By Kevin E. Noonan --
The Federal Circuit delivered its en banc opinion on inequitable conduct today in Therasense, Inc. v. Becton, Dickinson & Co. In an opinion written by Chief Judge Rader and joined by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and by Judge O'Malley in part, the Court issued clear standards for establishing the inequitable conduct defense. Simply put, first, an omitted reference is a material reference only if "but for" its exclusion the claim or patent would not have issued. Second, there must be clear and convincing evidence of a specific intent to deceive by the applicant. Third, a court cannot use a "sliding scale" to find inequitable conduct, i.e., it cannot find sufficient a weak showing of intent based on a strong showing of materiality; both materiality and intent to deceive must be supported by clear and convincing evidence. And finally, in view of the severity of the remedy of unenforceability, courts should apply equity to ensure that the remedy is not imposed for misconduct that was "immaterial to the issuance of the patent."
To recap the factual background of this case, the technology involves disposable blood glucose test strips for measuring the amount of glucose in blood, where the amount of glucose in the sample is read using an electrode. Specifically claimed are test strips without a membrane over the electrode:
1. A single use disposable electrode strip for attachment to the signal readout circuitry of a sensor to detect a current representative of the concentration of a compound in a drop of a whole blood sample comprising:
a) an elongated support having a substantially flat, planar surface, adapted for releasable attachment to said readout circuitry;
b) a first conductor extending along said surface and comprising a conductive element for connection to said readout circuitry;
c) an active electrode on said strip in electrical contact with said first conductor and positioned to contact said whole blood sample;
d) a second conductor extending along said surface comprising a conductive element for connection to said read out circuitry; and
e) a reference counterelectrode in electrical contact with said second conductor and positioned to contact said whole blood sample,
wherein said active electrode is configured to be exposed to said whole blood sample without an intervening membrane or other whole blood filtering member . . . .
(U.S. Patent No. 5,820,551). The prior art (including patentee's own prior patent, U.S. Patent No. 4,545,382) contained protective membranes to prevent electrode fouling. This patent contained language wherein a membrane was "optionally, but preferably" included in the test strip. Attorney argument, supported by expert witness declaration (from Abbott's Director of R&D) asserted that the "membraneless" feature of the '551 patent claim distinguished over the '382 prior art. The Examiner required a declaration that the prior art required a membrane, and Abbott's R&D Director attested that the worker of ordinary skill would understand the "optionally, but preferably" language in the '382 patent to require a membrane.
Prior to submitting this argument, however, counsel before the European Patent Office had submitted a response, supported by the same expert's declaration, in the European counterpart of the '382 patent that was directly contradictory to the arguments presented to the U.S. Examiner during prosecution of the '551 patent. Before the EPO, the expert attested and the European attorney argued that the membrane was not necessary to control permeability, an argument used to distinguish over another prior art reference that disclosed a test strip having a membrane.
Litigation ensued between the parties, with Becton, Dickinson ("BD") filing a declaratory judgment action that its disposable glucose strip did not infringe two other Abbott patents (U.S. Patent Nos. 6,143,164 and 6,592,745), and Abbott (successor in interest to Therasense) counterclaimed for infringement of the '164, '745, and '551 patents. The District Court granted summary judgment of non-infringement of the '143 and '745 patents, that the '745 patent claims were invalid for anticipation, and that claims 1-4 of the '551 patent were obvious over the '382 patent in view of U.S. Patent 4,225,410. The District Court also found that the '551 patent was unenforceable for inequitable conduct, based on the failure to submit the briefs filed in the EPO during prosecution of the '551 patent. The en banc Court vacated a prior panel decision in order to address the inequitable conduct issue.
The majority opinion starts, as it must, 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). The opinion characterizes each of these cases as involving "the manufacture or suppression of evidence," either before the U.S. Patent and Trademark Office, during litigation or both, and notes that the remedy was that the case was dismissed, i.e., the patentee was precluded from obtaining relief from the court due to unclean hands. The majority opinion notes that these cases each "dealt with particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence" and also involved "'deliberately planned and carefully executed scheme[s] to defraud' not only the PTO but also the courts," citing Hazel-Atlas Glass, 322 U.S. at 245. However, from these origins the Court acknowledges that the inequitable conduct doctrine "came to embrace a broader scope of misconduct, including not only egregious affirmative acts of misconduct intended to deceive both the PTO and the courts but also the mere nondisclosure of information to the PTO." The Court also notes that the remedy invoked also changed, from dismissal of the lawsuit to "unenforceability of the entire patent" involved in the lawsuit.
Along with "this wider scope and stronger remedy," the opinion states that a showing of both materiality and intent came to be required. The opinion cites Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357 (Fed. Cir. 2008), for the conventional requirement for establishing inequitable conduct: a finding that "applicant misrepresented or omitted material information with the specific intent to deceive the PTO" and that "[t]he accused infringer must prove both elements -- intent and materiality -- by clear and convincing evidence." Finally, "[i]f the accused infringer meets its burden, then the district court must weigh the equities to determine whether the applicant's conduct before the PTO warrants rendering the entire patent unenforceable."
The majority opinion recognizes that the Supreme Court cases cited above did not contain any standard for materiality, and that those Supreme Court cases provide precedential support for a court to invoke the unclean hands doctrine "to supply a remedy for egregious misconduct." The opinion also notes that the standards for establishing both materiality and intent have "fluctuated" over time, citing cases where the Court "espoused low standards for meeting the intent requirement," Driscoll v. Cebalo, 731 F.2d 878, 885 (Fed. Cir. 1984) (establishing a "knew or should have known" standard); Orthopedic Equip. Co., Inc. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1383-84 (Fed. Cir. 1983) (finding gross negligence sufficient to establish intent to deceive), and "a broad view of materiality," citing Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed. Cir. 1984) (applying a "reasonable examiner" standard based on 37 C.F.R. § 1.56 (1977)). "Further weakening" what was required to establish inequitable conduct, according to the opinion, was the practice of using a "sliding scale" that permitted a finding of inequitable conduct "based on a reduced showing of intent if the record contained a strong showing of materiality, and vice versa."
The rationale for lowering the standards, according to the majority was to "foster full disclosure to the PTO." However, the opinion notes that "[t]his new focus" had "numerous unforeseen and unintended consequences," including "increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality." Citing a Report from the National Research Council of the National Academies, the opinion states that charging inequitable conduct "conveniently expands discovery into corporate practices before patent filing and disqualifies the prosecuting attorney from the patentee's litigation team," and in addition "cast a dark cloud over the patent's validity and paint the patentee as a bad actor." The opinion also cites the doctrine's focus on "moral turpitude" as a reason why it "discourages settlement and deflects attention from the merits of validity and infringement issues," citing a Committee Position Paper from the AIPLA.
"Perhaps most importantly," according to the majority, the remedy of complete unenforceability of the entire patent makes inequitable conduct the "atomic bomb" of patent law, citing Chief Judge Rader's dissent from Aventis Pharma S.A. v. Amphastar Pharm., Inc., 525 F.3d 1334 (Fed. Cir. 2008). Not only can't inequitable conduct be "cured by reissue," but the "taint . . . can spread from a single patent to render unenforceable other related patents and applications in the same technology family," citing Consol. Aluminum Corp. v. Foseco Int'l Ltd., 910 F.2d 804, 808-12 (Fed. Cir. 1990). The opinion also notes that an inequitable conduct finding can be used to support claims sounding in antitrust and unfair competition, may invoke the "exceptional case" provisions of 35 U.S.C. § 285, and may be used to pierce the attorney-client privilege under the crime-fraud exception. The opinion also asserts that the consequences of this state of affairs extends further than litigation and plagues "the entire patent system." These negative effects include the practice of "patent prosecutors regularly bury[ing] PTO examiners with a deluge of prior art references, most of which have marginal value," constituting a "tidal wave of disclosure [that] makes identifying the most relevant prior art difficult."
In view of these negative and unintended consequences, the opinion directly states that "[t]his court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public." (The section of the brief outlining how the Court has "tightened the standards" was joined by Judge O'Malley.) First, the Court holds that an accused infringer "must prove that the patentee acted with the specific intent to deceive the PTO," citing Star Scientific. Specifically, a finding of negligence, gross negligence, or the application of a "should have known" standard "does not satisfy this intent requirement," citing Kingsdown Medical Consultants, Ltd. v. Hollister Inc. Rather, there must be clear and convincing evidence that an applicant "made a deliberate decision to withhold a known material reference," citing Molins PLC v. Textron, Inc. (emphasis in the opinion). In the event that this standard remains unclear, the Court expressly set forth the requirement: "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." The opinion characterizes this standard as being consistent with the "origins in the trio of Supreme Court cases that set in motion the development of the inequitable conduct doctrine."
Second, the opinion states that "[i]intent and materiality are separate requirements," citing Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1359 (Fed. Cir. 2003), and thus "[a] district court should not use a 'sliding scale,' where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa." In addition, "a district court may not infer intent solely from materiality." Recognizing that "direct evidence of deceptive intent is rare," the opinion permits district courts to "infer intent from indirect and circumstantial evidence," citing Larson Mfg. Co. of S.D., Inc. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1340 (Fed. Cir. 2009). The opinion warns, however, that such an inferred intent "must be 'the single most reasonable inference able to be drawn from the evidence,'" citing Star Scientific, emphasizing that the evidence "'must be sufficient to require a finding of deceitful intent in the light of all the circumstances,'" citing Kingsdown Medical (emphasis in opinion). Again leaving little room for doubt, the opinion states that "when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found," citing Scanner Techs. Corp. v. ICOS Vision Sys. Corp., 528 F.3d 1365, 1376 (Fed. Cir. 2008). Finally, the absence of "a good faith explanation for withholding a material reference" by the patentee is not sufficient to establish an intent to deceive.
Acknowledging the failure of prior precedent to reduce the "proliferation of inequitable conduct charges" by focusing on the intent prong, the Court then addressed the materiality standard. Once again stating the standard expressly, the Court holds that "as a general matter, the materiality required to establish inequitable conduct is but-for materiality," i.e., "[w]hen an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art"; the opinion cites Corona Cord Tire Co. v. Dovan Chem. Corp., 276 U.S. 358 (1928), as relevant and Supreme Court precedent consistent with this standard. In the application of this materiality standard, the opinion states that a district court "must determine" whether the claim at issue would have been granted if the PTO was aware of the reference, using the preponderance of the evidence burden and giving the claims their "broadest reasonable construction," as would have occurred during ex parte prosecution. The Court sets out an important indication of how this standard might be put into practice, stating that a "deliberately withheld reference" is "necessarily material" if a claim is "properly invalidated" by a court, since the clear and convincing evidence standard for invalidity is higher than the preponderance standard that the PTO applies. The opinion does accommodate an exception to these principles in cases of "affirmative egregious conduct" as existed in the canonical Supreme Court precedential trio. Such egregious misconduct is material per se, according to the opinion, and making this distinction "strikes a necessary balance between encouraging honesty before the PTO and preventing unfounded accusations of inequitable conduct."
Turning to the remedy, the opinion notes that inequitable conduct is an equitable doctrine, and thus its application is rooted in "basic fairness." Thus, a finding of inequitable conduct having a remedy of complete unenforceability "should only be applied in instances where the patentee's misconduct resulted in the unfair benefit of receiving an unwarranted claim," citing the statement in Star Scientific that "[j]ust as it is inequitable to permit a patentee who obtained his patent through deliberate misrepresentations or omissions of material information to enforce the patent against others, it is also inequitable to strike down an entire patent where the patentee committed only minor missteps or acted with minimal culpability." While not expressly cited, cases where inequitable conduct has been found for improperly claiming small entity status (Nilssen v. Osram Sylvania, Inc.), improperly filing a petition to make special (General Electro Music Corp. v. Samick Music Corp.), failing to disclose that a declarant had been a paid consultant prior to filing an expert declaration under 37 C.F.R. § 1.132 (Ferring B.V. v. Barr Laboratories, Inc.), misjoinder of inventorship (PerSeptive Biosystems, Inc. v. Pharmacia Biotech, Inc.), and inaccuracies in an expert declaration (Aventis Pharma S.A. v Amphastar Pharma, Inc.) seem to be encompassed by this characterization.
The majority vacated and remanded the case to the District Court to consider the inequitable conduct question in light of the standards set forth in the opinion, while affirming without comment or discussion the invalidity findings below.
Most of the rubrics and principles on which the opinion's standards are founded upon can be found in earlier precedent cited liberally throughout the majority opinion; in this regard, the case is similar to the en banc Court's treatment of claim construction standards in Phillips v. AWH Corp. in 2005. However, the adoption of the "but-for" standard (and an "objective but-for" standard at that) clearly indicates that the Court majority has been persuaded that inequitable conduct has once again become a sufficiently significant plague that its exercise can only be curbed by "tightening" the objective grounds upon which it can be proven (after similarly tightening the requirements for how it is plead in Exergen Corp. v. Wal-Mart Stores, Inc.).
The dissenting and concurring opinions will be discussed in subsequent posts, along with the majority's rejoinder regarding the arguments set forth in those opinions.
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