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Exergen Corp. v. Wal-Mart Stores, Inc.: A Heightened Standard for Pleading Inequitable Conduct in Patent Cases

Intellectual Property Litigation Update Martha J. Snyder, Anthony A. Tomaselli, Kristin G. Noel

To avoid allowing "inequitable conduct [to] devolve into 'a magic incantation to be asserted against every patentee' and its 'allegation [to be] established upon a mere showing that art or information having some degree of materiality was not disclosed,'" the Federal Circuit has heightened the pleading requirements for inequitable conduct. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1331 (Fed. Cir. 2009) (quoting FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1415 (Fed. Cir. 1987)). Inequitable conduct is often plead by an accused infringer as both an affirmative defense to allegations of infringement and as a counterclaim. Under Rule 9(b) of the Federal Rules of Civil Procedure, it is well settled that allegations of inequitable conduct must be plead with particularity. Fed.R.Civ.P. 9(b). In Exergen, the Federal Circuit held that the pleading must specifically identify the who, what, when, where and how of the material misrepresentation or omission, as well as allege sufficient underlying facts to allow the court to infer both the knowledge and intent to deceive required for inequitable conduct. Exergen, 575 F.3d at 1327.

I. Background

Exergen Corporation sued S.A.A.T. Systems Application of Advanced Technology, Ltd. and Daiwa Products, Inc. (collectively "SAAT"), among other defendants, in the District of Massachusetts for infringement of three patents related to infrared technology for measuring human body temperature. Id. at 1316-17. Approximately one year after the suit was filed, SAAT sought leave to amend its answer to add inequitable conduct as an affirmative defense and counterclaim.1 Id. at 1317. The motion was denied on the ground that SAAT's pleadings had not met the particularity requirement under Rule 9(b) for pleading inequitable conduct. Id. A jury later found that SAAT directly infringed two of the patents and actively induced infringement of the third, all of which was determined to be willful. Id. After a failed motion for judgment as a matter of law, SAAT appealed on multiple grounds, one of which was the denial of its motion for leave to amend its pleadings to add inequitable conduct. Id.

In its appeal, SAAT focused on only one of the patents for which it had sought to allege inequitable conduct on three grounds: (1) a patent previously filed by "Exergen, its agents and/or attorneys" was material and non-cumulative to other prior art before the examiner and was withheld with the intent to deceive; (2) a patent previously cited by "Exergen, its agents and/or attorneys" during the prosecution of a separate patent was material and non-cumulative to other prior art before the examiner and was withheld with the intent to deceive; and (3) Exergen's arguments of patentability during prosecution were inconsistent with statements concurrently available on its Web site and the misrepresentation was material and was made with knowledge of its falsity and with the intent to deceive. Id. at 1325-26.

II. Relevant Law

Substantively, inequitable conduct can only be proved through showing that "(1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO." Exergen, 575 F.3d at 1327 n.3 (citing Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178, 1181 (Fed. Cir. 1995); 37 C.F.R. ยง 1.56 (2008)). The Exergen opinion, however, does not reach the substance of proving inequitable conduct allegations but addresses only the requirements for pleading inequitable conduct.

Rule 9(b), which requires stating "with particularity the circumstances constituting fraud," has long been held to govern inequitable conduct pleadings. The determination of whether inequitable conduct has been sufficiently plead under Rule 
9(b) is governed by Federal Circuit law. Exergen, 575 F.3d at 1318.

III. The New Standard

In heightening the standard for pleading inequitable conduct in patent cases, the Federal Circuit followed the lead of the Seventh Circuit in fraud cases: "Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." Exergen, 575 F.3d at 1327. Moreover, the court, in addressing each area where SAAT's pleading was inadequate, provided specific guidance on meeting this standard:

  • To satisfy the "who" element, the accused infringer must "name the specific individual associated with the filing or prosecution of the application . . . who both knew of the material information and deliberately withheld or misrepresented it." Id. at 1329. Therefore, SAAT's allegations of inequitable conduct by "Exergen, its agents and/or attorneys" were insufficient because the duty of candor applies to individuals, not organizations. Id.

  • To satisfy the "what" element, the accused infringer must "identify which claims, and which limitations in those claims, the withheld references are relevant to . . . ."  Id. at 1329.
  • To satisfy the "where" element, the accused infringer must "identify . . . where in [the omitted] references the material information is found."  Id.

  • To satisfy the "how" element, the accused infringer must "identify particular claim limitations, or combination of claim limitations, that are supposedly absent from the information of record" in order to explain both "'why' the withheld information is material and not cumulative, and 'how' an examiner would have used this information in assessing the patentability of the claims."  Id. at 1329-30. Accordingly, SAAT's general allegations that the withheld references were "material" and "not cumulative to the information already of record" were insufficient. Id. at 1329.
  • The court did not address the "when" element. However, alleging when the omission or misrepresentation occurred (e.g., before the patent issued or during a reissue or reexamination proceeding) will likely fit the standard.

In addition to the who, what, when, where and how elements, an accused infringer must allege that the individual acted with the specific intent to deceive the Patent and Trademark Office. Id. at 1330. While Rule 9(b) allows for intent and other "conditions of mind" to be "alleged generally," the Federal Circuit held that a court must be able to reasonably infer from the underlying alleged facts "that a party acted with the requisite state of mind." Id. at 1327. Moreover, a pleading "on information and belief" is only permitted "if the pleading sets forth the specific facts upon which the belief is reasonably based." Id. at 1330.

More specifically, the accused infringer must allege sufficient factual bases for the court to reasonably infer a "'deliberate decision to withhold a known material reference' or to make a knowingly false misrepresentation." Id. at 1331 (quoting Molins, 48 F.3d at 1181). Therefore, the individual must have known not just of the existence of a reference, but also of the "specific material information contained in that reference." Id. at 1330. Alternatively, the applicant must allege sufficient facts to make a reasonable inference that the individual accused of making a material misrepresentation knew of its falsity at the time of the statement. Id.

IV. Practical Conclusions

Meeting the standard of pleading will be difficult, especially in those cases where the pleading is required before discovery. However, some districts, such as the Eastern District of Texas, already provide for an amended pleading deadline as of right to add allegations of inequitable conduct once substantial discovery has taken place. Further, based on this increased level of particularity, including a deadline for pleading inequitable conduct as of right after discovery has opened may become the trend among district courts.2

With respect to drafting inequitable conduct pleadings post-Exergen, remember to include the who, what, when, where and how of the circumstances surrounding the alleged misconduct as well as identify the particular individual responsible and provide facts to support his or her knowledge and intent to deceive. Whether you can then make a sufficient showing on the substantive elements of the claim will not be affected by the Exergen opinion.

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If you have any questions on this client update or other related Intellectual Property issues, please contact Martha Jahn Snyder at 608-283-2429 /, Anthony Tomaselli at 608-283-2491 /, Kristin Graham Noel at 608-283-2615 / or your Quarles & Brady attorney.


1 A successful allegation of inequitable conduct would have rendered the patents unenforceable.
2 Even where an amendment as of right is not specifically provided for, a showing that discovery was necessary to meet the heightened leading standard will often be sufficient "good cause" to amend.