Exergen v. Wal-Mart: Raising the Pleading Requirement for Inequitable Conduct

The Federal Circuit has established a heightened pleading requirement for claims of inequitable conduct, requiring more than “a mere showing that art or information having some degree of materiality was not disclosed.” In Exergen Corp. v. Wal-Mart Stores Inc., 575 F.3d 1312, 1331 (Fed. Cir. 2009) (cit. omitted), the Court held that a claim of inequitable conduct must specifically identify the who, what, when, where, why, and how of the material misrepresentation, plus allege sufficient fact to allow the court to infer both the knowledge and intent to deceive required for a finding of inequitable conduct. The opinion may reflect an effort by the Court to curtail the often-indiscriminate use of inequitable conduct claims by patent infringement defendants.

BACKGROUND

Exergen, manufacturer of infrared thermometers, sued S.A.A.T., among other defendants, for violation of three of its patents – the ‘813, ‘205, and ‘685 patents. About a year after the suit was filed, S.A.A.T. sought to amend its answer to add inequitable conduct as both an affirmative defense and a counterclaim.

S.A.A.T. alleged three specific instances of inequitable conduct during Exergen’s prosecution of its ‘685 patent: 1) that Exergen’s previously-filed ‘808 patent was material and intentionally withheld; 2) that a patent cited during Exergen’s ‘205 prosecution was also material to ‘685, but it was intentionally withheld; and 3) Exergen’s made representations in its statements to overcome rejections during the ‘685 prosecution that were contradicted on its website.

The District Court denied the motion to amend because S.A.A.T. had failed to plead fraud with particularly as required by Federal Rules of Civil Procedure, Rule 9(b). The jury later found S.A.A.T. directly infringed two of the three patents and actively induced infringement of the third, all willfully. S.A.A.T. appealed on multiple grounds, including the denial of its motion for leave to amend to add the inequitable conduct claim.

Inequitable Conduct Must Be Pleaded With Particularity

Inequitable conduct is found when a patent applicant breaches his duty of candor and good faith to the Patent & Trademark Office while prosecuting his patent, usually by failing to submit information and references known to be material to patentability. If it is determined that even one patent claim was obtained through inequitable conduct, the entire patent is unenforceable. Because a claim of inequitable conduct is a claim that the offending party acted with fraud, it must be pleaded with particularity, pursuant to FRCP Rule 9(b).

Defensive claims of inequitable conduct have become common in patent infringement litigation. Prior to discovery, it is often difficult for a party to plead inequitable conduct with particularity – many pleadings are based on “information and belief.” But the Federal Circuit has now held that a pleading based on “information and belief” will no longer suffice.

In Exergen, the court said: “Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO.” Exergen Corp. v. Wal-Mart Stores Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009). Regarding “who,” the accused infringer must “name the specific individual associated with the filing or prosecution … who both knew of the material information and deliberately withheld or misrepresented it.” Id. at 1329. S.A.A.T.’s general allegation that “Exergen, its agents and/or attorneys” made the misrepresentation failed this particularity requirement.

Explaining its “what” and “where” requirement, the court explained that the pleading 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.” Id. S.A.A.T.’s pleadings also failed to include these specifics.

Finally, as to the “why” and “how” elements, the party alleging inequitable conduct cannot just generally allege that the omitted information was material and not cumulative, as S.A.A.T. did. Instead, the Court expects the pleading to “identify the particular claim limitations, or combination of claim limitations, that are supposedly absent form the information of record” in order to explain both “’why’ the withheld information is material and not cumulative, and ‘how’ the examiner would have used this information in assessing the patentability of the claims.” Id. at 1329-30.

In addition, the party claiming inequitable conduct must allege that the patent holder acted with specific intent to deceive the PTO. Id. at 1330. The court must be able to reasonably infer from the alleged facts that the party in question “acted with the requisite state of mind.” Id. at 1327. A pleading “on information and belief” is only allowed “if the pleading sets forth the specific facts upon which the belief is reasonably based.” Id. at 1330. The Court warned that pleading inequitable conduct is not a “magic incantation to be asserted against every patentee.” Id. at 1331 (citing FMC Corp. v. Manitowoc Co. Inc., 835 F.2d 1411, 1415 (Fed. Cir. 1987). It requires more than a hollow pleading.

CONCLUSION

Exergen does make it more difficult for alleged infringers to automatically claim inequitable conduct without alleging substantial supporting facts. Such a pleading may be particularly difficult before discovery, but expect an increasing number of courts to follow the lead of the Eastern District of Texas, which provides for an amended pleading deadline as of right to add allegations of inequitable conduct after substantial discovery has taken place.

Exergen also levels the field a bit. In 2007, the Federal Circuit found inequitable conduct because a patent attorney failed to provide to one PTO examiner information from an action in a related case before a second examiner. McKesson Info. Solution Inc. v. Bridge Medical Inc., 487 F.3d 897 (Fed. Cir. 2007). There, the Federal Circuit focused entirely on the facts without considering whether the alleged infringer had pleaded the facts as required by Rule 9(b). The McKesson case forced practitioners to become over-inclusive in their filings, increasing the burden and expense to their clients. The heightened Exergen standard for those claiming inequitable conduct tempers the burden of McKesson to some degree.

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Yuri Mikulka

Thomas F. Zuber

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