STC.UNM v. Intel Corporation
OBJECTIONS to 140 Report and Recommendations, filed by STC. UNM. Related document: 140 REPORT AND RECOMMENDATIONS re 45 MOTION to Dismiss Intel's Amended Counterclaim and Strike Intel's Affirmative Defense for Unenforceability filed by STC. UNMREPORT AND RECOMMENDATIONS re 45 MOTION to Dismiss Intel's Amended Counterclaim and Strike Intel's Affirmative Defense for Unenforceability filed by STC. UNM.(Pedersen, Steven)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
LAS CRUCES DIVISION
Civil No. 1:10-cv-01077-RB-WDS
STC'S OBJECTIONS TO THE
MAGISTRATE JUDGE'S REPORT AND RECOMMENDATIONS ON
STC'S MOTION TO DISMISS INTEL'S AMENDED COUNTERCLAIM AND
TO STRIKE INTEL'S AFFIRMATIVE DEFENSE FOR UNENFORCEABILITY
STC objects to the Magistrate’s Report and Recommendations (the “Report”) [Doc. 140] for
the following reasons:
The Report failed to apply new, game-changing precedent issued from the Federal Circuit
Court of Appeals in an en banc decision. As a consequence, the Report did not analyze the
issues before it under the correct rule of law.
The Report failed to even begin to analyze the amended counterclaim under the proper butfor materiality test set forth by the Federal Circuit Court of Appeals [Report, at 6].
The Report improperly shifted the burden to STC to fill in sufficient allegations to support
Intel’s counterclaim. Id.
The Report erroneously failed to dismiss one of Intel’s allegations that Intel formally
withdrew in its supplemental brief. [Report, at 4-5 (FN3)].
For the reasons discussed below, STC respectfully requests that the Report be rejected in toto.
The instant motion spans several generations of briefing, a dramatic change in the law, and
shifting allegations from Intel. STC originally filed a motion to dismiss Intel’s third counterclaim
because the allegations did not establish the materiality required to plead inequitable conduct.
See Doc. No. 28. Intel responded by filing an amended counterclaim, essentially admitting that
its original allegations were indeed deficient. See Doc. No. 38.
During the pendency of STC’s renewed motion to dismiss (Doc. No. 45), the Federal Circuit
Court of Appeals1 issued an en banc decision that changed the law regarding the materiality
prong of inequitable conduct by substantially tightening the requirements needed to establish a
claim of this type which concerns committing a fraud on the Patent Office. See Therasense, Inc.
v. Becton, Dickinson & Co., 2011 U.S. App. LEXIS 10590 (Fed. Cir. May 25, 2011). In
response, supplemental briefs were filed to bring the decision to the Court’s attention. See Doc.
Nos. 103 & 105.
In its supplemental brief, Intel formally withdrew one of the two bases of its inequitable
conduct allegations – alleging that prior art was withheld from the Patent Office. Doc. No. 103,
at 3-4. Further recognizing that the remainder of its inequitable conduct allegations were in
trouble, Intel narrowed the scope of its allegations, and for the first time, asserted that it is
alleging “unclean hands,” even though it is not part of its pleadings. Id.
II. Standard of Review
Under Rule 72(b), any part of a magistrate judge's Report that is objected to is reviewed de
novo and the district court may accept, reject, or modify the Report. In addition, the court may
receive further evidence or return the Report to the magistrate judge with instructions. Fed. R.
The Federal Circuit has exclusive jurisdiction over all appeals for patent actions.
Civ. P. 72(b)(3). Here, as will be shown below, the Report should be rejected because it failed to
apply newly established precedent and by failing to apply Fed. R. Civ. P. 9(b) which requires
Intel to plead each and every element of its accusation that STC committed fraud.
III. The Report Failed to Analyze the Issues Under Therasense
On May 25, 2011, during the pendency of the motion, the Federal Circuit issued an en banc
decision that dramatically changed, among other things, the standard for the materiality prong of
an inequitable conduct charge by making it more difficult to establish that the alleged
misconduct was material. The Federal Circuit heightened this standard to curtail the abuse of
pleading inequitable conduct in nearly every single patent case filed. The following quotes are
representative on the Federal Circuit’s motivation for changing the law:
'[T]he habit of charging inequitable conduct in almost every major patent case has
become an absolute plague' (Therasense, at *29. (citation omitted));
Inequitable conduct 'has been overplayed, is appearing in nearly every patent suit,
and is cluttering up the patent system' (Id. at *29 (citation omitted));
Because the [inequitable conduct] doctrine focuses on the moral turpitude of the
patentee with ruinous consequences for the reputation of his patent attorney, it
discourages settlement and deflects attention from the merits of validity and
infringement issues (Id., at *27); and
Inequitable conduct disputes also 'increas[e] the complexity, duration and cost of
patent infringement litigation that is already notorious for its complexity and high
In its supplemental brief, Intel acknowledged that the Federal Circuit adopted a new but-for
materiality standard. [Doc. 103, at 1]. Specifically, the Federal Circuit examined the materiality
prong of inequitable conduct in an effort to stem further the tide of such charges, and ultimately
held that “the materiality required to establish inequitable conduct is but-for materiality.”
Therasense, at *37. The Federal Circuit held that:
Because the district court found statements made in the EPO briefs material under
the PTO's Rule 56 materiality standard, not under the but-for materiality standard
set forth in this opinion, this court vacates the district court's findings of
Id. at 49-50.
The rejected standard was broader in scope and based upon 37 C.F.R. § 1.56. Under this
standard, materiality could simply be established by showing that “a reasonable examiner”
would have considered it important:
This court has also previously adopted a broad view of materiality, using a
"reasonable examiner" standard based on the PTO's 1977 amendment to Rule 56.
See Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed.
Cir. 1984); see also 37 C.F.R. § 1.56 (1977) (a reference is material if "there is a
substantial likelihood that a reasonable examiner would consider it important in
deciding whether to allow the application to issue as a patent").
The Report erred by failing to use the but-for standard. Instead, the Report adopted the now
rejected 37 C.F.R. § 1.56 “reasonable examiner” standard, as demonstrated by the Report’s
citation to a 2006 Federal Circuit opinion as supporting authority for the materiality standard to
be used in deciding the motion:
At a minimum, “material” information is information that (1) “establishes, by
itself or in combination with other information, a prima facie case of
unpatentability of a claim,” or (2) “refutes, or is inconsistent with, a position the
applicant takes” in either asserting patentability or opposing an argument of
unpatentability. 37 C.F.R. § 1.56(b). More broadly, “material information”
includes all information that a “reasonable examiner” would consider to be
important to the prosecution of the patent. See Digital Control Inc. v. Charles
Machine Works, 437 F.3d 1309, 1315-1316 (Fed. Cir. 2006).
Report [Doc. 140], at 2-3. Because the Report used the wrong standard to analyze the issue of
materiality, it should be rejected.
IV. The Report Shifted the Burden to STC to Fill in Intel’s Missing Allegations
Moreover, the Report failed to recognize that under Fed. R. Civ. P. 9(b), it is Intel’s burden
to plead each and every element of its inequitable conduct claim, including the materiality of the
alleged misconduct. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1328-29 (Fed.
Cir. 2009). Yet, as the Report acknowledges, it “was prevented” from “even starting” a
materiality analysis of the alleged misconduct due to a lack of facts:
Furthermore, the Court is not aware of what was known, or not revealed, to the
patent examiner when he issued the certificate of correction. These factual issues
prevent the Court from even starting the materiality analysis desired by STC. In
the Court’s opinion the motion to dismiss is not well taken and should be denied
Report, at 6.
That Intel failed to plead sufficient facts even under the more liberal “reasonable examiner”
standard to establish the materiality of the alleged fraudulent acts – an essential element of its
fraud accusation – requires dismissal under Fed. R. Civ. P. 12(b)(6). See, e.g., Spry v. Phillips,
2000 U.S. Dist. LEXIS 10764 at *8 (D. Neb. July 31, 2000) ("Dismissal is the exception rather
than the rule; it occurs 'only in the "unusual case" where the complaint on its face reveals some
insuperable bar to relief,' such as a missing allegation about an element necessary to obtain
relief"). Indeed, courts applying the new law set forth in Therasense, have found that the “courts
must take an active role in examining the propriety of inequitable conduct claims, and without
incorporating allegations of the specific elements to be proven on the merits at the pleading
stage, albeit at a lower standard of plausibility at this initial juncture, courts cannot perform this
function.” Pfizer, Inc. v. Teva Pharms. USA, Inc., 2011 U.S. Dist. LEXIS 90021, 54-59 (E.D. Va.
Aug. 12, 2011) (citations omitted). Accordingly, STC requests that this Court follow the Federal
Circuit’s lead and dismiss the fraud claim as any amendment would be futile as will be shown
below. See Zapata v. Brandenburg, 2009 U.S. Dist. LEXIS 7822, 1-2 (D.N.M. Jan. 3, 2009).
V. Intel’s Allegations Cannot Survive Under the But-For Materiality Standard
Under the new heightened “but-for” standard, Intel must establish that “but-for” the alleged
fraudulent acts, the certificate of correction would not have been issued. To assist in resolving
this issue, an understanding of what STC added to the ‘998 patent by the certificate of correction
and how certificates of correction are processed by the Patent Office is helpful.
The certificate of correction STC obtained added language to the ‘998 patent indicating that it
is a continuation-in-part (CIP) of the earlier filed ‘321 patent. The language added reads as
This application is a continuation-in-part of U.S. Patent Application No.
8/490,101 filed June 6, 1995, which has matured into U.S. Patent No. 5,705,321,
which is a continuation of U.S. Patent Application No. 08/123,543 filed
September 20, 1993 and now abandoned.
The certificate did not back date the ‘998 patent. As the Federal Circuit has explained, CIP
patents are a mixed bag of priority dates and determining what date applies is a complicated
process that the PTO does not normally undertake, even when conducting a substantive
examination of a patent application:
Determining the effective filing date each claim in a CIP application is entitled to
can be quite complex. Since CIPs generally add new matter, the claims may be
fully supported by the parent application or they may rely on the new matter for
support. See Michael J. Meurer & Craig Allen Nard, Invention, Refinement and
Patent Claim Scope: A New Perspective on the Doctrine of Equivalents, 93 Geo.
L.J. 1947, 2012 n.24 (2005) (noting "[u]nder the new matter doctrine, revisions to
the written description that occur after an application is filed may jeopardize the
priority date derived from that application"). In fact, a CIP could contain different
claims entitled to receive different effective filing dates in the same patent. There
would be no reason for the PTO to undertake what could be a very time
consuming written description analysis simply to pronounce the effective filing
date of each claim, absent some dispute over it during prosecution.
PowerOasis, Inc. v. T-Mobile USA, Inc., 522 F.3d 1299, 1305 (Fed. Cir. 2008).
Moreover, the Federal Circuit stated in PowerOasis that for a patent claiming CIP status back
to a parent application, the patent owner bears the burden of establishing that the CIP (child) is
entitled to the earlier filing date of its parent patent. Id. at 1306. Thus, the language include by
the certificate of correction did not result in a back dating of the ‘998 patent. Indeed, this
separate issue is included in one of Intel’s other ten defenses that are part of its amended
counterclaim. See Amended Ans., (Doc. 38], at 2 (listing lack of written description).
The Manual of Patent Examination Procedure (MPEP) sets forth how a certificate of
correction is reviewed. For the general steps to be followed by the Patent Office, MPEP § 1485,
entitled Handling of Request for Certificates of Correction, states as follows:
Otherwise, determination as to whether an error has been made, the responsibility
for the error, if any, and whether the error is of such a nature as to justify the
issuance of a Certificate of Correction will be made by the Certificate of
MPEP § 1485. As to certificates of correction seeking to include a claim of CIP status, MPEP §
1481.03, entitled, Correction of 35 U.S.C. 119 and 35 U.S.C. 120 Benefits, instructs, that for this
type of correction, the following is be reviewed:
For all situations other than where priority is based upon 35 U.S.C. 365(c), the
conditions are as follows:
(A) for 35 U.S.C. 120 priority, all requirements set forth in 37 CFR 1.78(a)(1)2
must have been met in the application which became the patent to be corrected;
(B) for 35 U.S.C. 119(e) priority, all requirements set forth in 37 CFR 1.78(a)(3)3
must have been met in the application which became the patent to be corrected;
37 CFR 1.78(a)(1) requires that the two patents share a common owner, inventor and that the
patents were co-pending at the same time.
This section does not apply since section 119 concerns priority claims to foreign filed patents.
(C) it must be clear from the record of the patent and the parent application(s) that
priority is appropriate. See MPEP § 201.1l for requirements under 35 U.S.C.
119(e) and 120.
MPEP § 1481.03.
As MPEP § 1481.03 instructs, the materials to be reviewed when processing a certificate of
correction that seeks to insert language claiming CIP status are the patent (the ‘998 patent) and
parent application (the ’321 patent). The relevant sections of the MPEP also make clear what
is not examined or determined. As shown, when a certificate of correction is processed, the prior
art is not evaluated, no priority date determination is made, and the file history is not examined.
It is against this backdrop that Intel’s claim of inequitable conduct must be examined.
Specifically, for the claim to survive, it must be established that the certificate of correction
would not have issued “but-for” the alleged fraudulent acts, which are as follows:
1. STC did not provide a copy of the file history to the Patent Office
2. STC did not disclose prior art
3. STC wrongly stated that the mistake to be corrected was “clerical”
See Amended Counterclaim [Doc 38], at ¶ 89; Supplemental Brief [Doc. 103], at 3.
A. STC’s Alleged Failure To Disclose The File History Was Immaterial
Intel’s asserts that STC purposefully kept the file history of the ‘998 patent from the Patent
Office in order to hide attorney argument that Intel alleges is contrary to STC’s claim that the
‘998 patent is entitled to the filing date of its parent, the ‘321 patent. This nonsensical argument
is akin to arguing that this Court can never grant a motion, unless the litigants attach the entire
ECF file as exhibits to the motion. Under the new heightened “but-for” requirement materiality,
this claim only survives if Intel can establish that the certificate of correction would not have
issued if STC had provided a copy of the file history to the Patent Office.
As indicated in the above-cited MPEP sections, a priority date determination is not
undertaken by the Patent Office when processing this type of correction. Thus, any attorney
argument contained in the file history touching on what priority date allegedly applies is
immaterial. See Leviton Mfg. Co. v. Universal Sec. Instruments, Inc., 304 F. Supp. 2d 726, 741
(D. Md. 2004) (In any event, the MPEP does not require the file wrapper to be examined prior to
issuance of a certificate of correction. Rather, MPEP section 1485 simply states that the
Certificate of Correction Branch will determine whether an error in a patent allows for the
issuance of a certificate of correction.). Thus, the information STC allegedly withheld cannot be
considered material, even if accepted as true, since it is not within the scope of information the
Patent Office even considers when processing a certificate of correction. Under Therasense,
Intel’s claim that STC fraudulently hid the file history and its contents from the Patent Office
cannot survive because the allegedly withheld information is immaterial to the certificate of
B. The ‘258 Patent Is Immaterial
The same reasoning applies to Intel’s claim concerning the ‘258 patent, which Intel claims is
invalidating prior art. Here, Intel must establish that the Patent Office would not have issued the
certificate of correction if STC had disclosed the ‘258 patent to it. Not true. As shown above, the
Patent Office does not perform a validity analysis when processing a certificate of correction.
This renders the ‘258 patent immaterial as it, too, is not information that would not even be
considered by the Patent Office when processing a certificate of correction, much less meet
Intel’s “but-for” burden of proof.
Nothing in Intel’s allegations regarding the certificate of correction constitutes a but-for
material misstatement or omission, that would have prevented the PTO from allowing the
certificate of correction had it been aware of the ‘258 patent.
C. STC’s Characterization of the Mistake as “Clerical” Does Not Support Intel’s Claim
Here, Intel claims that STC incorrectly described the mistake as “clerical,” and as a result, it
defrauded the Patent Office. Yet, again, “but-for” materiality cannot be established because the
type of mistake corrected by STC – amending the ‘998 patent to include language stating that it
was a CIP of the ‘321 patent – is indeed correctable by a certificate of correction. See In re
Lambrech, 202 USPQ 620 (Comm'r Pat. 1976 ) (“Omission of a reference to an earlier
application on which priority is based is a mistake 'of a minor character' which is correctable by
Certificate. ... Correction would not involve the addition of new matter, since the relation
between the several cases here involved is a matter of record.”).
The reason labels such as “clerical” or “minor” are even used is that this language tracks 35
USC § 255 which governs certificates of correction:
35 U.S.C. 255 Certificate of correction of applicant's mistake: Whenever a
mistake of a clerical or typographical nature, or of minor character, which was
not the fault of the Patent and Trademark Office, appears in a patent and a
showing has been made that such mistake occurred in good faith, the Director
may, upon payment of the required fee, issue a certificate of correction, if the
correction does not involve such changes in the patent as would constitute new
matter or would require reexamination. . . .
35 U.S.C. § 255 (emphasis added).
But again, no matter what label is applied, the certificate of correction process may indeed be
used to include a reference to a parent patent. See Adrain v. Hypertech, Inc., 2001 U.S. Dist.
LEXIS 19182, 8-9 (D. Utah Apr. 18, 2001) (“Adrain is correct in his contention that an inventor
may rectify "a mistake of a clerical or typographical nature, or of minor character" through PTO
issuance of a certification of correction, and an inventor may use the certificate of correction
process to correct his or her failure to make reference to prior patent applications. See MPEP §
1481; see also 37 C.F.R. 1.78(a)(1)”).
Even assuming that STC used the incorrect statutory label “clerical” instead of “minor” is not
the stuff of fraud on the Patent Office. The error STC sought to correct – the failure to include in
the ‘998 patent a sentence claiming that it is a CIP of the ‘321 patent – is indeed correctable by a
certificate of correction no matter how labeled, as established by MPEP § 1481, the Patent Office
through an opinion of a Commissioner, and a district court.
STC’s characterization of its mistake as the statutory modifier of “clerical” cannot be the butfor reason the Patent Office issued the Certificate of Correction. Just as this Court knows the
difference between a motion for summary judgment and motion to dismiss, the Patent Office
knows what a request for a certificate of correction is, and has procedures for granting and
denying such requests. STC’s request for the correction issued because it satisfied the statutory
and regulatory requirements established by the Patent Office, not because of labeling the mistake
with a modifying adjective that is derived from the controlling statutory language.
VI. Intel’s Eleventh-Hour Egregious Misconduct Claims are Futile
Recognizing it cannot prove but-for materiality, Intel has asked for a chance to re-plead a
new theory that alleges that STC engaged in “egregious misconduct.” See Doc 103, at 3. This
request should be rejected since it, too, is futile. See Zapata v. Brandenburg, 2009 U.S. Dist.
LEXIS 7822, 1-2 (D.N.M. Jan. 3, 2009).
The Federal Circuit cautioned that this exception to the but-for materiality requirement only
applies in extraordinary circumstances:
Accordingly, the general rule requiring but-for materiality provides clear guidance
to patent practitioners and courts, while the egregious misconduct exception gives
the test sufficient flexibility to capture extraordinary circumstances. Thus, not
only is this court's approach sensitive to varied facts and equitable considerations,
it is also consistent with the early unclean hands cases -- all of which dealt with
Therasense, at *41.
To provide guidance as to what constitutes egregious misconduct, the Therasense decision
provided a historical account of the evolution of the “judge-made doctrine” of inequitable
conduct, noting that the defense evolved from a trio of Supreme Court cases that applied the
doctrine of unclean hands to dismiss patent cases involving egregious misconduct. Therasense, at
*18. Specifically, the Federal Circuit noted that each of “the unclean hands cases before the
Supreme Court dealt with particularly egregious misconduct, including perjury, the manufacture
of false evidence, and the suppression of evidence. Moreover, they all involved “deliberately
planned and carefully executed scheme[s] to defraud" not only the PTO but also the courts.”
Therasense , at *23 (emphasis added) (citing Keystone Driller Co. v. General Excavator Co.,
290 U.S. 240, 243 (1933), Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 240
(1944), and Precision Instruments Manufacturing Co. v. Automotive Maintenance Machinery
Co., 324 U.S. 806, 816-20 (1945).
If anything, STC used the wrong term in describing the mistake a “clerical” instead of
“minor” since, as indicated above, using a certificate of correction to include language saying a
patent is a CIP of a parent application is considered by the Patent Office to be a “mistake of a
minor character.” See In re Lambrech, 202 USPQ 620 (Comm'r Pat. 1976).
Intel additionally argues that STC committed egregious misconduct because of an “ulterior
motive” in pursuing a certificate of correction, rather than a reissue patent. Doc. 103, at 3. The
truth once again lies in the statutes and rules regulating Patent Office procedure. As recognized
by Intel’s amended counterclaim, the Patent Office states that a certificate of correction or a
reissue are available options:
A Certificate of Correction is only appropriate under specific circumstances
narrowly described in the official statutes and rules governing PTO practice. In
order for this procedure to be available, “[t]he mistake must be: (1) of a clerical
nature; (2) of a typographical nature, or (3) a mistake of minor character.” MPEP
1481. “If the above criteria are not satisfied, then a Certificate of Correction for an
applicant’s mistake will not issue, and reissue must be employed as the vehicle to
‘correct’ the patent.”
Amended Counterclaim, ¶84. Accordingly, availing itself to one of two available procedures,
i.e., certificate of correction or reissue can hardly be viewed as egregious conduct. The MPEP
The second statutory requirement concerns the nature of the proposed correction.
The correction must not involve changes which would: (1) constitute new matter
or (2) require reexamination. . . . Usually, any mistake affecting claim scope
must be corrected by reissue. A mistake is not considered to be of the “minor”
character required for the issuance of a Certificate of Correction if the
requested change would materially affect the scope or meaning of the patent.
Doc. 58-1 (emphasis added). Since STC’s addition of language indicating that the ‘998 patent
was a CIP of the ‘321 patent did not affect its scope of patent coverage, i.e., it did not change the
claim language, STC was correct in availing itself to the procedures to request a certificate of
Moreover, Intel’s “ulterior motive” argument overlooks the reality that the procedure used by
STC is so ordinary, the Manual of Patent Examining Procedure has an entire section devoted to
issuing certificates of correction of the type obtained by STC. See Amended Counterclaim, ¶84,
and Doc. 58-1 (MPEP 1481.03, entitled “Correction of 35 U.S.C. 119 and 35 U.S.C. 120
Benefits”). In addition, the Commissioner of the Patent Office and a sister court of the district
have recognized the propriety of patentees seeking certificates of correction of the type obtained
by STC. See In re Lambrech, supra; Adrain v. Hypertech, Inc., supra.
In sum, STC’s election to seek a certificate of correction is squarely within the statutory
framework of the rules and regulations governing Patent Office procedure, and has been widely
recognized as being proper. Intel’s unpled “unclean” hands is totally lacking the recognized
hallmarks of an unclean hands defense, e.g., perjury, bribery, creation of evidence, or
suppression of evidence.
VII. Other Errors in the Report
Intel, in its supplemental brief, formally withdrew an aspect of its inequitable conduct
allegations regarding an article authored the inventors. Doc. 103, at 3-4. The Report concluded
that, based on its recommendation on the “correction issue” it need not reach the issue of the
Brueck/Zaidi article. [Report, at 4-5 (FN3)]. It was error to conclude it need not address the
separate allegation in the first instance, and it was error to not acknowledge the allegations were
VIII. Request for Oral Argument
Given the importance of the motion, STC respectfully requests oral argument.
Dated: September 8, 2011
Deron B. Knoner
KELEHER & MCLEOD, P.A.
201 Third Street NW, 12th Floor
PO Box AA
Albuquerque, New Mexico 87103
/s/ Steve Pedersen
Rolf O. Stadheim
Joseph A. Grear
George C. Summerfield
Keith A. Vogt
Steven R. Pedersen
STADHEIM & GREAR, LTD.
400 N. Michigan Ave., Ste. 2200
Chicago, Illinois 60611
Attorneys for Plaintiff STC.UNM
CERTIFICATE OF SERVICE
The undersigned certifies that on the 8th day of September, 2011 the foregoing was filed
electronically through the CM/ECF system, which caused all parties or counsel to be served by
/s/ Steven R. Pedersen
Steven R. Pedersen
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