Exceptional Case Based On Inequitable Conduct During Prosecution

Posted on | February 5, 2010 | 3 Comments

2010-1135 B-K Lighting v. Fresno Valves
CD/CA 06-cv-2825
Judge Margaret M. Morrow

Patentee B-K appeals from the order of Judge Margaret Morrow declaring the case exceptional under § 285 and awarding attorneys’ fees.  The award was due to inequitable conduct before the PTO in failing to disclose certain prior art.  The Court declined to base the decision on B-K’s alleged failure to disclose a co-inventor or on litigation misconduct.

On May 2008 the Court found B-K’s ’084 patent invalid as obvious, relying on two references not submitted to the PTO during examination.  Fresno Valves (“FVC”) then sought to declare the case exceptional and for an award of attorneys’ fees, based in part on the failure to disclose those references to the PTO.

Inequitable Conduct: The Court first addressed two threshold matters: (1) whether inequitable conduct allegations can be addressed in the context of a § 285 motion when those allegations were never included in an answer or counterclaim; (2) whether the standard is like on summary judgment (all evidence and inferences viewed in favor of the non-moving party) as advocated by B-K, or clear and convincing as urged by FVC.

The court decided it could address the inequitable conduct charge despite the lack of allegations from the pleadings, and that it would be judged under the “clear and convincing” standard.  However, the court wrote that its analysis and findings were solely for §285 purposes and did not constitute any finding or decision on enforceability.

To establish inequitable conduct, the asserting party must establish (1) that the patent applicant made an affirmative misrepresentation, failed to disclose material information, or submitted false information to the patent office; and (2) that the applicant did so with intent to deceive. If these elements are established, (3) the court must weigh them to determine whether inequitable conduct occurred.

As is often the case, the deceptive intent element was hotly contested with respect to inferring such intent.  The Court summarized B-K’s excuse for non-disclosure”the “we didn’t think it was material” rationale, and rejected it, inferring deceptive intent due to the lack of a credible explanation to the contrary:

the Federal Circuit “[has] held that absent a credible reason for withholding the information, ‘[i]ntent may be inferred where a patent applicant knew, or should have known, that withheld information would be material to the PTO’s consideration of the patent application.’” Monsanto, 514 F.3d at 1241 (quoting Critikon, 120 F.3d at 1256); Bruno Independent Living Aids, 394 F.3d at 1354 (“[A]n inference of deceptive intent may fairly be drawn in the absence of [a credible] explanation [for the non-disclosure]”). Stated differently, where a patent applicant (1) knew that prior art existed, (2) knew or should have known that it was material, (3) withheld the information, and (4) offers no good explanation for doing so, the court may infer intent to deceive.

Order, p. 25.  The Court rejected B-K blanket denial of deceptive intent because there was not good explanation as to how it thought the references were no material:

B-K argue that neither Hagen nor its patent counsel knew that the 360SL and Hydrel [references] were material, and denies that they had any intent to deceive. “A mere denial of intent to mislead (which would defeat every effort to establish inequitable conduct) will not suffice.” GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1275 (Fed. Cir. 2001) (citing FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1416 (Fed. Cir. 1997)).

Order, p. 28.  The Court further noted that deceptive intent can be inferred where (1) the applicant made a patentability argument to the PTO that could not have been made were the art of record (Order, p. 28), or where the references in question are the applicant’s own art (Order, p. 29).

Litigation Misconduct: The Court declined to find that B-K should be sanctioned for litigation misconduct, finding that “both parties engaged in overly aggressive, time-consuming and expensive litigation tactics.”  Order, p. 40.  However, it did use some of B-K’s “minor instances of litigation abuse” in weighing the discretionary component of § 285.

A subsequent order from the Court set the award at over $830,000 in fees, costs and expenses.

2010-1135 Exceptional Award

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