Sept. 24 --Applying Therasense inequitable conduct standards to the question of a failure to pay patent maintenance fees led to a divided decision Sept. 24 by the U.S. Court of Appeals for the Federal Circuit (Network Signatures, Inc. v. State Farm Mut. Auto. Ins. Co., Fed. Cir., No. 2012-1492, 9/24/13).
Reversing summary judgment of unenforceability, the majority held that using a standard form supplied by the Patent and Trademark Office without explanation for why the payment was late was adequate to negate the requirements for meeting the high materiality and intent thresholds. It effectively left “matters unrelated to the substantive criteria of patentability” to the discretion of the PTO.
The dissent had “no doubt whatsoever” about materiality in that, had the PTO known of the reason for the delay, it would have rejected the late payment and allowed the patent to lapse.
The government followed its internal procedures for determining whether to pay maintenance on its patents and did not pay the 7.5-year maintenance fee on the '122 patent, allowing it to lapse. Network Signatures Inc. attempted to contact the NRL and ask for a license just before the fee was due, but problems with the agency's phone system and an absent employee prevented the connection. The company did not reach the responsible party at the NRL, John Karasek, until two weeks after the fee was due.
Karasek immediately petitioned for delayed payment, filling out the Patent and Trademark Office's standard form per 37 C.F.R. §1.378(c). A “Statement” section of the form includes only the following preprinted text: “The delay in payment of the maintenance fee to this patent was unintentional.” The PTO granted the petition in May 2004.
Seven years later, Network Signatures sued State Farm Mutual Automobile Insurance Co. for patent infringement in the U.S. District Court for the Central District of California. State Farm argued that the patent was unenforceable for inequitable conduct by the NRL in claiming that its failure to timely pay the fee was unintentional.
Judge James V. Selna agreed with State Farm and granted summary judgment of unenforceability. Network Signatures appealed.
The appeals court's standard for finding inequitable conduct related to prosecuting a patent application was set by a 6-5 vote in Therasense Inc. v. Becton Dickinson & Co., 649 F.3d 1276, 2011 BL 137835, 99 U.S.P.Q.2d 1065 (Fed. Cir. 2011) . The instant court summarized the two prongs of the standard as requiring proof that the applicant misrepresented or omitted information material to patentability and did so with specific intent to deceive the patent office. The court held that the same two prongs apply in the context of paying maintenance fees, and it ruled that neither prong was met here.
However, in a short analysis, the majority did not provide separate holdings as to each prong. Rather, it effectively deferred to the PTO's procedure for making the determination of whether to grant a delayed payment petition. It concluded that this was a matter “unrelated to the substantive criteria of patentability, but within the authority of the Director,” with courts dissuaded from interfering with the “minutiae of Patent Office proceedings.”
“Mr. Karasek's compliance with the standard PTO procedure for delayed payment, using the PTO form for delayed payment, does not provide clear and convincing evidence of withholding of material information with the intent to deceive the Director,” the majority said in summary.
It thus reversed summary judgment and remanded for proceedings on the merits.
Judge Evan J. Wallach joined the opinion.
Clevenger said that, while the PTO appears to allow for an argument on a mistake in fact, “Network Signatures cannot cite to any case where the PTO actually granted revival under this theory.” He said that the PTO's policy on revival of an issued patent is no different from revival of an abandoned patent application. And in its 1997 final rule on the latter topic, Clevenger said, the PTO explicitly said it would not revive applications abandoned because “the invention lacks sufficient commercial value to justify continued prosecution,” and explicitly rejected an exception for “the discovery of new information or evidence” after abandonment.
“The PTO's practice of granting unintentional revival petitions as a matter of course is not the issue,” he said, addressing the majority's view. “The problem is that Karasek knew the NRL patent was intentionally abandoned and did not alert the PTO to that fact.”
And his failure to do so was unquestionably material, Clevenger concluded. “If the PTO had known the true facts, I have no doubt whatsoever that Karasek's revival petition would have been denied.”
He further contended that State Farm should have the opportunity to present its case on the intention-to-deceive prong, and he would have remanded for that purpose.
Peter R. Afrasiabi of One LLP, Newport Beach, Calif., represented Network Signatures. Ashley C. Parrish of King & Spalding LLP, Washington, D.C., represented State Farm. Howard S. Scher, an attorney in the Civil Division of the U.S. Department of Justice, Washington, D.C., represented the NRL.
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Text is available at http://www.bloomberglaw.com/public/document/Network_Signatures_Inc_v_State_Farm_Mutual_Auto_Docket_No_1201492.
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