Federal Circuit Defines Who Has Duty to Disclose to USPTO

May 04, 2010

In its recent decision in Avid Identification Systems Inc. v. The Crystal Import Corporation, the U.S. Court of Appeals for the Federal Circuit directly addressed the question of who has a duty to disclose material information to the United States Patent and Trademark Office (“USPTO”).

Section 1.56 of 37 CFR (“Rule 56”) imposes on all individuals associated with the filing and prosecution of a patent application a duty of candor and good faith in dealing with the USPTO during the period of examination of a patent application. This duty of candor includes a duty to disclose to the USPTO all information known to each such individual that is material to the issue of patentability. Failure to comply with Rule 56 can result in a patent being held unenforceable.

For purposes of identifying who owes a duty of candor to the USPTO, Rule 56(c) defines “individuals associated with the filing or prosecution of a patent application” as (1) each named inventor; (2) each attorney or agent that prepares or prosecutes the application; and (3) every other person who is “substantively involved in the preparation or prosecution of the application and who is associated with the inventor, with the assignee or with anyone to whom there is an obligation to assign the application.” The first two categories of individuals are readily identified, because their names appear conspicuously in the application file. However, identifying the individuals classified in Rule 56(c)(3) can be problematic. Until Avid Identification Systems, the Federal Circuit had not addressed the question of who meets the requirements of Rule 56(c)(3) as a person “substantively involved in the preparation and prosecution of the application.”

In Avid Identification Systems, the court analyzed whether the founder and president of the plaintiff company, Dr. Hannis Stoddard, was “substantively involved in the preparation and prosecution of the application.” More than a year prior to the filing of the application that matured into the patent-in-suit, Dr. Stoddard “demonstrated some of Avid’s technology” at a trade show. On appeal, it was not disputed that Dr. Stoddard intentionally withheld this information from the USPTO. Instead, Avid argued that Dr. Stoddard did not have a duty to disclose under Rule 56, and that the withheld information was not material to patentability.

There was no dispute that Dr. Stoddard was neither a named inventor, nor an attorney or agent. As the president of Avid, however, there was no question that Dr. Stoddard was “associated with the inventor[s]” and with the assignee of the application. Consequently, the question of whether Dr. Stoddard had a duty to disclose turned on whether he was a person “substantively involved in the preparation and prosecution of the application,” a phrase not previously interpreted by the court.

The majority decision, authored by Judge Prost, interpreted “substantively involved” to mean “that the involvement relates to the content of the application or decisions related thereto, and that the involvement is not wholly administrative or secretarial in nature.” In reaching this definition, the court cited with approval to the USPTO’s Manual of Patent Examining Procedure Section 2001.01, which notes that “the duty does not extend to typists, clerks, and similar personnel who assist with an application.”

Applying this rule to Dr. Stoddard, the court determined that he was “substantively involved” in the prosecution of the Avid application. Dr. Stoddard was “involved in all aspects of the company’s operation, from marketing and sales to research and development,” contributing to “a reasonable inference that he was also involved in the preparation of the patent application relating to that research.” The court also cited evidence of e-mail correspondence between Dr. Stoddard and one of the inventors relating to a corresponding European patent application, and the fact that he signed an affidavit for submission to the USPTO confirming Avid’s status as a “small entity,” which entitled Avid to a 50 percent discount off its USPTO patent prosecution fees. Finally, the court noted that the district court did not find Dr. Stoddard’s testimony to be credible regarding his lack of involvement in, and understanding of, the claimed invention.

Finally, the majority declined to impose the requirement, urged by Judge Linn in dissent, that analysis of whether someone is “substantively involved” take into account whether the person in question can “assess the materiality of any information [that person] may know or discover.” The majority held that whether the individual involved in the alleged misconduct owed a duty of candor to the USPTO is “merely a threshold inquiry in the inequitable conduct analysis.” Someone who is unable to assess the materiality of the information at issue “would lack the deceptive intent required” for a finding of inequitable conduct.

The Avid Identification Systems decision thus provides some guidance in evaluating who, other than inventors, attorneys, and agents, has a duty to disclose under Rule 56. Nevertheless, continued caution when making such an evaluation is warranted. Decision-makers would be well-advised to err on the side of inclusion where the there is any doubt about whether an officer or employee is subject to the duty of disclosure.

For more information about the subject matter of this alert, please contact any of the lawyers listed below: 

Susan Baker Manning, Partner, Intellectual Property Group

This article was originally published by Bingham McCutchen LLP.