A new case decided by the Federal Circuit Court of Appeals has made it even harder to prove inequitable conduct. Inequitable conduct, which can be asserted by a defendant in a patent infringement suit as an affirmative defense or by a plaintiff in a declaratory judgment action, results in the patent being unenforceable. As is true of patent invalidity, inequitable conduct must be proven by clear and convincing evidence. In M.Eagles Tool Warehouse, Inc. v. Fisher Tooling Company, Inc., 439 F.3d 1335 (Fed. Cir. February 27, 2006), the Federal Circuit held that intent could not be inferred solely from the patent applicant’s failure to disclose a prior art reference.
Fisher Tooling Company owned a patent on a device that removes decals from motor vehicles. In applying for the patent, the inventor/founder of the company submitted a declaration saying that he was unaware of any relevant prior art. The inventor died six months later, and the company continued to prosecute the patent. The patent issued, after an office action in which the examiner stated that the claims were allowed because the prior art of record did not disclose the elements of the invention.
In 1996, Fisher sent cease and desist letters to M. Eagles Tool Warehouse, accusing M. Eagles of infringing the patent by contributatory infringement and inducing infringement. Fisher also notified M. Eagles’ customers that they were infringing the patent. M. Eagles sued Fisher in the district court for the District of New Jersey for a declaratory judgment of non-infringement, unfair competition, and other related claims. Fisher counterclaimed for patent infringement.
M. Eagles moved for summary judgment of unenforceability of the patent based on inequitable conduct. The district court granted the motion, finding that Fisher had failed to disclose a previous model of the device similar to the invention that it had been selling for 20 years. The court found that the prior art model was material, and inferred that Fisher had intended to deceive the PTO based on its failure to disclose the model. The court then used its findings to grant summary judgment on other claims of M. Eagles, and to award attorneys fees.
The Court of Appeals reversed. The court explained that the elements required to show inequitable conduct are: (1) a failure to disclose material information; and (2) intent to deceive the PTO. The burden of proof is clear and convincing evidence.
The court emphasized that “materiality does not presume intent.” Id. at 1341. Intent must be shown by factual evidence; it “cannot be inferred solely from the fact that information was not disclosed.” Id. The court also “cautioned” that summary judgment is rarely the time to make a determination of inequitable conduct.
Fisher argued on appeal that the district court essentially applied a strict liability test to determine intent. The finding was not based on factual evidence of Fisher’s intent to deceive the PTO during prosecution of its patent. Fisher contended that it was unaware of the relevance of the previous model it had sold, and therefore, could not have any intent to deceive the PTO.
M. Eagles argued that Fisher had no legitimate reason for its failure to disclose its prior model to the PTO, as Fisher knew of its existence and knew that it was similar to the claimed invention.
The court stated that the issue was “whether a lack of a good faith explanation for a nondisclosure of prior art, when nondisclosure is the only evidence of intent, is sufficient to constitute clear and convincing evidence to support an inference of intent.” Id. 1341. The court held that it was not. Direct evidence of intent is not required; intent can be inferred from the facts and circumstances. The patent applicant’s lack of a good faith explanation for the failure to disclose a prior art reference is relevant fact; however, it cannot be the only fact. Id. The court further justified its holding by noting that the prior art model was not that similar to the claimed invention and that the inventor could not have explained the failure to disclose the prior art model because he died before the patent was allowed. The court summarized: “Intent to deceive should be determined in light of the realities of patent practice, and not as a matter of strict liability whatever the nature of the action before the PTO.” Id. at 1343.
Based on this case, inequitable conduct has been significantly weakened. It will be difficult to prove inequitable conduct at trial, and will be virtually impossible to prevail on that basis on summary judgment.
Audrey Millemann is a shareholder in Weintraub Genshlea Chediak Tobin & Tobin’s Intellectual Property and Disputes, Trials and Appeals sections. A business litigator and registered patent attorney, her practice focuses on intellectual property, unfair competition and antitrust matters. For more articles on IP law, please visit www.theiplawblog.com.