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October 4, 2008

Inequitable Conduct

Professor Lisa A. Dolak of Syracuse law school has given considerable research and thought to what amounts to a death sentence for patents. Excerpts from a paper presented last month -

There is no question that inequitable conduct allegations drain resources and inject uncertainty into litigation. And, no doubt, the defense is overpled. But it is also undeniable that serious breaches of the duty of candor occur.

Furthermore, the reported instances of inequitable conduct represent only a small fraction of the cases which involve credible evidence of inequitable conduct. Most such cases presumably settle before trial. Accordingly, the inequitable conduct doctrine, like other defenses to patent infringement, curtails litigation in some cases, and presumably tends to function most efficiently where the evidence is the most compelling and the allegations the most meritorious. Eliminating the defense would lead to an increase in the instances of successful enforcement of patents procured through deception, and, likely, an increase in attempts to mislead the USPTO.

Recommendations made by Prof. Dolak -

1. Prosecution conduct should be judged in the courts by the standards which govern applicants and practitioners inside the USPTO.

Currently, patent owners are subject to different materiality standards in the USPTO and the courts. The Federal Circuit has not only declined to adopt the "new" Rule 56 materiality standard (thus denying accused practitioners and parties the comfort of its relative clarity), but has expressly reaffirmed its 1984 decree that no "single standard" will govern materiality determinations in the court's inequitable conduct analysis.

2. Only conduct which undermines the integrity of the prosecution process should qualify for judicial sanction.

Under current law, inequitable conduct charges can be based on information completely immaterial to patentability. For example, in Ulead Sys., Inc. v. Lex Computer & Mgmt. Corp., a split panel of the Federal Circuit held that an unjustifiable claim of entitlement to small entity status and accompanying payment of insufficient maintenance fees was material as a matter of law. And in Gen. Electro Music Corp. v. Samick Music Corp., the Federal Circuit upheld a jury finding of materiality based on a statement - found false - that a "search" had been made in a petition to make special.

Thus, Ulead and Gen. Electro support the general proposition that inequitable conduct can be based on gaining an advantage before the PTO if the gain is based on a deceitful misrepresentation. Instead, the qualifying conduct should be limited to acts which undermine the substantive examination function of the USPTO - conduct which, objectively viewed - could reasonably have induced the USPTO to err in the application of a substantive patentability requirement, i.e., novelty, nonobviousness, utility, statutory subject matter, or compliance with the disclosure or definiteness requirements of Section 112.

3. The evidentiary standards governing intent findings should be revised.

[T]he most important directive in Star Scientific is this:

[I]nferences drawn from [less-than-clear-and-convincing evidence] cannot satisfy the deceptive intent requirement. Further, the inference must not only be based on sufficient evidence and be reasonable in light of that evidence, but it must also be the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard.

A firm resolve on the part of the courts to carefully observe this dictate should go a long way toward limiting erroneous deceptive intent findings and affirmances... Panels must strictly observe the "Rule of Newell"45 and resist the temptation to articulate new and different formulations of the governing standards. Non-panel members must aid their colleagues by carefully scrutinizing precedential opinions before they issue, and take steps to prevent the issuance of opinions which relax or undermine what should be a very exacting standard.

45 Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 765 (1988) ("This court has adopted the rule that prior decisions of a panel of the court are binding precedent on subsequent panels unless and until overturned in banc.").

4. Courts should abandon the materiality-intent balancing inquiry.

It is black-letter law, recently reinvigorated by the Federal Circuit, that district courts must undertake an equitable balancing of the evidence of materiality and intent in a given case "to determine whether a finding that inequitable conduct occurred is warranted."

As a practical matter,... because varying degrees of materiality can often be discerned, but direct evidence of deceptive intent is rarely available, this "balancing" inquiry almost exclusively serves to bolster intent findings and affirmances in certain cases. Thus, it exacerbates the problem of lax application of the intent standard.

Materiality and intent should be entirely separate threshold inquiries, and remain independent of one another throughout the analysis.

5. Trial judges should be permitted to tailor the remedy to the circumstances.

6. Patentees who prevail on the issue of inequitable conduct could be awarded attorney fees.

Finally, as a further deterrent to frivolous or nuisance prosecution misconduct allegations, it may make sense to implement a fee-shifting provision in favor of patentees who prevail on the issue, for example, an automatic award of inequitable conduct-related attorney fees to a plaintiff who prevails on inequitable conduct, regardless of whether the patentee wins on infringement and validity.

For those interested in this topic, the entire paper is highly recommended reading.

Thanks to Hal Wegner for circulating the paper.

Posted by Patent Hawk at October 4, 2008 7:49 PM | Inequitable Conduct


Prof. Dolak's conclusion that having the PTO decide if inequitable conduct was committed is correct. I have seen one proposal for this ridiculous possibility, but hopefully it won't get any traction.

Posted by: JD at October 6, 2008 2:08 PM