Federal Circuit Splits Again over Standards for Inequitable Conduct

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

After a patent issues, that patent is not automatically enforceable for its full 20 year term. Instead, patent owners must pay maintenance fees at various intervals to keep the patent alive. The first fee is due 3 years after issuance. The United States Patent and Trademark Office (USPTO) then gives patent owners another six month grace period to pay the fee. Even then, if the patent owner misses a payment, there is an option for a late payment if the patent owner can petition by filing a form with a statement that the delay was “unintentional”. 37 C.F.R. §1.378(c)(3).

In 2004, the Naval Research Laboratory (NRL) permitted a patent to lapse for nonpayment of the 7.5-year maintenance fee. Two weeks after the lapse became effective, the NRL received an inquiry from the predecessor to Network Signatures about licensing the patent. The NRL’s patent attorney then petitioned the Patent and Trademark Office (PTO) to accept delayed payment of the fee, and the PTO granted the petition. NRL licensed the patent to Network Signatures.

Seven years later, in 2011, Network Signatures sued State Farm for infringement of the patent. In defense, State Farm asserted that the patent was permanently unenforceable on the ground that the NRL patent attorney had engaged in inequitable conduct by “falsely representing” to the PTO that the NRL’s non-payment of the maintenance fee was “unintentional.” State Farm argued that the delay was not “unintentional” in that the NRL paid the fee only after learning of Network Security’s interest in the patent in 2004. The patent attorney stated that there was merely a “mistake of fact,” because the NRL would have routinely paid the maintenance fee had it known of this commercial interest. Due to delivery issues, NRL did not receive the messages from Network Signatures until after the patent had gone abandoned.

The district court granted summary judgment of inequitable conduct, and held the patent unenforceable. The district court held that these circumstances did not amount to a “mistake of fact,” because “[t]he discovery of additional information after making a deliberate decision to withhold a timely action is not the ‘mistake in fact’ that might form the basis for acceptance of a maintenance fee,” citing a previous case. The district court also held that the omission of “any evidence or explanation of why the delay was considered unintentional was but-for material.” Continue reading “Federal Circuit Splits Again over Standards for Inequitable Conduct”