Defendants accused of patent infringement often file “inequitable conduct” counterclaims, whereby a defendant alleges that the patent- in-suit is unenforceable because of something the patentee did – or failed to do – while procuring the patent from the U.S. Patent and Trademark Office (PTO). Most often, the accused conduct is failing to provide the PTO with information relevant to the patent application. Proving inequitable conduct requires both intent and materiality: the patentee’s intent to deceive the PTO and materiality of the information withheld from the PTO. Inequitable conduct counterclaims have become so commonplace that the Federal Circuit claimed they plague “not only the courts but also the entire patent system.” (Therasense, Inc. v. Becton, Dickinson and Co., No. 2008-1511, --- F.3d ----, 2011 WL 2028255 at *8 [Fed. Cir. May 25, 2011]). An estimated 80 percent of patent infringement cases include allegations of inequitable conduct (Id).
Therasense may change all that. In a divided en banc decision (meaning the full court participated and some judges dissented), the Federal Circuit adopted a more stringent standard for proving inequitable conduct. Therasense addressed both the intent and materiality requirements and confirmed that courts must consider each requirement independently. (Therasense, 2011 WL 2028255 at *9-10).
With respect to intent, the Court held that a defendant must prove by clear and convincing evidence that the patentee knew of the information it withheld from the PTO, knew that it was material and made a deliberate decision to withhold it (Therasense, 2011 WL 2028255 at *9). A finding of negligence is not sufficient to show intent (Id). While a court may infer intent from circumstantial evidence, the specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence,” (Id. at *10). “When there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found,” (Id).
With respect to materiality, the Court created a “but-for” standard: Information is material if the PTO would not have allowed a claim to issue had it been aware of the undisclosed information (Id. at *11). In making this patentability determination, the Court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction (Id). As an exception, the “but for” standard need not be proven in cases involving affirmative egregious misconduct (Id. at *12).
Even when materiality and intent are proven, the Federal Circuit stated that a patent should only be rendered unenforceable due to inequitable conduct “… where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim,” (Id).
Post Therasense, defendants will likely think twice before filing an inequitable conduct counterclaim. If and when a defendant asserts inequitable conduct, the allegation should be supported by evidence that meets the high standards set forth in Therasense. The Therasense decision will likely increase the ability of plaintiffs to resolve claims of inequitable conduct early on through motions to dismiss and motions for summary judgment.
As noted above, the Federal Circuit was divided on its Therasense decision. Chief Judge Randall Rader authored the majority opinion, joined by Judges Pauline Newman, Alan Lourie, Richard Linn, Kimberly Moore and Jimmie Reyna. Judge Kathleen O’Malley concurred, and Judge William Bryson dissented, joined by Judges Arthur Gajar- sa, Timothy Dyk and Sharon Prost. Stay tuned on whether the Supreme Court will weigh in on the issue.