Larson v. Aluminart on remand: Yes to deceptive intent but No to inequitable conduct

Takeaway: We all know that inequitable conduct requires materiality and intent. But I think sometimes we forget that in the end, it comes down to balancing the equities – materiality vs. intent – so finding a little of each isn't always enough. The recent district court opinion in the remanded Larson v. Aluminart case is a good example of this. The district court "found that Larson intentionally and materially deceived the Reexam Panel," and yet went on to conclude there was no inequitable conduct. "Balancing the diminished materiality of the omitted information and Larson's intent, the Court finds that Larson's conduct was not so egregious as to warrant holding its patent unenforceable." Larson Mfg. Co. of S.D., Inc. v. Aluminart Products Ltd., 2010 WL 2990648 (D.S.D. Jul 29, 2010) (NO. CIV 03-4244).

Details: The Federal Circuit ruled on the inequitable issued earlier this year in Larson Mfg. Co. of South Dakota, Inc. v. Aluminart Products Ltd., 559 F.3d 1317, 1341 (Fed. Cir. 2009). At issue was a failure to disclose five items: two office actions from a co-pending continuation application as well as three prior art references.

The lower court found materiality and intent with respect to each of the five items, and found inequitable conduct after balancing the equities. On appeal, the Federal Circuit found partial error in the lower court's findings: the three undisclosed items of prior art were cumulative, not material, but the office actions were material. The Federal Circuit then remanded back to the lower court with instructions to determine whether the patentee withheld the two office actions with deceptive intent. The lower court was also instructed to take into account that the German patent DE `478 was cumulative when considering the materiality of the Fourth office action.

On remand (Larson Mfg. Co. of S.D., Inc. v. Aluminart Products Ltd., 2010 WL 2990648 (D.S.D. Jul 29, 2010)), the district court found materiality once again:

The Court believes that the Fourth Office Action is less material after the Federal Circuit's holding that the German patent DE `478 is cumulative of the Kissinger patent and thus not material. The Fourth Office Action still is material, however, because it was an adverse decision based on a different explanation and interpretation of the Kemp patent and other prior art, and thus it was "clearly information that an examiner could consider important.

The district court also found deceptive intent once again:

The Court still believes intent to deceive the Patent Office is inferred by Larson's failure to disclose Examiner Johnson's adverse September 21, 2005 and June 23, 2006 Office Actions in the `039 Continuation. ... The inference of deceptive intent is the most reasonable inference able to be drawn from the evidence ...
After all of the briefing that has been done in this case, the Court is still left without an explanation for a knowing failure to disclose, and this supports an inference that Larson intended to mislead the Reexam Panel.

However, the patentee's conduct was not egregious when the equities were balanced:

   "Under the balancing test, `[t]he more material the omission or the misrepresentation, the lower the level of intent required to establish inequitable conduct, and vice versa.'" Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1364 (Fed.Cir. 2007) (quoting Critikon, 120 F.3d at 1256).
   Having found that Larson intentionally and materially deceived the Reexam Panel, the Court proceeds to balance the equities. After careful consideration, the Court still finds the Third Office Action to be highly material but the materiality of the Fourth Office Action has been diminished by the appellate determination that the DE `478 patent information is not material. Balancing the diminished materiality of the omitted information and Larson's intent, the Court finds that Larson's conduct was not so egregious as to warrant holding its patent unenforceable.

My two cents: "The Court is still left without an explanation for a knowing failure to disclose." Wow.  Maybe I'm reading too much into this single sentence. But I read that as not simply no credible explanation, but no explanation whatsoever, not even "I don't remember." I'd say in this situation, deceptive intent really is the "single most reasonable inference able to be drawn from the evidence."

But deceptive intent isn't enough. The patentee came out okay because the two office actions were of "diminished materiality."

I wonder how often this fact pattern shows up: Yes to deceptive intent; No to Inequitable Conduct.