Evolution of Inequitable Conduct

    By Kevin E. Noonan --

Among the many things "wrong" with U.S. patent law, few outside the profession (meaning few among the cadre of gadflies, pundits, careerists, and those grinding their different shades of political and rhetorical axes against current patent law) focus on one of the real problems:  the varying and inconsistent standards governing inequitable conduct.  These variations, and inconsistent application of what standards exist by the Federal Circuit, create more problems and drive more inefficient behavior in the patent system (both in procuring patents before the U.S. Patent and Trademark Office and in litigation) than any of the other several foci of common complaint.

Like other provisions in patent law, inequitable conduct arose from a Supreme Court decision, which established:

A patent by its very nature is affected by a public interest.  As recognized by the Constitution, it is a special privilege designed to serve the public purpose of promoting the "Progress of Science and useful Arts."  At the same time, a patent is an exception to the general rule against monopolies and to the right to access a free and open market.  The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.

Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 816 (1945).  What an applicant must do to comply with these requirements was first established by the PTO in 1977, with the promulgation of Rule 56, imposing on applicants for the first time the need to comply with a duty of good faith and candor in their dealings with the Office.  37 C.F.R. § 1.56.  Rule 56 was revised in 1992 with regard to how the standard must be measured.

It is not the Patent Office standard that creates the issues with the doctrine, however, it has been the way the Federal Circuit has applied the doctrine.  Twenty years ago, the CAFC bemoaned the trend for the inequitable conduct defense to be asserted in almost every patent case, becoming according to the Court a "plague on the patent system."  Burlington Industries Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988).  Judge Nichols rightly identified the pernicious effects of how the doctrine was being used:

Reputable lawyers seem to feel compelled to make the charge against other reputable lawyers on the slenderest grounds, to represent their client's interests adequately, perhaps.  They 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 used to make 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.  A patent litigant should be made to feel, therefore, that an unsupported charge of "inequitable conduct in the Patent Office" is a negative contribution to the rightful administration of justice.  The charge was formerly known as "fraud on the Patent Office," a more pejorative term, but the change of name does not make the thing itself smell any sweeter.  Even after complete testimony the court should find inequitable conduct only if shown by clear and convincing evidence.  A summary judgment that a reputable attorney has been guilty of inequitable conduct, over his denials, ought to be, and can properly be, rare indeed.

The Federal Circuit appeared determined to follow this philosophy, as illustrated by its decisions in Kingsdown Medical Consultants, Ltd. v. Hollister, Inc. and Molins PLC v. Textron, Inc.  In Kingsdown, the Federal Circuit refused to affirm a District Court finding of inequitable conduct in a case where a rejected claim was later introduced in unamended form in a continuation application.  The CAFC did not countenance mere mistake, even a mistake that inarguably affected the integrity of the patenting system.  Rather, the Federal Circuit required some evidence of "culpable conduct" established by clear and convincing evidence.  The CAFC's failure, on en banc consideration, to find inequitable conduct in Kingsdown, signaled its agreement with Judge Nichols that a finding of inequitable conduct should be rare.

In contrast, in Molins the Federal Circuit affirmed a finding of inequitable conduct on evidence that an experienced patent prosecutor failed to disclose material prior art to the Office during prosecution.  Important to this determination was evidence that the prosecutor had argued in foreign prosecution that the reference not disclosed to the PTO was the "closest prior art."  In this instance, the patentee's argument that this was an inadvertent failure to disclose was not credible and the Federal Circuit affirmed.

Since Kingsdown and Molins, however, the Federal Circuit has found increasingly less stringent reasons for finding inequitable conduct.  These include 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.), and misjoinder of inventorship (PerSeptive Biosystems, Inc. v. Pharmacia Biotech, Inc.).

This trend continues in Aventis Pharma S.A. v. Amphastar Pharma, Inc., decided earlier this month (see Patent Docs post on case).  The Federal Circuit affirmed a District Court finding of inequitable conduct based on the content of an expert declaration by a non-inventor employee of the patent assignee, Aventis.  This expert, Dr. Uzan, provided experimental evidence and affidavit testimony regarding comparisons between the prior art and compounds of the claimed invention, low molecular weight heparin formulations used as blood thinners (sold by Aventis under the brand name Lovenox®).  Importantly, Dr. Uzan testified repeatedly that the inventive compounds had a longer half-life in vivo than the prior art formulations.  This testimony was important because the claimed heparin formulations were "identical or nearly identical" (according to the Examiner) with the formulations disclosed in the cited art.  Included with his testimony, Dr. Uzan submitted tables of his experimental data establishing the differences in half-life of the formulations in vivo.

At trial and before the Federal Circuit, the inequitable conduct finding was based on the fact that the inventive formulations were administered at a different (and higher) dosage than the prior art compounds, a fact the CAFC found was not disclosed to the Examiner.  Nor did Dr. Uzan point out that the half-lives of the inventive and prior art formulations were significantly closer when the comparison was performed using the same administered dose.  The Federal Circuit found it incredible that a scientist of Dr. Uzan's caliber would be so negligent as to unintentionally fail to perform the proper comparisons.

Judge Rader in dissent raised the issue of how far the majority had strayed from the principles enunciated in Kingsdown.  Citing Nilssen and General Electro Music, he decried the trend for the CAFC to find inequitable conduct in evidence of omissions rather than affirmative instances of "culpable conduct."  Judge Rader also found Dr. Uzan's credentials to be evidence of his intent; however, Judge Rader thought it unlikely that a scientist of Dr. Uzan's caliber would sully his reputation by intentionally withholding evidence, particularly for an application for which he was not a named inventor.

Part of the reason that the majority (an opinion by Judge Prost, joined by Judge Moore) differed with Judge Rader bespeaks Judge Rader's point:  they approached the issue with a greater propensity to find inequitable conduct than Judge Rader did (and according to Judge Rader, with a greater propensity than Kingsdown contemplated).  The majority, and the District Court, judged the evidence in a more neutral way, not predisposed against the inequitable conduct defense.  Judge Rader believes that Kingsdown mandates that courts turn a gelid eye towards the defense, and require a much higher quantum of proof to satisfy the clear and convincing evidence standard.

These issues bring to mind the Senate Judiciary Committee's Report in the stalled Senate "patent reform" bill (S. 1145).  Section 12 of S. 1145 amends Title 35 to add new Section 298, as follows:

§ 298. Inequitable conduct

A party advancing the proposition that a patent should be cancelled or held unenforceable due to inequitable conduct shall prove independently, by clear and convincing evidence, that material information was misrepresented, or omitted, from the patent application with the intention of deceiving the USPTO.  Information is material if a reasonable examiner would consider such information important in deciding whether to allow the patent application; any such information is not cumulative.  Although intent to deceive the USPTO may be inferred, it may not be done so based solely on the gross negligence of the patent owner or its representative, or on the materiality of the information misrepresented or not disclosed.  The party asserting the defense or claim shall comply with the pleading requirements set forth under Federal Rules of Civil Procedure 9(b).  If the court finds inequitable conduct, the court has discretion to (1) hold the entire patent unenforceable, (2) hold 1 or more claims unenforceable, or (3) hold that patentee is not entitled an injunction.

The draft report advises that the intent of this new section is to codify (for the first time) the inequitable conduct defense and the consequence of unenforceability to a finding that a patent (or any claim thereof) was obtained through inequitable conduct.  The need, at least in part, for this legislation included the inconsistent definitions of what constitutes a reference "material to patentability" under the Federal Circuit's jurisprudence.  The Report identifies five different definitions used by the Federal Circuit in defining materiality:

(1) the objective "but for" standard, where the misrepresentation was so material that the patent should not have issued;

(2) the subjective "but for" test, where the misrepresentation actually caused the examiner to approve the patent application when he would not otherwise have done so;

(3) the "but it may have" standard, where the misrepresentation may have influenced the patent examiner in the course of prosecution;

(4) the old Rule 56 standard where it is likely a reasonable examiner would have considered the information important in deciding whether to issue of the patent; and

(5) the new Rule 56 standard where the information is not cumulative and (i) establishes a prima facie case of unpatentability (either alone or in combination with other references), or (ii) refutes or is inconsistent with a position the applicant has taken.

See Digital Control Inc. v. Charles Machine Works , 437 F.3d 1309, 1314-16 (Fed. Cir. 2006); see also American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed. Cir. 1984).  The Federal Circuit justifies these different tests on the grounds that there is "no reason to be bound by any single standard."

There are a number of other, perhaps better and certainly more direct ways to address the problem of inequitable conduct.  First is the remedy:  unenforceability is a "nuclear" option that has the greatest influence on behavior.  In prosecution, it motivates applicants to disclose any prior art reference that could have any plausible (and sometimes implausible) relation to the claimed invention.  Indeed, the only art that can safely be "undisclosed" are general reference works (the Maniatis cloning manual, for example) whose general content should be known to anyone with skill in the art.  In litigation, the possibility of establishing inequitable conduct motivates pleading it as an affirmative defense.  If there were good reason to believe that inequitable conduct was rampant, this remedy might be justified.  However, even in cases where the Federal Circuit has found inequitable conduct, the number involving withholding material information with clear evidence of an intent to deceive are few.

As an alternative, a finding of inequitable conduct might be sufficient to destroy the presumption of validity.  This would be a boon to defendants who found undisclosed art, because a judge or jury could more easily find claims substantively invalid (which would also ensure the materiality of the references at issue).  Another alternative would be for inequitable conduct to be applied claim-by-claim.  Raising the standard of intent, akin to how the CAFC has addressed the question of willfulness in the In re Seagate case, would also reduce inequitable conduct claims, and would be in accord with the facts in cases where a defendant's explanation of non-disclosing behavior was incredible.

Beyond these remedies, the defense can be curtailed in litigation by stringent application of Federal Rule of Civil Procedure 8(a).  This rule requires a pleading to contain assertions of fact supporting any allegations contained therein, including affirmative defenses.  Inequitable conduct allegations are usually contained in a defendant's answer to the patentee's complaint, at a time prior to discovery when the defendant has not yet obtained evidence to support the claim.  Preventing this automatic allegation of inequitable conduct, coupled with liberal application of the Rules regarding amended pleadings (Fed. R. Civ. Proc. 15), would at a minimum permit the inequitable conduct defense to be plead only after there was some evidence to support it.

Inequitable conduct is an issue in dire need for resolution to promote efficiency in both patent prosecution and litigation.  With any luck, it is an issue the Federal Circuit will address before either Congress or the Supreme Court is compelled to act.

Comments

[e6k]

What can I say? Nuclear seems good to me. Do. Not. Deceive. The. Office.

All clear?

[Kevin E. Noonan]

Dear e6k:

Your point is clear. The point of the piece, however, is that applicants rarely deceive the Office. Inequitable conduct is always plead, and almost never shown. And as a result, you get inefficiencies in the process. Without the fear of inequitable conduct, no one would submit an IDS with hundreds of references. Without inequitable conduct, litigation would not be Russian roulette. The CAFC finally resolved the willfulness issue, which had made patent plaintiffs into lottery ticket holders - get the court to decide infringement was willful, and you get treble damages. Bingo!

If there is actual proof of deceit, then I'm with you. But that is rare (it does happen; see Molins). In so many other areas we trust the discovery process in litigation to ferret out these types of shennanigans, and then for IC we give defendant's their version of a get-out-of-jail-free card. Doesn't make sense.

So, my proposal is not to eliminate the duty of candor. Far from it - I'm not willing to risk my livelihood by lying for a client, and I don't want to be disadvantaged by the few who would. I just think we need to determine the best way to balance the legitimate needs of the many - avoiding harassing second guessing that turns innocent mistakes into culpable conduct - to prevent the few who would take advantage from doing so, i.e. Deceiving. The. Office.

Thanks for the comment.

[agent007]

IC reform is not an easy issue.

Loser pays both side's fees on the IC issue is a reasonable idea I've seen proposed elsewhere.

Another thought is that allegations of IC that end up having no factual basis could be made the basis of a state bar disciplinary inquiry. I imagine most bars have rules against making baseless allegations to smear the opposition.

The fact that the resources brought to bear during litigation are about 100x the resources brought to bear during prosecution has to be kept in mind. Something is wrong when thousands of hours are spent going over a file wrapper (that was created in tens of hours) looking for anything that can be characterized as IC, or an admission, etc.

I think the present state of IC law in the US is that the entire doctrine is doing more harm than good. If it can't be fixed, it should be eliminated. The ROW doesn't appear to need it.

[Kevin E. Noonan]

Dear Agent:

Since the IC doctrine is right in the Supreme Court's wheelhouse (patents are a limited exception to the general prohibition against monopoly, as wrongheaded as that 19th century idea may be), there is little likelihood it will be eliminated any time soon. (The Federal Circuit has spent a decade trying to get rid of the doctrine of equivalents with only passing success.) Under the circumstances, the best course is to ameliorate the worst of IC's deleterious effects, while retaining whatever prophylactic benefits it may have.

Loser pays just ups the stakes and will drive even more aggressive behavior in litigation. Preventing IC from being plead without evidentiary basis will help (if only by raising Rule 11 concerns), but will in large part also merely delay matters rather than make things better.

Minimizing the incentives would at least make IC less appealing, especially if a defendant was required to attack a patent claim by claim.

Thanks for the comment.

[agent007]

By loser pays on IC, what I had in mind is that whoever loses on the IC issue pays both sides fees on that issue, independent of the overall outcome of the case. However, this approach will not work in cases where the IC issue is not reached in trial, even though the expenses are incurred.

Applying IC on a claim by claim basis would seem to be difficult under current law, because IC is a equity doctrine having to do with unclean hands. If the CAFC tried to create some kind of claim by claim legal analysis for IC, a reversal by the SC would seem likely.

Substantive reform (or elimination) of the IC defense could occur by congressional action. I suspect that little reform can be accomplished judicially (the SC could reform, but won't, and the CAFC doesn't have sufficient authority).

[e6k]

Noon I feel you pain about there "just being too much IC allegations, most of which are unfounded". I see it as a direct result of how complicated modern cases are in terms of subject matter and the desire to overclaim. Eliminate the desire to overclaim and put in subject matter that is known to be old in order to have fall back positions to make more and more art be cited in any type of rejection or defense and you get rid of most allegations because there will be less prosecution history to throw around etc., the cases will be: file, get patent: file, get patent. This stands in sharp contrast to the norm today of: file, talk about stuff, squeeze past the nearest prior art (yet discovered), get patent.

Imo we need to address the source of the problem (situations ripe for litigators to pick apart) rather than the inefficiencies of the cure.

[Kevin E. Noonan]

Dear e:

The problem isn't overclaiming, which goes to the substantive question of whether a claim is valid over the art. The question is whether the patentee or her attorney intentionally withheld material prior art. My point is that the case law suggests this is a rare event, but it is an allegation contained in every patent lawsuit. No doubt the complexity issues help this trend, but the allegations could be made over the simplest, most parsimoniously claimed invention. All it requires is the identification of material prior art, and a "knew or should have known" mentality on the part of the CAFC. Which was my point, echoing Judge Rader: would Dr. Uzan intentionally misrepresent the scientific facts, is that plausible? Or would it (should it) matter if an expert is paid for her opinion (which happens in lawsuits all the time) for an Examiner to consider a Rule 132 Declaration? Or that the applicant paid small entity maintenance fes by accident?

I feel your pain if the norm for your the applications you examine is "file, talk about stuff, squeeze past the nearest prior art (yet discovered), get patent". Not my experience.

Thanks for the comment.

[agent007]

Kevin,

Thanks for taking the time to pull this story together. Although it is clear that variable and inconsistent FC standards for finding IC are not helpful, is there any evidence that allegations of IC track FC case law to any significant degree?

I.e., do allegations of IC tend to decrease (as a percentage of litigated patent cases) after FC cases setting forth a strict standard for finding IC and increase after FC cases setting forth an easier standard for finding IC?

My instinct is that allegations of IC have been made in 90+% of patent cases consistently over at least the past 20 years, despite opinions referring to this "plague on the system", and that FC case law has in fact had no significant impact on the fraction of patent cases in which IC is alleged.

[Kevin E. Noonan]

Dear agent:

I haven't done a detailed analysis, but I think the way the remedy is structured, defendants will (almost) always assert the IC defense, absent a clear "thou shalt not" from the CAFC. That's why I think the changes have to be either in making a requirement for a factual basis for pleading (with liberal opportunities to amend pleadings once such facts have been adduced), or a change in the scope of the remedy. Changes in the definition of materiality, I think, are only chimerical solutions, since this relates to what art/information is cited, not whether a defendant will find something that can be categorized as material prior art whatever the definition. Another idea would be to preclude assertion of the defense against art cited to the office absent affirmative misrepresentation of the content of the cited art; but that might just exacerbate my friend e6k's problem of having mountains of (mostly irrelevant) art cited to the Examiner.

Thanks for the comment.