Just Medium Rare

Leviton Manufacturing Co., Inc. v. Universal Security Instruments, Inc.

Slip that inequitable conduct claim back on the summary judgment "barbie"-the standard for establishing such claims as a matter of law is not quite done. In Leviton Manufacturing Co., Inc. v. Universal Security Instruments, Inc. a majority of the Federal Circuit vacated the district court's award of summary judgment for inequitable conduct and vexatious litigation as well as the court's one million dollar award for attorney's fees and costs. The Leviton court found that the district court should have held an evidentiary hearing before entering its judgment because material questions of fact regarding intent to deceive continued to exist. In a searing dissent, Judge Prost recognized that Federal Circuit precedent reserves summary disposition for the "rare case" of inequitable conduct, but argued that the facts in Leviton looked raw enough to her to more than meet precedential standards.  The result? When it comes to summary judgment for inequitable conduct claims, both sides of the patent law bar are in for a grilling.

The inequitable conduct claims in Leviton arose from the behavior of an individual attorney representing the patent holder. Within a six month period, that attorney submitted two different patent applications on Leviton's behalf with nearly identical claims but attributed the inventions to different inventors. The attorney failed to disclose the first invention (the "Germain application") as prior art in the second application (the "'766 patent"), claiming that parent patents in the '766 patent gave it an earlier priority date. However, the '766 patent application failed to disclose the involvement of its parent patents in twelve separate litigation actions involving allegations of patent invalidity, unenforceability and inequitable conduct. The attorney also was responsible for other factual omissions which occurred during reexamination of the '766 patent at the PTO. The attorney's conduct came to light as part of an action for infringement of the '766 patent brought by Leviton.

Following contentious discovery in that infringement action, Leviton sought to dismiss its infringement claims. The district court dismissed the case in chief with prejudice and granted leave for one of the alleged infringers to file a motion for fees and costs. Adopting the magistrate's recommendation on the issue, the district court found that Leviton had committed inequitable conduct as a matter of law and had engaged in a strategy of vexatious litigation, justifying the million dollar award of fees and costs.

On appeal, the Federal Circuit agreed with the district court that both the failure to disclose the Germain application and the litigation pending against the parent patents of the '766 patent were material omissions as a matter of law. However, in order to prove inequitable conduct, an alleged infringer must show intent to deceive along with the showing of materiality and the Federal Circuit found that the district court erred when it made its summary judgment on the issue of intent. Specifically, the Federal Circuit found that it was improper for the district court to infer intent without an evidentiary hearing because the explanation that Levtion's attorney gave for not disclosing the Germain application was not unreasonable as a matter of law. Judge Prost disagreed and explained that "the circumstances surrounding Leviton's withholding of the Germain application are as egregious as possible short of an explicit admission of intent to deceive the PTO."

The Federal Circuit also refused to infer intent from the material omission regarding pending litigation, especially because the Leviton attorney ultimately did submit information to the PTO regarding pending claims. The court said that while that information did not demonstrate good faith, it might be evidence of it. Again, Prost disagreed and said that because of certain critical admissions made during the attorney's deposition, there was "simply no other inference to be drawn from the evidence."

It's going to be a long hot summer no matter which side of an inequitable conduct claim you're on. In addition to awaiting the Federal Circuit's en banc opinion in Therasense, Leviton's outcome means there's still no clear instructions on how to prepare (or defend against) such claims at summary judgment so that they are both satisfactorily rare and well done. Certainly, proving intent to deceive is one key ingredient and we anticipate that both plaintiffs and defendants will use the opinion in their favor to argue what should constitute the necessary intent. In Leviton's wake, pre-disposition evidentiary hearings may be the new medium well.

Whether affirmatively moving for summary judgment on inequitable conduct or defending against a claim alleging it, courts will most likely look to the outcome or non-existence of such a hearing on a motion for summary judgment to determine just exactly which side's goose has been properly cooked.

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