By Kevin E. Noonan --
The American Bar Association (ABA) has filed a brief in the Therasense, Inc. v. Becton, Dickinson & Co. case, in support of neither party but arguing forcefully that the current state of the Federal Circuit's jurisprudence on inequitable conduct is in need of correction. The brief follows a recommendation from the Intellectual Property Law (IPL) committee of the Association, identified as ABA Report with Recommendation #107B (Policy adopted August 2009), included with the brief as an appendix. This recommendation stemmed from the work of a Task Force established by the ABA-IPL with instructions to "start from scratch" and "develop a comprehensive, consensus policy on the [inequitable conduct] defense for use in both legislative and judicial advocacy." The brief states that the Report was the result of meetings with "diverse members of the legal profession and various ABA entities," including the Section of Administrative Law and Regulatory Practice, the Section on Science and Technology, the Business Law Section, and the Section on Litigation.
The ABA advocates the following requirements for establishing an inequitable conduct defense:
[I]nequitable conduct [is] shown only upon proof by clear and convincing evidence that: (1) a person having a duty of candor and good faith to the PTO misrepresented or omitted material information; (2) in the absence of such misrepresentation or omission, the PTO, acting reasonably, would not have granted or maintained in force at least one patent claim; and (3) the misrepresentation or omission was made with a specific intent to deceive the PTO, which intent cannot be established by the mere materiality of the misrepresentation or omission.
The brief also sets forth the reasons the ABA believes changing the current inequitable conduct standard is necessary. These include themes common in Appellants' brief and several other amicus briefs (and indeed, frequently voiced by commentators and even Chief Judge Rader himself), that the defense is plead too often, with too little basis, and with deleterious effects on both patent litigation and prosecution before the PTO. This belief is supported by statistics showing that the frequency of inequitable conduct appeals doubled between 2004-2008 (Rader, 2010, Always at the Margin: Inequitable Conduct in Flux, 59 Am. U. K. Rev. 777,779), but that inequitable conduct was found only 25% of the time (citing statistics from the University of Houston Law Center at http://patstats.org). For example, in 2009, defendants established the defense only 6 out of 38 times it was plead (~15% success rate).
The brief asserts that the ABA has concluded, "after careful study," that this "excessive invocation of the inequitable conduct defense" is the result of the "vagueness" of the Court's current test for establishing inequitable conduct. This "vagueness" includes the multiplicity of standards (5) that the Court has sanctioned, including the current PTO standard, the earlier PTO "reasonable examiner" standard, and the "objective but for," subjective "but for," and "but it may have" standards, citing Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309,1314-1316 (Fed. Cir. 2006). In addition to these different tests, with different levels of materiality and proofs of materiality, the Court has also permitted a showing of materiality to reduce the required evidence of intent (citing American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984). The brief particularly highlights the inherent subjectivity and imprecision of the "reasonable examiner" test, stating that "the fact that this standard is still applied after-the-fact in litigation leads to the untenable situation where a patentee may be found to have committed inequitable conduct even though he or she fully complied with the applicable PTO regulations." Moreover, using this standard makes possible situations where "the entire patent (and possibly related patents) may be rendered unenforceable based upon the misrepresentation or omission of anything later deemed to have been 'important' even where every requirement for patentability has been met, and there is no injury to the public through the issuance of otherwise invalid claims."
The brief also asserts the Report's conclusion that the application of the inequitable conduct defense by the Court has "permitted inequitable conduct to found based on the mere fact that misrepresented or omitted information is material -- in the absence of any other evidence of deceptive intent," citing the Court's opinions in Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1313-14 (Fed. Cir. 2008), Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1191 (Fed. Cir. 2006), and Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1070-71 (Fed. Cir. 1998). The brief cites a "circular overemphasis" on materiality that permits inequitable conduct to be found "largely on evidence of materiality with just a threshold showing of deceptive invent what may itself by largely inferred from the materiality of the alleged misconduct," citing Praxair quoting Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1257 (Fed. Cir. 1997).
In addition to distortions in patent litigation ("relentless discovery," and disputes over privilege and crime-fraud exceptions thereof that "tax the trial court's resources and unnecessarily multipl[ies] the contentiousness of the proceedings") and prosecution ("over-disclosure to avoid any alleged omission and under-representation to avoid any alleged misrepresentation," emphasis in original), the brief raises the point, originally expressed by Judge Nichols in Burlington Indus. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988):
[Lawyers asserting inequitable conduct] get anywhere with the accusation in but a small percentage of the cases, but such charges are not inconsequential on that account. They destroy the respect for one another's integrity, for being fellow members of an honorable profession, that previously made the bar a valuable help to the courts in making a sound disposition of their cases, and to sustain the good name of the bar itself.
The brief argues that its proposed inequitable conduct standard, based on principles from common-law fraud ("reliance, injury and intent") would return the doctrine to its historical roots, specifically the triad of Supreme Court cases from which it arose (Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944); and Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945)). These cases all involved actual fraud, wherein perjured testimony was presented, material information concealed, and specific intent to deceive established. Importantly, the brief argues that these cases all involved detrimental reliance by the PTO on the misconduct to grant invalid patents. The brief cites other, earlier Supreme Court cases, including Corona Cord Tire Co. v. Dovan Chem. Corp., 276 U.S. 358 (1928), where the Court refused to find the patent unenforceable even though misconduct was discerned, because the conduct "though perhaps reckless, [was] not . . . essential material to [the patent's] issue." In contrast, the brief points out that the Federal Circuit has acknowledged that under its husbandry "the concept of inequitable conduct doctrine has expanded over time such that it no longer includes the principles of fraudulent intent and detrimental reliance as absolute requirements," citing Agfa Corp. v. Creo Prods. Inc., 451 F.3d 1366, 1375 n 3 (Fed. Cir. 2006).
The consequence of this departure from Supreme Court principles by the Federal Circuit, according to the brief, is "an overbroad and vaguely-defined inequitable conduct defense." Under the ABA's proposal, the first two elements (a misrepresentation or omission and PTO action in granting a patent that would not have been granted absent the misrepresentation or omission) track the principles of detrimental reliance in common-law fraud. This amounts to an "objective but for" test for materiality (which the brief contends it is "similar to"), assuring that "inequitable conduct will only be found where the PTO's reliance . . . has resulted in actual harm through the issuance of an otherwise invalid claim." Beneficial consequences of adopting this standard would be to "eliminate assertion of inequitable conduct 'where the patentee only committed minor missteps,'" and would "reduce the burden on the PTO by removing the incentive to over-disclose information to the examiner." The brief envisions standards of inequitable conduct that would be distinct between the Office and during litigation, wherein misconduct that would not be sufficient to support a finding of inequitable conduct during litigation could be sufficient to deserve sanctions before the PTO. (The brief contends that the Office has sufficient sanctions in place, such as disciplinary proceedings against practitioners, to police any such misconduct.)
The third requirement of the ABA's proposed test for inequitable conduct, deceptive intent, would require an independent determination of specific intent to deceive, consistent with the common law fraud standard. The brief argues that this requirement would require "independent and clear" evidence (direct or circumstantial) of specific intent that could not be substituted by "greater" showings of materiality. The brief also argues that this requirement would be a "stronger gatekeeper" by specifically precluding assertion of the defense under Rule 11 when there is insufficient evidence to support it.
The brief concludes that the proposed standard is "a fair and balanced approach" to solving the problems that have arisen with current inequitable conduct doctrine:
[I]t preserves the defense as a deterrent and remedy for those relatively rare instances where it is proven that the applicant acted with fraudulent intent and the PTO detrimentally relied on such to issue otherwise invalid claims. But it erects the defined boundaries missing from the current law, which has resulted in excess not only on litigation, but on the overall patent system.
For additional information regarding this topic, please see:
• "Therasense, Inc. v. Becton, Dickinson & Co. -- Briefing Schedule Update," August 8, 2010
• "BIO Files Amicus Brief in Therasense Case," August 8, 2010
• "Pharma and Software Companies File Joint Amicus Brief in Therasense Case," August 3, 2010
• "IPO Files Amicus Brief in Therasense Case," August 2, 2010
• "Abbott Files Brief in Therasense Case," July 28, 2010
• "CAFC Sets Date for Oral Argument En Banc in Inequitable Conduct Appeal," June 9, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. -- Briefing Schedule Update," May 16, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. Briefing," May 13, 2010
• "Federal Circuit Grants En Banc Review in Therasense v. Becton Dickinson," April 28, 2010