Another Bad Inequitable Conduct Decision

Yesterday, the Federal Circuit issued yet another split panel decision on inequitable conduct.  Avid Identification Systems, Inc. v. Crystal Import Corp.

The duty of disclosure to the PTO is governed by 37 C.F.R. § 1.56 (Rule 56).  Rule 56 requires that information that is “material” to the claims of a patent be disclosed to the PTO.  This would include search reports, prior art references, and similar information.

“Material” Information

What exactly is information “material” to patentability?  Prior to 1992 amendments, Rule 56 defined “material” information as:

Such information is material where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.

The rule was amended in 1992 to make the standard more objective.  Currently, Rule 56 specifically sets forth the standard for what constitutes materiality:

(b) Under this section, information is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the Office, or

(ii) Asserting an argument of patentability.

A prima facie case of unpatentability is established when the information compels a conclusion that a claim is unpatentable under the preponderance of evidence, burden-of-proof standard, giving each term in the claim its broadest reasonable construction consistent with the specification, and before any consideration is given to evidence which may be submitted in an attempt to establish a contrary conclusion of patentability.

Unfortunately, the Federal Circuit refuses to read the amended rule, as numerous panels continue to use the old “reasonable examiner” standard that is broader than the standard set forth in the current rule.  Indeed, all three judges on the panel in Avid used the incorrect “reasonable examiner” standard in finding that a public disclosure of the invention that did not affect its patentability was “material” under the old standard.

Who Owes the Duty of Disclosure?

Who owes the duty of disclosure was the issue at stake in Avid.  The Federal Circuit has previously ruled that the duty of disclosure does not apply to corporations, but only individuals.  Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009).  Rule 56 states that the duty is owed by individuals associated with the filing or prosecution of the patent application.

(c) Individuals associated with the filing or prosecution of a patent application within the meaning of this section are:

(1) Each inventor named in the application;

(2) Each attorney or agent who prepares or prosecutes the application; and

(3) Every other person who is substantively involved in the preparation or prosecution of the application and who is associated with the inventor, with the assignee or with anyone to whom there is an obligation to assign the application.

In Avid, Dr. Hannis Stoddard was the founder and president of the plaintiff, a closely held corporation.  He came up with a new idea for a system for identification and processing of recovered animals.  He hired three engineers to come up with a way to implement his idea.  They did so and filed a patent application in August 1991 for the new invention with only the three engineers named as inventors. 

Dr. Stoddard had demonstrated some of the company’s technology at a trade show in April 1990.  This public disclosure more than a year prior to the filing of the patent application was not disclosed to the PTO.  It was, however, disclosed to the jury in the infringement trial.  The jury determined that the disclosure did not include all of the elements in the patent claims and did not invalidate the patent.

The district court, however, determined that this disclosure was the closest prior art, was thus material to patentability of the claims, and that it was withheld with deceptive intent.  The court therefore held the patent to be unenforceable due to inequitable conduct.

On appeal, the patent owner did not dispute that the disclosure was withheld with deceptive intent.  The sole issues were whether the disclosure was material and whether Dr. Stoddard owed the duty of disclosure to the PTO.

Under the incorrect “reasonable examiner” standard, all three judges on the panel concluded that as the closest prior art, the disclosure was material to patentability.  Where the panel split, however, was over whether Dr. Stoddard owed the duty of disclosure.

Dr. Stoddard was not an inventor or the attorney or agent who prepared or prosecuted the application.  The question then was whether he was a “person who is substantively involved in the preparation or prosecution of the application and who is associated with the inventor, with the assignee or with anyone to whom there is an obligation to assign the application.”  The panel majority held that he was.

We read “substantively involved” to mean that the involvement relates to the content of the application or decisions related thereto, and that the involvement is not wholly administrative or secretarial in nature.

The dissent noted that there was no evidence in the record that Dr. Stoddard was involved in any way in the preparation or prosecution of the patent application.  The majority cited the district court’s finding that Dr. Stoddard was the founder and president of the patent’s assignee, a closely held company, and that he hired the inventors to develop his idea.  They inferred his involvement in the patent application because of his involvement in “all aspects” of the company.  There were also two communications relating to a corresponding European patent application or rights in Europe on which Dr. Stoddard was a recipient.

As far as other damning facts, the district court found Dr. Stoddard to lack credibility as a witness, that his memory was selective, and that he didn’t acknowledge certain incontrovertible events.  He also was involved in the demonstration that was deemed to be the material prior art.

In dissent, Judge Linn argued that Dr. Stoddard was not substantively involved in filing or prosecuting the application.

Because one cannot assess whether information is “material to patentability” without knowledge of the technical details or legal merits of an application, it should be self-evident that when Rule 56(c)(3) talks about persons who are “substantively involved” it is referring to those persons who are both (1) engaged in the preparation or prosecution of an application and (2) sufficiently apprised of the technical details or legal merits of the application as to be able to assess the materiality of any information they may know or discover as the application is prepared or prosecuted.

He argued that the majority was reading “substantively” out of the rule.  Because there was no evidence that Dr. Stoddard had knowledge of the technical details or legal merits of the patent application, he could not know that the prior art demonstration was material to the patentability of the claims.


These decisions are getting out of hand.  The definition of “material” has expanded to include nearly everything related to the application, including the PTO’s own correspondence from potentially related applications.  The standard for what consitutes intent to deceive is a moving target.  Now, the definition of who is bound by the duty of disclosure has expanded.  Until Congress fixes inequitable conduct law, the only solution is to dump huge quantities of information on patent examiners.  I know they love that.

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3 Responses to “Another Bad Inequitable Conduct Decision”

  1. Mike Says:

    Dr Stoddard appeared to have more information than most in his position. His admission that he was concealing the information from the USPTO, also points to his level of involvement in the patent process. THEN, to top it off, he signed off on several documents during prosecution. This all leads to a unique set of circumstances that document his involvement in the prosecution and his admissioin that he was deceiving the USPTO. This appears very limited to me.

    Just to be safe, don’t let CEO’s or marketing sign off on patent prosecution documents.

    • Matt Osenga Says:


      I hope you’re right that the decision will be limited. I did not read the district court decision or any other documents in the case. According to the Federal Circuit opinion, the only prosecution document that Dr. Stoddard signed was a Small Entity Statement where he would have affirmed that Avid had less than 500 employees. Judge Linn (and I agree) did not consider this to be substantive involvement in the prosecution. This has nothing to do with the merits of the case.

      As far as his testimony to mislead the PTO, I agree that this looks bad. As they say, bad facts make bad law.


  2. The Cost of Getting A Patent Says:

    [...] Another Bad Inequitable Conduct Decision « INVENTIVE STEP [...]

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