CAFC (Really) Tightens Pleading Requirements for Inequitable Conduct

Exergen, Corp. v. Wal Mart Stores, Inc., No. 06-1491, August 4, 2009

Defendant SAAT appealed the denial of their motion for judgment as a matter of law ("JMOL") after a jury found that SAAT willfully infringed. SAAT also appealed the denial of its motion for leave to amend its answer to allege that the asserted patents are unenforceable due to inequitable conduct.

On the inequitable conduct issue, the district court found that SAAT's pleading failed to allege inequitable conduct "with particularity" under Rule 9(b). The pleading, which alleged inequitable conduct over 7 paragraphs, cited specific documents that "Exergen failed to cite", along with examples of "arguments made to the PTO were contradicted by statements from Exergen’s own website."

To plead the "circumstances" of inequitable conduct with the requisite "particularity" under Rule 9(b), the pleading must "identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." Moreover, although "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."

Turning to SAAT's pleading, the CAFC agreed with the district court that the allegations were deficient with respect to both the particularity of the facts alleged and the reasonableness of the inference of scienter.

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.

[S]econd, 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.

[T]hird, 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.

Going further on deceptive intent,

With regard to the withheld patent references, the pleading states that "Exergen was aware" of the ’808 and ’998 patents in general, and that Exergen had become aware of them during prosecution of Exergen’s own prior applications. . . . 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.

[D]eceptive intent in this case was pleaded solely on "inform[ation] and belie[f]." . . . Pleading on "information and belief" is permitted under Rule 9(b) when essential information lies uniquely within another party’s control, but only if the pleading sets forth the specific facts upon which the belief is reasonably based. Here, SAAT’s pleading provides neither the "information" on which it relies nor any plausible reasons for its "belief." Moreover, the circumstances that SAAT has alleged, even if true, do not plausibly suggest any "deliberate decision to withhold a known material reference" or to make a knowingly false misrepresentation—a necessary predicate for inferring deceptive intent. . . . 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.

This appears to be the CAFC's biggest step in tightening inequitable conduct practice in patent cases, noting that

[T]he district court was correct not to draw any permissive inference of deceptive intent with regard to the ’998 patent, lest inequitable conduct devolve into "a magic incantation to be asserted against every patentee" and its "allegation established upon a mere showing that art or information having some degree of materiality was not disclosed."

Read/download the opinion here (link)