Prosecutors Rejoice! Federal Circuit "Tightens the Standards" En Banc for Inequitable Conduct

Therasense, Inc. v. Becton, Dickinson and Company, No. 2008-1511 (May 25, 2011)

Therasense (now Abbott) obtained a patent from the USPTO after a 13-year prosecution history, where the application was repeatedly rejected over a prior Abbott patent.  At one point, Abbott submitted new claims in the application along with a declaration arguing distinctions between the new claims and the features disclosed the prior patent.  The tactic worked, and the application was allowed.

Several years earlier, Abbott was prosecuting the prior patent in the EPO and submitted briefs arguing the meaning of features, where the arguments were inconsistent with the declaration submitted in the later US patent.  The EPO briefs were not disclosed to the USPTO.  When this fact was brought up in litigation, Abbott's patent was declared unenforceable for inequitable conduct.  The Federal Circuit affirmed.

On en banc review, the Federal Circuit admitted that the "sliding scale" between intent and materiality "conflated and diluted" the doctrine of inequitable conduct.

Left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system. Because allegations of inequitable conduct are routinely brought on “the slenderest grounds,” . . .  patent prosecutors constantly confront the specter of inequitable conduct charges. With inequitable conduct casting the shadow of a hangman’s noose, it is unsurprising that patent prosecutors regularly bury PTO examiners with a deluge of prior art references, most of which have marginal value.

[W]hile honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.

With that, the court immediately dove into the "tightened" standard.

INTENT

To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO. . . . A finding that the misrepresentation or omission amounts to gross negligence or negligence under a “should have known” standard does not satisfy this intent requirement. . . . “In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference.” . . .  In other words, the accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.

Death of the "sliding scale":

A district court should not use a “sliding scale,” where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa. Moreover, a district court may not infer intent solely from materiality. Instead, a court must weigh the evidence of intent to deceive independent of its analysis of materiality. Proving that the applicant knew of a reference, should have known of its materiality, and decided not to submit it to the PTO does not prove specific intent to deceive. See Star, 537 F.3d at 1366 (“the fact that information.

Inferring intent:

Because direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence. . . . However, to meet the clear and convincing evidence standard, the specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.” . . . Indeed, the evidence “must be sufficient to require a finding of deceitful intent in the light of all the circumstances.” . . . Hence, when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.

[B]ecause the party alleging inequitable conduct bears the burden of proof, the “patentee need not offer any good faith explanation unless the accused infringer first . . . prove[s] a threshold level of intent to deceive by clear and convincing evidence.” . . . The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.

MATERIALITY

This court holds that, as a general matter, the materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art. Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference. In making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.

Rejection of PTO Rule 56 in the courts:

This court does not adopt the definition of materiality in PTO Rule 56. As an initial matter, this court is not bound by the definition of materiality in PTO rules.  . . . While this court respects the PTO’s knowledge in its area of expertise, the routine invocation of inequitable conduct in patent litigation has had adverse ramifications beyond its effect on the PTO.

The first prong of Rule 56 is overly broad because information is considered material even if the information would be rendered irrelevant in light of subsequent argument or explanation by the patentee. Under this standard, inequitable conduct could be found based on an applicant’s failure to disclose information that a patent examiner would readily agree was not relevant to the prosecution after considering the patentee’s argument. Likewise, the second prong of Rule 56 broadly encompasses anything that could be considered marginally relevant to patentability. If an applicant were to assert that his invention would have been non-obvious, for example, anything bearing any relation to obviousness could be found material under the second prong of Rule 56. Because Rule 56 sets such a low bar for materiality, adopting this standard would inevitably result in patent prosecutors continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy.

Conduct should not give "unfair benefit" to patentee:

Because inequitable conduct renders an entire patent (or even a patent family) unenforceable, as a general rule, this doctrine should only be applied in instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim. . . . After all, the patentee obtains no advantage from misconduct if the patent would have issued anyway. . . . Moreover, enforcement of an otherwise valid patent does not injure the public merely because of misconduct, lurking somewhere in patent prosecution, that was immaterial to the patent’s issuance.

The "egregious misconduct" exception:

Although but-for materiality generally must be proved to satisfy the materiality prong of inequitable conduct, this court recognizes an exception in cases of affirmative egregious misconduct [e.g., where patentee “deliberately planned and carefully executed scheme[s]” to defraud the PTO and the courts.] . . . Because neither mere nondisclosure of prior art references to the PTO nor failure to mention prior art references in an affidavit constitutes affirmative egregious misconduct, claims of inequitable conduct that are based on such omissions require proof of but-for materiality.

Read/download the opinion here (link)

Majority opinion: Rader, Newman, Lourie, Linn, Moore and Reyna
Dissenting: Bryson, Gajarsa, Dyk and Prost
Concurring in part, dissenting in part: O'Malley

DISSENT:

[T]he court has consistently held that the PTO’s Rule 56 sets the proper baseline for determining materiality, although there has been some variation in our decisions with regard to which version of the PTO’s rule applies in particular cases.

The appropriate cure for departures from the principles of inequitable conduct that were put in place at the time of Kingsdown would be to reaffirm those principles, as summarized above. The majority, however, has taken a far more radical approach. With respect to the issue of materiality, the majority has adopted a test that has no support in this court’s cases and is inconsistent with a long line of precedents dating back to the early years of this court. The effect of the majority’s new test, moreover, does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether.