Exergen v. Wal-Mart – A Return to Reasonableness in Inequitable Conduct Analysis

Patent practitioners are constantly concerned about the duty to disclose that accompanies involvement in preparing and prosecuting patent applications.  A major concern for many practitioners is understanding the contours of that duty, or, more precisely, understanding what omissions and commissions are likely to be labeled “inequitable conduct” by an accused infringer seeking to render a patent unenforceable.   Unfortunately, the limits of the duty to disclose, as defined by the federal courts, are difficult to discern, due at least to conflicting definitions of materiality.  Furthermore, because the courts allow deceptive intent to be inferred, under some circumstances, it is difficult to anticipate what conduct is likely to trigger such an inference.

A much-discussed 2007 opinion from the Court of Appeals for the Federal Circuit, McKesson Information Solutions v. Bridge Medical (slip opinion at http://www.cafc.uscourts.gov/opinions/06-1517.pdf), left many practitioners extremely concerned about just how far the courts could go in inferring the deceptive intent necessary to support a finding of inequitable conduct.  Indeed, some practitioners were concerned that McKesson could be read to impose broad new requirements for disclosing references cited in related applications, citing the substance of office actions in related applications, and so on.

A precedential opinion recently released by the Court of Appeals for the Federal Circuit, Exergen Corp v. Wal-Mart Stores, CVS, and SAAT (slip opinion at http://www.cafc.uscourts.gov/opinions/06-1491.pdf addresses thirteen pages to a discussion of the Massachusetts District Court’s refusal to accept an inequitable conduct allegation under Rule 9(b) of the Federal Rules of Civil Procedure.  Although the lower court’s decision holding was a procedural one, i.e., that the defendant’s allegations with regards to inequitable conduct failed to meet Rule 9(b)’s requirement that allegations of fraud or mistake be “stated with particularity,” the Federal Circuit nonetheless made several statements of law that appear to be more broadly applicable.  Although none of these are radically new statements of law, the overall tenor of the opinion is markedly different than that in McKesson.  TheExergen opinion might suggest that the Court of Appeals for the Federal Circuit is attempting to reign in what some of its judges have called the “scourge” of patent litigation – the too frequent, and sometimes abusive, accusations of inequitable conduct.

In particular, the court was emphatic in requiring that pleading inequitable conduct requires specific allegations, not general accusations that might or might be supported later.  Regarding the requirements of Rule 9(b), as applied to inequitable conduct allegations in pleadings, the court said (internal citations are omitted from all of the following quotes):

“… 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.”

“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. … 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.”

In applying the facts at issue to the case:

“First, the pleading refers generally to ‘Exergen, its agents and/or attorneys,’ … but fails to name the specific individual associated with the filing or prosecution of the application issuing as the ’685 patent, who both knew of the material information and deliberately withheld or misrepresented it. The pleading thus fails to identify the ‘who’ of the material omissions and misrepresentation.”

“Second, the pleading fails to identify which claims, and which limitations in those claims, the withheld references are relevant to, and where in those references the material information is found—i.e., the ‘what’ and ‘where’ of the material omissions.”

“Third, the pleading states generally that the withheld references are ‘material’ and ‘not cumulative to the information already of record, but does not identify the particular claim limitations, or combination of claim limitations, that are supposedly absent from the information of record. Such allegations are necessary to explain both ‘why’ the withheld information is material and not cumulative, and ‘how’ an examiner would have used this information in assessing the patentability of the claims.”

The court suggests that knowledge of a reference does not imply knowledge of the detailed contents of that reference:

“The pleading, however, provides no factual basis to infer that any specific individual, who owed a duty of disclosure in prosecuting the ’685 patent, knew of the specific information in the ’808 and ’998 patents that is alleged to be material to the claims of the ’685 patent. A reference may be many pages long, and its various teachings may be relevant to different applications for different reasons. Thus, one cannot assume that an individual, who generally knew that a reference existed, also knew of the specific material information contained in that reference.”

Disclosing a reference in one case does not necessarily require disclosing it in all cases:

“SAAT’s purported basis for inferring deceptive intent is that Exergen had cited the ’998 patent when prosecuting the ’205 patent but then failed to cite it when prosecuting the ’685 patent. The mere fact that an applicant disclosed a reference during prosecution of one application, but did not disclose it during prosecution of a related application, is insufficient to meet the threshold level of deceptive intent required to support an allegation of inequitable conduct.

Many practitioners will hope that this case is a first step in restoring some order to the confusion over inequitable conduct created  by McKesson.  However, it is important to note that McKesson was written by Judge Clevenger, joined by Judge Bryson, with Judge Newman dissenting on precisely the deceptive intent issue.  This Exergen opinion was written by Judge Linn, joined by Judge Michel and District Court Judge St. Eve, from the Northern District of Illinois.  An en banc opinion addressing inequitable conduct, and particularly addressing the evidence required to sustain a finding of deceptive intent, may be needed before full order is restored to this confusing area of law.