A Call to Reform Inequitable Conduct This Year

By Chris Mammen
April 9, 2009

Dr. Chris Mammen focuses his practice on patent and related intellectual property litigation and appeals.

Twenty years ago, in the 1988 Burlington case, the Federal Circuit expressed its displeasure with the frequent assertion of the inequitable conduct defense in patent litigation, famously calling it a “plague.” Later that year, in the en banc portion of the Kingsdown case, the Federal Circuit took steps to narrow the defense by strengthening its intent element. Shortly thereafter, the PTO also amended Rule 56 to more clearly define the duty of disclosure. One would have expected that these reforms to have brought the inequitable conduct doctrine under control.

However, proliferation of the defense, particularly at the district court level, has proved difficult to stem. As the graph below shows, there has been a dramatic growth in the rate at which inequitable conduct is pled (measured as the ratio of [responsive pleadings filed in patent cases with the term “inequitable conduct”] / [total number of patent cases filed]). The trend is similar in data from both the Stanford IP Litigation Clearinghouse and Westlaw’s pleadings database (assuming each database’s coverage is more complete in later years than early years, a correction in the data would tend to flatten the curve upward, meaning that the pleading rates shown in the earlier years should actually be higher).

At the bottom of the graph is a green line, representing the percentage of Federal Circuit cases in which the Federal Circuit entered a holding of inequitable conduct. Although the green line is largely flat (and is generally within one standard deviation of the historical average), the substance of a number of the Federal Circuit’s inequitable conduct rulings-particularly those in the past three years-have signaled a broadening of the doctrine to pre-Kingsdown levels, thereby fuelling the growth in the rate at which the defense is pled at the district court level. Notoriously (though by no means exclusively):

  • Ferring brought back “should have known” coupled with materiality as the standard for intent-before Kingsdown, which held that “gross negligence” alone could not support a finding of intent, the tests for “should have known” and “gross negligence” were tied together.
  • Digital Control sidelined the PTO’s 1992 amendments to the definition of materiality in Rule 56, holding that the 1977 “reasonable examiner” standard for materiality would remain the predominant threshold test for materiality, even for patents prosecuted after 1992.

To be sure, the 2008 Star Scientific decision was a solid effort to restate and rein in the doctrine, though it also embraced the “reasonable examiner” standard rather than the 1992 version of Rule 56. And the Praxair case, decided shortly after Star Scientific, re-embraced the broad doctrine, suggesting that the Star Scientific restatement may be slow to proliferate.

Reform of the inequitable conduct doctrine is needed. I propose four key reforms:

  1. Materiality: The 1992 version of Rule 56 would suffice, although an objective “but for” standard would surely cure the “plague.” Both are more objective than the malleable “reasonable examiner” standard. However, in deference to the PTO’s presumptive expertise concerning the information that it needs to conduct effective and efficient examination, it would be appropriate for a patent reform statute to codify deference to the PTO’s definition of materiality, to permit possible future regulatory refinements.
  2. Intent: Ferring and its progeny should be abrogated and replaced with a standard that both affirmatively states what clear and convincing evidence of intent is sufficient and also prohibits certain methods of proving intent. Specifically-
    • It should not be permissible to prove intent from materiality;
    • The concepts of “gross negligence” and “should have known” should be abrogated entirely; and
    • Circumstantial evidence should continue to be permissible in proving intent, but if it is used, to satisfy the clear-and-convincing burden of proof, an intent to deceive the PTO must be the single most reasonable inference, not merely a permissible or plausible inference.
  3. Balancing: Even with improved and clarified standards of materiality and intent, it will be important to stay true to the doctrine’s equitable roots and retain some degree of judicial discretion, so the balancing step-as articulated most recently in Star Scientific-should be retained.
  4. Narrowed Remedy: Unenforceability should be determined on a claim-by-claim basis, and only as to asserted patent claims. Rendering the whole patent unenforceable based on conduct relating to a single claim – even a claim that is not asserted in the litigation – creates significant incentives to roll the dice by broadly asserting unenforceability, spawning satellite litigation on non-asserted claims. A narrower remedy would strike a more appropriate balance of incentives and consequences. Even this narrowed remedy would be broader than the remedy for invalidity, since material information-under either the “reasonable examiner” standard or the 1992 version of Rule 56-is defined more broadly than information that could ultimately result in a finding of invalidity of a claim. Empowering the courts with a discretionary range of remedies should not be embraced, because the availability of a range of remedies merely increases incentives for litigants to assert weak claims of inequitable conduct, hoping that the weak claim will produce at least a limited remedy.

Separate from the questions whether inequitable conduct reform is needed, and if so, what those reforms should be, there is some dispute as to who should implement the reforms. Each of the patent reform bills introduced during the 110th Congress included language to reform inequitable conduct. Although these statutory proposals included several good ideas, they also contained ideas that lacked historical context, were insufficient to implement true reform, or, worse, would likely be counterproductive against the stated purpose of reining in abuse of the inequitable conduct defense. This year’s leading patent reform bills do not-yet-include inequitable conduct provisions. My forthcoming article contains specific proposals for statutory language.

In the absence of legislative reform, judicial reform is also possible, either via a Federal Circuit en banc ruling or a grant of certiorari by the Supreme Court. However, it is unclear when Federal Circuit en banc review might happen; in late 2008, the Federal Circuit declined a rehearing en banc in Star Scientific. And, although the Supreme Court denied certiorari in Ferring, it is possible that it will take up the issue, possibly in response to the pending certiorari petition in Aventis v. Amphastar. As Aventis concluded in its petition for certiorari, “Four decades of confusion are enough.” Congress, an en banc Federal Circuit, or the Supreme Court should implement the inequitable conduct reforms outlined above.

About the Author

With over a decade of experience as a patent litigator in San Francisco and Silicon Valley law firms, Dr. Christian E. Mammen maintains a solo practice in Berkeley, California. His article, “Controlling the ‘Plague’: Reforming the Doctrine of Inequitable Conduct,” is forthcoming in the Fall 2009 issue of the Berkeley Technology Law Journal. A pre-publication version of the article is available on SSRN.

The Author

Chris Mammen

Chris Mammen

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 16 Comments comments.

  1. EG April 9, 2009 11:04 am

    Gene,

    Once more, my solution for dealing with the “plague” of inequitable conduct (short of getting rid of the “plague” entirely):

    1. The “materiality” prong can be proven only if it is shown that one or more patent claims (or the entire patent itself if we’re talking an issue like improper inventorship) would not have issued “but for” the deliberate omission or misrepresentation of the alleged “mateial” information.

    2. The “intent to deceive” prong requires proof of specific intent or “wanton or reckless disregard” as to the omitted/misrepresented information. So-called “gross negligence” shouldn’t be the standard.

    3. Completely dump the “sliding scale test.” This conflates the “materiality” and “intent to deceive” prongs in a way that’s not helpful.

    4. Each of the “materiality” and “intent to deceive” prongs must be proven “beyond a reasonable doubt.” That will leave inequitable conduct to address only the truly “egregious” instances.

    5. Inequitable conduct must be alleged with the particularity required for fraud under FRCP 9.

    6. 35 USC 285 and FRCP 11 should be liberally applied to “frivolous” allegations of inequitable conduct.

    That’s my 2 cents to put this “plague” in its appropriate place, and to get back to judging patents on the merits.

  2. Gene Quinn April 9, 2009 11:12 am

    EG-

    I really like 1 – 3 and 5 – 6. I have to think about 4 a bit more. I think if you have 5 and 6 then you might not need 4. I do agree we need to get to the point where inequitable conduct addresses only the truly egregious instances.

    -Gene

  3. EG April 9, 2009 12:37 pm

    Gene,

    The reason for 4 is that, even with a “clear and convincing” standard for inequitable conduct, we’re still seeing it alleged in just about every patent infringement case, with the courts still concluding that it has occurred in far too many instances if it should be rare. For example, SCOTUS has only found fraud on the PTO in 3 reported cases, so why is inequitable conduct be found to have occurred many orders of magnitude more? That suggests a standard greater than “clear and convinicing” is needed; implementing 5 and 6 might not be enough by itself.

  4. Chris Mammen April 9, 2009 2:02 pm

    Responding to EG’s suggestions–

    1. Materiality–Clearly the “reasonable examiner” standard is too broadly inclusive, and too easy to allege. The more objective standard set forth in the 1992 revisions to Rule 56 would likely eliminate much of the current questionable assertion of the defense. A “but-for” test would narrow it even further. I favor giving the current Rule 56 standard a fair shake before ratcheting clear down to the “but for” test.

    2. Intent–I agree that “gross negligence” should not be the test. Same goes for “should have known.” If circumstantial evidence is used to prove intent, then the intent must be the most reasonable inference from that evidence, not merely “a permissible inference.”

    3. Balancing–To be sure, the balancing step has been misunderstood and misused, and the recent proclivity to allow intent to be proven by high materiality + should have known goes too far. But I contend that equitable discretion embodied in the balancing step, when properly applied, does play an important role.

    4. Standard of Proof–I don’t think the problem is the standard of proof. Rather, the problem is defining what needs to be proved. A clearly defined standard that must be proved by clear and convincing evidence will be much more effective in reining in the defense than a vague standard that must be proven beyond a reasonable doubt. Also, in what other instances is “beyond a reasonable doubt” used as the standard of proof in civil litigation?

    5. Rule 9– Precedent already supports the application of Rule 9(b) to inequitable conduct pleading. No doctrinal reform is needed here, just more vigilant use of the existing standards.

    6. Sec. 285 and Rule 11–Not a bad idea, but is any doctrinal reform needed? Or just a greater willingness for prevailing patentees to spend the resources to pursue frivolous IC allegations?

  5. Gene Quinn April 9, 2009 2:04 pm

    EG-

    I hear you, and you are definitely right. I just wish we could try the PTO approach. Why the Federal Circuit thinks they can decide to ignore Rule 56 is beyond me. They just came out with an opinion that basically said anything the PTO wants to do is procedural, and they can do whatever they want unless is directly contradicts a statute. How can you have that ruling and the Court saying, well… that stuff applied to you practitioners and applicants, not to us. If the PTO can do what they want then that logically needs to mean that they get to dictate to the Federal Circuit. Ignoring Rule 56 and finding alternative grounds for inequitable conduct is hardly providing deference to the agency mandated by the Supreme Court.

    -Gene

  6. EG April 9, 2009 3:13 pm

    Chris,

    Thanks for the very thoughtful response to my “6 point plan” for deaing with the “plague”:

    1. My reason for a “but for” test to get us back to judging patents on the merits. If we could truly come up with an objective standard other than “but for” that would achieve that goal, I could be persuaded. The problem with current Rule 56 is that it was originally derived from the standard for disclosure under the Securities Acts that came in after the Bank Crash of 1929 and Great Depression of the 1930’s. Accordingly, the pedigree of Rule 56 (based a stock securities) creates problems in and of itself. Also, how Rule now defines “materiality” is completely incomprehensible to many subject to the “duty of disclosure”, namely the inventors. In fact, almost individual inventors who have come to me for help with their patent applications have absolutely no clue what this obligation requires and especially what the standard set forth by Rule 56 means. Also, the U.S. alone has the “duty of disclosure” obligation which means those in the rest of world who file here and are subject to the obligation may not understand this obligation (and the case law I’m aware of suggests they don’t as well).

    3. I’m not the only one who has problems with the current “sliding scale” standard of the Federal Circuit. To make the “sliding scale” standard work, you must tie “intent” to “materiality” which again leads to the current problem, conflating the two prongs of inequitable conduct.

    4. The standard of proof problem simply reflects my concern that, while the courts say inequitable conduct be proved by “clear and convincing” evidence, in practice, they don’t seem to heed that standard. That suggests to me that something more stringent than “clear and convincing” is needed for proving inequitable conduct.

    5. I wasn’t aware the there was case law support for applying FRCP 9 to inequitable conduct allegations. Can you point me to it?

    6. From what I’ve seen, there seems to be a dearth of the reported cases where 35 USC 285 or FRCP 11 have been applied to “frivolous” allegations of inequitable conduct. It would be interesting to do a survey to see: (1) how many times inequitable conduct has been alleged; (2) how many times 35 USC 285 and/or FRCP 11 were asserted based on an alleged “frivolous” allegations of inequitable conduct; and (3) how many allegations based on (2) were successful.

    Gene,

    It might be nice if Rule 56 were the only standard, but the Federal Circuit in Digital Control has made clear that there are 4-5 standards floating around, and the Rule 56 is the minimum required, but not necessarily enough to avoid inequitable conduct. May be the Federal Circuit is overreacting to the 3 Supreme Court cases on fraud on the PTO (especially the last one, Automotive Precision), but like Chief Justice Roberts said in eBay, the Federal Circuit isn’t writing on a “clean slate” here. If we’re to get any objectivity into inequitable conduct determinations (without doing away with them entirely) and to minimize such allegations except for truly “egregious” circumstances, the standard has got to be spelled out (carefully) by statute, not by “judicial doctrine” as is now the case.

  7. Chris Mammen April 9, 2009 4:03 pm

    EG–

    Thanks very much for your responses. Some further comments:

    1. I believe you may actually be referring to the 1977 version of Rule 56 (the “reasonable examiner” test) as being based on SEC law. See 42 Fed. Reg. 5588, 5589 (Jan. 28, 1977). I don’t believe the 1992 revisions to Rule 56 were similarly derived.

    2. The Federal Circuit did not address the applicability of Rule 9(b) until 2003, when it indicated its applicability to inequitable conduct in dicta in Ferguson Beauregard/Logic Controls, Division of Dover Resources, Inc. v. Mega Systems, LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003). In 2007, the Federal Circuit squarely ruled that Rule 9(b)’s heightened pleading standard governs inequitable conduct. Central Admixture Pharm. Servs., Inc. v. Adv. Cardiac Solutions, P.C., 482 F.3d 1347, 1356-1357 (Fed. Cir. 2007) (affirming dismissal of inequitable conduct pleading due to insufficient particularity).

    6. I share your perception that there’s a paucity of such cases, and would be interested to see data. But assuming the perception is correct, how much is due to fixable doctrinal roadblocks, and how much is due to the unwillingness of a patentee (who has generally by then either won or lost on the merits of infringement and validity issues) to pursue a remedy for a frivolous IC defense?

  8. Noise above Law April 9, 2009 5:58 pm

    “If the PTO can do what they want then that logically needs to mean that they get to dictate to the Federal Circuit. ”

    Giant Red Flag went up when I read this – enough to prompt me to post, as I usually don’t since we tend to agree on most of your posts. Do you really want the PTO dictating to the Federal Circuit, especially given how many times over the years the Federal Circuit has to smack down the overly ambitious PTO? Don’t you think that the PTO is already too power-hungry?

  9. Chris Mammen April 9, 2009 6:20 pm

    Gene and Noise Above Law are touching upon a really interesting balance-of-powers issue that’s lurking in the IC-reform debate. On the one hand, IC is an equitable (judge-made) doctrine, suggesting that the courts have plenary authority to define the doctrine’s terms. On the other hand, the misconduct at issue in IC is a failure to provide the PTO with the information it needs during examination, suggesting that the PTO ought to have a say in what information the IC doctrine requires to be disclosed. Because it’s an equitable doctrine (albeit one that has often made reference to PTO Rule 56), there’s not, technically speaking, an issue of Chevron-type deference to the PTO embedded here. This suggests to me that it may require intervention by Congress, or perhaps the Supreme Court, to mediate this balance-of-powers issue.

    –Chris

  10. Alan McDonald April 10, 2009 7:18 am

    I have said this before.

    The reason IC is pled and attempted to be shown in so many cases is as a back door way to strenghen the 102/103 invalidity case to the jury. If the jury thinks that there was something bad going on at the PTO, they are more likely to accept invalidating prior art.

    The fault does not lie in the IC standard. The fault lies in the presumption of validity and the need to prove invalidity by clear and convincing evidence.

    I’d gladly trade a complete elimination of IC for elimination of the presumption and a preponderence of the evidence standard for validity. Bet the trolls won’t agree.

  11. Noise above Law April 10, 2009 11:08 am

    Alan,
    I find your notion of fixing the IC issue reprehensible. According to my reading of your suggestion, there is nothing wrong with back door attempts to attack the presumption of validity – the problem is in the presumption of validity.

    That’s like keeping the dirty bath water and throwing out the clean baby.

    It is incredulous that you find no fault in the inappropriate use of IC and in fact seem to sanction such scandalous use because you (without seeming merit) believe that patents should not have a presumption of validity. On what basis can you logically and legally void the presumption? This smacks of an ulterior motive or other baseless attack on the Patent System. Your quick reference to ‘trolls’ makes me think that you represent the Coalition of Patent Fairness.

  12. Gene Quinn April 10, 2009 12:13 pm

    Noise-

    I don’t always agree with Alan, but I don’t think he has an ulterior motive.

    I am intrigued by Alan’s comment myself. I have written in the past that we should do away with the presumption of validity and move to a preponderance standard. When the PTO spends 12 hours per application how can we live with the fiction that the patent should be presumed valid? I would rather move away from every patent being treated like it is thoroughly vetted, because they are not. I also wonder whether moving away from the presumption would matter. Does anyone believe that juries and judges apply the presumption anyway? I know the cases give lip service to “clear and convincing” standard, but isn’t the decision really de novo in practice?

    I do think inequitable conduct is a problem, but because the Federal Circuit won’t follow the PTO. Kingsdown was right. Intent actually means… well.. intent. Nothing else. Materiality means that it had to affect the outcome or at least be the basis for a good rejection, not that a reasonable examiner would have wanted to see it. The PTO changed 37 CRF 1.56 away from the reasonable examiner standard in 1992, and that was valid rulemaking. Based on the GSK/Tafas decision it would seem that the PTO gets to decide procedure, unless the Federal Circuit is affected by the PTO rulemaking in which case they simply ignore the PTo and do what they want.

    -Gene

  13. Alan McDonald April 10, 2009 12:23 pm

    Those who know me know that I do not work in the high tech field (look me up in the attorney roster). I’m a ChemE by training and work mostly in the mechanical field. Wouldn’t know how to write an EE application if I had to.

    Having defended against troll suits I’ve seen first hand how crazy broad claim interpretations are made with threats of ruinous litigation costs if they aren’t paid off immediately.

    And, yes, I am pushing for a change in 35 USC to eliminate the presumption of validity. Please tell me why we should presume an examiner, having less than 20 hours to examine a case should be assumed to have done a better job than the searcher given unlimited time and resources.

    Please note that I did NOT endorse the practice of almost always pleading IC. I only noted that it happens and why.

  14. Noise above Law April 10, 2009 2:53 pm

    My apologies Alan,

    I leaped then looked. With the additional comments by yourself and Gene, my assumption comes to light. I assumed that any patent in question is a proper patent, one vetted appropriately in the Law. If you are using patents not in this class, I would say we are discussing two different problems.

    My answer then would be to fix the primary problem – do not allow patents that should not be allowed. I care not what the cause of the problem is – fix it (well, actually I care very much). My mantra long has been that the Office should focus on providing patents with the law as they have it, not spending so much time, energy and money on their power-grabbing change-the-law agendas. If the procedure in place only allows 12 hours to vette a patent and that’s not enough – change the procedure.

    Don’t burn down the house to get a piece of toast. Patents have power precisely because they have a presumption of validity. Remove the presumption and you might as well use a registration system and not bother spending any time at all examing patents. The presumption carries power through more than just the immediate legal system – think of the financing aspects for one. I still think you are throwing away the baby and keeping the bath water.

    Further, there are other methods available to root out bad patents. I simply cannot see reasoning that states IC charges are a legitimate tool for attacking bad patents and stating the problem as the patent. The IC issue needs to be dealt with straight on. To use IC for any other agenda, no matter how appealing the end result, is simply not acceptable.

    Returning for one last comment on the assumption of validity, one only need to look at and compare actual IC findings and findings of “bad” patents to clearly see the two concepts are distinct and should not be conflated.

  15. Noise above Law April 15, 2009 5:08 pm

    The topic of presumption of validity has been picked up at the Patently-O blog.

  16. Gene Quinn April 16, 2009 10:16 am

    For those interested, here is the link to where Patently-O is talking about changes to come with respect to the presumption of validity:

    http://www.patentlyo.com/patent/2009/04/challenging-the-strong-presumpition-of-patent-validity.html

    -Gene

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