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Duty of Candor & Inequitable Conduct


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: February 15, 2008 @ 5:57 pm
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Inequitable conduct has been referred to as the scourage of patent litigation because it is so often (i.e., always) raised as a defense to patent infringement. Having said this, however, it is frequently deemed a vital part of US patent law because it relates to the duty of candor owed to the United States Patent Office by those substantively involved with a patent application. As you will learn by reading what is below, the duty of candor has been violated when those involved with a patent application do not disclose to the Patent Office information that is known about relevant prior art. If this duty of candor is breached it will likely not become apparent to the patent examiner, but will certainly become apparent if and when the patent is enforced during litigation.

If the duty is found to be breached there is said to be “inequitable conduct” and the entire patent is unenforceable. Compare this with the fact that invalidity must be determined on a claim by claim basis and you begin to understand why defendants always raise inequitable conduct as a defense. It is the silver bullet for defendants in patent litigation. With one defense you potentially wipe out each and every claim in the patent. It is powerful, but the Federal Circuit seems to be making it more and more difficult to prove.

The Basics of Inequitable Conduct

The doctrine of inequitable conduct stems from 37 CFR 1.56 (commonly referred to as Rule 56), which details the duty of candor placed upon the inventors and any individual substantially involved in the preparation or prosecution of the patent application. Specifically, all those substantively involved in the preparation and prosecution of a patent application must disclose to the Patent Office all information they are aware of that is material to the examination of the application. Critikon Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997). When a court has finally determined that inequitable conduct occurred in relation to one or more claims during prosecution of the patent application, the entire patent is rendered unenforceable. Kingsdown Medical Consultants v. Hollister, 863 F.2d 867, 877 (Fed. Cir. 1988).

While it is difficult to prove inequitable conduct, a district court’s ruling on inequitable conduct is reviewed deferentially. Hoffman-LaRoche, Inc. v. Promega Corp. (Fed. Cir. March 31, 2003). A determination of inequitable conduct is committed to the sound discretion of the district court. The subsidiary factual questions are reviewed for clear error and will not be disturbed unless the reviewing court has a definite and firm conviction that a mistake has been committed. Critikon, 120 F.3d. at 1255 (Fed. Cir. 1997). The district court’s ultimate assessment of the equities is reviewed for an abuse of discretion. Hoffman-LaRoche.

A party seeking to have a patent declared unenforceable has a heavy burden to meet. In order for a court to find inequitable conduct and thereby hold a patent unenforceable, the defendant must demonstrate clear and convincing evidence that such conduct occurred. Inequitable conduct can take the form of: (1) affirmative misrepresentations of a material fact; (2) failure to disclose material information; or (3) submission of false material information. Baxter Int’l v. McGaw, Inc., 149 F.3d 1321, 1327 (Fed. Cir. 1998).

Inequitable conduct requires misrepresentation or omission of a material fact, together with an intent to deceive the PTO. Both of those distinct elements must be shown by clear and convincing evidence. Once the requisite levels of materiality and intent are shown, the district court must determine whether the equities warrant a conclusion that the patentee has engaged in inequitable conduct. This test for inequitable conduct can be summarized as a three step analysis. First, the trial court must determine whether there has been a misrepresentation or omission of a material fact which meets a threshold level of materiality. Next, the trial court must then determine whether the evidence presented demonstrates the existence of a threshold level of intent to mislead the PTO. Baxter, 149 F.3d at 1327; Haliburton Co. v. Schlumberger Tech. Corp., 925 F.2d 1435, 1439, 17 USPQ2d 1834, 1838 (Fed. Cir. 1991). These initial two determinations (i.e., regarding materiality and intent) are questions of fact. Baxter, 149 F.3d at 1327; Halliburton, 925 F.2d at 1439.

The final step in the inequitable conduct analysis occurs once the requisite levels of materiality and intent are shown. At this point the district court must balance materiality and intent in light of all circumstances to determine whether the equities warrant a conclusion that inequitable conduct occurred. Hoffman-LaRoche; Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995); Baxter, 149 F.3d at 1327; Halliburton, 925 F.2d at 1439. When balancing the equities the court should keep in mind that the more material the omission, the less the culpable intent required, and vice versa. Baxter, 149 F.3d at 1327; Halliburton, 925 F.2d at 1439. Moreover, the court should ask itself whether the circumstances require the extremely severe sanction of holding the patent unenforceable. Hoffman-LaRoche. Thus, it is said that the court must determine, in light of all the circumstances, whether the conduct of the patentee is so culpable that the patent should not be enforced. LaBounty, 958 F.2d at 1070.

 

Failure to Disclose Relevant Prior Art

With respect to an allegation of inequitable conduct that is tied to a failure to disclose relevant prior art to the PTO, the defendant must prove by clear and convincing evidence that: (1) prior art that was material; (2) knowledge chargeable to an applicant of that prior art and of its materiality; and (3) failure of the applicant to disclose the art resulting from an intent to mislead the PTO. Elk Corp. of Dallas v. GAF Building Materials Corp., 168 F.3d 28, 30 (Fed. Cir. 1999). After the defendant has proven the above three elements, inequitable conduct may be rebutted by a showing that: (1) the prior art was not material; (2) if the prior art was material, a showing that the applicant did not know of that art; (3) if the applicant did know of that art, a showing that the applicant did not know of its materiality; or (4) a showing that the applicant’s failure to disclose the art did not result from an intent to mislead the PTO. Elk Corp., 168 F.3d 28 at 30.

It should also be noted, however, that there is no duty to disclose a reference that contains the same or less material than prior art already disclosed. Halliburton, 925 F.2d at 1440. In other words, cumulative prior art is not “material” for purposes of determining inequitable conduct. Molins PLC, 48 F.3d at 1179. Of course, the prior art with the most relevant features must be disclosed, and a failure to do so may lead to a finding of inequitable conduct. LaBounty Mfg. v. U. S. Intern. Trade Com’n, 958 F.2d 1066, 1075-76 (Fed. Cir. 1992). To determine whether the disclosed prior art is more material than that not disclosed, the court will consider the similarities and differences between the prior art and the claims. Halliburton, 925 F.2d at 1441. If it is a close call, it should be resolved in light of disclosure and not unilaterally by the applicant’s nondisclosure. LaBounty, 958 F.2d at 1076. An undisclosed reference may also be material if it refutes or is inconsistent with a position the applicant took in opposing a rejection of the patent claims.

Presently, exactly what needs to be disclosed seems to be open for interpretation, depending upon whether you are following the Patent Office’s view of what needs to be disclosed or the Federal Circuit’s view of what needs to be disclosed.  Despite the fact that in 1992 the Patent Office amended Rule 56 to specifically write out of the rule the need to submit material that a reasonable examiner would deem relevant, the Federal Circuit has determined that the Patent Office definition of what constitutes impermissible fraud is not the definition that they need to follow.  Inexplicably, the Federal Circuit continues to adhere, at least in some cases, to the out-dated reasonable examiner standard.  The Patent Office, which is inundated with reference after reference being submitted, wants only truly relevant references submitted.  Unfortunately for the Patent Office, given that if a patent is valuable the Federal Circuit will ultimately be the one determining the existence or lack thereof of any inequitable conduct, most patent attorneys presently submit everything that could possibly be relevant, particularly when the invention is one that could well be lucrative. 

 For more information see:

Duty of Disclosure Language in Oaths & Declarations

15 Patents Unenforecable Due to Inequitable Conduct

 

Best Mode Violations

Inequitable conduct can also occur when there has been a failure to disclose the best mode of the claimed invention. A best mode violation may occur accidentally. If a best mode violation occurs innocently there can be no inequitable conduct because the intent element is not satisfied. This is not to say that the patent is without problems. A best mode violation will work to invalidate claims, but will not in and of itself work to render the entire patent unenforceable.

 

Gross Negligence is Not Intent

The second element of inequitable conduct is the intent to mislead the PTO by nondisclosure of prior art. Gross negligence or gross recklessness alone, without culpable intent, does not provide a sufficient basis for a finding of inequitable conduct. Kingsdown, 863 F.2d at 876; Halliburton, 925 F.2d at 1439.

 

Proving Intent

The applicant’s conduct in its entirety must manifest a sufficiently culpable state of mind to warrant a determination that it was inequitable. Halliburton, 925 F.2d at 1443; Kingsdown, 863 F.2d at 876. As is often the case, direct evidence of intent is rarely available in proving the intent element of inequitable conduct. Thus, “smoking gun” evidence is not required. Elk Corp., 168 F.3d 28 at 32. Rather, intent can be inferred from the facts and circumstances surrounding the applicant’s conduct. Elk Corp., 168 F.3d 28 at 32; Molins PLC v. Textron, Inc., 48 F.3d at 1180-81. The court looks to the materiality of the undisclosed prior art, the knowledge of the applicant, and the surrounding circumstances, including any evidence of good faith in determining whether an intent to deceive existed. Kimberly-Clark v. Procter and Gamble, 973 F.2d 911, 918 (Fed. Cir. 1992). It is most often proven by a showing of acts, the natural consequence of which are presumably intended by the actor. Molins PLC, 48 F.3d at 1180. Having said this, however, it must be remembered that a failure to disclose alone is not enough to infer intent. Braun Inc. v. Dynamics Corp. of America, 975 F.2d 815, 822 (Fed. Cir. 1992). Likewise, the materiality of the reference cannot be in and of itself determinative of intent. Halliburton v. Schlumberger Technology Corp., 925 F.2d 1435, 1442 (Fed. Cir. 1991). Yet, an inference of intent may be drawn from the materiality of the undisclosed reference, where a high level of materiality and clear proof of the applicant’s knowledge of the materiality is found. FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1415-17 (Fed. Cir. 1987)

About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)

B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law Center

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Gene is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene’s particular specialty as a patent attorney is in the area of strategic patent consulting, patent application drafting and patent prosecution. As an electrical engineer by training his practice primarily focuses on software, computers and Internet innovations, as well as electrical and mechanical devices. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide.