United States: "Reasonable Examiner" Standard for Determining Materiality Is Alive and Well

In its second major inequitable conduct opinion in a week, the U.S. Court of Appeals for the Federal Circuit has determined the U.S. Patent and Trademark Office (USPTO) rule 56, as amended in 1992, in no way supplemented or replaced the case law precedent in determining the threshold of materiality. This rule merely "provides an additional test of materiality" along with the "but for" tests and the "but it may have" and "reasonable examiner" standards. Digital Control Inc. v. The Charles Machine Works, Case No. 05-1128 (Fed. Cir., Feb. 8, 2006) (Clevenger, S. J.).

Digital appealed a decision of the district court, which found two patents to be unenforceable for inequitable conduct due to inventor misrepresentations made in a rule 131 affidavit and his failure to cite prior art cited in another, unrelated patent application to the examiner. After a bench trial on the issue of intent, the district court determined on summary judgment that the misstatements and omission were material under the "reasonable examiner" standard even though the patents were filed and prosecuted after the 1992 amendment to rule 56. The trial court also found the misstatements and omission were made with intent to deceive the USPTO.

Noticing "summary judgment that a patent is unenforceable for inequitable conduct is permissible, but uncommon," the Federal Circuit affirmed the finding of materiality as to the misrepresentations but reversed the summary judgment as to the materiality of the omission to cite the prior art.

The Court reminded us that the doctrine of inequitable conduct arose out of three significant Supreme Court cases in the 1930s and 1940s in which the Court found patents unenforceable due to USPTO fraud. Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co.; Hazel-Atlas Glass Co. v. Hartford-Empire Co. and Keystone Driller Co. v. Gen. ExcavatorCo. As noted by the Federal Circuit, in these cases the Supreme Court "did not precisely articulate what rendered a patent unenforceable," but the courts generally perceived it to be "akin" to common law fraud, requiring a "showing that the information that was misrepresented or withheld … was material and a showing of wrongfulness, such as deceptive intent, willful misconduct or gross negligence." In 1949 the USPTO implemented the first version of rule 56 prescribing that "any application fraudulently filed or in connection with which any fraud is practiced or attempted on the Patent Office, may be stricken from the files" [37 C.F.R. 1.56 (1951)].

As explained in the 1984 Court of Customs and Patent Appeals (CCPA) case of Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., several different standards for materiality emerged: the objective "but for" test, i.e., "where the misrepresentation was so material the patent should not have issued"; the subjective "but for" test, i.e., where the misrepresentation actually caused the examiner to approve the application"; and the "but it may have standard," i.e., "the where the misrepresentation may have influenced the patent examiner." In Am Hoist, the CCPA embraced USPTO Rule 56 as "the appropriate starting point" but held "[t]here is not reason to be bound by any single standard" as "a finding of inequitable conduct requires a balancing of materiality and intent." Thus, the Court in Am Hoist concluded that where "a reasonable examiner would merely have considered particular information to be important but not crucial to his decision" the requisite finding of intent must be high. Conversely, where an objective but for "standard of materiality is shown, a lesser showing of facts from which intent may be inferred may be sufficient." In doing so, the CCPA effectively adopted the USPTO "reasonable examiner" standard for determining materiality.

Since the "reasonable examiner" standard did not identify specific criteria for determining materiality, the USPTO amended rule 56 in 1992 to clarify materiality. The rule as amended prescribed that information was material if it was not cumulative to information already of record and (1) establishes either by itself or in combination with other information "a prima facie case of unpatentability of a claim" or (2) the information "refutes, or is inconsistent with, a position the applicant takes in: (i) [o]pposing an argument of unpatentability relied on by the Office or (ii) [a]sserting an argument of patentability."

Federal Circuit Decision in Digital

The Federal Circuit has now explained that rule 56 as amended in 1992 created "an arguably narrower standard of materiality" but did not supplement the 1977 version. According to the Court, the 1992 version of rule 56, like the "but for" tests and the "but it may have" and "reasonable examiner" standards, merely represents another test for materiality.

In the Digital case, the Federal Circuit found that under the "reasonable examiner" standard, there was uncontroverted evidence that the misstatements made by Dr. Mercer in his rule 131 declaration met the "threshold level" of materiality. However, as to the failure to disclose the Rorden patent, there is a genuine issue of contested fact as to whether the Rorden patent was cumulative of the prior art of record. The Court noted "the scope and content of prior art and what the prior art teaches are questions of fact." As explained in the Court, this issue of material fact "was not properly decided at summary judgment."

As for intent to deceive, even though there was ample evidence of intent, the Federal Circuit vacated the judgment of inequitable conduct because the district court commingled its findings of materiality in finding intent, i.e., "the district court did not parse its analysis of the misstatements in the Rule 131 declaration from its analysis of the failure to disclose the Rorden patent." The Court was unable to "ascertain whether the district court would have ruled the patents unenforceable based solely on the misrepresentations in the Rule 131 declaration, whether the district court’s factual findings on intent would survive trial on the merits of the cumulative prior art issue, and in particular, whether the district court’s assessment of Dr. Mercer’s credibility would be different if the court were to determine after trial that the Rorden reference was in fact cumulative."

In view of its holding in Am Hoist (the "reasonable examiner" standard encompasses the other standards and the present holding that the 1992 amended rule 56 is a narrower standard of materiality like the "but for" tests), the Federal Circuit in Digital has now determined the "reasonable examiner" standard remains the standard to be applied in inequitable conduct cases when determining the "threshold level" of materiality. Thus, parties in litigation should urge and apply this standard. It is important to note that under the "reasonable examiner" standard, a misstatement or omission can be material even if the misstatement or omission would not have rendered the claimed invention unpatentable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.