Defining The Undefinable – Intentional, Material Misstatements And Omissions Before The Patent Office

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The Federal Circuit has recently sought to provide us with further definitions of perhaps the undefinable – intentional, material misstatements and omissions before the patent office. In Digital Control, Inc. v. The Charles Machine, 2006 U.S. App. Lexis 2991 (February 8, 2006), following summary judgment, the Federal Circuit found that there were genuine issues of material fact concerning the materiality of withheld prior art but none as to the materiality of misstatements in an inventor's declaration.

The patent-in-suit related to a method of monitoring the orientation of an underground boring tool. In response to a prior art rejection by the patent office, the inventor submitted a declaration stating that the inventor had reduced his invention to practice before the prior art reference. Based on the declaration, the patent office withdrew the rejection. Also, the inventor submitted as prior art a particular patent during the prosecution of a separate and unrelated patent application by the inventor. But did not submit that same prior art patent in the prosecution of the patent-in-suit.

The Federal Circuit began by explaining that a "patent may be rendered unenforceable for inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO during prosecution." A "court must then determine whether the questioned conduct amounts to inequitable conduct by balancing the levels of materiality and intent, ‘with a greater showing of one factor allowing a lesser showing of the other.'" Id. at 4.

Whether something is material has been addressed in various ways over time – in both case law and PTO Rule 56. As explained by the Federal Circuit, at least three different tests of materiality have been spawned in the courts. One, is the objective "but for" standard, "where the misrepresentation was so material that the patent should not have issued." Two, is the subjective "but for" test, "where the misrepresentation actually caused the examiner to approve the patent application when he would not otherwise have done so." Three, is the "but it may have" standard, "where the misrepresentation may have influenced the patent examiner in the course of prosecution." Id. at 5-6.

The Federal Circuit pointed out that Rule 56 was a fourth test of materiality, and that this PTO standard was "'an appropriate starting point for any discussion of materiality, for it appears to be the broadest, thus encompassing the others and because that materiality boundary most closely aligns with how one ought to conduct business with the PTO.'" Id. at 5.

Interestingly, the Federal Circuit emphasized that there was "'no reason to be bound by any single standard,' as a finding of inequitable conduct requires a balancing of materiality and intent." "Thus, where ‘a reasonable examiner would merely have considered particular information to be important but not crucial to his decision' the requisite finding of intent must be high. Conversely, where an objective ‘but for' standard of materiality is shown, ‘a lesser showing of facts from which intent can be inferred may be sufficient.'" In other words, "to the extent that one standard requires a higher showing of materiality than another standard, the requisite finding of intent may be lower." Id. at 5.

Various issues nevertheless remain unanswered in the view of the Federal Circuit. "[W]e have not yet determined whether the new Rule 56 is the same as the ‘reasonable examiner' standard of the old Rule 56, or, if the new standard is narrower, whether a misstatement that is material under the ‘reasonable examiner' standard, but arguably not material under the new Rule 56 standard, still meets the threshold level of materiality required for a finding of inequitable conduct." Id. at 4.

In reviewing the lower court's determinations, the Federal Circuit repeated that granting summary judgment based on inequitable conduct is "permissible, but uncommon." And since "all inferences must be made in favor of the nonmovant . . . , it is often improper to determine at summary judgment that a patentee made intentional misstatements or omissions to the PTO." Id. at 6.

The Federal Circuit agreed with the district court that there was "no genuine issue of material fact as to the materiality of the misstatements in the Rule 131 declaration." Id. at 6. The declaration stated that the inventor demonstrated his system underground and that a sensor was within the boring tool. But in deposition, the inventor admitted that he did not demonstrate his invention underground and that the sensor was not within the boring tool. Id.

Without specifically rejecting the "but for" test urged by the patent holder, the Federal Circuit determined that "a reasonable examiner would have considered the true nature of Dr. Mercer's reduction of the invention to practice to be important in deciding whether to allow the patent. Under the ‘reasonable examiner' standard, a misstatement or omission may be material even if disclosure of that misstatement or omission would not have rendered the invention unpatentable." Relying on its earlier decisions, the Federal Circuit emphasized that "'affirmative misrepresentations . . . in contrast to misleading omissions, are more likely to be regarded as material'" and, in fact, the "submission of a false affidavit may be determined to be ‘inherently material.'" Id.

Given the above, the Federal Circuit reasoned that "a reasonable examiner would have considered the true nature of Dr. Mercer's reduction to practice to be important, such that his misstatements unquestionably meet the threshold requirement for materiality." Id. at 7.

Turning to the intent behind the misstatements, the Federal Circuit said that "‘the involved conduct, viewed in light of all the evidence, including evidence of good faith, must indicate sufficient culpability to require a finding of intent to deceive.'" "Intent need not be shown by direct evidence, but may be inferred from the totality of the evidence." Id. In that regard, the patentee was "'an extremely experienced inventor'", had applied for "numerous patents", and served "as an expert witness in patent litigation." Importantly, the district court had found that there was "'overwhelming evidence' that [the patentee] had a ‘motive' to mislead the PTO, as he was ‘under severe pressure from his largest customer . . . to acquire and enforce patent rights." Id. at 7-8.

In contrast to misstatements, such as in an inventor's declaration, if there is alleged withholding of information, ‘there must be clear and convincing evidence that the applicant made a deliberate decision to withhold a known material reference.' . . . Thus, the reference must be material . . . and the patentee must have actual knowledge of the prior art reference." "However, a withheld otherwise material prior art reference is not material for the purposes of inequitable conduct if it is merely cumulative to that information considered by the examiner." Id. at 7.

Although this may be disputed by some, the Federal Circuit regarded "the scope and content of prior art and what the prior art teaches [as] questions of fact." In the case at hand, "[b]ecause there are genuine issues of material fact as to what the [alleged cumulative] reference teaches, and thus whether the [withheld] patent is cumulative of the [alleged cumulative] patent, the issue of whether the failure to disclose the [withheld] patent was a material omission was not properly decided at summary judgment." Id.

The Federal Circuit observed that it "has in the past found that a false affidavit, standing alone, is sufficient to render a patent unenforceable." Id. at 6. Nevertheless, "in this case, the district court did not parse its analysis of the misstatements in the Rule 131 declaration from its analysis of the failure to disclose the [withheld] patent. As a result, we are unable to tell how heavily the district court's finding of inequitable conduct relied on its proper grant of summary judgment on the materiality of the misstatements in the Rule 131 declaration and how heavily it relied on its improper grant of summary judgment on the materiality of the failure to disclose the [withheld] patent." Id. at 8-9.

Based on the above, the Federal Circuit affirmed the partial grant of summary judgment on the materiality of the misstatements in the Rule 131 declaration, reversed the partial grant of summary judgment on the materiality of the omission of the prior patent, and vacated the determination of unenforceability for inequitable conduct.

What appears to have occurred in Digital Control is that the Federal Circuit has merely reaffirmed its prior decisions – that there are multiple standards of materiality, none of which are controlling; that intent is garnered from the totality of circumstances; and that materiality and intent are weighed to determine inequitable conduct. Unfortunately, as is the case with many areas of the law, the practitioner is not left with the feeling that there is greater guidance from the courts, nor left with the feeling that clearer counseling can be provided to clients.

© Michael A. Shimokaji 2006

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