Fed Circuit Excuses Late Payment of Maintenance Fee

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

The Federal Circuit issued an interesting decision this week in Network Signatures, Inc. v. State Farm Mut. Ins. Co., No. 2012-1492, that reversed a District Court’s finding of inequitable conduct based on a patentee’s late payment of a maintenance fee. The Court found that even though the patentee intentionally did not pay the maintenance fee, such a failure could be excused when the reason for not paying was based on an erroneous assumption that no one wanted to license the patent. Judge Newman wrote the opinion for the Court, joined by Judge Wallach. Judge Clevenger dissented.

Federal Circuit

Background

A scientist at the Naval Research Labs (NRL) obtained a patent relating to internet security. There did not appear to be any commercial interest in the patent, so NRL permitted the patent to lapse by not paying the 7.5-year maintenance fee. Unbeknownst to NRL, a company (Network Signatures) was interested in licensing the patent. The company attempted to contact NRL via phone and e-mail before the maintenance fee was due, but was unable to do so because NRL’s systems were not functioning properly. Network Signatures was finally able to reach NRL two weeks after the maintenance fee was due. At this point, NRL’s lawyer filed a petition with the PTO for delayed payment, asserting that the failure to pay was unintentional. The PTO granted the request, and NRL ultimately licensed the patent to Network Signatures.

Network Signatures sued State Farm for patent infringement. After discovery, State Farm moved for summary judgment on inequitable conduct, arguing that the failure to pay the maintenance fee was not unintentional. The District Court granted summary judgment, and Network Signatures appealed.

The Federal Circuit’s Decision

The Federal Circuit reversed. In doing so, it looked at the nature of the proceedings before the PTO. NRL’s lawyer submitted a standard form relating to late payments and checked a box indicating that the failure to pay was unintentional. The Court stated that “[w]e do not agree that this action constituted material misrepresentation with an intent to deceive.” The Court found no irregularities with NRL’s conduct after learning of Network Signatures’ desire to license the patent and that it was not improper to use the PTO’s forms (which did not require an explanation).

The dissent disagreed, and found that NRL intentionally allowed the patent to lapse. This was not the kind of unintentional delay that should be excused. While the dissent agreed with the District Court that State Farm had proven the first element of an inequitable conduct defense (material misrepresentation), the dissent found that the second element (specific intent to deceive) was a factual question that precluded summary judgment.

Conclusion

This is a rather odd decision. NRL clearly intended to allow its patent to lapse, but would not have done so but for a problem in communication. But, is this a “mistake of fact” that would excuse its abandonment? The majority failed to address the boundaries of the “mistake of fact” defense proffered by the patentee, and, instead, seems to have relied on the bare-bones nature of the PTO form used. This decision does not seem to provide much clarity as to what constitutes an “unintentional” abandonment of a patent.

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