Pay the (PTO) Piper: Correct Erroneously Underpaid Maintenance Fees to Avoid Inequitable Conduct Challenges
In the context of a district court litigation, a U.S. patent must be valid and enforceable or any potential reward for the Patent Owner will be moot. Defendants may argue that a patent is unenforceable in light of inequitable conduct committed during prosecution of the underlying patent application, but the standard to meet the requisite inequitable conduct to warrant unenforceability is supposedly higher after Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011) (en banc) (“This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.”).
Prior to Therasense, a finding of inequitable conduct required, for example, “evidence of affirmative misrepresentation of a material fact, failure to disclose material information, or submission of false material information, coupled with an intent to deceive.” Establishing that a patent owner “should have known of [the] materiality” was sufficient to support a finding of inequitable conduct. See Bristol-Myers Squibb Co. v. Rhône-Poulenc Rorer, Inc., 326 F.3d 1226, 1229 (Fed. Cir. 2003); Ulead Systems, Inc. v. 351 F.3d 1139, 1144 (Fed. Cir. 2003). In Therasense, however, the Federal Circuit adopted a higher standard for proving inequitable conduct, requiring clear and convincing evidence that the patentee “knew of the reference, knew that it was material, and made a deliberate decision to withhold it.” Therasense, 649 F.3d at 1290.
Under Therasense, the standard for materiality is now “but for,” and “prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” Id. at 1291. In addition, “[w]hen the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.” Id. at 1292. “[T]o meet the clear and convincing evidence standard, the specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence.’” Id. at 1290.
Importantly, the issuance of a U.S. patent does not toll the period for assessing inequitable conduct. For example, after grant, a patent owner must continue to pay maintenance fees throughout the lifespan of the patent to avoid abandoning the patent. Small entities (e.g., small business concerns, independent inventors, and non-profit organizations meeting the definition in 37 C.F.R. § 1.27) may pay lowered fees (referred to as small entity fees) to the USPTO to maintain their patents. When a small entity licenses its patents to a large entity however —any business whose number of employees exceeds 500 persons—it no longer qualifies for the reduced maintenance fee and must pay the standard fee going forward.
Pre-Therasense, erroneous underpayment of maintenance fees was, under certain facts and circumstances, sufficient to support a finding that the patent was unenforceable due to inequitable conduct. See Ulead Sys., Inc. v. Lex Comput. & Mgmt. Corp., 351 F.3d 1139 (Fed. Cir. 2003); Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007) (involving misrepresentations of small entity status for maintenance fees). The decision in Feit Elec. Co. v. CFL Techs., LLC, 2021 U.S. Dist. LEXIS 113588 (N.D. Ill. June 17, 2021), provides a post-Therasense analysis of a similar situation.
In Feit, the inventor, Nilssen, prosecuted the patents-in-suit and paid maintenance fees in each of the patents at issue as a small entity. Nilssen, however, licensed some of his patents to large companies. Years later, Nilssen filed correction forms and made payments of the difference in rates between the small and standard maintenance fees, which the USPTO accepted.
The district court analyzed whether the post-allowance payments meet the “but-for” standard of materiality under Therasense: “if the PTO would not have allowed a claim had it been aware” of the misrepresentations or omitted information. Feit, at *5. Since the underpayments occurred after the patents issued, the district court concluded that they were “unrelated to the substantive criteria of patentability.” Id. at *10, quoting Network Signatures, Inc. v. State Farm Mut. Auto. Ins. Co., 731 F.3d 1239, 1243 (Fed. Cir. 2013). The court noted that “an equitable defense will not be recognized if the offending party did not gain a benefit from its wrongdoing.” Id. at *11, quoting Core Wireless Licensing S.A.R.L. v. Apple Inc., 899 F.3d 1356, 1368 (Fed. Cir. 2018). As Nilssen had cured the underpayments, he did not benefit from them, and thus the district court “would be hard-pressed to conclude that the underpayment of $1,700 was material under Therasense, along with basic notions of equity and fairness.” Id. Compare this to the pre-Therasense cases in which the Federal Circuit determined that maintenance fee payments were material because “the misrepresentation [of small entity status] was material to the PTO’s acceptance of reduced maintenance fees, and thus, survival of the patent.” Ulead, 351 F.3d at 1146.
In Feit, the court found there was no ultimate benefit from the underpayments since the patentee repaid the deficiencies and concluded that the underpayment of the requisite fees was not material. Because the first prong of the inequitable conduct analysis was not met, the Federal Circuit affirmed and had no need to consider whether the second prong, the intent element, was satisfied. Id. at *11-12.
The threshold for finding inequitable conduct has presumably been raised following Therasense. As in Feit, grounds which may have previously been held material or sufficient for supporting an allegation of inequitable conduct may no longer support the same result. Even so, patent owners are encouraged to regularly check and confirm that they are paying the correct fees, maintenance fees, and pre-emptively remedy any financial deficiencies with the USPTO in view of applicant’s entity status. Preempting a potential allegation of inequitable conduct by repaying the USPTO promptly, may help avoid future costly litigation, and if any lingering doubts remain, supplemental examination may be an appropriate avenue for confirming that the remedial payments have cleansed any specter of inequitable conduct.