In California Costume Collections, Inc v. Pandaloon, LLC, 2-21-cv-01323 (CDCA Apr. 7, 2022) (John W. Holcomb), the Central District of California recently considered whether a plaintiff plead an inequitable conduct claim with the required particularity concerning knowledge of materiality. In the case, Plaintiff California Costume Collections (“CCC”) filed its Complaint against Defendant Pandaloon, LLC (“Pandaloon”) for declaratory judgment of non-infringement, invalidity, and unenforceability of U.S. Design Patent No. D806,325 (the “D325 Patent”) for a “Pet Costume.” In response, Pandaloon filed a Motion to dismiss Count Three of the Complaint—in which CCC alleges that the D325 Patent is unenforceable due to inequitable conduct—on the ground that it fails to state a claim for relief under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent. Rule 9(b) of the Federal Rules of Civil Procedure governs inequitable conduct claims.  Rule 9(b) requires that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. To meet this standard, the Federal Circuit requires the pleading party to identify “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO.”

In this case, Pandaloon sought dismissal of CCC’s inequitable conduct claim on the grounds that CCC fails to plead with particularity knowledge of prior art, knowledge of the materiality of that prior art, and specific intent. First, Pandaloon argues that the Complaint fails to allege that the inventor or her attorney were aware of either the prior art costumes during prosecution, that either believed that the references were material, and that either intentionally withheld them. Pandaloon asserts that merely speculating about knowledge, where the prior art costumes were “widely available in the marketplace,” is insufficient to plead subjective knowledge under Rule 9(b).  Second, Pandaloon argues that knowledge of materiality cannot be alleged on information and belief alone and the Complaint contains no facts supporting the conclusory allegation that Pandaloon “made a deliberate decision not to disclose” the prior art. Finally, Pandaloon contends that the “inequitable conduct allegations fail to show that an intent to deceive [is] the ‘single most reasonable inference’ for not citing the Rubies or Gingerbread [prior art] Costumes to the USPTO,” especially when multiple reasonable inferences can be drawn, including that the inventor and her attorney lacked knowledge of the costumes, believed that the costumes were immaterial, or believed that the costumes were cumulative

CCC responded that Pandaloon misstates the standard for pleading inequitable conduct, which does not require proving by clear and convincing evidence that intent to deceive is the single most reasonable inference. Rather, merely pleading such intent through plausible allegations is sufficient.  Moreover, CCC maintains that its allegations are sufficient because it claims that the inventor and her attorney “knew that the Teddy Bear pet costume from Rubies, and CCC’s Gingerbread Pup costume, were widely available for sale in the marketplace” and that a reasonable inference can be drawn that they “made a deliberate decision not to disclose the Teddy Bear or Gingerbread pet costumes to the patent examiner because they knew that Gingerbread Pup costume, alone or in combination with the Rubies’ Teddy Bear costume, would anticipate and/or render obvious Pandaloon’s claimed design.” Based upon those facts, CCC asked the Court to “draw the reasonable inference that Pandaloon withheld the Gingerbread Pup costume with an intent to deceive the PTO.”

The Court then reviewed the standard to state a claim for inequitable conduct, which says a plaintiff must allege with specificity: (1) knowledge of the uncited reference; (2) knowledge of the reference’s materiality; and (3) the specific intent to deceive the PTO by withholding that reference. “[A]lthough ‘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.” 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.

First, applying that standard, the Court found the allegations are insufficient to support a plausible claim of knowledge for inequitable conduct purposes. CCC essentially just alleged the “wide availability” of the prior art costumes and concluded that “Pandaloon either knew, or should have known, that the Gingerbread Pup costume would be but for material to the examiner.”  Thus, the Court held because the Complaint alleges inferred knowledge based only upon the fact that the costumes were widely available, CCC has not pleaded its inequitable conduct claim with the required particularity concerning prior art knowledge.

Next, to allege knowledge of materiality sufficiently, a plaintiff must “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 found the correspondence attached to the Complaint in which CCC explains to Pandaloon why it believes that the costumes would have been material to the examiner does not fill that void because it reflects CCC’s belief; even if the correspondence could be construed to impart knowledge of the claimed materiality to the inventor or her attorney, it post-dates the prosecution of the D325 Patent and therefore cannot show knowledge of materiality at the relevant time. Thus, the Court held CCC has not pleaded the inequitable conduct claim with the required particularity concerning materiality knowledge because CCC fails to plead in its Complaint any underlying facts supporting the information-and-belief allegation of knowledge of materiality.

Finally, the Court considered whether CCC sufficiently plead specific intent to deceive. The Court noted intent to deceive cannot be inferred solely from the fact that information was not disclosed; there must be a factual basis for a finding of deceptive intent. In other words, a conclusory allegation of specific intent is insufficient. However, the Court found CCC has pleaded no facts, and thus has provided nothing, from which such an inference may be drawn.  Thus, the Court held that because the Complaint fails to plead any underlying facts supporting the specific-intent-to-deceive allegation, the inequitable conduct claim has not been pleaded with the required particularity concerning intent.

Thus, the Court granted Pandaloon’s Motion to Dismiss CCC’s inequitable conduct claim.  However, the Court did allow CCC leave to amend its inequitable conduct claim, if it can, consistent with the analysis and rulings set forth in the Court’s ruling.  However, to do so, CCC will need to plead specific facts as to knowledge and intent, and cannot just assert the prior art costumes were “widely available in the marketplace” and draw such inferences from that allegation.