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Inequitable conduct and IP due diligence: Potholes to miss

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It is increasingly understood that the seal of the U.S. government on a patent tells you only that a patent was issued after a process of review. Whether the patent has value requires a studied assessment of the patent's history, the field of art and relevant commercial embodiments and implementations.

The proliferation of patent due diligence services indicates this level of review is becoming standard for those who need to evaluate the relative value of a patent. What may not be so uniform is the scope of the diligence review. The consequences can be dire if the thorny issue of inequitable conduct is either overlooked or unappreciated.

Inventors and their attorneys have a duty of candor when prosecuting a patent application before the U.S. Patent and Trademark Office (PTO). Breach of this duty, often characterized as "fraud on the PTO," constitutes inequitable conduct. Examples of inequitable conduct include misrepresenting or withholding material facts related to patentability from the PTO under circumstances giving rise to an inference of an intent to deceive.

The "low-hanging fruit" that often captivates a review of a patent estate is the question of validity. This issue can be of grave importance, but locating damaging prior art and identifying missteps during prosecution are the easiest flaws to spot during due diligence. Also, this only provides information regarding a patent's validity, and the law is clear that even a valid patent will not be enforced if it was procured through inequitable conduct. You have to dig much deeper, and more broadly in the record of the patent, to identify whether issues of unenforceability exist. This is because the case for unenforceability can be made based not only on what the patent applicants or their counsel knew, but also on what they should have known -- creating a broad palette for viable charges of inequitable conduct.

The taint of a successful charge is far-reaching. Inequitable conduct renders all claims in the affected patent void, without regard to whether the debilitating misconduct touched each of those claims. It is irrelevant when the acts of inequitable conduct occurred or whether "curative" disclosures were made. Inequitable conduct makes the patent unenforceable by everyone without regard to fault. The Federal Circuit has put it crisply: "One bad apple spoils the entire barrel. Misdeeds of co-inventors, or even a patent attorney, can affect the property rights of an otherwise innocent individual." Stark v. Advanced Magnetics, Inc., 119 F.3d 1551, 1556 (Fed. Cir. 1997). There is no such thing as the "good faith purchaser" here.

Unfortunately, detecting inequitable conduct when conducting due diligence is far harder than identifying invalidity concerns. The diversity of potential facts and circumstances accepted by the courts as a basis for inequitable conduct is diverse and growing. Recent decisions in this area have also confirmed that even the use of common and accepted patent prosecution practices can constitute inequitable conduct, depending on the circumstances -- making identification of this issue from a cold record of prosecution more difficult still.

Notwithstanding the complexity of the issues, there are guideposts that can illuminate the existence of issues that can give rise to a charge of enforceability in a patent portfolio. Pay special attention to familial relationships existing between the patents in a portfolio. Patent families with multiple, related applications that were co-pending for a period of time are ripe for charges of inequitable conduct for failure to disclose material information in a uniform fashion.

Consider with care the inventors listed on the patent. The standards used in determining authorship on academic papers differ dramatically from determining proper inventorship on a patent application. These different standards can lead to inventors improperly included on patent applications. More subtly, references authored by the individual inventors, or seminars at scientific meetings, are frequently overlooked during the art disclosure portion of patent prosecution, which can be interpreted by a court as a material omission.

Look out for portfolios in businesses yielding disclosure obligations to agencies beyond the PTO. For example, disclosures made to the Food and Drug Administration or the Federal Trade Commission in conflict or inconsistent with statements made during patent prosecution can lead to charges of inequitable conduct.

Patent applications that have touched litigation, re-examination or interference proceedings, even if only tangentially, can also produce duty to disclose issues. References unearthed during these proceedings and that become known to the patent owner need to be disclosed to the PTO to mitigate against a charge of inequitable conduct years down the road.

And perhaps the most important suggestion: Make sure the issue of enforceability -- not just validity -- is on the due diligence checklist. Once it is, ensure the investigation employs the same high level of creativity to analyzing possible assertions of inequitable conduct as those expected to challenge the patent are likely to employ.


Mullen is a patent prosecutor at Morrison Foerster LLP, and is chair of its Venture Intellectual Property Group in San Diego. Patiño is a litigation partner at the firm.

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