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Avoiding Inequitable Conduct and Meeting the Duty of Candor and Good Faith

If entrepreneurs are not careful in their communications with the Patent Office, their valuable patents may later be found to be worthless.

If entrepreneurs are not careful in their communications with the Patent Office, their valuable patents may later be found to be worthless.

What is Inequitable Conduct?

As a fledgling startup, maximizing the value of the company is important when attempting to obtain early funding. For many startups the lion’s share of their value comes from their intellectual property. Obtaining and keeping that IP is critical. With that in mind it becomes crucial for entrepreneurs to consider issues of inequitable conduct and duties of disclosure when applying for patent protection for their intellectual property.

Inequitable conduct is a judge-made doctrine that allows the court to render a patent unenforceable if the patentee engaged in certain prohibited conduct during the application and prosecution of a patent. Inequitable conduct requires the patentee to intentionally misrepresent or omit material information from the patent office, as discussed here. This includes:

  • Failure to submit documents, including material prior art known by the applicant or explain/translate foreign language references
  • Misstating facts or affidavits of patentability
  • Incorrectly or incompletely identifying inventors

Further, the USPTO has enacted Rule 56, which holds that “each individual person “associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability.”

In the case of withheld prior art, under the Therasense standard, a defendant would need to show that a plaintiff patentee or their counsel:

  • Intentionally withheld or misrepresented information; and
  • The information was material.

To be material the defendant must show that the patent would not have been granted “but-for” the omitted prior art.

The penalty for inequitable conduct is invalidation of the entire patent. In addition, the lawsuit often becomes “exceptional” which can force the losing party to pay the other side’s attorney’s fees.

Defending against a charge of inequitable conduct can significantly increase the costs of litigation and patent ownership, even if one defeats the charges.

How Do I Avoid it?

First and most importantly, it is imperative that a startup ensure correct inventorship on any patent application. USPTO rules require all inventors to be listed on the patent application. An inventor is any person that participated in conception of the invention. That is, anyone who helped come up with the idea and form of the invention. Persons who simply helped build the prototype or who contributed ideas and knowledge that was not used in the version that is being patented need not be included.

Startups often have numerous founders or others who are involved in the conception of an invention. Be sure to keep track of these people and name them on the patent application. Further, do not intentionally omit a person who should be listed as an inventor in an attempt to avoid ownership issues (for example if a professor assisted in creating an invention and the startup is concerned about the University claiming title). While it may be the easier solution now, it risks the entire patent being unenforceable later.

Second, entrepreneurs must be diligent in preparing their application or in working with their counsel to prepare an application to ensure all prior art known is considered and disclosed if relevant. The USPTO does not require applicants to perform prior art searches, so applicants and their attorneys are only responsible for disclosure of prior art that is known to them. However, it is the responsibility of the applicants to ensure that no relevant information is being withheld.

If in doubt about the materiality of a reference, it is always better to err on the side of disclosure. Further, the duty of disclosure extends through grant of a patent, and if any prior art becomes known to an applicant it should be disclosed to the USPTO. Keep in mind that the duty of disclosure extends to the inventors, their counsel, and anyone involved in preparation of the application or anyone to whom there is an obligation to assign the patent. Entrepreneurs should be sure to check with every person meeting those criteria to ensure no prior art is being withheld. Keeping records of any prior art searches and of personnel having knowledge of an invention is extremely helpful when it comes time to apply for a patent.

Finally, the new patent reform act created a new administrative procedure called supplemental examination. This procedure can be used to cure inequitable conduct for a patent that has issued. A patentee may present new information to the USPTO and the examiner will consider whether the patent should have been issued in light of the information. If the patent is allowed in light of the new information, it cannot be later held to be unenforceable due to failure to disclose that information in the original application (but could still be held unenforceable for failing to disclose other information that was not included in the supplemental examination). Essentially it is a patent amnesty program. Entrepreneurs who have already obtained patents and are concerned about inequitable conduct should speak with counsel regarding supplemental examination.

By keeping records of the persons involved in conception of a new technology and their roles, as well as keeping track of what references were consulted or searched, it can save time and headaches when it comes time to apply for a patent and can make all the difference if the patent one days ends up disputed in court. For those entrepreneurs who already have a patent and are concerned about false or omitted disclosures, supplemental examination can be extremely useful.

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