Inequitable Conduct Claim Survives Motion to Dismiss Because Allegations Permitted a Plausible Inference of Intent to Deceive

September 28, 2011

Plaintiff AlmondNet, Inc. filed a patent infringement action against Microsoft Corporation based on four patents pertaining to Internet advertising. Microsoft filed several affirmative defenses and counterclaims against AlmondNet, including a defense and counterclaim that AlmondNet engaged in inequitable conduct before the PTO by failing to disclose three articles related to Internet advertising and three existing Internet advertising systems. AlmondNet moved to dismiss the inequitable conduct counterclaim and the district court granted the motion with leave to amend to plead inequitable conduct with particularity.

Microsoft subsequently amended its answer and counterclaim and AlmondNet moved to strike the inequitable conduct defense and to dismiss Microsoft's counterclaim for inequitable conduct. The district court determined that Microsoft's amended pleading was sufficient and denied the motion.

In reaching that conclusion, the district court reviewed the Federal Circuit's recent decisions in Exergen Corp. v. Wal-Mart Stores, Inc. 575 F.3d 1312, 1326-27 (Fed. Cir. 2009) and in Therasense, Inc. v. Becton, Dickinson and Co., 2011 WL 2028255, *11 (Fed. Cir. May 25, 2011) (en banc). The district court then concluded that the amended allegations were sufficient. "The inequitable conduct allegations in defendant's amended answer address the issues raised by my previous order and satisfy the pleading standards in Exergen. Defendant's allegations identify the "who" and "when" sufficiently by alleging that [the inventor] failed to disclose three articles related to the current state of internet advertising and three existing internet advertising systems during the prosecution of the four patents at issue in this case."

The district court also concluded that the amended pleading satisfied the requirements of Fed.R.Civ.P. 9. "Defendant's amended pleading also satisfies the "what," "where" and "how" requirements of Rule 9 by including more information about why the non-disclosed information was allegedly 'material' to plaintiff's patents. . . . Defendant's amended pleading satisfies the 'what' requirement sufficiently by identifying the claims and limitations in those claims to which the withheld references are allegedly relevant. Defendant's allegations also satisfy the 'where' requirement of Exergen. With respect to the three articles, which range from only six to eight pages in length, defendant's allegations make specific reference to relevant subjects and quotations from these articles."

With respect to the "why" and "how" elements, the district court found that these were satisfied by allegations that the examiner would not have allowed particular claims to issue because they were anticipated by, or obvious in light of, specific information in the withheld references. "[T]he allegations explain why the patent examiner would have disallowed certain claims (because they were obvious or anticipated) and how he or she would have used the information to do so (by examining the descriptions of prior art contained in the references).

Finally, the district court examined the issue of specific intent and concluded that the "allegations permit a plausible inference that [the inventor] 'knew of the withheld material information' and withheld it with a 'specific intent to deceive' the patent office." The district court reached this conclusion based on allegations that Microsoft had alleged that the articles are brief and that the inventor had attached copies of them to a business plan, quoting extensively from one of the references in the business plan and that the inventor had investigated the three existing internet advertising systems, was aware of their advertisement and pricing mechanisms and presented the systems as plaintiff's potential competitors in the business plan. The district court found that it could infer intent based on indirect or circumstantial evidence and that these allegation were sufficient to infer such an intent.

Accordingly, the motion to strike was denied.

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The district court's opinion is notable for its reliance on what facts are sufficient to allege a plausible inference of specific intent. This is likely to be a focus of many future decisions on inequitable conduct as the case law evolves to establish what is and what is not sufficient indirect or circumstantial evidence to prove sufficient intent.

AlmondNet, Inc. v. Microsoft Corp., Case No. 10-cv-298-bbc (W.D. Wisc. Sept. 13, 2011)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.