceive the PTO,” Rohm & Haas, 722 F.2d at 1571, because “[t]he affirmative act of submitting an affidavit must be construed as being intended to be relied upon,” Refac, 81 F.3d at 1583.

Dead patents.