Federal Circuit Re-Settles Law of Inequitable Conduct
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course Posted: May 25, 2011 @ 3:49 pm
The United States Court of Appeals for the Federal Circuit earlier today issued its much anticipated opinion in Therasense, Inc. v. Becton, Dickinson and Co. Upon first glance I had a strong suspicion I would agree with the decision of the Court when I noticed the opinion was authored by Chief Judge Rader, who was joined by Judges Newman, Lourie, Linn, Moore and Reyna, with Judge O’Malley joining in part. While Judges Reyna and O’Malley have been on the Court only a brief time, I almost always agree with Judge Rader, I seem to always agree with Judge Newman, and Judges Lourie, Linn and Moore typically seem spot on, at least in my opinion. I was not disappointed, and if you are engaged in representing clients before the USPTO neither will you be disappointed.
Judge Rader wrote: “Left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system.” Chief Judge Rader would go on to say that materiality is a “but-for” test, and actually breathed real life into the intent requirement, saying: “Proving that the applicant knew of a reference, should have known of its materiality, and decided not to submit it to the PTO does not prove specific intent to deceive.” The Federal Circuit did decline to adopt the USPTO version of the duty of candor outlined in Rule 56, which I have advocated for, instead opting for an even better, more patentee friendly standard than I have advocated for over the years. Today is a good day no doubt. Intent now actually requires intent, and a reference must actually be material in order to satisfy the materiality requirement. What a radical concept!
This dispute first started on its way to the Federal Circuit when the United States District Court for the Northern District of California found U.S. Patent No. 5,820,551 unenforceable due to inequitable conduct. Therasense, Inc. (now Abbott Diabetes Care, Inc.) and Abbott Laboratories (collectively, “Abbott”) appealed that decision, ultimately prompting the entire Federal Circuit to hear the case en banc in order to try to reign in the terribly incoherent law of inequitable conduct.
In his majority opinion, Chief Judge Rader explained that the theory of inequitable conduct, which renders all of the claims of a patent unenforceable if there is fraud committed on the Patent Office, started as an extension of the doctrine of unclean hands, eventually maturing from there. Rader explained: “As inequitable conduct emerged from unclean hands, the standards for intent to deceive and materiality have fluctuated over time.” To those who are familiar with the meandering and nearly inexplicable development of the law of inequitable conduct will recognize that this statement from the Chief was easily the understatement of the year in the patent world. He gingerly started to address what all fair minded observers know; namely that the law of inequitable conduct has wildly fluctuated over time, as well as from case to case, thanks to absolutely no mooring of the fundamental intent and materiality prongs.
In truth, once upon a time back in the late 1980s, in Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988), there was a mooring of the law for an ever so brief period of time. The Federal Circuit sitting en banc heard that case as well, apparently bringing a much needed settling to the law of inequitable conduct. Of course, over time that settling was chipped away at by panel after panel who were all too willing to find inequitable conduct. Monday morning quarterbacking is one thing, but inequitable conduct is “the atomic bomb of patent law,” as Chief Judge Rader explained, yet it was treated by many panels of the Federal Circuit as little more than something to be manipulated as necessary to prevent what was perceived as bad acting with the hindsight of many years. Over time that hindsight seemed to hardly care whether there was actually any real intent to deceive, and it didn’t seem to care if there was true materiality. If it seemed that someone knew or should have known and the CAFC panel would have intellectually been curious about the reference then it should have been disclosed.
This was never what inequitable conduct was supposed to be, and it seems that thankfully it is not what it is any longer. That type of failure to understand the patent prosecution process, and failure to understand how patent practitioners would respond, has led the Patent Office to be dumped upon with marginally relevant to non-relevant prior art when the innovation seems to be commercially viable. That was the only way one could have any belief that the moving target Federal Circuit standard could likely be satisfied. This caused something of an administrative nightmare for the Patent Office and lead patent practitioners not to meaningfully participate in patent prosecution — instead playing hide the ball for fear of saying something inaccurate to a Patent Examiner.
In any event, Chief Judge Rader correctly explained that a finding of inequitable conduct renders all claims of the patent in question to be unenforceable, in some cases can endanger a substantial portion of a company’s patent portfolio due to the fact that inequitable conduct in one case can taint other cases, can “spawn anti-trust and unfair competition claims,” and “may also prove the crime or fraud exception to the attorney-client privilege.” He would go on to say that it is no wonder that it is the defense de jour, raised in every case even when there is scant (or no) evidence to support the charge.
As he led into the Court’s proclamation on the new law of inequitable conduct, Rader explained the need for honesty at the USPTO, as well as the need for a change. He explained:
While honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now 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.
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. This requires both proof of intent and materiality. With respect to intent Chief Judge Rader explained:
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. Instead, a court must weigh the evidence of intent to deceive independent of its analysis of materiality. Proving that the applicant knew of a reference, should have known of its materiality, and decided not to submit it to the PTO does not prove specific intent to deceive.
Because direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence. However, 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. Indeed, the evidence must be sufficient to require a finding of deceitful intent in the light of all the circumstances. Hence, when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found…
Because the party alleging inequitable conduct bears the burden of proof, the patentee need not offer any good faith explanation unless the accused infringer first proves a threshold level of intent to deceive by clear and convincing evidence. The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.
(citations and quotations omitted).
With respect to materiality Chief Judge Rader explained:
This court holds 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. 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.
The Federal Circuit did, however, recognize that in particularly egregious situations where there is a carefully coordinated scheme to defraud but-for materiality is not necessary. Rader explained:
Although but-for materiality generally must be proved to satisfy the materiality prong of inequitable conduct, this court recognizes an exception in cases of affirmative egregious misconduct. This exception to the general rule requiring but-for proof incorporates elements of the early unclean hands cases before the Supreme Court, which dealt with deliberately planned and carefully executed schemes to defraud the PTO and the courts. When the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.
(citations and quotations omitted).
While I have said over and over again that I thought the right approach to the inequitable conduct morass would be to adopt Rule 56, thinking at least that is a concrete standard that everyone knows. It would also force the reluctant members of the Federal Circuit to reign in their approach. Thankfully, the Federal Circuit did not take me up on that suggestion. In fact, they did me one better. They announced a standard they view as more narrow than that found in Rule 56, which should be music to the ears of patent practitioners and patent owners, and be cursed by copyists and infringers.
Chief Judge Rader explained that under Rule 56 patent practitioners could be required to divulge references “that a patent examiner would readily agree was not relevant to the prosecution after considering the patentee’s argument.” Moreover, Rader explained: “[T]he second prong of Rule 56 broadly encompasses anything that could be considered marginally relevant to patentability.” This lead into the conclusion:
Because Rule 56 sets such a low bar for materiality, adopting this standard would inevitably result in patent prosecutors continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy.
In this case, the district court held the patent unenforceable for inequitable conduct because Abbott did not disclose briefs it submitted to the EPO regarding the European counterpart patent. The Federal Circuit vacated this determination and remanded for further consideration, instructing the district court to “determine whether the PTO would not have granted the patent but for Abbott’s failure to disclose the EPO briefs.”
All in all a wonderful opinion that at least for the time being seems to have struck the exact correct balance, returning inequitable conduct to what it was intended to be. Hopefully this en banc decision doesn’t go the way of Kingsdown, lead to panels continuing to do whatever they want and another need to reign in a legal theory gone amuck.
Bravo to the Federal Circuit!- - - - - - - - - -
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About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.