In a patent infringement suit, the defendant’s first line of defense is almost always a counterclaim that the plaintiff’s patent is either invalid or unenforceable. There’s little to lose in raising the counterclaim and potentially a lot to gain, including the possibility of a judgment rendering the patent invalid forever.

Patently-O refers us to Golden Hour Data Systems, Inc. v. emsCharts, Inc. and Softtech (Fed. Cir. August 9, 2010), which partly affirmed and partly vacated a District Court’s Judgment as a Matter of Law overturning a $3,500,000 jury verdict in favor of Golden Hour, owner of United States Patent No. 6,117,073, and entering judgment in favor of the defendants on their "inequitable conduct" counterclaim, thereby rendering the patent unenforceable.

As the Federal Circuit recited:

A patent may be rendered unenforceable due to 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). The party seeking to render a patent unenforceable due to inequitable conduct must prove both materiality and intent by clear and convincing evidence. Id. The court must then weigh the levels of materiality and intent to determine whether the conduct at issue amounts to inequitable conduct. Id. We review the district court’s factual findings as to materiality and deceptive intent for clear error and the ultimate decision on inequitable conduct for abuse of discretion. Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008); Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc in relevant part).

Inequitable conduct is, in essence, a judicial escape-hatch that empowers courts to enforce the duties of good faith and candor that applicants for patents have; if a patentee wasn’t upfront with the patent office, the court can throw out the patent, even if a patent might still have been granted if the patentee had disclosed the information.

Given the severity of the penalty, the bar for proving inequitable conduct is quite high ("clear and convincing" proof of materiality and intent to deceive), which is why many plaintiff’s lawyers don’t spend much time guarding against it and why many defense lawyers focus on lower-hanging fruit like the prior art and obviousness defenses.

The defendants in Golden Hour, however, had an ace up their sleeve: a brochure for a competing product that the patentee had only partially disclosed during the patenting process.

Affirming the District Court’s finding of inequitable conduct, the Federal Circuit held:

The [defendants’] contention is that [the inventors] intended to deceive the PTO by failing to fully disclose the capabilities of the AeroMed system described in the brochure. The district court appears to have inferred intent to deceive from the high materiality of the AeroMed brochure, from the selective disclosure in the IDS, and from the lack of a credible explanation on the part of Hutton and prosecution counsel for the selective disclosure.

We agree that the district court could find the explanation for not submitting the brochure or its undisclosed contents not to be credible (if its contents were known). The explanation was that it was Fuller’s practice not to submit undated materials. But Fuller testified that he knew that other practitioners at Knobbe Martins submitted undated brochures to the PTO and that the PTO considers those brochures. But most importantly, even if Fuller believed that the PTO’s rules would not have permitted the examiner to consider the undated brochure, there is no suggestion that Fuller thought that the information in the brochure was off-limits—indeed Fuller submitted information from the brochure in the IDS. See Semiconductor Energy, 204 F.3d at 1375, 1376 (holding that “[i]t was incumbent upon [the inventor] to provide the PTO with sufficient information for a reasonable examiner to consider the [submission] in context, not with a selective and misleading disclosure” and because “[t]he inventor[] failed to do that” he “cannot post facto hide behind the MPEP guidelines”). In sum, prosecution counsel failed to provide any explanation for withholding the missing information from the brochure, assuming he was aware of the brochure’s contents.

(Emphasis added.)

That’s a classic example of inequitable conduct: the absence of any explanation for not disclosing to the patent office everything you know.

Of course, this being patent infringement law, issues are only settled for a few months at a time, and it’s quite possible that by this time next year Golden Hour will be overruled, at least in terms of the procedure by which it was decided (i.e., a jury verdict for the plaintiffs followed by JMOL for the defendants). As Judge Newman’s dissent notes: 

At the trial, the full brochure was in evidence, and stressed by the defendants, and the jury found that it was not invalidating. In view of the majority’s ruling that deceptive intent was not established in the district court, and the jury’s verdict of validity despite the brochure, the charge of inequitable conduct should be laid to rest. At most, this charge was deemed viable only because of inconsistencies in the law, inconsistencies that this court has presented for resolution in the pending en banc case of Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008-1511, -1512, -1513, -1514, -1595.

Oral arguments on Therasense are scheduled for November 9, 2010.