On May 25, 2011, a split en banc panel of the Federal Circuit laid down a new articulation of the standards for determining whether inequitable conduct had occurred in connection with a patent’s prosecution as a basis to render unenforceable an otherwise valid patent. In many respects, though the characterization of this defense remains “inequitable conduct,” the substance of the test and the burden of proof held to apply to the efficacy of the defense harkens back to the time when the phrase “fraud of the patent office,” was the operative characterization for such conduct. Although, as with all such sweeping decisions, the long term, practical impact of such rulings is often difficult to predict with any confidence, it is hard to resist drawing the conclusion that alleged infringers will regard the slope of the new defense and the burden that they must carry to be too steep to carry off successfully. If nothing else, the new test and its accompanying evidentiary burden will invite greater judicial scrutiny of the underlying merits of such proposed defenses where they are asserted. We proceed, briefly, to synopsize the salient features of the Court’s decision from which to draw the most immediate, practical observations.
A majority in Therasense, Inc. v. Becton, Dickinson and Co. heightened the standards for proving inequitable conduct by ruling: 1) materiality now requires that information withheld from the PTO must be of such a quality that the patent would not have issued but for the absence of the withheld information, and 2) the requisite intent now required to show inequitable conduct is clear and convincing evidence that the individual who is withholding the information did so knowing that the information was material to the newly articulated standard and yet deliberately decided to withhold it in order to deceive the PTO. The decision refused to tie materiality to the standard in PTO Rule 56  (which defines “materiality” much more broadly) and raises the intent requirement above a negligence or gross negligence threshold. The practical effect of these rulings is once again to elevate the burden of proof on the alleged infringer to show by clear and convincing evidence actions that amount, under most common law formulations, to fraud. These new formulations of standards will substantially affect the assertion of inequitable conduct defenses in litigation as well as moderate conduct of patent prosecutors during prosecution.
This decision will likely result in significantly fewer assertions of inequitable conduct defenses because of the heightened requirements and the obligations of Rule 11 of the Fed.R.Civ.P. The new requirement an accused infringer must prove that (i) “but for” the patentee’s withholding information from the PTO, the PTO would not have granted the patent and (ii) the applicant knew of the information, knew it was material, and made a deliberate decision to withhold it because it was material, both of which must be made by clear and convincing evidence, should restrict the pleading of this defense in only the most compelling circumstances. In addition, the Court posited an exception to the “but-for” rule that requires “affirmative acts of egregious misconduct,” which may include a patentee filing a false affidavit or lying to the examiner during prosecution. Only in the most remarkable case should these elements of proof be present.
No longer may an accused infringer rely on the strong materiality of withheld information to avoid burdens associated with proving by specific evidence that the patentee intended to deceive the PTO with respect to that withheld information. Many inequitable conduct defenses have been tried based on the patentee having had knowledge of a reference that could have been found to be material by the PTO, but this decision closes that door by requiring a showing of specific intent to deceive. This decision unmistakably thus delineates a standard that truly deserves the characterization “inequitable conduct” and will immunize inadvertent lapses of judgment from the draconian remedy of unenforceability for an otherwise valid patent.
The decision will also significantly impact patent prosecution. Because the majority rejected the broad, yet vague, definition of “materiality” in PTO Rule 56, applicants will now have a better sense of the type and relevance of information to disclose to the PTO and avoid inequitable conduct charges. For example, patent applicants may focus on disclosing relevant information to the PTO instead of disclosing all known potentially relevant information – a practice of some applicants in view of prior inequitable conduct jurisprudence. The PTO may also enjoy a reduced burden in considering a large amount of “potentially relevant” information, resulting in a better opportunity for the PTO to reduce the current backlog of patent applications waiting for examination. Nevertheless, PTO Rule 56 will continue to govern applicants during patent procurement. Failure to comply with Rule 56 may risk adverse consequences administered by the PTO.
There is nothing really new in the lesson to prosecutors to play fair and be candid in examination. The decision only reinforces the ageless lesson to tell the truth and not to mislead.
By its own description, the Federal Circuit sought in this decision to “strike a necessary balance between encouraging honesty before the PTO and prevent unfounded accusations of inequitable conduct.” If the Therasense standard in fact strikes that balance, it will ultimately prove to be beneficial to patent applicants through greater efficiencies experienced during prosecution of patent applications and better certainty as to the value of issued patents.
We will continue to monitor developments in this important and heretofore uncertain area of law.