In a landmark split decision, the Federal Circuit has issued an en banc decision that “tightens the standards” for finding inequitable conduct in patent litigation. In Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008–1511, –1512, –1513, –1514, –1595 (Fed. Cir. May 25, 2011), the court announced a more stringent standard for proving materiality of an undisclosed prior art reference, reiterated the standard for proving intent to deceive, and did away with the so-called “sliding scale” approach to weighing both factors. Chief Judge Rader delivered the opinion for the majority in this 6-1-4 split decision.
Inequitable conduct is a judge-made equitable defense derived from the common law doctrine of “unclean hands”—i.e., those who seek equity must come to court with clean hands. In short, inequitable conduct occurs when, during the course of prosecuting a patent application, the applicant or attorney makes a material misrepresentation to the PTO, or fails to disclose material information, with the intent to deceive the PTO. The two factors—materiality and intent to deceive – generally must be proved by clear and convincing evidence. If inequitable conduct is proved, the court may, in its discretion, declare unenforceable any or all claims of the patent-in-suit and even related patents in the same family.
But this defense has been vastly overused and abused, with some 80% of patent cases including an inequitable conduct charge. For years, the Federal Circuit has expressed its growing frustration with the deluge of weak and unfounded charges of inequitable conduct—claims that are “routinely brought on the slenderest of grounds”—characterizing it as an “absolute plague” on the patent system. In an effort to reign in the defense, the Federal Circuit took up Therasense for en banc review.
“But For” Materiality Required
In cases of omission (the non-disclosure of prior art), the court abandoned its long-established “important to a reasonable examiner” standard and eschewed the PTO’s materiality standard embodied in Rule 56 since 1992. Instead, the court adopted a narrower “but for” standard of materiality: an omitted reference is material “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” This determination is made in light of all the evidence before the examiner. This standard is far stricter than Rule 56, which states that prior art is “material” if, alone or in combination with other information, it presents a prima face case of unpatentability before consideration of any rebuttal evidence, or if it refutes or is inconsistent with the applicant’s position on patentability.
To be sure, this new standard will limit the scope of available prior art that may form the basis of an inequitable conduct charge. And, in so doing, the rule should make inequitable conduct claims less common, and successful claims rarer still. But for those cases in which the applicant withheld a potentially invalidating prior art reference, the court may have made materiality easier to prove. In determining materiality, “the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.” Op. 28. This is a significant departure from prior case law, which required proof of materiality by clear and convincing evidence. See, e.g., Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357 (Fed. Cir. 2008).
In cases of affirmative misconduct (such as filing a false affidavit), materiality is all but presumed. “When the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material…After all, a patentee is unlikely to go to great lengths to deceive the PTO with a falsehood unless it believes that the falsehood will affect issuance of the patent.” Op. 29 (citations omitted). This is generally consistent with prior precedent holding that a false affidavit “may be determined to be ‘inherently material.’” See, e.g., Digital Control Inc. v. The Charles Works, 438 F.3d 1309 (Fed. Cir. 2006).
Beyond “unmistakably false affidavits,” the decision sets a high bar for “affirmative acts of egregious misconduct.” The court’s lengthy review of the unclean hands cases that formed the basis of the inequitable conduct doctrine makes clear that “egregious misconduct” is in the nature of “perjury, the manufacture of false evidence, [or] the suppression of evidence” that is part of a “deliberately planned and carefully executed scheme to defraud” the PTO and the courts. Op. 18 – 19.
Specific Intent—Evidence of a “Deliberate Decision” Required
The court also reiterated the strict standard for finding intent: “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.” Op. 24. Obviously, intent to deceive is almost always proven by circumstantial evidence; no “smoking gun” or signed confession is required. The question is, when does the circumstantial evidence warrant a finding of intent? Consistent with past precedent, the Court held that intent to deceive must be the “single most reasonable inference able to be drawn from the evidence.” Op. 25 (quoting Star, 537 F.3d at 1366). Indeed, the Court seemed to go a step further in holding that intent to deceive must be the only reasonable inference. Op. 26 (“[W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.”).
No More “Sliding Scale”
Gone too is the so-called “sliding scale” of materiality and intent. Under the “sliding scale” approach, a defendant’s burden of production on the intent factor was lessened when the withheld art was highly material. The more material the art, the less you need for a showing of intent (and vice versa). Both factors still had to be proved by clear and convincing evidence, and materiality alone was (and still is) insufficient to infer intent. The court noted, however, that in practice, this approach weakened the showing needed to establish inequitable conduct. District courts misapplied the “sliding scale” approach, finding culpable “intent” based on something far short of clear and convincing evidence where the non-disclosed art was deemed highly material. The court has now clarified that “a court must weigh the evidence of intent to deceive independent of its analysis of materiality.” Op. 25.
But the two are not wholly independent, and materiality may continue to play a role in proving intent. Although the majority did not address the issue, Judge O’Malley stated that her concurrence was based on the understanding that “the majority does not hold that it is not impermissible for a court to consider the level of materiality as circumstantial evidence in its intent analysis.” The dissent also noted that it is appropriate to consider the degree of materiality as relevant to the issue of intent. So it would seem that evidence that a withheld reference was “killer” prior art is still grist for the mill when proving intent, and the principle of the “sliding scale” (if not the actual phrase) lives on.
The Concurrence and Dissent
Judge O’Malley penned a separate opinion, concurring in part and dissenting as to the “but for” materiality standard. She found the majority’s standard too inflexible for this equitable doctrine, but would add to it a catch-all: a court could find inequitable conduct where 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.”
The dissenters, led by Judge Bryson, would adhere to the materiality standard found in Rule 56. The dissent stressed that the PTO, in its amicus brief, favored the Rule 56 standard and opposed a “but for” standard. The dissent also noted that in other areas of law, courts have rejected “but for” materiality when assessing analogous claims of fraud, and have applied a standard closer to the “reasonable examiner” standard.
How far Therasense will go in mitigating the “plague” of inequitable conduct claims remains to be seen. Perhaps the most immediate effect will be felt by patent examiners. At least according to the majority, prosecuting attorneys should no longer feel the need to protect their livelihoods by disclosing reams of cumulative or irrelevant references for fear of being tagged with fraud. Of course, applicants and their attorneys are still bound by the broader materiality standard of Rule 56 and should continue to be guided by MPEP § 2004—in particular, the caution “When in doubt, disclose.” (The PTO, however, is considering the impact Therasense will have on agency practice and procedure, and will issue a guidance soon.)
Less clear is the impact Therasense will have on the district courts and litigants. How will Therasense mesh with the pleading requirements of FRCP 9(b) and Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1322 (Fed. Cir. 2009)? Will Therasense lead to fewer allegations of inequitable conduct overall, or will we see a shift towards tenuous claims of “unmistakably false” affidavits? Will district courts be emboldened by Therasense to act as gatekeeper at the pleadings stage, or will they let weak but plausible claims through even though based on the “slenderest of grounds”? If the claim survives a motion to dismiss, how will courts handle discovery that relates solely to inequitable conduct issues? Will the district courts more readily sanction defendants who assert meritless inequitable conduct claims?
And what about Microsoft v. i4i, currently pending before the Supreme Court? In i4i, the Supreme Court will decide whether invalidity must be proved by clear and convincing evidence, a preponderance of the evidence, or a combination of the two. Will Therasense, with its “preponderance” standard of materiality, conflict with the Supreme Court’s decision in i4i?
Finally, given the 6-1-4 split, the importance of the issue (as demonstrated by the number of amicus briefs), and the Supreme Court’s demonstrated fondness for patent cases, it would not be surprising to see a petition for certiorari filed and granted.