Federal Circuit Tightens Standards for Inequitable Conduct

In Therasense Inc. v. Becton Dickinson and Co., Civ. Case 2008-1511, 2008-1512, 2008-1513, 2008-1514, 2008-1595 (Fed. Cir. May 25, 2011) (en banc), Therasense (now known as Abbot) was sued by Becton in the District of Massachusetts seeking a declaratory judgment for non-infringement of U.S. Patent 6,143,164 and 6,592,745. Abbot countersued Becton and joined Nova Biomedical Corp., Becton’s supplier for infringement of U.S. Patents 164,745, and 5,820,551. Abbot also sued Bayer Healthcare LLC for infringement of the ‘551 and ‘745 patents. The case was transferred and consolidated in the Northern District of California.

Abbot’s patent ‘551 was found to be unenforceable by the District Court, because Abbot failed to disclose to the United States Patent and Trademark Office (USPTO) a brief filed with the European Patent Office (EPO) regarding an earlier patent, U.S. Patent 4,545,382’s counterpart, in that office. Patent ‘551 was issued based on differentiation from patent ‘382.

As a starting point, the Federal Circuit reviewed the policies behind the doctrine of inequitable conduct.  Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of the patent. This doctrine of “unclean hands” is derived from three Supreme Court Cases, Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933) 19 USPQ 228 (1933), Hazel-Atlas Glass Co. v. Hartford-Empire Co., 61 USPQ 241322 U.S. 238 (1944), and Precision Instruments Manufacturing v. Automotive Maintenance Co., 65 USPQ 133324 U.S. 806 (1945). Each of these cases before the Supreme Court dealt with particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence. Further, each case involved deliberately planned and carefully executed schemes to defraud the USPTO and the courts.

As the doctrine evolved from these cases, it broadened the scope of misconduct from the egregious affirmative acts of misconduct and fraud, to include mere nondisclosure to the USPTO of material information. The remedy diverged in a similar manor. Instead of the dismissal of the instant case, a more potent remedy was adopted: the unenforceability of the entire patent. With the stronger remedy and wider scope the inequitable conduct required a finding of the intent to deceive and materiality. Star Scientific Inc v. R.J. Reynolds Tobacco Co., 88 USPQ2d 1001 537 F.3rd 1357(Fed. Cir 2008). 

The standard for intent to deceive has fluctuated, and over time, courts have satisfied this requirement based on gross negligence or even negligence. The standard for materiality too has shifted, adopting the “reasonable examiner” standard of USPTO Rule 37 CFR 1.56, if there is a substantial likelihood that a reasonable examiner would have found the disclosure important in deciding to allow the issuance of a patent then it is material. Intent and materiality have been placed together on a sliding scale, further weakening the requirements to establish inequitable conduct.

The Federal Circuit acknowledged that these reduced standards embraced by the court to encourage full disclosure have created many unforeseen consequences. Inequitable conduct has become a significant litigation tactic, expanding discovery into corporate practices before patent filing and disqualifying the prosecuting attorney from the patentee’s litigation team. Inequitable conduct questions the validity of the patent and casts the patentee in a bad light. The doctrine’s focus on moral impropriety of the patentee and the ramifications on the reputation of the patent attorney discourages settlement and deflects the attention from the validity and infringement issues. These factors increase the complexity, duration, and cost of litigation.

Most importantly is the remedy, combined with collateral consequences for inequitable conduct. Unlike validity defenses that are claim specific, inequitable conduct of any claim renders the entire patent unenforceable and incurable by reissue. Further, the effects finding of one patent unenforceable due to inequitable conduct can spread to related patents and applications in the same technology group. A finding of inequitable conduct in a single patent could endanger a substantial portion of a company’s patent portfolio. The consequences may also include antitrust and unfair competition claims. The finding of inequitable conduct often makes the case “exceptional” allowing for the recovery of attorney’s fees, and prove the crime or fraudulent exception to the attorney-client privilege.

The Federal Circuit also noted that ramifications of the inequitable conduct doctrine have plagued both the courts and the PTO. With charges of inequitable conduct being brought on the narrowest of grounds and the potentially devastating results, patent attorneys regularly bury the USPTO examiners with prior art references with little value, out of fear of a claim of inequitable conduct. The submission of extreme numbers of prior art references strain the examining resources and are a large contribution to the backlog.

At the same time, the Federal Circuit acknowledged that honesty with the USPTO is essential, but the low standards for intent and materiality have inadvertently led to many unintended consequences. The court found that the doctrine of inequitable conduct had been overused to the detriment of the public and therefore they tightened the standard for finding both intent to deceive and materiality.

Specific Intent

Specifically, the Federal Circuit restated the intent prong to require a specific intent to deceive.  Resetting the bar for intent to deceive near the bar established in Supreme Court cases which created the doctrine, the court held that “the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” Further, the Federal Circuit clarified that “the finding that the misrepresentation or omission amounts to gross negligence or negligence under the ‘should have known’ standard does not satisfy this intent requirement.” As such, the Federal Circuit held that, for purposes of intent, 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.” Acknowledging that the specific intent evidence is rarely express, the Federal Circuit held that such evidence can be in the form of inferred intent from circumstantial evidence, but only to the extent that the specific intent to deceive must be “’the single most reasonable inference able to be drawn from the evidence.’ [Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008)]”.

Finally, the Federal Circuit also tightened the requirement for when an explanation is required.  Specifically, the court stated that “because the party alleging inequitable conduct bears the burden of proof the patentee need not make any good faith explanation unless the accused infringer first proves a threshold level of intent to deceive.”  As such, in addition to requiring more evidence needed to show intent prong, the shifting of the burden of explanation is delayed until evidence of intent is proffered.


Next, the Federal Circuit tightened the materiality prong of the inequitable conduct prong.  The court held that the materiality required to establish inequitable conduct is but-for materiality: i.e. if USPTO had known of the undisclosed art, the USPTO would not have allowed a claim. When making this determination, the court should apply the preponderance of the evidence standard, giving the claims their broadest reasonable construction consistent with USPTO examination practice. 

Exception: Egregious Misconduct

The court recognized an exception to this rule in egregious affirmative acts of misconduct, such as filing of an unmistakably false affidavit.  In these egregious cases, the misconduct is material. The court went on to prohibit the use of the “sliding scale”, stating that intent and materiality are separate requirements and “a district court may not infer intent solely from materiality. Instead the court must weigh the evidence of intent to deceive independent of its analysis of materiality.” In the creation of an exception to punish affirmative egregious acts without penalizing the failure to disclose information that would not have changed the issuance decision, the court balances the encouragement of honesty before the PTO and preventing unfounded accusations of inequitable conduct.

In applying the new standards to the case, the Federal Circuit court vacated the determination of the district court on materiality, because that court found materiality under the PTO rule 56 standard. The court also vacated the finding of intent to deceive based on the absence of good faith explanation for failure to disclose the EPO brief. The Federal Circuit vacated the finding of inequitable conduct and remanded for proceedings consistent with the opinion.

Significance for Patent Applicants and Owners

As acknowledged by the Federal Circuit in Therasense, inequitable conduct has become a doctrine which, however well intentioned, has become overused in litigation as well as leading to overloading examiners with useless information without improving the quality of examination itself.  Cases such as McKesson Information Solutions v. Bridge Medical, Inc., 82 USPQ2d 1865 (Fed. Cir. 2007), and Nilssen, et al. v. Osram Sylvania, Inc., et al., 504 F.3d 1223; 84 USPQ2d 1811 (Fed. Cir. 2007) and have led to over-citation of both documents as well as materials USPTO itself.  By tightening the requirements, charges of inequitable conduct will not be supportable merely by showing materiality of non-disclosed information as there will need to be clear and convincing evidence of intent to deceive.  At the same time, where such specific intent is found, there is a lesser need for evidence as to the materiality of the information unless it is nearly completely irrelevant to examination.  Thus, after Therasense, while inequitable conduct will likely still always be a consideration, the difficulty of proving inequitable conduct under the new standard will likely limit its application in court to only those occasions where actual wrongdoing has occurred.  At the same time, it remains to be seen whether this plague will disappear due to Therasense, or merely reappear in other forms such that applicants should remain vigilant and ensure that they provide as much information to the examiner as possible to insulate themselves from charges of inequitable conduct and to ensure that the resulting examination is as robust as possible.


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