On Wednesday, the Federal Circuit, sitting en banc, substantially raised the bar for proving inequitable conduct in patent cases with its much-anticipated decision in Therasense, Inc. v. Becton, Dickinson and Co., Nova Biomedical Corp. and Bayer Healthcare LLC. As a result, the Court vacated and remanded a decision finding Abbott Laboratories’ patent for blood glucose test strips unenforceable for inequitable conduct. Writing for a 6-1-4 majority, Chief Judge Randall Rader signaled early in the decision that the Court was determined to stop the “plague of inequitable conduct” that has become an increasing aggravation for patent prosecutors and litigators alike:
While 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.
The Court reasoned that inequitable conduct must be returned to its roots in a trio of Supreme Court cases that applied the doctrine of unclean hands to dismiss patent cases involving truly egregious, outcome-determinative misconduct in the procurement of patents, such as falsifying affidavits and manufacturing and suppressing evidence regarding prior uses of an invention, the effectiveness of an invention, and an invention’s date of conception. The Court’s decision both provides more certainty regarding the intent element of inequitable conduct, and raises the bar for the materiality element of inequitable conduct to a level that the dissent argues virtually abolishes the inequitable conduct defense. The Court also specifically eliminates the sliding scale analysis previously used to weigh the intent and materiality elements of inequitable conduct.
“Knowing and Deliberate Standard" for Intent to Deceive. First, the majority and the dissent agreed that specific intent is required. An alleged infringer must show, by clear and convincing evidence, that the patentee “made a deliberate decision” to withhold a known material reference from the PTO. That is, there must be clear and convincing evidence that an “applicant knew of a reference, knew that it was material, and made a deliberate decision to withhold it.” What an applicant “should have known” is irrelevant, as is an allegation of negligence or gross negligence. The Court referred to this as “the knowing and deliberate standard.” The Court, including the dissent, also made clear that “[i]intent and materiality are separate requirements.” These two elements can no longer be evaluated on a sliding scale and intent cannot merely be inferred from materiality.
Recognizing, however, that direct evidence of intent to deceive is rare, the Court held that intent may still be inferred from indirect and circumstantial evidence, but only if it is “the single most reasonable inference able to be drawn from the evidence.” Thus, “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” Nonetheless, as the dissent recognizes, and consistent with earlier case law, the materiality of a reference can still be a factor in determining intent.
“But-For Materiality.” The majority and the dissent parted ways on materiality. The majority significantly raised the bar by rejecting the many conflicting materiality standards, including the “reasonable examiner” standard, developed over the last thirty years in favor of a “but-for materiality” standard. Under this standard, undisclosed prior art is “but-for material if the PTO would not have allowed a claim had it been aware of” that art. (This is precisely the standard advocated by the authors of this article in the amicus brief they filed on behalf of the Boston Patent Law Association.)
The dissent, on the other hand, found the “but-for materiality” standard to be too rigid and out of step with the flexibility inherent in the doctrine’s equitable roots. It championed the much broader definition of materiality in 37 CFR § 1.56, which sets out the duty of disclosure for applicants before the PTO. The dissent complained that the narrow “but-for materiality” standard will effectively eliminate inequitable conduct claims because it gives practitioners little to no incentive to comply with the obligations of Rule 56 by adequately disclosing references to the PTO. The majority on the other hand, viewed Rule 56 as too broad and was skeptical about tying materiality to PTO rules “which understandably change from time to time,” thus leading to uncertainty. In this way, the battle between the majority and the dissent turns on differing views about how much deference to afford to the PTO.
It is important to remember, though, that materiality is measured from the standpoint of the PTO. That is, courts must assess materiality under a “preponderance of the evidence” standard and give claims their broadest reasonable interpretation. Accordingly, it is possible that a district court could find that a reference would have been material to the PTO because it would have invalidated the patent giving the claims their broadest reasonable interpretation, but still find the patent valid after having construed the patent’s claims with more particularity.
The Court also carved out an exception to the “but-for” standard for egregious, affirmative misconduct that would not have caused the PTO to deny a patent. This exception contemplates the sort of conduct that rose to the level of unclean hands in the foundational Supreme Court cases, such as filing an unmistakably false affidavit to support patentability. In such situations, “but-for materiality” need not be proven. The Court took pains to limit this exception, though, by stating that “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.”
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While the strong positions taken by the majority and dissent with respect to materiality could lead to review by the Supreme Court, because inequitable conduct is neithera statutory doctrine nor the subject of Supreme Court precedent, the Supreme Court may pass on granting certiorari here. Regardless, the stricter intent and materiality standards, combined with the heightened pleading standards set forth in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009), should make litigators at least a bit more cautious about alleging inequitable conduct. Those accused of inequitable conduct will now have more fodder for moving to dismiss or seeking summary judgment in light of Therasense.
Prosecutors may wish to re-evaluate current practices for citing references to the PTO. Many applicants have taken to filing Information Disclosure Statements citing numerous references, many of which are at best marginally relevant; Therasense may allow for such policies to be revised. We suggest working with counsel to determine the most appropriate way to approach these decisions.
To read the Federal Circuit's Decision in Therasense, Inc. v. Becton, Dickinson and Co., Nova Biomedical Corp. and Bayer Healthcare LLC, click here.