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.”

The United States Court of Appeals for the Federal Circuit reversed the district court, holding that the PTO Director acted in accordance with law and within his discretion in excusing the delayed payment, and that inequitable conduct was not established. The Federal Circuit held that the patent attorney’s action did not constitute a material misrepresentation with intent to deceive. The standard PTO form requires no details for “unintentional” delay, and contains the preprinted statement that: “The delay in payment of the maintenance fee to this patent was unintentional,” without requesting further detail. Thus, the court held, the patent attorney’s compliance with the standard PTO procedure for delayed payment, using the PTO form for delayed payment, does not provide clear and convincing evidence of withholding of material information with the intent to deceive the Director. The court therefore reversed and remanded.

In dissent, Judge Clevenger wrote that he believed the action was material, but that the district court should not have granted summary judgment on intent to deceive the patent office.

Once again, a panel of the court is split on the proper standard for materiality related to inequitable conduct. Judge Clevenger’s dissent argues that there is “some dispute in our post-Thereasense case law over the correct standard of proof on materiality.” Judge Clevenger, in a footnote, argues for different standards of proof depending on whether withheld information is related to patentability.

The majority opinion, authored by Judge Newman, notes that the PTO standard forms do not require any explanation of the factual circumstances explaining an “unintentional” delay in these circumstances. The opinion explains that 37 C.F.R. §1.378(c) requires only “(3) A statement that the delay in payment of the maintenance fee was unintentional.” The patent attorney used the official form for delayed payment, and the Director accepted the payment. The court also stated in a footnote the patent attorney’s adherence to standard, well-established PTO procedure is not evidence of intent to deceive the Office.

Yet going forward, as always, patent practitioners must continue to use caution when making any affirmative statements—even pre-printed statements in standard forms—to the USPTO, especially regarding the “unintentional” revival of abandoned patent applications.

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