Federal Circuit Finds Inequitable Conduct For Not Disclosing Material Prior Art In Related Application

In McKesson Information Solutions v. Bridge Medical, Inc., Civ. Case No. 2006-1517; 2007U.S. App. LEXIS 11606 (Fed. Cir. May 18, 2007), plaintiff McKesson owned U.S. Patent No. 4,857,716 (“the ‘716 patent”).  The ‘716 patent provides “a patient identification system for relating items with patients and ensuring that an identified item corresponds to an identified patient.”  To achieve this patient identification system, the ‘716 patent discloses a three node approach to communications (“the three node limitation”) including (1) a handheld patient terminal in the form of a set of bar codes associated with a given patient such that one bar code from the set is physically attached to the patient and the other bar codes are physically attached to, for example, the patient’s medications, (2) a portable handheld bar code reader wirelessly connected to a base station unit (typically located in the patient’s room), and (3) a system computer capable of processing and storing patient data.  Additionally, the patient identification system discloses a programmable unique identifier (“the programmable unique identifier limitation”) that “only allows communication with a portable handheld patient terminal…having a corresponding program identifier,” to prevent one handheld patient terminal from communicating with the wrong base station unit.

The District Court found the ’716 patent unenforceable due to inequitable conduct performed by prosecuting attorney Schumann (“Schumann”).  Specifically, the District Court relied on McKesson’s nondisclosure of three items of information during prosecution of the ‘716 patent in a setting where the applicant had co-pending applications.  Two of these three items related to U.S. Patent No. 4,950,009 (“the ‘009 patent”) based on U.S. Patent Application No. 06/862,149 (“the ‘149 application”), and thus were not directly related to the ‘716 patent.  The third item related to U.S. Patent Application No. 4,835,372 (“the ‘372 patent”) based on U.S. Patent Application No. 07/078,195 (“the ‘195 application”), which was a continuation of the ‘716 patent. 

Background of the Related Cases

The ‘716 patent

The ‘716 patent, based on U.S. Patent Application No. 06/862,278 (“the ‘278 application”) is a continuation of application Ser. No. 862,278, filed May 12, 1986, which is a continuation-in-part of Ser. No. 757,277 filed July 19, 1985.  On August 12, 1986, Schumann informed Examiner Trafton, the Examiner assigned to handle prosecution of the ‘716 patent, that Schumann was also prosecuting the ‘149 application.   On April 6, 1987, Examiner Trafton rejected the claims of the ‘278 application.  On October 6, 1987, Schumann argued that “none of the references teach the three node approach to communications as provided in the claimed invention,” submitted amended claim 1, which recited the three-node limitation, and submitted amended claim 6, which depended on claim 1 and recited the programmable unique identifier limitation. 

On December 8, 1987, Examiner Trafton rejected claim 1 and objected to claim 6 but noted that claim 6 would be allowable if rewritten in independent form.  On June 8, 1988, Schumann abandoned the ‘278 application and filed a continuation application (Application No. 07/205,527) with the only independent claim rewritten to incorporate both the three-node limitation and the programmable unique identifier limitation as recited by claim 6. 

On February 27, 1989, Examiner Trafton allowed the claims of the ‘527 application.  On August 15, 1989, the ‘716 patent issued. 

The ‘009 Patent

During the same time period that the ‘716 patent was being prosecuted, Schumann was simultaneously prosecuting the ‘009 patent based on the ‘149 application.  The invention of the ‘009 patent was sufficiently similar to the ‘716 patent that Schumann initially disclosed the same 38 references of prior art for both applications. 

On February 26, 1987, Examiner Lev, the Examiner assigned to handle prosecution of the ‘149 application, rejected independent claim 15 and dependent claim 16 of the ‘149 application under §103 in view of Blum and Pejas.  Examiner Trafton was aware of the Blum and Pejas references.  However, Schumann did not inform Examiner Trafton of Examiner Lev’s February 26, 1987 rejection of the ‘149 application. 

On August 26, 1987, Schumann amended claims in the ‘149 application to incorporate “real-time data communication” features.  Schumann also added new claims 19-24, which collectively recited both the three-node limitation and the programmable unique identifier limitation. 

On October 23, 1987, seventeen days after Schumann had argued to Examiner Trafton during the prosecution of the ‘278 application that “none of the references teach the three node approach to communications as provided in the claimed invention,” Schumann alerted Examiner Lev to the Baker reference, which taught both the three node communication limitation and the programmable unique identifier limitation.  Examiner Lev suggested that Schumann should cancel the newly added claims 19-24.  Schumann refused to cancel the claims, and did not tell Examiner Trafton about the Baker reference. 

On December 1, 1987, Examiner Lev rejected all the pending claims in the ‘149 application under §§102 and 103 in view of several references, including Blum and Pejas, and Baker.  On June 17, 1988, Schumann amended claim 15 to encompass only handheld terminals capable of initiating communication themselves to distinguish over the references cited by Examiner Lev, and cancelled claims 19-24. 

On December 19, 1988, Examiner Lev issued a notice of allowance for the eighteen remaining claims of the ‘149 application.  On July 18, 1989, the ‘149 application issued as the ‘009 patent. 

The ‘372 patent

On July 24, 1987, Schumann filed the ‘195 application, which was a continuation of the ‘278 application.  Examiner Trafton handled the prosecution of the ‘195 application as well as the prosecution of the ‘278 application.  On December 16, 1988, Examiner Trafton allowed nine claims, and the patent thereafter issued as the ‘372 patent. 

Decision of the District Court

McKesson brought an infringement suit against Bridge Medical in the Eastern District of California based upon the ‘716 patent.  The District Court held that the ‘716 patent was unenforceable due to inequitable conduct.  Specifically, the District Court concluded that the failure of Schumann to (1) inform Examiner Trafton about the Baker reference, (2) inform Examiner Trafton of the rejections of the initially broad claims of the ‘149 application on February 26, 1987, and (3) inform Examiner Trafton prior to the allowance of the ‘716 patent about Examiner Trafton’s earlier allowance of the ‘372 patent claims, each were material omissions done with an intent to deceive.

Holding on Appeal 

On appeal, the Federal Circuit affirmed the District Court’s finding of inequitable conduct.  The Federal Circuit reasoned that a patent may be rendered unenforceable for inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO during prosecution.  Digital Control Inc. v. Charles Mach. Works, 437 F.3d 1309, 1313 (Fed. Cir. 2006).  “Materiality” embraces any information that a reasonable examiner would be substantially likely consider important in deciding whether to allow an application to issue as a patent.  Akron Polymer Container Corp. v. Exxel Container, Inc., 148 F.3d 1380, 1382 (Fed. Cir. 1998).  However, a withheld and otherwise material piece of information is not material for the purposes of inequitable conduct if it is merely cumulative to that information considered by the Examiner.  Digital Control, 437 F.3d at 1319.

The Federal Circuit also noted that the intent element is proven by inferences drawn from facts, with the collection of inferences permitting a confident judgment that deceit has occurred.  Akron Polymer, 148 F.3d at 1385.  A finding that particular conduct amounts to “gross negligence” does not of itself justify an inference of intent to deceive; the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive.  Kingsdown Med. Consultants, Ltd. V. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988). 

Item 1: Failure to disclose Baker to Examiner 

Regarding the failure of Schumann to inform Examiner Trafton about the Baker reference, the Federal Circuit reasoned that a reasonable examiner would find the Baker reference material because one of Schumann’s primary arguments for the patentability of the ‘716 patent was the use of three-node communication.  Baker disclosed three-node communication which was relied upon as a patentable feature.  Furthermore, Baker is not cumulative since, although the Pejas reference cited by Schumann disclosed three-node communication, Pejas only described three-node communication under two columns with cursory implementation details.  In contrast, Baker disclosed a highly detailed discussion of the implementation of the three-node system over eleven columns. 

The Federal Circuit next affirmed the District Court’s conclusion that Schumann acted with an intent to deceive by withholding the Baker reference.  Although Schumann received “some credit” for disclosing the co-pendency of the ‘149 application to Examiner Trafton, the District Court weighed all the evidence and held that the favorable evidence did not outweigh the evidence of an intent to deceive.  The mere seventeen-day gap between the October 6, 1987 amendment and the discussion of Baker between Schumman and Examiner Lev in relation to the ‘149 application is important because Schumann knew or should have known of Baker’s materiality.  Furthermore, Schumann’s cancellation of claim 22 – which incorporated both the three-node limitation and the programmable unique identifier limitation – during the prosecution of the ‘149 application with Examiner Lev gave rise to an inference that Schumann recognized Baker would also present a significant obstacle to the patentability of dependent claim 6 of the ‘278 application.  As such, intent was inferred from the circumstances as well as the high materiality of the Baker reference.

Item 2: Failure to disclose rejections of the initially broad claims of the ‘149 application to Examiner

Regarding the failure of Schumann to inform Examiner Trafton about Examiner Lev’s February 26, 1987 rejection of the initially broad claims of the ‘149 application, the Federal Circuit applied the rule in Dayco Products, Inc. v. Total Containment, Inc., 329 F.3d 1358, 1368 (Fed. Cir. 2003).  Dayco stands for the proposition that “[a] contrary decision of another examiner reviewing a substantially similar claim meets the Akron Polymer ‘reasonable examiner’ threshold materiality test.”  Here, a reasonable examiner would have considered the rejection of claims 15 and 16 of the ‘149 application important, since the claims were substantially similar to those claims in the ‘278 application. 

Furthermore, Schumann acted with intent to deceive because the MPEP to which Schumann would have referred while the ‘278 application was pending leaves no doubt that material rejections in co-pending applications fall squarely within the duty of candor.  Both the rejected claims in the ‘149 application and the ‘716 patent claims relate to the use of three-node communication and a unique address in the context of bar code reading.  As such, intent was inferred from the circumstances as well as the high materiality of the rejection.

Item 3: Failure to disclose allowance of the ‘372 patent claims to Examiner

Regarding the failure of Schumann to inform Examiner Trafton during the prosecution of the ‘278 application about Examiner Trafton’s previous allowance of the ‘372 patent claims, the Federal Circuit held that this omission was material and intentional because allowance of the three-node system of the ‘372 patent claims plainly gives rise to a conceivable double patenting rejection.   In response to McKesson’s argument that Examiner Trafton was the same examiner handling both the ‘372 patent and the ‘278 application, and that Examiner Trafton issued the claims in the ‘372 patent only a few months before he issued claims in the ‘278 application, the Federal Circuit noted that the MPEP at the time explained that “a prosecuting attorney should not assume that [a PTO examiner] retains details of every pending file in his mind when he is reviewing a particular application,” MPEP §2001.06(b) (5th ed. Rev. 3, 1986).  As such, intent was inferred from the circumstances as well as the high materiality of the child application being allowed prior to allowance of the parent application.

Significance to Patent Applicants

While the Supreme Court’s decisions in KSR, Microsoft, and MedImmune have been more newsworthy and more widely discussed, the potential impact of McKesson presents a more immediate dilemma for patent holders.  In theory, McKesson stands for the proposition that the failure to report the status or rejections of any related application (related by continuation status or merely having common subject matter) under prosecution could form the basis for inequitable conduct.  The basis could be for the applicants failure to disclose known prior art in a related case, failure to disclose a rejection of broader claims in a related case, or failure to disclose the allowance of patent claims in a related case.  In addition, as the duty of disclosure not only applies to the patent attorney actually prosecuting the applications, but also to their corporate counsel and inventors who might coordinate the activities of related cases among different firms, the holding in McKesson would seemingly provide grounds for rendering unenforceable any patent which is part of either a family, provide improvements over existing claimed inventions, or are drawn to alternative embodiments of a similar broader concept.  For companies involved with more than one or two patents under prosecution, the financial and logistical problems caused by having to identify related applications and update different Examiners on the allowance, rejection, and basis for rejection in multiple applications are obvious.

However, on closer examination, the holding is likely to be more limited.  It has always been important to ensure that at least the applicants file an information disclosure statement to ensure the Examiner is made aware of the co-pending applications.  It has also always been important to ensure that, when prior art is known from any case and its applicability is understood, the applicants cannot maintain claims impacted by the prior art even where these claims have not been rejected by that prior art (at least, without explanation in the record). Thus, it is important to realize that the District Court in McKesson, the Federal Circuit through its affirming of the District Court, was rejecting the applicant’s willful ignorance of the relevance of highly material prior art which the court believed was so important that no competent attorney would fail to remember it even in mildly different claims for related applications.  As such, in McKesson, the Federal Circuit was arguably only reemphasizing the need for complete disclosure of prior art discovered under any context or of related applications.

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