Judge Posner on Inequitable Conduct

New Medium (J. Carl Cooper) v. Barco N.V. (N.D. Ill. 2008) (J. Posner)

Sitting by designation, Seventh Circuit Judge Richard Posner recently found New Medium's asserted patent unenforceable due to inequitable conduct during ex parte reexamination of the patents. This case is important as one of the first decisions to consider inequitable conduct in the wake of Star Scientific.

Barco presented two theories of inequitable conduct: (1) that New Medium had misled the PTO by failing to disclose that its expert declarants had been 'retained' and paid; and (2) that inventor/owner Carl Cooper made false statements to the PTO regarding his association with the experts. Judge Posner rejected the first theory, but agreed with the second.

Disclosing Payment to Declarants: All four of New Medium's experts were retained and paid by the company. However, only two of the experts disclosed their relationship to the PTO. Judge Posner found the lack of disclosure to be "not misleading." As a default, the PTO should expect that the patent applicant retained and paid its experts.

"[A]ll expert reports in an ex parte proceeding before the Patent Office are procured by the patent owner or applicant, and it is customary to pay the experts for their time, as was done in this case. There is nothing in the reports of the two experts who didn't say they had been retained to suggest they were charging no fee—no suggestion that they had been moved by altruism or a strong conviction of the rightness of the application to volunteer to submit an expert report gratis."

This pragmatic default rule makes some sense. If the failure to disclose the payment was not misleading, it could not be material to patentability or lead to a finding of inequitable conduct.

False Statements About Cooperation: In his declaration to the PTO, Mr. Cooper stated that he had "never met or talked with any of these experts" before contacting them to submit reports. Judge Posner found that statement "false." Cooper had solicited and paid for a bid from one of the experts (Klughart) seven years prior. (Klughart is also a patent attorney). Judge Posner also found that Cooper and Klughart's testimony about forgetfulness difficult to believe:

"I conclude that Klughart is not neutral and that his forgetfulness may be strategic. . . . Cooper testified that when he submitted his report in August of 2001 he had forgotten his prior dealings with Klughart. I do not believe that testimony. . . . I am also disturbed by the statement in Cooper's brief that 'Mr. Cooper didn't think his past contact with Dr. Klughart was 'material' and that's why he didn't disclose it.' That is an admission that Cooper lied in his declaration, though I imagine it is unintended."

Judge Posner had no problem finding intent to deceive the PTO. The second question then is whether the deception was material to patentability. Several prior opinions have held that failure to disclose relationships can be material. See Ferring v. Barr (Fed. Cir. 2006); Nilssen v. Osram (N.D. Ill. 2006). Here, Judge Posner also found materiality:

"Clearly the fabrication was material. It bore centrally on the credibility of one of the expert reports. . . . Suppose Cooper had explained the circumstances to the patent examiner—that Klughart, a practitioner of modest means and prospects, had submitted to Cooper a $250,000 proposal that Klughart may at the time he prepared his expert report have thought he still had a chance of winning; Cooper had not responded to his proposal and Klughart was unaware that the project had been awarded to someone else. Klughart testified that the $250,000 proposal would have netted him about $200,000—a good deal more than a year's income for him. . . . Had these circumstances been disclosed to the patent examiner in Cooper's declaration, Klughart's report would have been rejected and perhaps the other reports as well, contaminated by the evidence of Cooper's bad judgment in soliciting a report from Klughart."

The question of whether deception was material to patentability is an issue of predictive fiction. Here Judge Posner recognized that the reexamination might have had the same result even with full disclosure. However, he implicitly applied the rules of equity to block New Media from such an argument, Quoting Refac, "an inventor cannot submit a misleading affidavit among a plurality of affidavits and later argue that it was the nonmisleading affidavit that resulted in allowance, thus effectively curing the defective affidavit."

Inequitable conduct: After finding both intent and materiality, the court next determines whether their combined harm is sufficient for a finding of inequitable conduct. Here, Judge Posner found that the intentional submission of false statements tipped the scales.

"The making of a deliberate, material misrepresentation to a patent examiner is extremely serious misconduct because of the ex parte nature of most patent proceedings, including the reexamination proceeding at issue in this case. . . . Because even material misrepresentations made to the Patent Office will usually not be detected, it is necessary to impose a severe sanction for such misrepresentations when they are detected, at least when as in this case they are deliberate. The appropriate sanction will normally be, and in this case I have decided that it should be, the cancellation of the patents."

Claim by Claim: The expert reports focused only on a few claims. Cooper argued that the court should only hold those claims unenforceable. Following precedent, Judge Posner rejected that approach.

"The suggestion is that since the expert reports pertained to only a fraction of the claims in the '780 patent, I should declare unenforceable just those claims. The Federal Circuit has repeatedly ruled that if inequitable conduct is proved, the entire patent is unenforceable and not just the claims affected by that conduct."

Holding: Asserted patents are unenforceable.

Notes:

• Posner also suggested that the PTO take some action in this case – noting that it "might warrant discipline by the Patent Office (Cooper, as a registered patent agent, is subject to such discipline)."
• Hat Tip to David Donoghue for originally noting the case [Link]

Comments

[fisher ames]

Anyone familiar with Judge Posner's dissent in the Sears Wrench case (1983) will not be surprised by this ruling. Signed: law and economics school heretic.

[JonDudasForCongress2010]

"Posner also suggested that the PTO take some action in this case – noting that it "might warrant discipline by the Patent Office (Cooper, as a registered patent agent, is subject to such discipline)."

I think the USPTO should have the power to discipline agents/attorneys with prison time.

[Bruce]

Thanks jock for citing the Sears Wrench case. That was an interesting read.

[6000]

If only a judge with this type of clarity could have seen the PTO's case.

[West Coast Guy]

DC,

Do you have a link to the decision or somehow otherwise post it?

[Links]

teh link is at the top o tha page dude.

[AllSeeingEye]

Give him a break, he's from the left coast.

[anonymous]

To those looking for the opinion, click "N.D. Ill. 2008" at the top of the post. The file is at http://www.patentlyo.com/patent/posner.pdf

DDC, thanks for sharing this. It always makes for interesting reading when Judge Posner takes a patent case.

[questions]

Doesn't the failure to disclose the payment go to the credibility/weight to be given the declaration, especially when most would assume that payment was given but just not mentioned?

[questions]

Wouldn't one assume that the failure to mention payment was an oversight and not an intentionally misleading act?

[6000]

"Wouldn't one assume that the failure to mention payment was an oversight and not an intentionally misleading act?"

That's what the judge said...

[Nonetheless]

withholding crucial (or material) information to the PTO in ex parte re-examination should be deemed as an important failure to disclose?
I am saying this might only be a neglegence and not an intentional deception.

[the ponderer]

How about the patent office being accused of committing inequitable conduct against inventors? Are any top brass paid to take on a secret agenda that is not disclosed to the applicants? Is that a violation of law? Should all patents be deemed unenforceable due to arising from a poisoned tree? Just some out of the box questions to ponder over.

[BigGuy]

"Should all patents be deemed unenforceable due to arising from a poisoned tree? Just some out of the box questions to ponder over."

Not for very long. Unenforceability is a punishment applied to the bad actor. It makes no sense to punish a patentee (more) for your hypothetically corrupt patent office. Perhaps you should get back into the box.

[Malcolm Mooney]

"Posner also suggested that the PTO take some action in this case – noting that it "might warrant discipline by the Patent Office (Cooper, as a registered patent agent, is subject to such discipline)."

LOL. Like that will happen.

On the other hand, the tears from all the poor patent prosecutors could be collected and used to turn Arizona into a giant cranberry bog.

[R. David Donoghue]

Thanks for the link Dennis.

Dave

[weary lexicographer]

"On the other hand, the tears from all the poor patent prosecutors could be collected and used to turn Arizona into a giant cranberry bog."

e6k, see how much more effective the English language can be when one doesn't rely on "QQing" and "LOL"?

[AllSeeingEye]

"..poor patent prosecutors"

Bitter party of one, your table is ready (again), bitter party of one...