United States: Smarmy Behavior Not Enough For Walker Process Fraud

Decision: Xitronix Corp. v. KLA-Tencor Corp., No. A-14-CA-01113-SS, 2016 WL 7626575 (W.D. Tex. Aug. 26, 2016), aff'd Rule 36, No. 16-2746 (Fed. Cir. May 23, 2019)

Background:  Xitronix filed a Walker Process antitrust claim in the Western District of Texas, alleging that KLA-Tencor ("KLA") fraudulently prosecuted a patent. In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that "the enforcement of a patent procured by fraud on the Patent Office" may expose the patent holder to antitrust liability. To succeed on such a claim, a plaintiff must show (1) that the defendant obtained the patent in question by knowingly and willfully committing a fraud on the U.S. Patent and Trademark Office (USPTO) and (2) "all the elements otherwise necessary to establish" an underlying antitrust violation. Federal courts clarified that the first element includes either an affirmative false representation or a deliberate omission and "but for" causation.

Here, Xitronix alleged that KLA fraudulently obtained its U.S. Patent No. 8,817,260, proffering two theories of fraud on the USPTO—affirmative misrepresentation and deliberate omission. Both theories were based on a previous lawsuit between the same parties that invalidated KLA's U.S. Patent No. 7,362,441, which was the grandparent of the '260 patent.

In that first lawsuit, Xitronix sought a declaratory judgement of non-infringement of the '441 patent, in response to cease and desist letters from KLA. At trial, the jury found that Xitronix, indeed, infringed one claim of the '441 patent, but also found that all of the asserted claims were invalid as anticipated by prior art and as obvious. Post-trial, the court ordered the parties to brief whether the asserted claims were indefinite and additionally held that the claims were indefinite and invalid. KLA did not appeal.

Soon after final judgment was entered in the '441 patent litigation, in KLA's continuation application that matured into the '260 patent, KLA's patent attorney submitted a Request for a Continued Examination (RCE) and an Information Disclosure Statement (IDS). The IDS contained only five references—one of which was the executed final judgment Order from the '441 patent.

A new examiner was then appointed in the '260 patent application; the examiner initialed the IDS indicating that the Order from the '441 patent was "considered." In an Office Action, the examiner rejected the claims as obvious over cited prior art and issued an indefiniteness rejection for the term "optimize" and instead, interpreted the term as "maximize." In response, KLA's attorney amended "optimize" to "maximize," and traversed the obviousness rejection with arguments. The examiner accepted the amendment, and accepted the arguments that the prior art did not teach the range recited in claim 6 and 7 of "360 to 410 nm wavelength." The '260 patent issued.

What actions or omissions constitute material fraud sufficient for a Walker Process claim?

How can "but for" causation to trigger Walker Process fraud be established?


A. The District Court's Analysis

Xitronix filed its Walker Process complaint in the Western District of Texas, alleging the prosecuting attorney committed fraud on the USPTO during the prosecution of the '260 patent. Xitronix asserted that claims in the now-issued '260 patent were "essentially identical to the invalidated patent claims of the '441 Patent" and that the prosecuting attorney did not properly apprise the examiner of the relationship between '441 patent Order and the '260 patent.

That is, Xitronix argued that the attorney affirmatively misrepresented the state of the prior art to the examiner. According to Xitronix, the attorney's arguments that the prior art did not teach recited wavelength range constituted fraud because such characterization of the prior art was contradicted by the final judgment in the '441 patent, which invalidated similar claims in the '441 patent for obviousness. Xitronix also argued that using the term "maximize" was an affirmative misrepresentation since that term was found indefinite in a similar claim in the '441 patent.

Further, Xitronix asserted that the prosecuting attorney deliberately omitted material facts by (1) not expressly disclosing to the USPTO that KLA did not appeal the final judgement of the '441 patent, and (2) failing to affirmatively explain the ramifications of the '441 patent judgment in view of the then-pending '260 application claims.    

The district court was unpersuaded by Xitronix's arguments, concluding that Xitronix failed to show both that KLA made either fraudulent representations or omissions and that the '260 patent would not have issued "but for" the alleged fraud. Accordingly, the court granted KLA's motion for summary judgment and dismissed the Walker Process claims.

Specifically, the district court characterized the prosecuting attorney's statements regarding the prior art as proper attorney argument rather than fraudulent factual misrepresentations. Recognizing that the prior art was disclosed in full to the examiner, the district court noted the examiner was free to reach his own conclusions and either accept or reject the prosecuting attorney's arguments. For example, that the examiner initialed the IDS with the final judgment indicating that he "considered" the Order in the '441 patent.

The district court quickly rejected the contention that KLA had to disclose that it did not appeal. The district court was similarly unpersuaded by the proposition that KLA must explain the effect of the '441 patent's final judgment in its then-pending '260 patent application. Here, the district court recognized that the USPTO possessed the final judgment and as such, it was able to consider the judgment and any effects it may have. The court reiterated the signed IDS. The district court concluded that the USPTO was capable of, and in fact had, reached its own decision regarding patentability.

Lastly, the district court examined the "but for" causation. Even assuming the prosecuting attorney's actions (or inactions) constituted an affirmative misrepresentation or deliberate omission, the court found there was no evidence that the '260 patent would not issue given that the final judgment was fully disclosed to the USPTO with ample time for consideration.

B. The Federal Circuit Oral Argument

In a Rule 36 affirmance, a panel consisting of Judges Moore, Mayer, and Hughes affirmed the district court's dismissal of the Walker Process claim.

Xitronix's deliberate omission argument was a non-starter for the Federal Circuit. Citing M.P.E.P. § 2001.06, Xitronix argued that KLA had the burden to inform the examiner of the appeal status of the '441 patent. The panel pushed back, first noting that the M.P.E.P. is not a binding source of authority, and further questioning how such a requirement would effectively work. 

The panel seemed similarly unpersuaded by Xitronix's "but for" argument, citing that the '441 patent decision, with all its detailed reasoning, was submitted to the USPTO in an IDS. Since the IDS contained only five references and was initialed by the examiner, the panel noted that it had been considered by the examiner.

In view of that consideration, the examiner may have erred in allowing the claims but that does not amount to Walker Process fraud. Similarly, the panel indicated that notifying the examiner that an appeal had not been sought would not have prevented the claims from being allowed.

Although the prosecuting attorney did not commit Walker Process fraud, Judge Moore did not approve of the actions. She stated that allowing the examiner to assume the wrong course of action knowingly was "smarmy," and colorfully stated that she would have grounded her children for the same. 

Overall, Walker Process fraud requires a high standard. The panel noted that if Xitronix challenged the '206 patent in a different forum, it may have had more success in its invalidation efforts.

Prosecution Takeaway:

From the district decision, Judge Sparks articulated the prosecution takeaway: "The law prohibits a prosecuting attorney from misrepresenting material facts; it does not prevent an attorney from making arguments in favor of patentability." At oral argument, the Federal Circuit confirmed that takeaway.

Notably, however, Judge Moore cautioned patent prosecutors from leading an examiner down the wrong path knowingly because it could make them less trustworthy. Additionally, leading an examiner down the wrong path, like the prosecuting attorney allegedly did in Xitronix, may not amount to a Walker Process violation in the absence of materiality and deliberate intent to deceive

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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