United States: Attempt To Cure Non-Disclosure To The USPTO Renders Patent Unenforceable

The U.S. Court of Appeals for the Federal Circuit affirmed a trial court’s ruling that a patentee’s attempt, during the prosecution of a later patent application to cure its initial failure to disclose material art during an earlier patent application, constituted inequitable conduct. eSpeed, Inc. v. BrokerTec USA, L.L.C., Case No. 06-1385 (Fed. Cir., Mar. 20, 2007) (Moore, J.).

Patentee (Cantor Fitzgerald, assignor to eSpeed) developed an automated system to record financial trade transactions. The automated system was the successor to a system that used an "outcry" method, in which voice brokers expressed the bids and offers and designated clerks recorded the transaction. Under the "outcry" method, the ability to accurately capture the transactions depended upon the recording clerk’s ability to interpret what occurred on the trading floor. The patentee also developed "new rules" which eliminated the ability under the "old rules" for a few traders to tie up the market for long periods of time.

Prior to 1995, the patentee developed its CFTS 2.0 system, providing a platform to support both the automated trading and the "outcry" method. In 1995, patentee launched its CFTS 3.1 system, a commercially viable automatic trading system capable of using either the old or the new rules.

In 1998, the patentee filed a patent application claiming an automated system to record the trade transactions. However, during the prosecution of the applications, patentee failed to disclose either of the CFTS 2.0/3.1 systems to the U.S. Patent and Trademark Office (USPTO). After the patent issued, the patentee sued Liberty Brokerage. However, on realizing it had not disclosed the CFTS 2.0/3.1 systems to the USPTO, the patentee dismissed the suit.

After dismissing the suit against Liberty Brokerage, eSpeed filed new inventors’ declarations with the USPTO, in a later-filed patent application claiming priority to the earlier-filed patent application. In these declarations, eSpeed disclosed the CFTS 2.0/3.1 systems to the USPTO, attaching a group of documents from Cantor describing the systems. The inventors also declared that they did not realize they had a duty to disclose the systems in the earlier patent application. They also averred that CFTS 3.1 system did not include the new rules.

The patent examiner apparently did not consider the internal Cantor documents to be prior art publications and allowed the application to mature into a new patent. eSpeed sued BrokerTec for infringing the later patent. A jury found that BrokerTec infringed the patent but also invalidated the patent. The trial court also ruled that the later patent was unenforceable. It concluded that CFTS 2.0/3.1 system was material and should have been disclosed to the USPTO and that the statement made to the USPTO indicating that the CFTS 3.1 system did not include the "new rules" was false. The trial court also concluded that the patentee intended to deceive the USPTO when they claimed that the CFTS 3.1 system did not include "new rules." eSpeed appealed.

The Federal Circuit affirmed, finding the false statement about the "new rules" to be material, especially in view of the disclosure failure in the earlier application. As for intent, the Court affirmed the district court finding that false statement about the "new rules" intentionally obscured the teaching of the Cantor documents provided to the USPTO.

Practice Note: Attempting to cure an earlier mistake (non-disclosure of material information in an earlier patent application) in a later application with false (or less than full) information may only compound the problem.

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