By Kevin E. Noonan --
The Federal Circuit delivered its en banc opinion on inequitable conduct on Wednesday in Therasense, Inc. v. Becton, Dickinson & Co. Four judges dissented from that opinion, with Judge Bryson writing for his fellow Circuit Judges Gajarsa, Dyk, and Prost. Judge O'Malley wrote separately, concurring in part and dissenting in part. Despite coming in at slightly longer than the majority opinion, Judge Bryson's dissent differs from the majority on but one aspect of inequitable conduct, the standard for assessing materiality. The dissenting judges argue that the best measure of a material reference is the one used by the U.S. Patent and Trademark Office, codified as PTO Rule 56 (37 C.F.R. § 1.56). Otherwise, the dissenters agree with the majority that "[t]here is broad consensus that the law of inequitable conduct is in an unsatisfactory state and needs adjustment" due to "differing standards" having been applied in making inequitable conduct decisions. There is also consensus with the majority that such "doctrinal uncertainty has had adverse consequences both for patent litigation and for the PTO," including an excess of inequitable conduct claims in litigation and the resulting tendency for "some patent prosecutors to err on the side of 'over-disclosure; in order to avoid the risk of rendering all claims of an otherwise valid patent unenforceable because of the omission of some marginally relevant reference."
There is "substantial agreement" on resolving the issues of intent to deceive and the application of the "sliding scale": indeed, "the parties to this case and most of the amici agree that proof of inequitable conduct should require a showing of specific intent to deceive the PTO," and that "negligence, or even gross negligence, should not be enough." There is also agreement, according to the dissenting opinion, that courts should not apply a "sliding scale" "whereby a strong showing as to one element [i.e., materiality or intent to deceive] can make up for weaker proof as to the other."
The question, then, is the materiality standard, for which there is consensus among neither the parties, the amici, or the Court. The dissent believes the proper (and broader) standard should be Rule 56:
[I]nformation is "material" if it is "not cumulative to information already of record or being made of record in the application" and
(1) It establishes, by itself, or in combination with other information, a prima facie case of unpatentability of a claim; or
(2) It refutes, or is inconsistent with, a position the applicant takes in:
(i) Opposing an argument of unpatentability relied on by the Office, or
(ii) Asserting an argument of patentability.
The dissent believes this is the proper standard for two reasons: first, that the PTO is in the best position to determine whether information is material to its purposes (examination), and second that the majority's higher materiality standard will not provide "appropriate incentives" for patent applicants to comply with the duty of disclosure. Judge Bryson believes that this standard is consistent with the Court's precedent, particularly J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553 (Fed. Cir. 1984). There, according to the dissenting opinion, a five-judge panel of the court decided that:
• Inequitable conduct is broader than common-law fraud, citing Norton v. Curtiss, 433 F.3d 779, 793 (CCPA 1970);
• Failure to disclose material information could be just as culpable as providing false information; and
• PTO Rule 56 "established 'the appropriate starting point' because that standard 'most closely aligns with how one ought to conduct business with the PTO,'" citing Norton and Driscoll v. Cebalo, 731 F.2d 878, 884 (Fed. Cir. 1984).
While the Court has "occasional[ly] depart[ed]" from the intent standard established by Kingsdown Medical Consultants, Ltd. v. Hollister Inc., the dissent argues that the materiality standard as established by this line of precedent has been consistently applied by the Court (albeit admitting that "there has been some variation" in which version of the Rule has been applied).
The dissenting judges would reaffirm this standard, and their opinion characterizes the majority opinion as "radical" and that it "does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether." The dissent believes that proper application of the principles enunciated in Kingsdown and the other cited prior precedent would be sufficient to resolve the deleterious effects of widespread use of the inequitable conduct defense, in concert with heightened pleadings requirements (Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009)), use of Rule 11 sanctions, and the exercise of the court's "equitable judgment," all of which the dissent finds preferable to the majority's "Draconian" solution (and none of which have been particularly effective to date).
Citing the PTO's amicus brief, the dissent argues that the "but for" materiality test makes inequitable conduct a redundancy, since only those claims that are invalid anyway would be unenforceable for inequitable conduct. Thus, the dissent argues, this test provides little incentive to promote the policy goals of the duty of disclosure before the PTO (discounting the disciplinary aspects in view of deficiencies in the PTO's ability to detect inequitable conduct and ignoring the unlikelihood that most practitioners would intentionally put their careers in jeopardy). The dissent cites several cases where the Court has rejected the "but for" materiality test, including Merck & Co. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1421 (Fed. Cir. 1989); Purdue Pharma L.P. v. Endo Pharms. Inc., 438 F.3d 1123, 1132 (Fed. Cir. 2006); Hoffmann-LaRoche, Inc. v. Promega Corp., 323 F.3d 1354, 1368 (Fed. Cir. 2003); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1179-80 (Fed. Cir. 1995); and A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1396 (Fed. Cir. 1986). The dissent argues that the incentives of Rule 56 are necessary because "an open door may tempt a saint" and the "large stakes sometimes at issue in patent prosecution" make "a regime that ensures that a dishonest but potentially profitable course of action can be pursued with essentially no marginal added risk is an unwise regime no matter how virtuous its subjects."
The dissent also argues that the "but for" materiality standard is inconsistent with the three canonical Supreme Court cases that were the genesis of the inequitable conduct doctrine: 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); Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945), a view directly opposed to the majority's reading of these cases. For the dissenting judges, none of these cases involved a determination by the Court that the patents in question would not have issued "but for" nondisclosure of the undisclosed information. In the dissent's view, the Supreme Court trilogy established the following principles:
(1) the public has a special interest in seeing that patent monopolies "spring from backgrounds free from fraud or other inequitable conduct";
(2) as a corollary to that public interest, patent applicants "have an uncompromising duty to report to [the Patent Office] all facts concerning possible fraud or inequitableness underlying the applications";
(3) all facts relevant to such matters must be submitted to the Patent Office, "which can then pass upon the sufficiency of the evidence";
(4) the intentional failure to disclose to the Patent Office that a patent application is tainted by fraud is sufficient cause to justify not enforcing the patent; and
(5) the misconduct in question need not constitute actionable fraud; it is sufficient if the conduct constitutes a willful act that violates standards of equitable conduct in dealing with the Patent Office.
In addition, the dissent cites Kingsland v. Dorsey, 338 U.S. 318, 319 (1949), for the principle that "the relationship of attorneys to the Patent Office requires the highest degree of candor and good faith. In its relation to applicants, the Office . . . must rely upon their integrity and deal with them in a spirit of trust and confidence . . . ," and accordingly that it falls to the courts to police applicants' (and their counsels') behavior. This forms the predicate for the dissent's argument that the Court should adopt the PTO's materiality standard, Rule 56.
The dissent relies on the Norton decision, where the Court both endorsed the Commissioner's (now Director's) authority to "strike a patent application for fraud on the PTO in violation of the PTO's Rule 56" as well as defining "fraud on the PTO" to be broader than common-law fraud, due to the "relationship of confidence and trust" between applicants (and their counsel) and the agency. Thus, the Norton court held that "the test for materiality 'cannot be applied too narrowly if the relationship of confidence and trust between applicants and the Patent Office is to have any real meaning,' and that findings of materiality should not be limited to those cases in which the true facts, if they had been known, 'would most likely have prevented the allowance of the particular claims at issue.'" According to the dissent, this standard was consistently applied ever since, citing cases decided throughout the Federal Circuit's history (although the dissenting opinion does recognize that the standard has changed, from a "reasonable examiner" under the 1977 version of the Rule to the current Rule, adopted in 1992). Of course, if that was indeed the controlling standard, the majority's decision has now overruled it.
Finally, the dissent cites to other areas of the law, specifically securities law regarding insider trading (where the existence of undisclosed information is "regarded as material without the need to prove reliance," citing Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972), and Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156 (U.S. Mar. 22, 2011)) and proxy solicitations, citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976); mail and wire fraud, citing United States v. Olatunji, 872 F.2d 116; naturalization proceedings, citing Kungys v. United States, 485 U.S. 759, 772 (1988); and even common law fraud, citing the Restatement (Second) of Torts § 538, all for the proposition that materiality is not subject to a "but for" test in any of these instances.
The dissent summarizes its underlying policy objections succinctly:
Under this court's new rule, an applicant who conceals information with the intent to deceive the PTO will be free to enforce his patent unless it can be proved by clear and convincing evidence that the patent would not have issued but for the fraud. Even though the majority justifies its new rule in part by asserting that it will improve the prosecution of patents before the PTO, I am convinced that the new rule is likely to have an adverse impact on the PTO and the public at large, a view that -- significantly -- is shared by the PTO itself.
As for the case at bar (which the dissenting judges believe "illustrate why the materiality standard of Rule 56 is a suitable test for inequitable conduct claims based on disclosure violations"), the dissent would affirm, believing that "the district court made all the findings necessary to support its holding that the '551 patent was unenforceable for inequitable conduct."
The majority opinion sets forth its views on the arguments made in the dissent. The majority notes that the Federal Circuit "is not bound by the definition of materiality in PTO rules," citing Merck & Co., Inc. v. Kessler, 80 F.3d 1543, 1549-50 (Fed. Cir. 1996), for the proposition that the PTO does not have substantive rulemaking authority. The majority also states that, with all due regard for "the PTO's knowledge in its area of expertise," the effects of inequitable conduct "ha[ve] had adverse ramifications beyond its effect on the PTO" (specifically, in litigation). The opinion acknowledges that the Court has used Rule 56 in the past "as a starting point for determining materiality," and that the Rules standards have changed over time. But this inconsistency in the PTO's definition of materiality "has led to uncertainty and inconsistency in the development of the inequitable conduct doctrine," citing Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1316 (Fed. Cir. 2006), for the application of the 1977 version of Rule 56, and Bruno Independent Living Aids, Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348, 1352-53 (Fed. Cir. 2005), for applying the 1992 version of the Rule. The majority expressly states that it "declines to adopt the current version of Rule 56 in defining inequitable conduct because reliance on this standard has resulted in the very problems this court sought to address by taking this case en banc":
The first prong of Rule 56 is overly broad because information is considered material even if the information would be rendered irrelevant in light of subsequent argument or explanation by the patentee. Under this standard, inequitable conduct could be found based on an applicant's failure to disclose information that a patent examiner would readily agree was not relevant to the prosecution after considering the patentee's argument. Likewise, the second prong of Rule 56 broadly encompasses anything that could be considered marginally relevant to patentability. If an applicant were to assert that his invention would have been non-obvious, for example, anything bearing any relation to obviousness could be found material under the second prong of Rule 56. 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.
The majority also disagrees with the dissent's view that "but for" materiality is not required in other contexts, specifically common law fraud where the opinion cites its own section of Restatement (Second) of Torts (§ 525) for the proposition that reliance is required. More generally, the opinion states that copyright and trademark law are more appropriate analogous areas of law for comparison, and there "[b]ut-for proof is required to invalidate both copyrights and trademarks based on applicant misconduct," citing 17 U.S.C. § 411(b)(1) (copyright) and Citibank, N.A. v. Citibanc Group, Inc., 724 F.2d 1540, 1544 (11th Cir. 1984) (trademarks).
It is interesting to note that Footnote 1 of the dissent, relating to prohibiting the "sliding scale," in fact would return this aspect of the inequitable conduct to status quo ante:
It is important to distinguish between relaxing the required proof of intent if the proof of materiality is strong, which is impermissible, as opposed to considering the degree of materiality as relevant to the issue of intent, which is appropriate, particularly given that direct evidence of intent, such as an admission of deceptive purpose, is seldom available. See Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1366 (Fed. Cir. 2007); Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1190-91 (Fed. Cir. 2006); GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1274 (Fed. Cir. 2001); Paragon Podiatry Lab., Inc. v. KLM Labs., Inc., 984 F.2d 1182, 1189 (Fed. Cir. 1993); Merck & Co. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1422 (Fed. Cir. 1989).
Permitting evidence of materiality to color the assessment of the intent to deceive has resulted in precisely the situation the majority opinion is intended to remedy, as evidenced by the cases cited in support of this principle, which constitute many of the cases where arguably "minor misconduct" has been bootstrapped into an inequitable conduct finding.
Judge O'Malley in her opinion, concurring in part and dissenting in part, "do[es] not weigh in on the policy debate between the majority and the dissenters." Her views will be discussed in a future Patent Docs post.
Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc)
Before Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, Moore, O'Malley, and Reyna
Opinion by Chief Judge Rader, joined in full by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and joined in part by Circuit Judge O'Malley
Concurring-in-part and dissenting-in-part opinion by Circuit Judge O'Malley
Dissenting opinion by Circuit Judge Bryson, joined by Circuit Judges Gajarsa, Dyk, and Prost