Network Signatures, Inc v. State Farm Mutual Auto

Using PTO’s Standard Form for Unintentional Delayed Payment, Without Disclosing Why Unintentional Delay Occurred, Does Not Constitute Inequitable Conduct

12-1492

September 24, 2013

Decision

Last Month at the Federal Circuit - October 2013

Judges: Newman (author), Clevenger (dissenting), Wallach

[Appealed from: C.D. Cal., Judge Selna]

In Network Signatures, Inc. v. State Farm Mutual Automobile Insurance Co., No. 12-1492 (Fed. Cir. Sept. 24, 2013), the Federal Circuit held that using the PTO’s standard form for delayed payment, without further disclosing why the unintentional delay occurred, does not constitute material misrepresentation with intent to deceive. Accordingly, the Court reversed the district court’s grant of SJ of inequitable conduct and remanded for further consideration.

The Naval Research Laboratory (“NRL”) developed U.S. Patent No. 5,511,122 (“the ’122 patent”) and allowed it to lapse for nonpayment of the maintenance fee due to a perceived absence of any identified commercial interest. Two weeks after the lapse, Network Signatures, Inc. (“Network Signatures”) contacted the NRL and requested a license to the ’122 patent. The NRL immediately submitted the PTO’s standard form to petition for unintentional delayed payment and revival. The PTO granted the petition, and the NRL issued the license.

Several years later, Network Signatures sued State Farm Mutual Automobile Insurance Company (“State Farm”) for infringement of the ’122 patent. State Farm asserted that the NRL engaged in inequitable conduct by falsely representing to the PTO that its nonpayment was unintentional. Consequently, State Farm argued that the ’122 patent was unenforceable. The district court agreed and granted State Farm’s motion for SJ of inequitable conduct.

On appeal, the Federal Circuit reversed. In reviewing the district court’s decision, the Court evaluated the statute and regulation authorizing the late payment of maintenance fees. Specifically, the Court noted that the statute had been amended to provide additional flexibility for accepting late payments. Because “[m]any patentees ha[d] been deprived of their patent rights for failure to pay the maintenance fees for reasons that may have been unintentional yet not unavoidable,” the legislature included unintentional delay as a sufficient ground for acceptance. Slip op. at 7 (quoting H.R. Rep. No. 102-993, at 2 (1992)).

The Court also noted that the current regulation, 37 C.F.R. § 1.378(a), only requires a bare statement that the delay was unintentional, and that additional information delineating why the unintentional delay occurred is unnecessary. The PTO’s standard form, which contained the preprinted statement “[t]he delay in payment of the maintenance fee . . . was unintentional,” thus complied with both the statute and the regulation. Id.

Accordingly, the Court found that the NRL’s use of the standard form did not constitute clear and convincing evidence of withholding material information with the intent to deceive. Because the NRL acted promptly and appropriately, the Court reversed the district court’s grant of SJ of inequitable conduct and remanded for further proceedings.

Judge Clevenger dissented, suggesting the majority improperly framed the question. Judge Clevenger thought the Court should have assessed “whether the PTO would have granted [the NRL’s] revival petition if [it] had disclosed the circumstances surrounding the revival.” Clevenger Dissent at 2. Believing that the PTO would have denied the NRL’s petition (the PTO’s Final Rule notice regarding unintentional revival specifically foreclosed a revival in similar circumstances, and the mistake-of-fact arguments necessarily failed because (1) there was no supporting precedent and (2) the mistake-of-fact defense meant nothing when it arose out of a petitioner’s own actions), Judge Clevenger found the district court’s grant of SJ on materiality appropriate. Judge Clevenger found a significant question, however, as to whether the NRL knew of the information’s materiality and made a deliberate decision to withhold it; thus, according to Judge Clevenger, the district court’s grant of SJ on the intent prong was inappropriate.

Summary authored by Sydney R. Kestle, Law Clerk at Finnegan.