In a patent case filed in the Eastern District of Texas by Eon Corporation IP Holdings, LLC ("Eon") against Cellco Partnership d/b/a Verizon Wireless ("Verizon"), along with other defendants, Eon moved to dismiss Verizon's inequitable conduct counterclaims and strike its inequitable conduct affirmative defenses. Magistrate Judge Love recommended that Eon's motion to dismiss be denied because Verizon's inequitable conduct claim was sufficiently pled.
Verizon's inequitable conduct was based on two separate instances. First, Verizon alleged that the sole inventor of the asserted '491 patent deliberately withheld his earlier patent from the U.S. Patent Office ("PTO") with the intent to deceive the PTO. Second, Verizon alleged that the '491 patent should be found unenforceable under the "infectious unenforceability" doctrine because it was obtained due to Eon's inequitable conduct of its parent patent application. In denying Eon's motion, the Magistrate held that Therasense did not substantially alter the pleading requirements and that Verizon sufficiently plead inequitable conduct under the standard set forth in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1326 (Fed. Cir. 2009).
The Magistrate began his analysis by noting that "[i]n evaluating the sufficiency of inequitable conduct pleadings, the Court looks to the Federal Circuit precedent, not the regional circuit law." Citing Exergen, the Magistrate stated the well known standard that the "Federal Circuit requires that inequitable conduct allegations meet the heightened pleading standard in Rule 9(b) by identifying "the specific, who what, when, where, and how" of the alleged inequitable conduct occurred." In terms of the substantive elements of an inequitable conduct claim involving the non-disclosure of information, the Magistrate recited that Therasense requires that "the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it...Thus, the infringer must show by clear and convincing evidence that the patentee made a material misrepresentation to the Patent Office with the specific intent to deceive the Patent Office. Moreover, 'to meet the clear and convincing evidence standard, the specific intent to deceive must be the single most reasonable inference able to be drawn.' Thus, the clear and convincing standard dictates that intent to deceive cannot be inferred if a reasonable person could draw multiple inferences from the facts and circumstances presented." Finally, the Magistrate recited the requirement that the materiality required to establish inequitable conduct is but-for materiality, i.e., the PTO would not have allowed a claim had it been aware of the undisclosed prior art.
Central to its holding, the Magistrate distinguished between pleading inequitable conduct and proving it. The Magistrate stated that "Exergen was decided with the understanding that in order to succeed on the merits, 'the inference of deceptive intent must be the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard' and did not require that the pleading show that the specific intent to deceive was the single most reasonable inference able to be drawn." Slip Op. at 7 (emphasis added). Thus, "Eon's argument collapses the distinction between pleading determinations and determinations on the merits...Thus, while Eon is correct that Therasense requires that, on the merits, Defendants' show that deceptive intent was the single most reasonable inference, it does not follow that Defendants must make such an evidentiary showing at the pleading stage."
In terms of the sufficiency of the pleading, the Magistrate found that Exergen requires that inequitable conduct pleadings must identify specific individuals that owed a duty of candor to the PTO and breached that duty. Slip Op. at 8 (citing Exergen, 575 F.3d at 1329). In this case, Verizon identified the sole inventor on the patent, which the Magistrate held to satisfy the Exergen standard. In terms of pleading "But-for" materiality, to meet the "what" and "where" requirements, the pleadings must "identify which claims, and which limitations in those claims, the withheld references are relevant to, and where in those references the material information is found." Id. (citing Exergen, 575 F.3d at 1329-30). The "how" and "why" are satisfied when the pleadings show why the withheld prior art was material and how the examiner would have used it to reject the claims in question. Id. The Magistrate found that Verizon adequately pleaded materiality by, among other things, incorporating a claim-by-claim and limitation-by-limitation claim chart.
Finally, the pleadings must include facts sufficient to give rise to a reasonable inference that a person who owed a duty of candor to the PTO (1) had knowledge of the withheld material information and (2) the specific intent to deceive the PTO. Slip Op. at 10 (citing Exergen, 575 F.3d at 1330). The Magistrate stated that Verizon alleged that the sole inventor had knowledge of the withheld reference. The Magistrate further explained that "[w]hile Eon is correct that merely indicating that the inventor was aware of both references is insufficient in and of itself to raise a reasonable inference of deceptive intent, the pleadings suggest that [the sole inventor] continued to withhold the information while simultaneously making arguments to the PTO that could be contradicted by the withheld reference." Id. at 11. Because Verizon alleged that the sole inventor knew of the withheld reference while he simultaneously made arguments to the PTO that could be contradicted by the withheld reference, the Magistrate concluded that "[a] reasonable inference can be drawn from this that [the sole inventor] chose not to disclose the [withheld reference] with the specific intent to deceive the PTO." Id.
This case illustrates the distinction between pleading inequitable conduct and proving it, particularly when it comes to alleging sufficient "But-for" materiality and the specific intent to deceive the PTO. It also provides at least one example where a district court found the pleading to be sufficient. Eon Corp. IP Holdings, LLC v. T-Mobile USA, Inc., et al., Case No. 10-cv-379, Dkt. No. 571 (E.D. Texas December 13, 2011).
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