On May 25, 2011, the Federal Circuit issued its long-awaited en banc decision in Therasense, Inc. v. Becton, Dickinson & Co. After a panel affirmed the district court's finding of inequitable conduct, the court agreed to rehear the appeal en banc in order to revisit the law of inequitable conduct. The court’s decision "tightens the standards" for proving inequitable conduct, holding that evidence of "intent" must be considered independently from materiality, and that materiality generally must be proven by a "but-for" test, except in cases of "affirmative egregious misconduct."
The court issued three decisions: (1) the opinion of the court, filed by Chief Judge Rader and joined by Judges Newman, Lourie, Linn, Moore and Reyna in full, and O’Malley in Part V; (2) an opinion by Judge O’Malley, concurring-in-part and dissenting-in-part and (3) a dissenting opinion by Judge Bryson, joined by Judges Gajarsa, Dyk and Prost.
The Court's Decision
The first question of the en banc order asked:
Should the materiality-intent-balancing framework for inequitable conduct be modified or replaced?
Writing for the court, Chief Judge Rader answers that question with a resounding "Yes!"
Judge Rader notes that although the balancing framework originally was "embraced" to "foster full disclosure to the PTO," because it was “left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system." Accordingly, the court decides to "tighten the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public."
Independent Consideration of Intent
(The intent requirement is discussed in section V of the court’s opinion, which is joined by Judge O’Malley.)
The fourth question of the en banc order related to intent:
Under what circumstances is it proper to infer intent from materiality?
The Federal Circuit decision answers that question with a firm "Never!"
The majority opinion states that, in order "[t]o prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO." In the case of non-disclosure, "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."
The Federal Circuit emphasizes that intent and materiality are separate requirements, and expressly disapproves the use of a "sliding scale" where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa. Rather, "a [district] court must weigh the evidence of intent to deceive independent of its analysis of materiality." The Federal Circuit explains that even "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."
The Federal Circuit acknowledges that direct evidence of deceptive intent is rare, and reaffirms the principle that "a district court may infer intent from indirect and circumstantial evidence." But, the court clarifies that, in order "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.'" Thus:
[W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.
But-For Materiality vs. PTO Rule 56
The Federal Circuit expressly refuses to "adopt the definition of materiality in PTO Rule 56." Instead, the court adjusts the standard for materiality through adoption of a "but-for" materiality test:
[P]rior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.
A court assessing materiality therefore "must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference," applying "the preponderance of the evidence standard and giv[ing] claims their broadest reasonable construction," as the PTO would have.
Affirmative Egregious Misconduct
The Federal Circuit also recognizes the ability to find inequitable conduct based on "affirmative egregious misconduct," even if but-for materiality cannot be proved. The opinion draws on examples from Supreme Court precedent, such as "the filing of an unmistakably false affidavit" and "the intentional omission of declarant’s employment with inventor’s company."
The Patents At Issue
Having "tightened the standards" for inequitable conduct, the Federal Circuit found that the district court’s inequitable conduct finding was based on both an improper materiality finding (because it had been assessed in terms of Rule 56) and an improper intent finding (because it had been based on the absence of a good faith explanation, not the "knowing and deliberate standard set forth in this opinion"). The Federal Circuit therefore vacated and remanded the decision.
Judge O’Malley’s Opinion
Judge O’Malley concurred with the majority decision on intent, but dissented from the majority decision on materiality. In particular, she believes that "both the majority and dissent strain too hard to impose hard and fast rules," while she believes that inequitable conduct "requires judicial consideration of shades of gray."
Jude O’Malley proposes the following guideposts for assessing materiality:
- but for the conduct . . . the patent would not have issued;
- the conduct constitutes a false or misleading representation of fact; or
- the district court finds that the behavior is so offensive that the court is left with a firm conviction that the integrity of the PTO process as to the application at issue was wholly undermined.
Judge O’Malley would have upheld the district court’s materiality finding under her test.
Judge Bryson’s Dissenting Opinion
Judge Bryson’s dissenting opinion was joined by Judges Gajarsa, Dyk and Prost. Although Judge Bryson appears to agree in principle with much of the court’s explication of the intent requirement, he would have affirmed the district court’s finding of intent on the record here.
More significantly, the dissent would have adopted Rule 56 as the measure of materiality. In particular, the dissent believes that "the PTO is the best judge of what information its examiners need to conduct effective examinations," and so "the PTO’s definition of materiality is entitled to deference in determining whether the failure to disclose particular information . . . constitutes inequitable conduct."
The Federal Circuit decision expressly “tightens the standards” for proving inequitable conduct, but what will it mean in practice?
Adoption of the "but-for" test for materiality may have practitioners reassessing their information disclosure statement (IDS) policies, and may relieve at least some of the administrative burdens associated with IDS filings. Indeed, as I wrote previously, the decision may help solve the McKesson problem. I hope the PTO acts quickly to revise its rules and guidance, such as revising Rule 56 and related provisions of the MPEP.
Additionally, the court’s refinement of the "intent" requirement may have litigators reassessing whether inequitable conduct claims can be brought or maintained, depending on the availability of direct or circumstantial evidence of a "knowing and deliberate" intent to deceive.
All in all, it is likely that the ramifications of this decision will be far-reaching, but it remains to be seen whether the changes will solve the perceived problems associated with practitioners "disclosing too much prior art of marginal relevance" and "patent litigators . . . charg[ing] inequitable conduct in nearly every case as a litigation strategy."