(1) While there may be some leeway in alerting the PTO of related litigation, such as here when validity was not (yet) an issue in the litigation, it’s still probably best practice to err on the side of caution. (2) Although the court did not say this flat out, a distributorship agreement with dormant “have made” rights probably constitutes a license under the meaning of 37 C.F.R. § 1.27 with respect to small entity status. However, there can be good faith errors in asserting entitlement to small entity status. Where, as in this case, you make that determination in good faith and there is no specific intent to deceive, underpayment of the fee can be remedied by payment of the deficiency, without eradication of the patent.
Background / Facts: The asserted infringement relates to two patents, the ’992 patent and its child, the ’104 patent. The district court held that Travel Caddy committed inequitable conduct by failing to notify the examiner of the ’104 application that the parent ’992 patent was in litigation. The district court also held that Travel Caddy had committed further inequitable conduct by improperly claiming small entity status and paying reduced PTO fees, and that this conduct rendered both the ’992 and ’104 patents permanently unenforceable.
Issue(s): (1) Whether the existence of the ’992 litigation was material to patentability of the ’104 application when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application. (2) Whether Travel Caddy’s claim for small entity status rises to the level of an intent to deceive when, although it met the small entity definition of having fewer than 500 employees, Travel Caddy’s commercial distribution arrangement with a large entity, Rooster Group, authorized Rooster to obtain the Travel Caddy products from other producers if Travel Caddy does not provide the products on the same terms, thereby making Rooster a large entity licensee and negating small entity status for the application.
Holding(s): (1) No. The lack of validity issues in the ’992 litigation during the pendency of the ‘104 application precludes a finding that the information withheld was “material” to the patentability of the claims in the ’104 application. Although a later challenge to the validity of the ’992 patent was surely possible, it did not then exist. (2) No. There was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees. It was not unreasonable for Travel Caddy to view the Rooster agreement as a distributorship of products made by Travel Caddy, with protection to Rooster to obtain alternative supply if Travel Caddy failed to provide the product. Where there is no evidence that small entity status was deliberately falsely claimed, a finding of unenforceability is inappropriate. Importantly, the regulations do not contemplate that an incorrect claim of small entity status, with no evidence of bad faith, is punishable by loss of the patent.