"A patent may be rendered unenforceable for inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO during prosecution." Digital Control Inc. v. Charles Mach. Works, 437 F.3d 1309, 1313 (Fed. Cir. 2006); see also 37 C.F.R. § 1.56(a) ("Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section.").

The materiality of information withheld during prosecution may be judged by the "reasonable examiner" standard. See id. at 1316. That is, "[m]ateriality . . . embraces any information that a reasonable examiner would substantially likely consider important in deciding whether to allow an application to issue as a patent." Akron Polymer, 148 F.3d at 1382 (citations omitted). Moreover, "[i]nformation concealed from the PTO may be material even though it would not invalidate the patent." Li Second Family, 231 F.3d at 1380. "However, a withheld otherwise material [piece of information] is not material for the purposes of inequitable conduct if it is merely cumulative to that information considered by the examiner." Digital Control, 437 F.3d at 1319. "As this court has previously noted, the scope and content of prior art and what the prior art teaches are questions of fact." Id.

"The intent element of the offense is . . . in the main proven by inferences drawn from facts, with the collection of inferences permitting a confident judgment that deceit has occurred." Akron Polymer, 148 F.3d at 1385. "However, inequitable conduct requires not intent to withhold, but rather intent to deceive. Intent to deceive cannot be inferred simply from the decision to withhold [information] where the reasons given for the withholding are plausible." Dayco, 329 F.3d at 1367. In addition, "a finding that particular conduct amounts to 'gross negligence' does not of itself justify an inference of intent to deceive; the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive." Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc in relevant part).

[I]n Bruno Independent Living Aids, Inc. v. Acorn Mobility Services, Ltd., 394 F.3d 1348 (Fed. Cir. 2005), to infer an intent to deceive,... we upheld a district court's finding of intent where prior art was withheld from the PTO but was nevertheless submitted to the FDA as part of that agency's product approval process. 394 F.3d at 1354. The high materiality of the withheld prior art coupled with the lack of "a credible explanation for the nondisclosure" led us to conclude that the district court had not committed clear error by inferring an intent to deceive.

The appeals court reviews a district court finding for abuse of discretion.

As to specifics -

[T]his case involves McKesson's nondisclosure of three items of information during prosecution of the '716 patent in a setting where the applicant had co-pending applications. The district court found each of the three nondisclosures individually and collectively material to prosecution of the application that led to the '716 patent. With regard to deceptive intent regarding each nondisclosure, the district court found circumstantial evidence strongly supports an inference of deceptive intent. After assessing all the facts, the district court held that McKesson failed to provide a credible explanation for the material nondisclosures. As the district court noted, this was not a case of mistake or negligence—the prosecuting attorney testified that he would make all the same nondisclosure decisions again if prosecuting the same applications today.

The district court's thorough written opinion documents the court's correct understanding and application of the relevant precedent. The issues of materiality and intent are fact-driven. With regard to the issue of intent, the law recognizes that deceptive intent is virtually never shown or disproved by direct evidence. Instead, the ultimate fact finding on the issue depends on assessment of all the inferences, favorable and unfavorable, that can be drawn from pertinent evidence. To prevail on appeal, McKesson must demonstrate that the district court's findings of fact are clearly erroneous. After careful review of the record, we conclude that McKesson has not met its burden, and we therefore affirm.

The prosecuting attorney, Michael Schumann, was prosecuting two similar patents. One examiner, Lev rejected claims using a combination of prior art that the other examiner, Trafton, was aware of, but had not used in combination for rejection. Lev was more aggressive in rejection than Trafton.

During prosecution, Schumann discovered a new prior art reference, 4,456,793 (Baker), which he revealed to Lev, but not Trafton. The district court found "the Baker patent meets the 'reasonable examiner' materiality standard and should have been disclosed to Examiner Trafton."

The court buttressed its materiality conclusion with the further observation that the Baker patent also includes three-node communication—the very type of communication Schumann used to differentiate the claims of the '716 patent from the prior art.  The court explained, in accordance with expert testimony elicited at trial, that "Schumann could not have made this patentability argument if Examiner Trafton had the opportunity to consider the Baker patent." Given this further observation, the court found the Baker patent to be not merely material, but "highly material." Id.

Then the issue of intent -

The court next evaluated intent and found that Schumann did in fact intend to deceive Examiner Trafton by failing to disclose the Baker patent. The court first explained that intent was inferable because "Schumann was informed of the Baker patent's materiality by the PTO itself when Examiner Lev brought the patent to [Schumann's] attention, suggested cancellation of certain claims, and then rejected claims as obvious in light of Baker..."

The court found additional evidence of deceptive intent in Schumann's admission at trial that he knew his duty to disclose material information continued for at least 22 months after he learned of the Baker patent, and yet Schumann did nothing to bring Baker to Examiner Trafton's attention. Id., slip op. at 29. Moreover, the court explained, "Schumann himself evidenced his realization of the strength of the Baker patent when he chose not to even attempt to overcome Examiner Lev's rejection based on Baker and cancelled the claims in the ['149] application that were rejected due to Baker." Id. And because the cancelled claims "included, according to Mr. Schumann's own admission, aspects of the invention under review [by Examiner Trafton], Mr. Schumann either knew or should have known that the Baker patent was material in the '716 case."

Schumann testified that he had no recollection of prosecuting the '716 patent. The court found that "strain[ing] credulity" in light of the sequence of events that resulted in Schumann canceling claims because of the Baker prior art.

The court also discredited the testimony as inconsistent with Schumann's assertion on the witness stand that it was his practice to be "over inclusive" and to "bend[] over backwards to make sure [he] got everything into the case." The totality of this evidence, according to the court, "overwhelmingly establishe[d]" that Schumann, by withholding the Baker patent from Examiner Trafton, acted with an intent to deceive.

There is even more content in the record within context that Schumann missed a few beats.

As to intent, the court discounted Schumann's explanation as "implausible" that "the two patents did not raise a double patenting issue because 'the claims were different in those cases.'" Id., slip op. at 48. Specifically, the court explained that because the structure of means-plus-function limitations are defined by the specification, and because "the entire '716 specification . . . is included in the '372 specification," "Schumann certainly should have known, if he did not know, that an allowance of identical claims might have been important to make of record." Id. Even giving Schumann credit for disclosing the existence of the co-pending application that led to the '372 patent, the court nevertheless found that Schumann withheld the allowance of the '372 claims with deceptive intent.

As a final step, the court engaged in equitable balancing and concluded that the "pattern of material nondisclosures, such as present here, weighs firmly in favor of unenforceability," because "the showings of materiality and intent are high" with respect to each identified nondisclosure. The court thus entered judgment against McKesson on infringement and dismissed Bridge's pending counterclaims as moot and without prejudice.

His reputation on the line, Schumann put up a spirited defense on appeal, to no avail.

It is not necessary to decide whether any one of the three nondisclosures, standing alone, would have been sufficient to justify a judgment of unenforceability; in light of the district court's finding that there was inequitable conduct in all three instances, we hold that the court did not abuse its discretion in holding the patent unenforceable.

Judge Newman in dissent -

It is not clear and convincing evidence of deceptive intent that the applicant did not inform the examiner of the examiner's grant of a related case of common parentage a few months earlier, a case that was examined by the same examiner and whose existence has previously been explicitly pointed out by the same applicant. Nor is it clear and convincing evidence of deceptive intent that the applicant did not cite a reference that the applicant had cited in the same related case, and that had been explicitly discussed with the same examiner in the related case.

Whether or not the examination was perfect, invalidation based on the charge of withholding material information for purposes of deception requires more than was here shown. To avoid the inequity resulting from litigation-driven distortion of the complex procedures of patent prosecution, precedent firmly requires that the intent element of inequitable conduct must be established by clear and convincing evidence of deceptive intent -- not of mistake, if there were such, but of culpable intent. See Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988) (en banc) (both materiality and intent to deceive must be proven); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1181 (Fed. Cir. 1995) (proof of "clear and convincing" is necessary to establish intent to mislead or deceive the PTO). In Kingsdown, we observed that, "To be guilty of inequitable conduct, one must have intended to act inequitably." 863 F.2d at 872 (quoting FMC Corp. v. Manitowoc Co., Inc., 835 F.2d 1411, 1415 (Fed. Cir. 1987)). That standard was not met here.