Holding that the applicant is entitled to all reasonable inferences against the finding of inequitable conduct during patent prosecution, the U.S. Court of Appeals for the Federal Circuit reversed the finding of inequitable conduct and the judgment that related patents are unenforceable and vacated the attorneys’ fee award, but affirmed the district court’s findings of obviousness and non-infringement. The Court also affirmed the judgment invalidating all claims of the patents-in-suit given the stipulation between the parties that the case would be tried on a representative claim. Scanner Technologies Corp. v. ICOS Vision Systems Corp. N.V., Case No. 07-1399 (Fed. Cir., June 19, 2008) (Clevenger, Sr. J.).

Scanner Technologies Corp. (Scanner) owns several patents directed to processes to inspect electronic components in semiconductor technology. Scanner brought suit against its competitor ICOS Vision Systems Corp. (ICOS), alleging ICOS infringed the patents. Following an interlocutory appeal for term construction and a bench trial on infringement, validity and enforceability, the district court found the asserted patents unenforceable due to inequitable conduct because, while the applications were pending, Scanner submitted a Petition to Make Special to the U.S. Patent and Trademark Office (USPTO), claiming that actual infringement by ICOS entitled Scanner to expedited application review. The petition contained a statement from the prosecuting attorney that, based on a “rigid comparison” of the alleged method with the claims of the application, the method infringed some of the claims, although the attorney had not actually seen the ICOS device as the district court found the petition suggested. The petition also included statements from the applicant and the assignee regarding ICOS’s product, which the district court found were intended to mislead the USPTO. The USPTO granted Scanner’s petition and advanced the application process. The district court also held the patents invalid for obviousness and not infringed and ruled that related patents, derived from the same common patent were application, unenforceable. Scanner appealed.

The Federal Circuit reversed the finding of inequitable conduct and vacated the award of attorneys’ fees, but affirmed the findings of invalidity for obviousness and non-infringement. The Court stressed that to establish inequitable conduct it is necessary to show by clear and convincing evidence that the patent applicant “(1) either made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the U.S. Patent and Trademark Office.”

The Federal Circuit reiterated “as a matter of law that a false statement in a Petition to Make Special is material if … it succeeds in prompting expedited consideration of the application” and rejected Scanner’s view that inequitable conduct cannot be shown absent a misrepresentation that bears on the patentability of the claims in the application. However, the Federal Circuit held that whenever the evidence offered to show materiality or intent is susceptible to multiple reasonable inferences, it is an error to overlook one inference in favor of another equally reasonable inference. Here the Court concluded that a full review of the record shows that the district court failed to draw all reasonable inferences on the facts relied upon to show materiality. The Federal Circuit found that the record relied on by the district court did not establish by clear and convincing evidence that the statements in Scanner’s petition were misleading because an inferences of intended compliance with USPTO’s regulations could just as easily have been made. Because the Federal Circuit overturned the finding of materiality, the issue of intent to deceive the USPTO became moot, and the Court reversed the determination of inequitable conduct simply on the basis of materiality and thereupon vacated the attorneys’ fee award.

However, the Federal Circuit affirmed the district court’s judgment invalidating all claims in both patents-in-suit based on invalidity of the stipulated representative claim 1, noting that parties can stipulate to anything except jurisdiction.

Practice Note: An assertion of infringement based on a “rigid comparison” in a Petition to Make Special does not necessarily require a physical inspection of the accused product. In some instances a comparison with the accused product may be based entirely on product literature or analysis of source code. Stipulating that the case stands or falls on a representative claim (or, by analogy, on the independent claims) may result in the invalidation of even the narrower (dependent) claims.