Inequitable conduct is a defense to patent infringement derived from three Supreme Court cases that applied the “unclean hands” defense in patent cases involving egregious misconduct.1 Once reserved for extreme cases of fraud on the United States Patent and Trademark Office (“PTO”), studies now estimate that 4 out of every 5 patent infringement cases involve at least one allegation of inequitable conduct. The defense, if proven, renders a patent (or family of patents) unenforceable. To avoid the loss of all rights, wary patent prosecutors have flooded the PTO with prior art references, many only marginally relevant to the pending application. Cognizant of these problems, the Federal Circuit issued a landmark decision that seeks to defuse the so-called “atomic bomb” of patent law.
Therasense v. Becton
Therasense2 owns a patent for disposable blood glucose test strips (“the ‘551 patent”) for diabetes management. The strips (and system of use) work without an intervening membrane or whole blood filter. During prosecution of the ‘551 patent, Therasense argued that a prior art patent (also owned by Abbott) required an intervening membrane to filter whole blood and that language to the contrary was “mere patent phraseology.” During prosecution of the prior art patent in Europe, however, Abbott had argued the prior art patent did not require such a membrane and represented this feature as a significant advancement in the art.
Therasense sued Becton for infringement of the ‘551 patent. The District Court held the patent unenforceable for inequitable conduct because Abbott failed to disclose to the PTO its earlier, conflicting arguments to the European Patent Office. A Federal Circuit panel upheld the District Court’s decision, but Abbott convinced the Court to rehear the issue en banc.
The New Inequitable Conduct Standard
In a 6-1-4 decision, the Federal Circuit vacated the panel decision and set forth a new standard for inequitable conduct. Inequitable conduct requires a finding of both materiality and deceptive intent by clear and convincing evidence – the evidence must show the applicant misrepresented or omitted material information with the specific intent to deceive the PTO. The majority abandoned the “sliding scale” approach, which previously allowed a higher showing of materiality to substitute for a lesser showing of intent, and vice versa.3 If the accused infringer meets its burden, the district court must then “weigh the equities” to determine whether the applicant’s conduct warrants rendering the entire patent unenforceable.
A negligent or grossly negligent misrepresentation or omission does not amount to a specific intent to deceive the PTO. The accused infringer must prove “that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.” Although intent may be inferred from circumstantial evidence, specific intent to deceive must be the single most reasonable inference. The absence of a good faith explanation for withholding a material reference, in and of itself, does not prove deceptive intent.
The majority significantly heightened the standard for showing materiality of a reference. The new standard is “but for” materiality. Thus, a court must find that, “but for” the deception, the PTO would not have allowed the patent claim:
"[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. Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference. In making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction."4
The majority set forth one exception to the “but for” materiality standard. In cases involving affirmative, egregious misconduct, “but for” materiality need not be proven. The majority emphasized that inequitable conduct is an equitable doctrine, and held that (even if intent and materiality are proven) the “doctrine should only be applied in instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.”
Recognizing that “equity requires judicial consideration of shades of gray,” Judge O’Malley rejected the materiality tests proffered by both the majority and the dissent as too rigid.5 Judge O’Malley proposed finding conduct material where: (1) “but for” the conduct, the patent claim would not have issued; (2) the conduct constitutes a false or misleading representation of fact; or (3) 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.6 Moreover, Judge O’Malley proposed overruling those cases holding inequitable conduct renders all claims of the wrongly procured patent unenforceable and proposed allowing a district court to fashion a remedy “commensurate with the violation,”7 (for example, rendering fewer than all claims unenforceable or simply dismissing the case).8
Judge Bryson, joined by Judges Gajarsa, Dyk and Prost, dissented. Instead of the “but for” materiality standard adopted by the majority, the dissent argued that the materiality standard should be Rule 56 (37 C.F.R. § 1.56). According to the dissent, the majority’s new higher standard will not provide adequate incentives for applicants to comply with the PTO disclosure obligations.
The dissent argued that both the Supreme Court and the PTO have rejected the majority’s “but for” test as too restrictive and inconsistent with Applicant’s duty to disclose under Rule 56 (37 C.F.R. § 1.56).
In view of this inconsistency, it is important for Applicant to continue to comply with its duty under Rule 56 while the law and its consequences become more settled. From a public policy perspective, the majority’s new standard may adversely limit prior art disclosed to the PTO, subjecting the public to economic consequences of patent monopolies built around invalid patents.