Patents Post-Grant: Arbitration Materials Withheld from USPTO Reexamination

Egregious Misconduct Claim Shot Down by District Court

As most patent reexaminations are conducted in parallel to a related litigation, it is important that the USPTO be informed of the progress of a parallel litigation. For this reason, MPEP 2282; 2686 permit the filing of litigation notices by any party to the proceeding, or even a member of the public. The simple failure to inform the USPTO of a parallel court proceeding had, prior to Therasense [enhanced version available to lexis.com subscribers], been held to be per se material under the former "reasonable examiner" standard. Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1234 (Fed. Cir. 2007) [enhanced version available to lexis.com subscribers].

But what about an arbitration proceeding, does the same duty apply? ...and does the heightened Therasense standard disturb the earlier Nilssen ruling?

These issues were recently explored in Kimberly-Clark Worldwide Inc., v First Quality Baby products et al. As part of the litigation dispute, plaintiff (KC) was subject to a confidential arbitration. In the arbitration, the Patentee and defendant (FQ) took similar positions with respect to that disputed before the USPTO in patent reexamination.

Although the defendant would typically be able to submit the arbitration material of their own accord  as notice of a concurrent proceeding in the patent reexamination (MPEP 2282; 2686), the arbitration materials were confidential. As KC did not submit the materials to the USPTO during the patent reexamination proceeding, the defendants argued the lack of disclosure to the USPTO of the arbitration materials constituted egregious misconduct under Therasense, consistent with the Nilssen case.

In rejecting the defendants inequitable conduct charge, the court explained: (here)

The information that KC failed to disclose to the PTO was nothing more than the opinions of third parties, which had no legal or binding effect. We find no basis to conclude that KC was obligated to disclose to the PTO the fact that these third parties disagreed with the arguments that KC advocated before the PTO. Hence, we are not persuaded that failure to make such disclosures constitutes egregious misconduct.

Nor do we agree with FQ's assertion that, just as failure to disclose ongoing related litigation is inequitable conduct, see Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1234 (Fed. Cir. 2007), so too must KC's failure to disclose the arbitration be inequitable conduct. Non-binding arbitration is distinguishable from litigation, on the basis that it lacks binding legal effect. We conclude that FQ's factual allegations fall short of showing egregious misconduct that is per se material, and therefore, FQ must establish materiality under the but-for standard.

In addition to distinguishing Nilssen on the facts, the Court went on to note that as FQ relied on a per se theory, they did not otherwise demonstrate but-for materiality. Whether or not the lack of disclosure of an ongoing  litigation, absent any other showing, is still per sematerial under Therasense was not explored by the Court.

While the mere lack of disclosure of arbitration materials may not be per se material under Therasense, that is not to say that a lack of disclosure can never form the basis of a valid inequitable conduct defense. For example, although such materials are not prior art, assuming conflicting positions were taken by the Patentee before the USPTO and the arbitrating body, a violation of 37 C.F.R. § 1.555 (b)(2) may evince a lack of candor akin to the actual facts of the Therasense case. (at least in the current form of Rule 555)

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