Order Denying Motion to Dismiss. iLife Technologies Inc. v. AliphCom, Case No. 14-cv-03345-WHO

Pleading inequitable conduct—fraud on the Patent Office (PTO) by withholding or misrepresenting material information—can be a tricky exercise when defending against a claim of patent infringement.  Though the Federal Circuit made clear in Therasense v. Becton Dickinson that there is a heightened standard for proving the inequitable conduct, it left open the question of whether this heightened standard also applies to pleading the defense.  Accordingly, parties pleading inequitable conduct are left with uncertainty in how detailed their allegations must be, especially for issues such as the required element of specific intent to deceive the PTO.  Judge William Orrick's decision in iLife Technologies gives guidance as to this issue.

The pleading/proof dichotomy for inequitable conduct is a result of the Federal Circuit's decision in Exergen v. Wal-Mart, which predated Therasense, and held that a general allegation of a specific intent to deceive was sufficient to plead inequitable conduct.  Subsequently, the Federal Circuit in Therasense, required a showing that a specific intent to deceive is the single most likely explanation for the non-disclosure of material information and that this non-disclosure was a but-for cause for a patent getting allowed.  This left open the question of whether accused infringers could rely on Exergen to plead inequitable conduct even if they had not yet obtained facts sufficient to prove specific intent under Therasense.

In iLife, Judge Orrick declined to apply the Therasense standard to the defendant's inequitable conduct pleading, following the approach of several other decisions in the Northern District of California (e.g., Oracle v. DrugLogic and Tessenderlo Kerley v. Or-Cal).

In applying Exergen to AliphCom's inequitable conduct counterclaim, Judge Orrick found the following facts sufficient to survive iLife's motion to dismiss:

  • Michael Lehrman, the inventor of the asserted iLife patents, allegedly sent an email stating that he knew "how to take down" the asserted patents and "a really determined effort to invalidate the patents, if performed skillfully could succeed".  Lehrman did not disclose this information to the PTO.
  • Lehrman and his prosecuting attorney William Munck failed to inform the PTO of certain references cited during prosecution of iLife's European patent applications.  These European applications allegedly disclosed and claimed substantially similar subject matter as the asserted patents, and the references ultimately invalidated several claims of the European applications.  Furthermore, the European Patent Office (EPO) allegedly notified iLife's European patent attorneys of the references as "X" references in a European Search Report (meaning that the reference alone would render claims not novel).  Neither the references nor the European Search Report was cited to the PTO, even though the European patent attorney allegedly ("on information and belief") would have discussed this search report with Munck before proceeding with the U.S. application.

Judge Orrick found that AliphCom met the Exergen standard by identifying the requisite "who" (Lehrman and Munck), the "what"/"where" (the Lehrman email and the withheld information learned from the EPO), and the "why"/"how" (the withheld information is material would not have been cumulative with the materials already cited during prosecution of the asserted patents).

On the issue of scienter, Judge Orrick found that the allegation that Michael Lehrman knew "how to take down" the patents-in-suit provided a sufficient basis to conclude that he deliberately withheld material references from the PTO.  He further concluded that it was reasonable to infer that the patent prosecutor, Munck, was apprised of the developments in the prosecution of the European patent applications, including the invalidation of specific claims due to prior art and that this prior art was material.

In sum, Judge Orrick recognized that, under Exergen, information about specific intent is often uniquely within the patentee's control.  Thus, there is a "fine line" between conclusory allegations which presumably would not withstand a motion to dismiss and those that give rise to a plausible inference of specific intent to deceive the PTO.

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