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Exergen: A Clarification to Pleading Inequitable Conduct

By Holly S. Hawkins and Labriah Lee

No defense in patent infringement litigation has been abused as frequently as the inequitable conduct defense. Dickson Indus., Inc. v. Patent Enforcement Team, LLC, 333 F. App’x 514, 519 (Fed. Cir. 2009) (“This court has long recognized that ‘the habit of charging inequitable conduct in almost every major patent case has become an absolute plague.’”). To curb abuse of this doctrine, in August 2009, the Federal Circuit seized upon the opportunity to clarify, and in doing so significantly heighten, the requirements for pleading the defense.

The Evolution of the Inequitable Conduct Defense
The Supreme Court first articulated the inequitable conduct defense, derived from the equitable doctrine of unclean hands, in Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814–15 (1945). Under the guidance of Precision Instrument, the requirement that the individuals associated with the filing of an application with the U.S. Patent and Trademark Office (PTO) comply with a duty of good faith and candor was first codified in 1977. See 37 C.F.R. § 1.56.

In the decades since the codification of this rule, despite a clear teaching that inequitable conduct requires a showing of a material act or omission coupled with intent to deceive, neither the Court of Customs and Patent Appeals nor the Federal Circuit have provided guidance as to the requirements to properly plead the defense. See, e.g., King Auto., Inc. v. Speedy Muffler King, Inc., 667 F.2d 1008, 1010 (C.C.P.A. 1981) (“Rule 9(b) requires that the pleadings contain explicit rather than implied expression of the circumstances constituting fraud.”); Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003) (stating, in dicta, that inequitable conduct “must be pled with particularity.”). With no clear direction from the court, this affirmative defense too often was included in an accused infringer’s answer as a matter of course. See Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) (“the habit of charging inequitable conduct in almost every major patent case has become an absolute plague”). Against this backdrop, in August 2009, the Federal Circuit revisited the inequitable conduct defense at the pleadings stage.

The Federal Circuit Clarifies the Requirements
In Exergen Corp. v. Wal-Mart Stores, Inc., SAAT, the accused infringer, filed a motion to amend its answer to allege inequitable conduct in the procurement of the patent-in-suit by “Exergen [and] its agents and/or attorneys,” who it said failed to disclose during prosecution material references of which they were aware and made arguments to the PTO that contradicted statements on Exergen’s website that were material to the patentability of the claims of the patent-in-suit. 575 F.3d 1312, 1325-26 (Fed. Cir. 2009). The district court denied SAAT’s motion and, following a jury verdict for Exergen, SAAT appealed, among other things, the district court’s denial of its motion for leave to amend. Id. at 1312.

On review, the Federal Circuit first noted that “‘inequitable conduct, while a broader concept than fraud, must be pled with particularity’ under Rule 9(b),” which requires that “‘[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.’” 575 F.3d at 1326 (quoting Mega Sys., LLC, 350 F.3d at 1344). Thus, “[a] pleading that simply avers the substantive elements of inequitable conduct”—that “(1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO”—“without setting forth the particularized factual bases for the allegation, does not satisfy Rule 9(b).” Exergen Corp., 575 F.3d at 1326–27 & n.3. The court then adopted the Seventh Circuit’s standard for pleading fraud with particularity, holding that to properly plead the “circumstances” prong of inequitable conduct, “Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO.” Id. at 1327; see also DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

Against this newly articulated standard, the court turned to the specifics of SAAT’s inequitable conduct allegations. Regarding the “who” component of the test, the court stated that a pleading must “name the specific individual” associated with the application “who both knew of the material information and deliberately withheld or misrepresented it.” Exergen Corp., 575 F.3dat 1329 (citing 37 C.F.R. § 1.56(a) (“Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [PTO]. . . . ”) (emphasis in citation)); Manual of Patent Examining Procedures § 2001.01 (8th ed., rev. 2, May 2004) (explaining that “the duty applies only to individuals, not to organizations”)). Simply referring to the patentee or “its agents and/or attorneys” is insufficient. Exergen Corp., 575 F.3d at 1329.

The court next agreed that SAAT had not identified the requisite “what” and “where” of a proper inequitable conduct allegation. Id. Relying on 37 C.F.R. § 1.56(a), the court held that the party alleging inequitable conduct must “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” to pass muster. Id. (citing 37 C.F.R. § 1.56(a) (“The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration, or the application becomes abandoned.” (emphasis added)).

The court stated that the “how” and “why” requirements are satisfied if the pleading “identif[ies] the particular claim limitations, or combination of claim limitations, that are supposedly absent from the information of record” i.e., “‘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.” Exergen Corp., 575 F.3d at 1329-30 (citing 37 C.F.R § 1.56(b)(1) (information is material if it “establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim”)). The court didn’t address the “when” requirement.

The court also held that SAAT’s allegations didn’t “give rise to a reasonable inference of scienter, including both (1) knowledge of the withheld material information or of the falsity of the material misrepresentation, and (2) specific intent to deceive the PTO.” Id. at 1330. The court held that “knowledge,” “intent,” and other states of mind “may be averred generally,” so long as “the pleadings allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind.” Id. at 1327. While SAAT alleged inequitable conduct by Exergen’s “selective citation” of references to the patent examiner, the court stated that the fact that an applicant disclosed a reference in one application and failed to do so in a related application isn’t sufficient to meet the threshold level of deceptive intent needed to properly plead inequitable conduct. Id. at 1331. For these reasons, the court affirmed the district court’s denial of SAAT’s motion for leave. Id.

District Courts Address Challenges to Inequitable Conduct Allegations
Cases following Exergen have been mixed.[1] For example, in Braun Corp. v. Vantage Mobility Int’l, LLC, after discovery had closed, Vantage Mobility sought leave to amend its answer to allege inequitable conduct by the inventors and the plaintiff’s representative for misrepresentations and failing to disclose three highly material prior art references during prosecution of the patent-in-suit. No. 2:06-CV-50-JVB-PRC, 2010 WL 403749, at *1 (N.D. Ind. Jan. 27, 2010). Braun opposed the motion, arguing, among other things, that Vantage Mobility’s motion was futile under Exergen. Id. at *4–5.

The district court disagreed. Vantage Mobility identified the specific individuals who committed the alleged inequitable conduct, the claims to which the allegedly withheld references related, when the individuals learned of the references, which portions of the references contained the relevant withheld material, and the manner in which the examiner would have used the withheld information in assessing the patentability of the claims, and thus passed muster. Id. at *5–6. Although Braun argued that Vantage Mobility’s pleading didn’t provide the requisite particularity, the district court noted that “[t]he heightened pleading requirements of Rule 9(b) do not require that [the defendant] definitively prove the merits of its claim. What is determinative here is that [the plaintiff] was given fair notice of the basis for [the defendant’s] inequitable conduct defense.” Id. at *5. “Given the liberal standard that applies when deciding whether to grant a motion to amend an answer, the [district court found], in the interest of justice, that the instant Motion should be granted.” Id. at *9.

In contrast, two decisions from the District of Delaware found inequitable conduct allegations insufficient. In both cases, the “circumstances” prong was found to be well pled, but the “intent” prong was held to be insufficient. In Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Magistrate Judge Stark recommended that the patentee’s motion to dismiss and strike be granted, in part allowing the defendant to proceed on only a subset of its claims, as the alleged infringer didn’t “allege any facts to show that [the individual accused of the inequitable conduct] was aware that any of the statements he made to the PTO were false or misleading.” No. 08-309-JJF-LPS, 2009 WL 4928024, at *8 (D. Del. Dec. 18, 2009).

Similarly, in Robert Bosch, LLC v. Pylon Mfg. Corp., the accused infringer sought leave to add an inequitable conduct defense based on the assertion that one of the inventors of the patent-in-suit hadn’t reviewed a related application, but nevertheless submitted an affidavit to the PTO, stating that he had. No. 08-542-SLR, 2009 WL 3366967, at *2 (D. Del. Oct. 19, 2009). The court stated that although “candor is the hallmark of the patent system and that false statements, about even ministerial acts, can have significance as to the survival of a patent in the review process,” the district court nevertheless held that the accused infringer failed to satisfy the “intent” prong of inequitable conduct because it provided “insufficient allegations of underlying facts from which [the court] may reasonably infer that the material misrepresentation was made with a specific intent to deceive the PTO.” Id.

Pleading Inequitable Conduct in Light of Exergen and Its Progeny
Regardless of the outcome of these and other post-Exergen challenges to inequitable conduct allegations, Exergen and its progeny make clear that a pleading of inequitable conduct must be detailed regarding the circumstances of the alleged inequitable conduct to survive a patentee’s challenge. However, as demonstrated by Power Integrations and Robert Bosch, the intent pleading requirement, though not as stringent, can’t be ignored for an inequitable conduct allegation to pass muster under Exergen.

Keywords: litigation, intellectual property, Exergen, inequitable conduct

Holly S. Hawkins and Labriah Lee are associates at Alston & Bird, LLP.

This article appears in the Summer 2010 issue of Intellectual Property Litigation from the Intellectual Property Litigation Committee.


End Notes

  1. A review of all of the district court cases that have addressed Exergen-based challenges to inequitable conduct allegations is beyond the scope of this note. Additional district court cases that have applied Exergen’s standard for inequitable conduct allegations are as follows: CIVIX-DDI, LLC. v. Hotels.com, L.P., No. 05C6869, 2010 WL 431467 (N.D. Ill. Feb. 1, 2010); Pall Corp. v. Cuno Inc., No. CV 97-7599, 2010 WL 301954 (E.D.N.Y. Jan. 20, 2010); Semiconductor Energy Lab. Co. v. Samsung Elec. Co., No. 09-cv-01, 2010 WL 55847 (W.D. Wis. Jan. 5, 2010); HTC Corp. v. IPcom GmbH & Co., K.G., No. 08-1897, 2009 WL 4363206 (D.D.C. Dec. 3, 2009); and Lincoln Nat’l Life v. Transamerica Fin. Life Ins. Co., No. 1:08-CV-135, 2009 WL 4547131 (N.D. Ind. Nov. 25, 2009).

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