Responding to views from the United States Patent and Trademark Office (PTO) and elsewhere about the unintended consequences of the current inequitable conduct doctrine, a divided en banc U.S. Court of Appeals for the Federal Circuit decision issued on May 25, 2011, which adjusted the materiality standard, making this defense harder to establish. Writing for the majority in Therasense, Inc. v. Becton, Dickinson & Co., 2011 U.S. App. LEXIS 10590 (Fed. Cir. May 25, 2011), Chief Judge Rader laments that the inequitable conduct doctrine had been overused to the detriment of the courts and “the entire patent system,” and that the harsh consequences of a finding of inequitable conduct — unenforceability of the entire patent or patent family — warrant a more sparing application of the doctrine. The Therasense court then holds: (1) “as a general matter, the materiality required to establish inequitable conduct is but-for materiality” where “prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art,” (2) an exception exists “in cases of affirmative egregious misconduct,” such as filing an unmistakably false affidavit, (3) “the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO,” that is, “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,” and (4) 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.”
Background of the Case
Inequitable conduct is an equitable defense to patent infringement that, if proved, bars patent enforcement. To prove inequitable conduct, the accused infringer must establish that: (1) the applicant misrepresented or omitted material information with the intent to deceive the PTO, and (2) weighing the equities, the applicant’s conduct warrants a finding of unenforceability. At issue in Therasense were representations by the patentee to the PTO about the meaning of a statement in a prior art patent that appeared inconsistent with arguments about that statement made to the European Patent Office (EPO).
The patent-in-suit involves test strips with electrochemical sensors to measure a blood sample glucose level. It claims a test strip for testing whole blood without a membrane over an electrode on the strip. During prosecution, the PTO repeatedly rejected the claims for anticipation and obviousness based on a prior art patent (also owned by the patentee) which disclosed a similar test strip, but referred to the use of a protective membrane “optionally, but preferably when being used on live blood.” Attempting to distinguish its invention, the patentee told the PTO, in both a declaration and amendment, that a person of ordinary skill in the art would understand the statement in the prior art as requiring a membrane for use with whole blood. Earlier, when prosecuting the European counterpart of the prior art patent, the patentee had argued that the same statement was “unequivocally clear” that the membrane is optional, and merely preferred, for live blood.
Following a bench trial, the district court held the patent unenforceable for inequitable conduct because the patentee did not disclose to the PTO the previous statements it had made to the EPO. A divided Federal Circuit panel affirmed the finding of unenforceability, which was then vacated for rehearing en banc.
Tightened Standard for Establishing Materiality and Intent
A six-judge majority of the en banc court adopted a “but-for” standard of materiality. Four judges dissented, and one judge concurred in the result but adopted a more flexible materiality standard.
A significant aspect of the Therasense decision is the court’s adoption of the heightened “but-for” standard for establishing materiality. Under this standard, prior art that an applicant fails to disclose to the PTO is only material if the PTO would not have allowed a claim had it been aware of that undisclosed prior art. Notably, the “but-for” standard is a higher bar for establishing materiality than the PTO’s regulations in 37 C.F.R. § 1.56 (Rule 56). By not adopting the Rule 56 standard, the majority reasoned that, because Rule 56 sets a low bar for materiality, adopting it as the standard would result in patent prosecutors continuing to disclose too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case. A district court applying the “but-for” standard must nonetheless evaluate patentability as the PTO would have: under a preponderance of the evidence standard, giving claim terms their broadest reasonable interpretation.
The court did provide an exception to this heightened “but-for” standard: “When the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.” Its rationale, in part, for accommodating this exception is that an applicant would not go to great lengths to deceive the PTO unless it believed this would affect issuance. Clarifying the exception, the opinion notes 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.” Thus, such omissions will require proof of but-for materiality.
The en banc opinion tightened the standard for establishing intent to deceive, clarifying that cases involving nondisclosure of information require specific intent to deceive. “In other words . . . that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it” must be shown. And while acknowledging that it may be necessary to infer specific intent from indirect and circumstantial evidence, the Federal Circuit emphasized that an intent to deceive the PTO must be the only reasonable inference that can be drawn from the totality of available evidence. That is, if there are multiple reasonable inferences that may be drawn, only one of which constitutes a specific intent to deceive, this will not satisfy the intent requirement for inequitable conduct.
No Sliding Scale
The court rejected use of a sliding scale approach to materiality and intent requirements for establishing inequitable conduct. Formerly, establishing a strong showing of materiality might compensate for a weak showing of intent to deceive—and vice versa. Emphasizing that these are two separate and unrelated requirements, the Federal Circuit reiterated that no matter how strong the evidence of materiality may be, a district court may not infer intent solely from materiality.
The tightened standards raise questions about tactics and proof that parties should marshal when litigating inequitable conduct, and how district courts will apply Therasense. For patentees fending off inequitable conduct allegations, one issue to watch is how Therasense will be applied at the pleading stage. Pre-Therasense, the Federal Circuit weeded out inequitable conduct allegations with a rigorous pleading standard emphasizing the factual underpinnings of the elements of the defense. Under that pleading standard, what will district courts require to plead but-for materiality, and, in particular, will patentees be able to successfully challenge, at the pleading stage, a substantively questionable but-for materiality case? Therasense requires that “the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference.” A district court’s analysis under this test often may require a substantive analysis of the patent-in-suit, its prosecution context, and an understanding of the teachings of the prior-art information at issue (as pled). Busy courts may not welcome the effort required to become confident that a materiality allegation is so lacking in possible merit as to warrant dismissing a claim of inequitable conduct at the pleading stage. At the merits stage, another issue to watch is the role expert opinions will play in determining what the PTO would have done with the undisclosed information.
Another issue is whether reexamination can provide helpful proof in establishing but-for materiality. A party asserting inequitable conduct in litigation could simultaneously seek reexamination based on the omitted information and, if a claim were rejected, argue that this should establish materiality for purposes of the litigation, even before the reexamination has concluded.
What conduct will qualify as “affirmative acts of egregious misconduct” under the but-for materiality requirement is another issue needing clarification. The majority gave one example of a qualifying act—filing of an unmistakably false affidavit—but provided no other guidance beyond incorporating elements of early Supreme Court “unclean hands” cases addressing “deliberately planned and carefully executed scheme[s]” to defraud the PTO and the courts.
What impact will Therasense have on patent prosecution? One Therasense-court concern was reducing the prosecutor’s incentive to “over disclose” information to the PTO, often without context or explication of relevance. Information routinely disclosed now may no longer qualify as material. Patent prosecutors and portfolio managers should review their disclosure guidelines and practices, including considering what role compliance with PTO Rule 56 and the PTO’s “Aids to Compliance With Duty of Disclosure” in the Manual of Patent Examining Procedure will play for information that is not but-for material. Analyzing complex references under the but-for material standard may exceed the cost to disclose them, and some will likely continue to err on the safe side. Paradoxically, Therasense may not disincentivize applicants from disclosing “harmless” information, but it may allow greater latitude in making good faith determinations that the information most relevant to an examiner nonetheless need not be disclosed because it is not but-for material, leaving examiners to find the closest prior art. Prudent practitioners will continue to disclose information the examiner should consider; for those practitioners, Therasense reduces chances of unfounded allegations of inequitable conduct.
Another consideration for those revisiting prosecution guidelines is to review duty of disclosure compliance near the time of closing of prosecution. Examiners’ and applicants’ arguments on patentability evolve during prosecution, and information deemed not but-for material early on may be viewed differently later. Litigants will probably fight hard over which acts fall under this new standard, making it an important issue for prosecutors and the courts.