FEDERAL CIRCUIT CLARIFIES WHEN A MISSTATEMENT OR OMISSION IS "MATERIAL":

Digital Control Inc. v. The Charles Machine Works - Feb 8, 2006 (05-1128)

Digital Control, Inc. appealed the decision of the district court for the Western District of Washington finding that 3 of the patents in suit were unenforceable for inequitable conduct. The district court's determination of inequitable conduct was premised on the materiality of both misstatements made in a Rule 131 declaration previously filed by the patentee and the failure to disclose prior art.

During prosecution of the patents, prior art was cited, and the patentee (Digital Control) overcame the rejection by filing a Rule 131 declaration, claiming that the inventor conceived and diligently reduced to practice the subject matter of the invention prior to the effective filing date of the prior art. The problem was that the inventor never actually made the prototypes he claimed to have had in his declaration.

Also, the inventor had in his possession prior art that was cited in a pending continuation application, but was not disclosed to the USPTO during the prosecution of the asserted patents (all 3 patents had the same disclosure). This art was subsequently used by the Examiner to reject the continuation application.

Finding that the combination of events rose to the level of inequitable conduct, the district court granted summary judgment against Digital Control, and ruled the patents unenforceble.

Regarding the misstatements in the Rule 131 declaration, the court repeated that "affirmative misrepresentations . . . in contrast to misleading omissions, are more likely to be regarded as material." As such, the granting of summary jusgment was proper in light of the lower court's record.

However, regarding the issue of whether the omission of prior art was "material," the court reversed the granting of summary judgment because (1) the scope and content of prior art and what the prior teaches are questions of fact, and (2) the lower court did not provide a clear record of which facts were determinative of the finding of inequitable conduct.

Also, the court noted that Rule 56 issues of candor and good faith were changed back in 1992, when the PTO created an arguably narrower standard of materiality. Under the old rule, the courts have held "that materiality for purposes of an inequitable conduct determination require[s] a showing that 'a reasonable examiner would have considered such prior art important in deciding whether to allow the parent application.'"

Under the new (post-1992) rule, the test for materiality was changed where

[I]nformation is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the Office, or
(ii) Asserting an argument of patentability.

The question was raised whether the "new" rule supplanted the old "reasonable examiner" rule. After providing a detailed analysis, the court concluded that it did not:

That the new Rule 56 was not intended to replace or supplant the "reasonable examiner" standard is supported by the PTO's comments during the passage of the new rule. The PTO noted that the rule "has been amended to present a clearer and more objective definition of what information the Office considers material to patentability" and further that "[t]he rules do not define fraud or inequitable conduct which have elements both of materiality and of intent."

In this case, the district court, faced with the two versions of Rule 56, determined that the new Rule 56 standard was essentially the same as the "reasonable examiner" standard, and thus applied the "reasonable examiner" standard and our case law interpreting that standard. Summary Judgment, slip op. at 9-19. Because the "reasonable examiner" standard and our case law interpreting that standard were not supplanted by the PTO's adoption of a new Rule 56, when reviewing the district court's decision, we will do the same.