Scott D. Locke – Dorf & Nelson

Almost two decades ago, Kevin Rivette and David Kline published Rembrandts in the Attic, which reminded patent holders that they should unleash the competitive power of their portfolios. But patents are only of value while they are in force, and to keep a patent in force for its full term, a patent holder must periodically pay maintenance fees.  If the patent holder does not pay these fees, the patent will lapse before its maximum term expires.

Because accidents happen, the patent law provides means by which to revive patents after they lapse, provided that the lapse was unintentional. The process for reviving an unintentionally lapsed patent is straightforward, and it rarely involves an inquiry by the U.S. Patent and Trademark Office (USPTO) into the circumstances behind an assertion of unintentionality. The recent decision In re Rembrandt Technologies LP Patent Litigation¸ 2017-1784 (Fed. Cir. Aug. 15, 2018) is a reminder of both the potential consequence of a patent holder's disingenuous assertion of unintentionality and the challenges that defendants face when raising the improper filing of a petition to revive a lapsed patent as a defense.

Revival of Lapsed Patents

Patent maintenance fees must be paid three times over the life of the patent. 35 U.S.C. §41(b)(1). There is a deadline for paying each of these fees and there is a grace period following the deadline in which, for an additional fee, the payment will still be accepted. 35 U.S.C. §41(b)(2). When there has been an unintentional failure to pay a maintenance fee, a patent can be reinstated, provided that the patent holder submits: (1) the outstanding maintenance fee; (2) a surcharge; and (3) a statement that the delay in payment was unintentional. 37 C.F.R. §1.378(c).

The USPTO has discretion when determining whether to grant a petition for revival. As a matter of practice, the USPTO typically relies on the representation by the patent holder that the missing of a deadline was unintentional, and therefore, generally does not ask for an explanation as to why a maintenance fee was not timely paid.

The USPTO's practice might be seen by some patent holders as an invitation to revive patents that were intentionally allowed to lapse. Further, courts have been reluctant to focus on the issue of whether there was unintentionality in the context a petition to revive. A trilogy of decisions by the Court of Appeals for the Federal Circuit (CAFC) that spans 10 years both provides guidance as to the circumstances under which the improper filing of this type of a petition can render a patent unenforceable, and underscores the risk that patent holders will improperly revive their patents.

Limits on Challenges to USPTO Determinations

In Aristocrat Technologies Australia v. International Game Technology, 543 F.3d 657 (Fed. Cir. 2008), the CAFC held that improper revival is not a defense to a charge of patent infringement. Id. at 661. During prosecution, the patent holder had failed to timely file its national stage application off of a PCT application, filing it one day past the deadline. Id. In order to be able to prosecute the case, the applicant filed a petition to revive, which the USPTO granted. Id. at 660.

After the patent issued, the patent holder instituted a case of infringement. The defense argued that the patent was invalid because the patent was not properly revived. Id. at 661-62. The CAFC determined that the Patent Act does allow a defendant to assert improper revival as a defense of invalidity. Id. at 662. However, the court also held that if the improper use of the revival process rose to the level of inequitable conduct, which requires a material misrepresentation or omission of a fact with the intent to deceive, then the wrong would be redressible in court. Id. Although Aristocrat was decided in the context of an allegation of an improperly revived patent application, it also applies to an improperly revived patent.

Inequitable Conduct Challenges to Improperly Revived Patents

In Network Signatures v. States Farm, 731 F.3d 1239 (Fed. Cir. 2013), the defendants challenged the enforceability of a patent on the grounds of inequitable conduct because the patent holder had allegedly improperly revived its patent. The patent holder had missed its second maintenance fee payment because it had decided that there was no commercial interest in the patent. Id. at 1241. Two weeks after the deadline for paying the maintenance fee, the patent holder received a call from a potential licensee, and the same day asked the USPTO to revive the patent.

According to standard USPTO procedure, Network Signatures used a pre-populated form that contained the statement: “The delay in payment of the maintenance fee to this patent was unintentional.” Id. After receipt of the petition, the USPTO approved the payment. Id.

During litigation, the defendant moved for summary judgement on the issue of inequitable conduct. Id. at 1241. The district court concluded that the omission of any evidence or explanation as to why the delay was considered unintentional was but for materiality and that the patent holder withheld material information with the intent to deceived the USPTO.

The CAFC reversed, emphasizing that because the patent holder promptly used the form that the USPTO had provided, there was not clear and convincing evidence of the withholding of material information with the intent to deceive. Id. at 1243. Given that the USPTO encourages practitioners to use its forms, one cannot help interpret Network Signatures as making it almost impossible to challenge a petition to revive a patent.

'In re Rembrandt Technologies'

In In re Rembrandt Technologies, 2017-1784 (Fed. Cir. Aug. 15, 2018), the patent holder had filed a multitude of patent infringement actions. Those cases were consolidated and judgement was entered against the patent holder. Id. at *4.

The defendants asserted that the patent holder had committed inequitable conduct during the revival of two of the patents in suit. The patents were allowed to lapse because of a determination that their expected values did not justify paying maintenance fees. As in Network Solutions, after the deadline was missed, a third party expressed interested in the patents. The patent holder then filed a petition to revive, asserting each time “the delay in payment of the maintenance fee of this patent was unintentional.”  Id. at *6.

On appeal of a finding of inequitable conduct, the CAFC considered both the materiality and intentionality requirements. First, the CAFC asked whether the USPTO would have issued the patent had it known why the deadline for payment of the maintenance fee had been missed. Based on a statement in the Federal Register that abandonment is considered deliberate and not unintentional when an applicant allows a patent application to go abandoned because it believes that the invention lacks sufficient commercial value, the CAFC held that the materiality prong was satisfied. Id. at 28.

Second, the CAFC emphasized that the intent to deceive the USPTO must be the most relevant inference that one can draw from the evidence. Id. Here, there was evidence that the patent holder knew that the failure to pay the fee would result in a loss of patent rights, the patent holder made a cost-benefit analysis as to whether to maintain the patents, and witnesses who tried to establish a lack of intent lacked trustworthiness because they were involved in other deceptive conduct, including improper payments to witnesses and spoliation. Id.

In order to reconcile In re Rembrandt with Network Signatures, the CAFC emphasized that in the case before it the same people who were involved in filing the petition to revive were also involved in the other misconduct. Id. at 32. This basis for distinguishing Network Signatures is consistent with the CAFC's holding in Regeneron Pharmaceuticals v. Merus, 864 F.3d 1343 (Fed. Cir. 2017). In Regeneron, the CAFC affirmed a finding of inequitable conduct in which the intent prong was satisfied as an adverse inference based on conduct during litigation. Id. at 1357-64.  On May 25, 2018, Regeneron petitioned for certiorari and one would not be surprised if Rembrandt Technologies soon did the same, similarly challenging the degree to which inferences about intent during prosecution can be made from activities outside of prosecution.

Conclusion

Under the current rubric set forth in In re Rembrandt Technologies, it is possible to establish inequitable conduct when a patent holder improperly files a petition to revive an abandoned patent. However, although the materiality prong might be easily satisfied, satisfaction of the intent prong will require more than that the applicant mistakenly thought that the procedure was available for patent holders who realized new business realities.

This standard is inconsistent with the meaning of “unintentional,” and one should ask why the USPTO doesn't revise its form for revival to include the following statement: “The petitioner acknowledges that it knows that a decision not to pay a maintenance fee based on a belief that the invention lacks sufficient commercial value, even if based on a mistake of fact as to the commercial value, is not in part or in whole the basis of filing this petition.” Were a petitioner not able to make this statement, because for example, the decision was in part based on a mistake of fact as to the commercial value circumstances, the petitioner could elect not to use the form and then try to establish unintentionality based on specific facts that it would be compelled to present to the USPTO.

Scott D. Locke is a partner at Dorf & Nelson and chairs the intellectual property practice group.