August 5, 2009
Particular Inequitable Conduct
Exergen stuck SAAT and others for infringing 5,012,813; 6,047,205 and 6,292,685, claiming infrared thermometers taking skin readings. A jury awarded over $2.5 million in lost profits. SAAT appealed, getting '205 claims invalidated on anticipation, and skirting infringement on '813 and '685, thus winning overall. SAAT failed to prevail on inequitable conduct via Rule 9(b), requiring "particularity."
Exergen v. Wal-Mart et al and S.A.A.T. Systems Application et al (CAFC 2006-1491, 2007-1180) precedential
Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "[I]nequitable conduct, while a broader concept than fraud, must be pled with particularity" under Rule 9(b). Ferguson Beauregard/Logic Controls, Div. of Dover Resources, Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003). A pleading that simply avers the substantive elements of inequitable conduct, without setting forth the particularized factual bases for the allegation, does not satisfy Rule 9(b).3 See King Auto., Inc. v. Speedy Muffler King, Inc., 667 F.2d 1008, 1010 (CCPA 1981) ("Rule 9(b) requires that the pleadings contain explicit rather than implied expression of the circumstances constituting fraud."). For example, in a case where inequitable conduct was alleged on the basis that an applicant "failed to disclose all the relevant prior art known to it," we found this allegation deficient because it did not identify the specific prior art that was allegedly known to the applicant and not disclosed. Cent. Admixture, 482 F.3d at 1356-57 (internal quotation marks omitted). In that case, the accused infringer also alleged that the applicant "sought to mislead the [PTO] regarding the relationship between the claimed invention and the prior art" "by manipulation of various measurements and units." Id. at 1356 (internal quotation marks omitted). This pleading, too, was deficient because it failed to identify "what 'measurements and units' were manipulated, or how that manipulation was meant to mislead the PTO." Id. at 1357. As the Seventh Circuit has held, the "circumstances" in Rule 9(b) must be set forth with "particularity," i.e., they "must be pleaded in detail"--"[t]his means the who, what, when, where, and how" of the alleged fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). Based on the foregoing, and following the lead of the Seventh Circuit in fraud cases, we hold that in pleading inequitable conduct in patent cases, Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO.
3 The substantive elements of inequitable conduct are: (1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO. See Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178, 1181 (Fed. Cir. 1995); 37 C.F.R. § 1.56 (2008).
The gleanings of intent must be manifest to be inferable.
Rule 9(b) also states that "[m]alice, intent, knowledge, and other conditions of mind of a person may be averred generally." The relevant "conditions of mind" for inequitable conduct include: (1) knowledge of the withheld material information or of the falsity of the material misrepresentation, and (2) specific intent to deceive the PTO. See Hebert v. Lisle Corp., 99 F.3d 1109, 1116 (Fed. Cir. 1996); Molins, 48 F.3d at 1181. Although "knowledge" and "intent" may be averred generally, our precedent, like that of several regional circuits, requires that the pleadings allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind.4
4 See, e.g., N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009) ("Rule 9(b) requires not only specifying the false statements and by whom they were made but also identifying the basis for inferring scienter."); Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007) ("[U]nder Rule 9(b) . . . the complaint 'must still afford a basis for believing that plaintiffs could prove scienter.'" (quoting DiLeo, 901 F.2d at 629)); Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) ("But because 'we must not mistake the relaxation of Rule 9(b)'s specificity requirement regarding condition of mind for a license to base claims of fraud on speculation and conclusory allegations[,] . . . plaintiffs must allege facts that give rise to a strong inference of fraudulent intent.'" (quoting Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995)) (alterations in original)); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997) ("While state of mind may be averred generally, plaintiffs must still allege facts that show the court their basis for inferring that the defendants acted with 'scienter.'").
In sum, to plead the "circumstances" of inequitable conduct with the requisite "particularity" under Rule 9(b), the pleading must identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO. Moreover, although "knowledge" and "intent" may be averred generally, a pleading of inequitable conduct under Rule 9(b) must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual (1) knew of the withheld material information or of the falsity of the material misrepresentation, and (2) withheld or misrepresented this information with a specific intent to deceive the PTO.5
5 A reasonable inference is one that is plausible and that flows logically from the facts alleged, including any objective indications of candor and good faith. See Greenstone v. Cambex Corp., 975 F.2d 22, 26 (1st Cir. 1992) (Breyer, C.J.) (declining to infer fraudulent intent where "the complaint makes clear that Cambex publicized its IBM memory 'trade-in' practice with a candor that seems inconsistent with knowledge of illegality or fear of a lawsuit"), superseded by statute on other grounds, Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737. In contrast to the pleading stage, to prevail on the merits, the accused infringer must prove both materiality and intent by clear and convincing evidence. See Star Scientific, 537 F.3d at 1365. Whereas an inference of deceptive intent must be reasonable and drawn from a pleading's allegations of underlying fact to satisfy Rule 9(b), this inference must be "the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard." Id. at 1366 (emphasis added).
SAAT utterly failed in its mud slinging.
Aside from these factual deficiencies, which themselves are fatal under Rule 9(b), the facts that are alleged do not 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.
Costs went to SAAT. The cost of crying wolf.
Posted by Patent Hawk at August 5, 2009 9:57 PM | Inequitable Conduct
Gary, you should clarify: "The cost of the *patentee* crying wolf"
Posted by: Federally Circuitous at August 6, 2009 5:19 AM
I think you missed the main point of the decision, dude. CAFC slapped Exergen silly.
They disposed of this case by their normal tactic of flipping the bird to the jury and making their own finding of facts. Along the way CAFC relies on a absolutely idiotic interpretation of taking multiple temperature readings to include all the readings between the time you turn on the thermometer and you stick it in the person's ear. You could not find a single nurse or doctor in the whole world who would consider the readings that occur as the sensor moves across the person's face toward the ear as "taking readings."
Anyway, jury verdict canceled, no infringement – end of story, everybody go home.
But everybody didn't go home; they hung around for the encore -- the IC issue, which was entirely fluff. But CAFC grabbed it and shook it hard to get everything they could out of it.
When the CAFC goes beyond what it has to do to dispose of a case, it’s pounding a tom-tom and you’d better listen up.
Exergen’s patent counsel may have dodged the IC bullet, but Exergen still lost big-time and Exergen's trial counsel still got her bottom smacked for her trial techniques. See footnote 2. IMHO Linn’s microscopic examination of Ms. Harvey’s closing arguments was borderline draconian.
Posted by: Veritas at August 6, 2009 7:43 AM
You seem to be sending mixed signals.
While Exergen may have been spanked, the focus of the post here is clearly related only to the IC part of the decision. So when you say "I think you missed the main point of the decision, dude. CAFC slapped Exergen silly." and follow that with "When the CAFC goes beyond what it has to do to dispose of a case, it’s pounding a tom-tom and you’d better listen up.", you indicate both that the IC part of the decision is not the main point (it is, at least of this thread) and the IC part is pretty darn important (which IS the point of this thread).
The clarification is simply that the cost of crying wolf is to SAAT, who is not the patentee, but rather is the party that whipped out the IC charge.
Posted by: Noise above Law at August 6, 2009 8:04 AM
Yeah, my comment was pretty schizo. Almost as schizo as the decision, eh?
It was Hawk's conclusion that "SAAT utterly failed in its mud slinging" that I felt missed the main point. SAAT did very, very well in this decision.
My other point was that the fact that CAFC went to so much trouble to make an optional side-point re IC was as significant as the side point itself.
Posted by: Veritas at August 6, 2009 2:40 PM