A Response to Mr. Brill, and a Modest Proposal Regarding Inequitable Conduct

    By Kevin E. Noonan --

As reported today in a Patent Docs post, Economist Alex Brill (at right) has proposed that Congress include in patent reform legislation provisions "putting some teeth" into the penalties available for inequitable conduct, presumably as a way to discourage it.  These "teeth" include "criminal penalties, punitive damages and jail terms" to prevent "liars and cheaters" from abusing the patent system.

It is easy for the patent cognoscenti to dismiss Mr. Brill's proposals as being out of touch with the realities of the inequitable conduct defense.  He may not recognize that the Federal Circuit, a court with vastly more real-world experience in assessing whether inequitable conduct occurs at rate requiring Mr. Brill's proposed (draconian) measures, has long considered the inequitable conduct defense to be a "plague on the patent system."  Burlington Industries Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988):

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.

Nor may Mr. Brill realize that the standards for determining what is inequitable conduct have varied, both over time and in decisions from different Federal Circuit panels.  The ill-fated patent reform bill introduced in the Senate in the 110th Congress (S. 1145) contained a provision for "reforming" inequitable conduct.  In the Report of the Judiciary Committee on that bill were identified five different definitions used by the Federal Circuit in defining materiality, a required component of any inequitable conduct assessment:

(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."

Given this backdrop, it is unclear why there is any reason to increase penalties, particularly because the current remedy, the "nuclear option" of unenforceability of the entire patent (and, perhaps, any related patents) would appear to be sufficient.  Indeed, the attractiveness of this remedy is surely one of the reasons the defense is plead in almost every patent case, being a "Get Out of Jail Free" card for an accused infringer.  It is difficult to believe that the "enhanced" punishments promoted by Mr. Brill would have any greater deterrent effect on a patentee than the prospective loss of patent protection and the exclusivity attendant on such loss.

There is a way to reform how the patent system deals with inequitable conduct, and it has its roots in how the Federal Circuit recently revised a parallel area of the law prone to abuse by patentees:  allegations of willful infringement.  Just as the inequitable conduct defense can be a fruitful way for an accused infringer to encourage settlement, a willful infringement charge can be used by a patentee to the same end, since the possible remedy (treble damages, attorneys' fees and costs) can be daunting to the accused infringer.  Since the conventional defense to a willfulness charge, a competent opinion of counsel, raised issues of attorney-client privilege and waiver, or in the alternative permitting a fact-finder to raise an adverse inference over failure to produce such an opinion, willfulness jurisprudence became another area of patent law fraught with uncertainties for all parties.  The Federal Circuit addressed, and perhaps overcame, these difficulties, by holding in In re Seagate Technology LLC that willfulness required a showing of "objective recklessness."  Applying this rationale to inequitable conduct, ordinary (or even severe) negligence would not be sufficient, and objective recklessness, if proven, would satisfy the standard.  There would also be no need to prove objective recklessness by clear and convincing evidence.

Incorporating this standard into inequitable conduct law would go a long way towards inhibiting the greatest abuses that have arisen in this area.  It would avoid ex post facto reasoning and witch-hunts over what persons with a Rule 56 obligation "should have known," and substitute instead an assessment of what they did know.  The objectiveness of the standard would not prevent true malfeasors from being found to have committed inequitable conduct, since instances where such a person knew of a reference, appreciated it was material to patentability, and did not submit it would be objectively reckless.

There are, of course, a number of other, perhaps better and certainly more direct ways to address the problem of inequitable conduct.  These include reducing (rather than increasing) the remedy, to destroy the presumption of validity or to be focused on particular claims related to (or invalid over) the undisclosed reference.  Inequitable conduct allegations could be postponed until after a defendant has procured a judgment that a claim or claims are invalid over an undisclosed reference, using the objective standard of invalidity as a gatekeeper.  Even absent this type of substantive reform, 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.

Ironically, most commentators opine that inequitable conduct is an issue in dire need for resolution to promote efficiency in both patent prosecution and litigation because it is plead so often, so unsuccessfully, and with so little evidentiary support.  In other words, this reasoning is the exact opposite of the reasoning Mr. Brill employs in support of this proposal to increase penalties.  While the evils Mr. Brill addresses would certainly be serious if they existed, it should not be too much to hope that a proposal as serious as his would be supported by equally serious objective evidence that the purported problem demands the proposed solution.  That is not the case with Mr. Brill's proposal, and this by itself provides ample reason why it should be ignored.

Comments

[Dan Feigelson]

Criminal penalties for inequitable conduct? If that ever comes to pass, members of the patent bar should start providing the government with REAL causes for sending them to jail. Like shooting annoying economists.

[Saddlepack Maker]

Proponents of inequitable conduct presume that it will result in patents of better quality. Unfortunately, they do not substantiate these claims with any data. Instead, they use emotional inflammatory language (i.e., liars and cheats).

Under this assumption, patents procured in jurisdictions that do not impose a duty of candor and good faith as they do in the US should be of poorer quality than those obtained in the US.

From a purely anecdotal basis, I might argue that patents obtained in jurisdictions without the duty of candor and good faith are better than those in the US.

[Kevin E. Noonan]

Dear Saddlepack:

Hard to compare different systems. Also, I suppose Mr. Brill's analysis was motivated by similarly anecdotal reports of poor patent quality, which translated to rampant inequitable conduct. Easy to see how he went wrong, but you'd expect an economist to do the analysis to show the problem he was trying to solve actually exists.

We are saddled with the IC doctrine, I think, but we don't have to apply it improperly or let the IC tail wag the patent prosecution dog. Unfortunately, too many times reformers focus on the imperfections of a system (which they inevitably have) and cause more problems trying to solve them than existed before their "reforms."

Thanks for the comment.