By Kevin E. Noonan --
On August 2nd, the Biotechnology Industry Organization (BIO) filed an amicus curiae brief with the Federal Circuit in the Therasense, Inc. v. Becton, Dickinson & Co. case. The brief, filed in support of neither party ("BIO . . . has no interest in the ultimate disposition of this litigation") urges the en banc Court to "set aside its prior legal framework on which the inequitable conduct defense presently rests and adopt a more certain framework."
BIO's proposed "more certain framework" has three requirements for establishing inequitable conduct. First, there must be either a "misrepresentation or omission of a material fact." Second, the misrepresentation or omission must occur as the result of "a specific intent to deceive the PTO." Finally, the PTO must "reasonabl[y] rel[y] on the misrepresentation or omission, to the public's detriment, in issuing an invalid claim." As in the current framework, all of these elements must be established by clear and convincing evidence. The en banc Court is not constrained by earlier precedent, either its own or from the CCPA, nor any rules or practices established by the PTO, the brief asserts. The proposed framework is not inconsistent with binding Supreme Court precedent, according to the brief, because the current standard is based not on that precedent, but on CCPA precedent (specifically, Norton v. Curtiss, 433 F.2d 779 (CCPA 1970)) and PTO Rule 56.
The brief argues that its proposed "more certain framework" is necessary because no matter how "laudatory" the goal may be of promoting full disclosure during patent prosecution, in practice the inequitable conduct defense has been "damaging to the U.S. patent system." This is the case because the Court's attempt to "apply the law on inequitable conduct in a fair and uniform manner" has been "without much success." "Nonuniformity and unpredictability" are the hallmarks of the history of decisions regarding the defense, outcomes due in large part to the "nonuniform foundation from which [the inequitable conduct] doctrine developed," BIO argues: decisions from the Supreme Court "concerned about patent 'monopolies"; "disparate" district court and CCPA precedent; and "rules designed to aid the PTO in conducting its business." The result is an "unworkable and outdated framework for deciding inequitable conduct cases." The brief contends that this situation was exacerbated by the Kingsdown Med. Consultants, Ltd. v. Hollister, Inc. case, because the abuse of discretion standard, coupled with "balancing" evidence of materiality and intent, "made uniformity of [an inequitable conduct determination] nearly impossible."
The results of this nonuniformity "creates more harm than good" for U.S. patents, according to the brief. This is illustrated by practices before the PTO, such as "pressure on applicants to make prophylactic submissions of large amounts of information that examiners neither want nor consider material," which "hinders rather than promotes candid interactions between applicants and examiners." The consequence: "[v]oluminous information disclosure statements" are submitted, or searches and disclosure of search results are scrupulously avoided. Examiners, having "10 hours or less to prepare a first Office action (including searching and IDS review) can expect little help from wary applicants" due to concerns about "future allegations of concealment or misrepresentation." This creates the incentive, BIO contends, for patent prosecution to be focused on legal grounds only, and to limit any discussions of the prior art to examiner interviews "that leave essentially no trace on the prosecution history." Current application of the inequitable conduct doctrine also inhibits applicants from submitting affidavits from experts or others (such as the inventors) that could be "helpful" to the Office, because such documents are "fraught with litigation risk."
Litigation statistics also provide ample evidence that the Court's application of the inequitable conduct doctrine has had a "negative impact." For example, the brief cites studies performed at the University of Houston Law Center that show the frequency of inequitable conduct decisions between 2005-09 (334) is "on par" with decisions on invalidity due to obviousness (364). This is a particular problem for patents on biopharmaceuticals, where "42% of all post-Kingsdown appeals to the Federal Circuit on the issue of inequitable conduct involved patents on biologics, drugs, medical devices, diagnostics or agricultural biotechnology products" by 2006 (with the trend continuing today: in an analysis of primarily district court cases, 35% of the allegations of inequitable conduct involved biotechnology, drug, or medical device patents). This is contrasted with the likelihood of successfully asserting the inequitable conduct defense: for cases decided between 2007-09 the brief cites statistics that inequitable conduct was found only about 15% of the time. The brief articulates the reason why defendants assert the defense so frequently when it prevails so rarely: when found, "inequitable conduct is more likely to influence the ultimate disposition of the litigation because of it deep impact on the patent-in-suit and the patentee's business, and a less-than-encouraging prospect of appellate review under a deferential clear error/abuse of discretion standard." The brief supplies a cogent example from the Purdue Pharma L.P. v. Endo Pharms. Inc. case (410 F.3d 690 (Fed. Cir 2005)), where the Court's reversal of its own earlier inequitable conduct holding "came too late to avoid irreparable harm to all those involved" (including $114 million in infringing sales and follow-on litigation over "allegedly fraudulently procured patents and allegedly sham litigation for their enforcement" for the patentee, as well as "serious business uncertainty and the possibility of substantial damages liability" for the infringers). "[M]ost significantly," the brief states, "vacatur [of the Court's inequitable conduct determination] came too late to avoid layoff of half the patentee's R&D workforce," putting not only a human face on the consequences of the Court's motley jurisprudence in this area but (in these times) their negative economic consequences.
Patents protecting biotechnological products are "particularly attractive" targets for inequitable conduct charges, BIO asserts. They are procured "against a backdrop of fast-moving science and competing business needs that make it virtually impossible" to "'keep an eye' on all potentially relevant information" that may be "circulating into and out of a company." This information includes the professional activities the company's scientists, who "present their findings," "write scientific publications," and "exchange information" with colleagues outside the company without consulting their patent attorneys. In addition, in the practice of a company's research activities "[l]arge numbers of [scientific and other] references are collected by research departments and become 'known' to [company] scientists," who don't have the responsibility to consider the company's pending patent applications and the relevance thereto of such information. Personnel outside the scientific and patenting sections of a company can also obtain information that may be considered, in hindsight, to be relevant to patent prosecution, such as regulatory affairs employees or individuals involved in business development or investor relations. This creates a situation where persons deemed by the patent law to fall under the duty of disclosure may become aware of such information (even if it merely "flicker[s] across the computer screen of a patent practitioner"). Added to this are:
[T]he selection of prior art for submission in light of shifting legal standards; the inclusion of experimental data to support enablement and best mode; the parsing of foreign office actions for references and examiner commentary; the coordination of opposition proceedings abroad; the disclosure of professional relationships with scientific experts; [and] communications to U.S. and foreign examiners in related applications.
(A litany clearly culled from various recent Federal Circuit decisions supporting the inequitable conduct defense.) From all this, the brief maintains that "it will almost certainly be possible to find statements than an effective advocate can portray as inconsistent with representations made to the PTO, or uncited prior art that can be recast as material to examination." And, the brief reminds the en banc Court, all these activities have occurred "in the remote past" in view of the timelines for product development, patent prosecution, and litigation in the biotechnology industry. The potential for inequitable conduct allegations is particularly significant for down-stream licensees, who may be able to perform sufficient due diligence to "develop a reasonable level of confidence" about the validity of the patents they are licensing but cannot have "the same level of confidence that their patents . . . are also enforceable." Since licensing is an important component of investment and technology transfer (inter alia, from universities) in biotechnology, the current manner by which the Court applies the inequitable conduct doctrine produces "business uncertainty" than is antithetical to conditions where the biotechnology industry can "flourish."
The brief also cites the recent approval of a biosimilars pathway for biologic drugs as creating "systematic litigation pressure" on biotechnology patents and a "strong likelihood" of litigation on those patents. The "high commercial stakes" for both innovators and follow-on biologic producers "ensure that [patents] will be challenged by any means possible." This reality can result in "innovations protected by such patents" to be left "idle" as the result of the uncertainty created by the current inequitable conduct regime. "Nothing in the doctrine's historical roots compels such an outcome," the brief asserts.
Turning from these policy reasons for changing the current test for inequitable conduct, the brief expands on its own proposed standard. The brief first distinguishes its proposed standard from common law fraud, a body of law from which BIO admits it has "borrow[ed]" but from which it is also distinct. For one thing, common law fraud is a legal tort, whereas here inequitable conduct is a defense plead in equity. "Even less clear" is the doctrine of "unclean hands" used, inter alia, but the Supreme Court as the basis of the inequitable conduct doctrine in the canonical modern trilogy of cases: 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). While the Supreme Court provided "no clear guidance" in these cases as to how the inequitable conduct doctrine should be applied, this very failure "leaves courts with a wide range of discretion" in applying the doctrine, a discretion supported by language from these cases themselves, according to the brief. Indeed, the brief argues that both common law fraud and unclean hands "have very little to do with this Court's present inequitable conduct law," something BIO believes should preclude their use "to police prosecution misconduct," if only because of "their lack of clarity and applicability."
The hallmark of Supreme Court decisions on inequitable conduct, as well as BIO's proposed "more certain framework," is the public interest specifically "where unenforceability may be justified to remedy public harm." This requires a balance: striking down patents procured by inequitable conduct that harms the public interest, and avoiding striking down valid patents "because it causes more public harm than good." The public is "entitled to rely on . . . the presumptive validity of patents," says the brief, and "[b]ad-faith applicants who deceive the PTO into issuing invalid claims indeed cause public harm." Those harms include "wrongful commercial decision-making" that result in "inefficiencies and misallocations of resources." In view of these harms, patent unenforceability may be the appropriate remedy, BIO contends. But the "public interest" is a factor that "works both ways," the brief goes on to say, and it is not the case that the public interest "is advanced if valid patents are held unenforceable" (emphasis in the original). This argument is the converse of the one made regarding invalid patents: the commercial and investment utility of start-up biotechnology companies based on valid patents, and the reliance (and ability to rely) on such patents to garner investment. There are issues of competition for scare resources, such as clinical data, scientific expertise, and regulatory agency attention that depend, in part, on whether a promising product has adequate patent protection. Even for competitors, uncertainty about patent enforceability affects decisions on whether to market a competing product, to develop a "design-around," or to "redirect their business into a different market altogether." "[E]very such decision is the right one to make if the patent is valid," according to the brief, but "[t]o affirm the validity of such patents in litigation -- and then hold them unenforceable -- undoes years of correct commercial decisionmaking and sends a message that businesses [patentees, their investors, their licensees and their competitors alike] cannot rely on patents. This outcome does not 'promote the progress of the useful arts,' and causes more public harm than good," the brief concludes. This argument supports BIO's position that, as one of the requirements for unenforceability, "the applicant must have caused the PTO to issue at least one invalid claim" in order to be guilty of inequitable conduct.
BIO's brief thus proposes a "but for" standard of materiality, cast in the terms of the present test under Kingsdown Medical. The brief argues that a host of other factors that have been used recently to establish materiality, including "attorney argument, . . . past relationships with declarants, or noncompliance with small entity fee requirement," should not be material because they do not affect claim validity. The brief also argues that whether a reference is material should be determined at the time of trial, to avoid (at least) "the need for certain discovery about what would have happened . . . in the distant past." Rather, BIO argues that the Court should consider whether "an individual having a duty of disclosure engaged in misconduct that caused the PTO, acting reasonably, to issue at least one invalid claim." The burden would thus be on an infringer to establish materiality, perhaps even "permit[ting] the parties to forego [discovery on intent] until materiality is established." And by focusing the initial inquiry on materiality under a "but for" standard, whether the Office (and the public) materially relied on the "misrepresentation or omission" would take precedence, in accord with the idea that the public interest is damaged (and thus is a sufficient reason for a sanction) "where the applicant's misconduct caused the PTO to issue an invalid claim." The brief argued that this "but for" standard would not be inconsistent with Supreme Court precedent outside the "unclean hands" context, such as U.S. v. Am. Bell Tel. Co., 128 U.S. 315 (1888) (inventorship) and Walker Process Equip. v. Food Mach. & Chem. Corp. (antitrust), stating that "[n]othing in these and other Supreme Court cases demands that this Court continue to apply a broad and inclusive materiality standard" (emphasis in original). Such a result would be consistent with Kingsdown Medical, however; as the brief argues, former Chief Judge Markey noted in that case that the alleged misconduct "did not result in the patenting of anything anticipated or rendered obvious by anything in the prior art and thus took nothing from the public domain," i.e., caused no public injury. 863 F.2d at 873.
Turning to the intent element, the brief cites Kingsdown Medical for the requirement that both materiality and intent "must be independently proven and that gross negligence is not sufficient to establish intent" (emphasis in original). However, the brief notes, the Court has strayed from these principles in recent cases, particularly citing Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306 (Fed. Cir. 2008) with regard to the effects of evidence of materiality on intent:
[A]n inference of intent to deceive is appropriate when: (1) highly material information is withheld; (2) the applicant knew of the information and knew or should have known of the materiality; (3) and the applicant fails to provide a credible explanation for withholding the information.
BIO's brief proposes that the current test be "set aside" and substituted with a requirement for "specific" intent: "the evidence would have to show that the individual charged with inequitable conduct not only intended to make the representation or to withhold material information but that he or she intended to deceive the PTO" -- that is, "actual knowledge of the falsehood would be required." This standard does not preclude intent from being inferred (or said another way, it does not require a "smoking gun" of direct evidence of intent to deceive), but it would not permit intent to be inferred merely on a finding of a "high degree" of materiality or gross negligence. "Deception is of a different character and requires evidence of culpability, not ignorance," the brief maintains. "More should be required" than simply gross negligence under a "should have known" standard, and gross negligence or even incompetence should not be mistaken for a specific intent to deceive using BIO's proposed standard.
The brief is much less agreeable to the "balancing" inquiry and the abuse of discretion standard under which it is reviewed, calling for the en banc Court to "eliminate" this part of the current inequitable conduct calculus. The use of a "sliding scale" where "a high level of materiality can offset a low level of intent, or vice versa, has further muddled the present inequitable conduct analysis and contributed to the high costs" for both patentees and accused infringers, as well as inviting the parties "to place significant weight on the materiality prong . . . in effect ignoring the need for evidence of intent." Balancing, the brief notes, is not mandated by any Supreme Court precedent, and BIO's standard would be straightforward to implement merely by finding "but for" materiality of a withheld reference and specific intent, each independently established by clear and convincing evidence. The brief characterizes its approach as using "an objective patentability defect which establishes culpability if caused deliberately and in bad faith," a "simpler, more effective inquiry."
None of these changes need affect how the PTO conducts examination and other proceedings, the brief argues. The Office has the authority "to adopt and enforce a materiality standard that best meets its administrative needs." This could include a "more inclusive standard" for materiality than BIO advocates should be used by the courts, justified because the roles of the Office and the judiciary are different. The Office must promulgate rules and practices that "advance its policy goals of timely, efficient and quality examination," which may include "incentivizing the submission of the most relevant information patent applicants regard as material." The courts, on the other hand, act to "balance the interests of private litigants and protect the 'paramount' interest of the public," and thus how courts assess inequitable conduct should not "intru[de] into the operation of the agency," for example by providing incentives to over-disclose references while under-disclosing the relevance thereof. "Much confusion in this area has arisen from an assumption that the administrative and judicial materiality standards somehow have to be the same," the brief asserts. "They do not," and "[p]roblems only arise when conduct that is lawful under the agency's regulations is later found unlawful in private actions," citing Digital Control v. Charles Mach. Works, 437 F.3d 1309 (Fed. Cir. 2006). The Court should recognize these differences and "adopt a standard [BIO's] where the public interest, not the PTO's administrative convenience, is paramount."
In its Statement of Interest, BIO asserts that represents "over 1,150 corporate, academic and non-profit members," the majority of which "are small and mid-size businesses that have yet to bring a product to market." These businesses, working "in an environment of rapidly-evolving science, high rates of publication, and vibrant scientific and public discourse . . . face difficult choices about which information to cite to the PTO," and thus "the risk of misstatements and omissions is significant." Patents are frequently a biotechnology company's "most valuable business assets," and are placed at risk by charges of inequitable conduct driven by hindsight, something that "is particularly evident in the biopharmaceutical area." These circumstances, and the particular risk BIO's member companies face with regard to their patents because of the uncertainty created by the inequitable conduct defense as it is now applied by the courts, are the basis for BIO's interest in the questions presented by the en banc Court, despite BIO's lack of interest in the specific outcome of this case between the parties.