On May 25, 2011, the Federal Circuit issued its much-anticipated decision in the Therasense case, in which it granted en banc review to consider a series of questions regarding the scope and contours of the "inequitable conduct" doctrine in patent cases. Therasense, Inc. v. Becton, Dickinson & Co., No. 2008-1511 (Fed. Cir. May 25, 2011).
The inequitable conduct doctrine is a judicially created (non-statutory) defense to claims of patent infringement. As the Therasense majority explained, it "evolved from a trio of Supreme Court cases that applied the doctrine of unclean hands to dismiss patent cases involving egregious misconduct." Slip op. 15. The court emphasized that those cases "dealt with particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence." Id. at 18-19.
As the inequitable conduct doctrine "evolved" over time, it "came to embrace a broader scope of misconduct." Slip op. 19. Courts also "require[d] a finding of both intent to deceive and materiality" (id.), although decisions varied over time in the rigor with which they applied these elements. The so-called "sliding scale" between intent and materiality also "conflated, and diluted, the standards for both" elements. Id. at 20.
The Therasense majority stressed that a broadened inequitable conduct doctrine carries many negative consequences, including "cast[ing] a dark cloud over the patent's validity and paint[ing] the patentee as a bad actor," increasing the complexity and expense of discovery and litigation, reducing the likelihood of settlement, endangering entire portfolios of patents, and "spawn[ing] antitrust and unfair competition claims." Slip op. 21-22. "Left unfettered," the majority remarked, "the inequitable conduct doctrine has plagued not only the courts but also the entire patent system." Id. at 23.
In response to these problems, the Therasense opinion "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." Slip op. 24.
With respect to intent, the court held that "the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO." Slip op. 24. "In other words, the accused infringer must show 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." Id. Rejecting the "sliding scale," the majority made clear that "a court must weigh the evidence of intent to deceive independent of its analysis of materiality." Id. at 25. And although intent may be proved by circumstantial evidence, "the specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence." Id. Finally, "[b]ecause the party alleging inequitable conduct bears the burden of proof," the applicant's failure to provide "a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive." Id. at 26.
As to materiality, the court held that "the materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art." Slip op. 27. The court explained that "as a general rule, this doctrine should only be applied in instances where the patentees's misconduct resulted in the unfair benefit of receiving an unwarranted claim." Id. at 28. The court expressly declined to adopt the materiality standard of the PTO's Rule 56, noting that the standards for inequitable conduct should not change over time.
Applying its newly announced standards, the majority vacated the finding of inequitable conduct. Slip op. 37.
The majority opinion was authored by Chief Judge Rader and joined by Judges Newman, Lourie, Linn, Moore, and Reyna. Judge O'Malley joined the discussion of intent in the majority opinion and filed a separate concurrence on materiality. Judge Bryson wrote a dissent, which was joined by Judges Gajarsa, Dyk, and Prost.
The Therasense decision should bring clarity to claims of inequitable conduct, which (as the court noted) are asserted in the great majority of patent infringement cases. The heightened standards for intent and materiality should help insure that validly issued patents are not subject to equitable attack, while continuing to provide a vehicle for policing egregious cases of fraud on the PTO. Enhanced certainty should ultimately benefit all participants in the patent system--patentees, accused infringers, and the lawyers and judges who must litigate these claims.