Federal Circuit Dramatically Overhauls Inequitable Conduct Defense in En Banc Therasense Decision

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

The Federal Circuit yesterday issued its en banc decision in Therasense, Inc. v. Becton, Dickinson & Co. that significantly changes the law of inequitable conduct. The 6-1-4 decision (written by Judge Rader, with a concurrence in part by Judge O’Malley and a dissent by Judge Bryson) creates bright-line rules for establishing the defense of inequitable that appear, as a practical matter, to almost eliminate this defense except in the most egregious (and likely difficult to prove) cases. In addition, under the Court’s decision, proving invalidity may be a precursor to a finding of inequitable conduct, thereby rendering this defense somewhat redundant. Below is a summary of the key points of the decision, along with a discussion of the consequences going forward.

The Defense of Inequitable Conduct

An accused infringer raising the defense of inequitable conduct must prove by clear and convincing evidence that the patentee misrepresented or omitted material information with the specific intent to deceive the PTO.

The Intent Element

To prevail on this defense, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO. Gross negligence or negligence are not sufficient. And, in the case of non-disclosure, the accused infringer must prove by clear and convincing evidence that the patentee made a deliberate decision to withhold a known material reference—that is, he knew of the reference, knew it was material, and deliberately decided to withhold it.

Intent and materiality are separate requirements. There is no “sliding scale,” and courts cannot infer intent solely from materiality. Therefore, proving that a patentee 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.

Intent can be inferred from indirect and circumstantial evidence, but the specific intent to deceive must be the “single most reasonable inference able to be drawn from the evidence.”

The patentee need not offer any good faith explanation for its conduct until the accused infringer proves a threshold level of intent to deceive by clear and convincing evidence.

The Materiality Element

The Court rejected the standard of materiality defined in PTO Rule 1.56. Instead, it adopted a “but-for” materiality test.

“But-for” materiality must be shown by clear and convincing evidence, so an accused infringer must show that the PTO would not have allowed a claim if it had been aware of the undisclosed art. However, in making this determination, the court is to employ the PTO’s standard of patentability, not the judicial standard. Therefore, the court should apply the preponderance of the evidence standard used by the PTO and give claims their broadest reasonable construction. This creates a potential situation where a claim might not be invalid under an anticipation/obviousness defense at trial, but still could have been rejected by the PTO during prosecution.

“But-for” materiality is not required for affirmative acts of egregious misconduct, such as submitting false affidavits. However, the nondisclosure of prior art and the failure to mention prior art in an affidavit are not egregious misconduct. This type of misconduct still requires “but-for” materiality.

The Facts of the Case and the Outcome of the Decision

This case involved a patent by Abbott for testing blood with an electrochemical sensor. A key innovative point was the ability of the electrode on the sensor to be exposed to whole blood without a protective membrane or filter. The prior art required some sort of cover to protect the sensor from fouling and to control the flow of blood to the sensor. The PTO rejected Abbott’s claim based on an earlier Abbott patent involving an electrochemical blood tester that had language suggesting that the protective membrane was optional. In response, Abbott submitted affidavits from its patent attorney and its director of research and development that one of ordinary skill in the art would not understand this language in the earlier patent to mean that the earlier device could be used without a membrane.

Prior to submitting these affidavits, Abbott prosecuted the European equivalent to the earlier patent and in order to avoid other prior art argued that this optional language meant that the earlier device did not require a protective membrane. These statements were never disclosed to the PTO and directly contradicted the statements in Abbott’s affidavits to the PTO.

In the underlying action, the trial court found that defendants did not infringe and that the key claims were invalid as obvious in light of the earlier Abbott patent. The trial court also found that Abbott committed inequitable conduct by its submission of the contradictory affidavits without disclosure of the statements in the European proceedings.

The Federal Circuit affirmed the noninfringement, invalidity, and unenforceability determinations in the initial panel opinion. Only the unenforceability determination was considered en banc, and the Court vacated the lower court’s decision and remanded for it to reassess the defense in light of this ruling.

The Concurrence-in-Part

Judge O’Malley joined the majority’s opinion with respect to the intent element, but dissented otherwise. She argued that the majority’s approach was too rigid and failed to remain true to the equitable nature of this defense. In particular, she argued that courts should be free to fashion remedies other than rendering the entire patent unenforceable, such as rendering only some claim unenforceable and dismissing the action.

With respect to materiality, Judge O’Malley argued that three different kinds of misconduct could be material:

  1. “but-for” materiality
  2. false or misleading representations of fact
  3. behavior so offensive that the court believes the integrity of the process before the PTO was compromised

Based on these standards, Judge O’Malley would have affirmed the lower court decision.

The Dissent

Judge Bryson (joined by Judges Gajarsa, Dyk, and Prost) largely agreed with the basic contours of the majority’s description of the defense of inequitable conduct and the intent element, but sharply disagreed with respect to the materiality element. They argued that the Court should adopt PTO Rule 56 as the standard for materiality, and not the “but-for” standard imposed by the majority.

Based on these standards, the dissent would also have affirmed the lower court decision.

What This Decision Means

It is clear from this decision that inequitable conduct will be much more difficult to plead and prove going forward. By establishing a “but-for” test (with an exception for intentionally false statements), the Court has in many ways made inequitable conduct redundant to the standard invalidity defenses. In order to prove inequitable conduct, an accused infringer must show that the PTO would have rejected the claim as being invalid in light of the undisclosed prior art. An accused infringer must do this anyway to prove invalidity.  While the Court acknowledges that the materiality element should be assessed under the PTO’s more lenient standard, as a practical matter it may be difficult for a trier of fact to weigh these differences.

Nonetheless, it still may be useful to pursue an inequitable conduct defense where not every claim can be invalidated. As it stands now, if a patentee commits inequitable conduct, the entire patent is rendered invalid. Thus, an accused infringer might still be able to use this defense to avoid a finding of infringement of an otherwise valid claim. The Court’s decision did not address this remedy directly, but it suggests that lesser remedies may be appropriate. In her concurrence-in-part, Judge O’Malley called for giving courts the freedom to craft any equitable remedy, including dismissal or finding only some claims unenforceable. It will be interesting to see how the case law develops in this area going forward.

In addition, this decision does not encourage patentees to be forthcoming in disclosing prior art to the PTO. If they intentionally withhold art that would not invalidate a claim (even though it would have been relevant to the examiner’s decision), there is no consequence. If they intentionally withhold art that would invalidate the claim, the claim will be invalidated anyway. This increases the incentive to withhold bad prior art in the hopes that it will not be discovered. Before, the law created an incentive to disclose more prior art because withholding “material” but not invalidating prior art could render the entire patent unenforceable.

This decision also substantially undercuts the enforceability of PTO Rule 1.56. As the dissent noted, the PTO is required by statute to file any charges relating to violations of Rule 1.56 within five years, but allegations of inequitable conduct rarely arise in that time period, instead typically being uncovered only once litigation has begun. In an ironic twist, by divorcing the inequitable conduct standard from Rule 1.56, this Rule may effectively become unenforceable.

The Federal Circuit’s decision expressed great hostility to the defense of inequitable conduct, and it has substantially weaken the applicability of this defense, which may have been its intention from the beginning. It will be interesting to see if the Supreme Court is called on to address the Federal Circuit’s new standard, either in this case or another that follows.

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