In a highly-anticipated decision regarding the doctrine of inequitable conduct, a six judge majority of the United States Court of Appeals for the Federal Circuit sitting en banc “tighten[ed] the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.” Therasense, Inc. v. Becton, Dickinson & Co., ___ F.3d ____, 2011 WL 2028255, at *9 (Fed. Cir. May 25, 2011) (en banc). The decision clarifies aspects of the Federal Circuit’s jurisprudence regarding inequitable conduct by providing specific guidance regarding what is required for a patent challenger to prove the required elements of inequitable conduct, i.e., intent and materiality, by clear and convincing evidence. Although it is too soon to definitively determine the full scope of the impact this decision will have on patent prosecution and litigation, it will undoubtedly be significant in attempting to curb the over-assertion of inequitable conduct claims in litigation, a practice that the Federal Circuit has called “an absolute plague.” Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988).
Evolution Of The Inequitable Conduct Doctrine
As the Federal Circuit acknowledged in Therasense, the doctrine of inequitable conduct has its origins in three Supreme Court patent cases that relied on the doctrine of unclean hands to resolve issues of egregious misconduct. 2011 WL 2028255, at *4-6. Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933), involved the patentee’s creation and suppression of evidence directly relating to patentability, specifically relating to possible prior use activity by a third party. Id. at 243. The Supreme Court affirmed dismissal of the patentee’s complaint based on the doctrine of unclean hands. Id. at 247. Similarly, in Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), the patentee’s fraud “hidden for years . . . had its genesis in the plan to publish an article for the deliberate purpose of deceiving the Patent Office. The plan was executed, and the article was put to fraudulent use in the Patent Office, contrary to law.” Id. at 250. The district court did not learn of the fraud before judgment was entered in favor of the patentee. The Supreme Court determined that the patentee’s actions required the judgment in its favor to be vacated. See id. at 250-51. Further, in Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945), the patentee had concealed evidence of perjury before the U.S. Patent and Trademark Office (“PTO”) and later sought to enforce the resulting patent. Id. at 816-20. In finding dismissal of the suit based on unclean hands appropriate, the Supreme Court stated that “[t]he history of the patents and contracts in issue is steeped in perjury and undisclosed knowledge of perjury.” Id. at 816.
Over time, the doctrine of inequitable conduct developed from the unclean hands cases of Keystone, Hazel-Atlas and Precision. As the doctrine evolved, “it came to embrace a broader scope of misconduct, including not only egregious affirmative acts of misconduct intended to deceive both the PTO and the court but also the mere nondisclosure of information to the PTO.” Therasense, 2011 2028255, at *6. Further, inequitable conduct also results in “a different and more potent remedy [than unclean hands] – unenforceability of the entire patent rather than mere dismissal of the instant suit.” Id.
In order to prove inequitable conduct, the accused infringer must present clear and convincing “evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the PTO.” Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008) (citation omitted). In recent years, various three judge panel decisions of the Federal Circuit appeared to be irreconcilable with respect to what is enough to result in a finding of inequitable conduct. Compare, e.g., Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1191 (Fed. Cir. 2006) (finding it appropriate to infer “intent if there has been a failure to supply highly material information and if the . . . record establishes that (1) the applicant knew of the information; (2) the applicant knew or should have known of the materiality of the information; and (3) the applicant has not provided a credible explanation for the withholding”), and Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1313-14 (Fed. Cir. 2008) (same), with M. Eagles Tool Warehouse, Inc. v. Fisher Tooling Co., 439 F.3d 1335, 1341 (Fed. Cir. 2006) (“[A] failure to disclose a prior art device to the PTO, where the only evidence of intent is a lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent.”), and Larson Mfg. Co. of S.D., Inc. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1340-41 (Fed. Cir. 2009) (“just as merely withholding a reference cannot support an inference of deceptive intent, so too an accused infringer cannot carry its threshold burden simply by pointing to the absence of a good faith explanation”) (citation omitted). In Therasense, the en banc court reevaluated what is required to prove inequitable conduct and heighted the standards for both materiality and intent.
The Inequitable Conduct Claim In Therasense
The inequitable conduct claim in Therasense involved the patentee’s failure to disclose briefs it submitted to the European Patent Office regarding the European counterpart of another patent owned by the patentee. 2011 WL 2028255, at *16. A district court found the patent-in-suit unenforceable for inequitable conduct and a panel of the Federal Circuit affirmed. Id., at *3-4. “Recognizing the problems created by the expansion and overuse of the inequitable conduct doctrine,” the Federal Circuit granted appellants’ petition to rehear the case en banc on several issues relating to the standard for finding inequitable conduct. Id., at *4. The en banc court vacated the district court’s inequitable conduct determination because it relied upon standards not set forth in the en banc opinion. Id., at *16.
The Federal Circuit’s En Banc Opinion
Intent To Deceive
The court reaffirmed that to “prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” Id., at *9. The court further held that in a case involving non-disclosure of information, “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.” Id. The court went on to confirm that “a district court may infer intent from indirect and circumstantial evidence,” but that, “to meet the clear and convincing evidence standard, the specific intent to deceive must be the ‘single most reasonable inference able to be drawn from the evidence.’” Id., at *10 (quoting Star Scientific, 537 F.3d at 1366).
Intent And Materiality Are Separate Requirements
In a clarification to certain prior decisions, the court held that “[i]ntent and materiality are separate requirements. 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. Moreover, a district court may not infer intent solely from materiality.” Id. (citation omitted).
The Federal Circuit held that “as a general matter, 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.” Id., at *11. In doing so the court reasoned that “[b]ecause inequitable conduct renders an entire patent (or even a patent family) unenforceable, as a general rule, this doctrine should only be applied in instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.” Id., at *12. The court recognized that there is an exception to this general rule of but-for materiality in cases of affirmative egregious misconduct. Specifically, “[w]hen the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.” Id. The majority went on to confirm that it “does not adopt the definition of materiality in PTO Rule 56,” which in the court’s view contains a overbroad view of materiality. Id., at *14.
There is a clear trend of at least a majority of the judges on the Federal Circuit seeking to limit the range of inequitable conduct claims in patent cases. Notably, the Federal Circuit also recently held in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009) that Fed. R. Civ. P. 9(b)’s particularity requirement applies to pleading inequitable conduct such that “the pleading must identify the specific who, what, when, where and how of the material misrepresentation or omission committed before the PTO,” and “must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual” had knowledge and intent to deceive the PTO. Going forward, Therasense coupled with the Federal Circuit’s decision in Exergen will likely curb the assertion of inequitable conduct claims in patent cases.
Finally, Becton will likely seek review of Therasense at the Supreme Court. The Supreme Court has expressed quite an interest in patent cases as of late, see, e.g., Microsoft Corp. v. i4i Ltd. P’ship, ___ S. Ct. ____, 2011 WL 2224428 (2011) (upholding clear and convincing standard of proof required to invalidate patents); Global-Tech Appliances, Inc. v. SEB S.A., ___ S. Ct. ____, 2011 WL 2119109 (2011) (clarifying induced patent infringement standard); Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., ___ S. Ct ____, 2011 WL 2175210 (2011) (considering ownership of inventions under Bayh-Dole Act), and has reversed Federal Circuit decisions imposing bright-line rules more than once. See, e.g, KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) (finding error when Federal Circuit transformed “general principle into rigid rule that limits the obviousness inquiry” under 35 U.S.C. § 103). The Therasense majority attempted to strike a balance between providing a bright-line rule (i.e., but-for materiality) and allowing room for interpretation where factual scenarios beyond mere non-disclosure of information are presented to courts in the future. 2011 WL 2028255, at *12. Only time will tell whether the high court will decide to weigh in on this issue.