IPO Files Amicus Brief in Therasense Case

By Kevin E. Noonan --

The Intellectual Property Owners Association (IPO) filed an amicus curiae brief last week in the Therasense, Inc. v. Becton, Dickinson & Co. case.  The brief, filed in support of neither of the parties to the underlying lawsuit, clearly stated the IPO's position that Federal Circuit jurisprudence on inequitable conduct had strayed, both from the CAFC's earlier precedents and, more importantly, from controlling Supreme Court precedent, and urged the en banc Court to correct this trend.

The IPO's brief begins by arguing that the Federal Circuit's "materiality-intent-balancing framework for inequitable conduct" was inconsistently applied and lacked clarity in its enunciation, and that the Court should modify how inequitable conduct is determined "to align the doctrine more closely with its equitable roots."  These roots lie in the Supreme Court standard of "unclean hands," which the brief argues is the proper standard for the Federal Circuit to adopt.  More specifically, the IPO argued that the intent prong must be established by clear and convincing evidence of an intent to deceive the Patent Office during prosecution.  With regard to the materiality prong, the brief argues that the Court should adopt a single, consistent, objective "but for" standard, wherein an issued claim in a patent asserted against an accused infringer would not have issued "but for" applicant's withholding the reference from the Office during examination.  Materiality should be assessed, according to the brief, consistently in both the Patent Office and before a court in patent litigation, which can be accomplished if the Federal Circuit were to adopt the objective "but for" test advocated by IPO.

The brief also argues that panels of the Court have erred in permitting intent to be inferred "solely" from a finding that the withheld reference was highly material.  What should be required is a specific intent to deceive the Patent Office based on clear and convincing evidence.  As for the "balancing" test, which permits a court in its discretion to balance the levels of materiality and intent to make a determination in equity whether a patent should be held unenforceable, the brief argues that balancing per se is not the problem with the current system.  Problems arise when such balancing is done before or in the absence of clear and convincing evidence of both materiality and intent.  The brief closes with the (perhaps) prescient argument that neither common law (presumably relating to fraud) nor federal agency law (presumably, also known as administrative law) "will prove as helpful" (or perhaps, should be resorted to) "as decisions addressing equitable issues," with particular reference to patent prosecution.  This portion of the argument seems to be directed to possible analogies with common law fraud or resort to regulations (such as Rule 56) and other Patent Office rules and policies, which the brief seems to indicate are neither particularly helpful nor appropriate in view of the equitable bases of the inequitable conduct doctrine as set forth in several Supreme Court decisions.

In specific arguments, the brief reminds the en banc Court that inequitable conduct is a creature of Supreme Court jurisprudence and equitable teachings, citing Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944); Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945); and Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933).  These cases all based the Court's refusal to enforce the patent-in-suit on equitable principles of "unclean hands," wherein "the scope of inequitable conduct may range from outright fraud, to deceit, to gaining an advantage by unfair means."  Behavior and activity amounting to inequitable conduct "that may render a patent unenforceable is broader than 'common law fraud,'" citing Norton v. Curtiss, 433 F.2d 779, 793 (CCPA 1970), as cited in J.P. Stevens & Co., Inc. v. Lex Tex Ltd., Inc., 747 F.2d 1553, 1559 (Fed. Cir. 1984).  While asserting that "unclean hands" should be the standard, the brief concedes that "the Supreme Court has not established a precise standard for the application of unclean hands."  However, the brief cites Keystone Driller for the proposition that "[t]he equitable powers of the court can never be exerted on behalf of one who has acted fraudulently, or who by deceit or any unfair means has gained an advantage," citing Keystone Driller, 290 U.S. at 245, to elucidate the proper underlying principles.

The brief supports its contention that the en banc Court should adopt the "objective but for" test for materiality on the grounds that "[a] single standard would provide concrete guidance to the district courts and bring a measure of increased predictability to the inequitable conduct issue."  The brief recites the varying standards applied by different panels of the Court, including "the objective 'but for' standard, the subjective 'but for' standard, and the 'but it may have' standard," citing Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309, 1315 (Fed. Cir. 2006).  The brief also notes that the Court with approval had relied on the "reasonable examiner" standard, which the brief asserts "permits a relatively low level of proof for establishing materiality," citing for support several cases including Leviton Mfg. Co., Inc. v. Universal Sec. Instruments, Inc., 606 F.3d 1353, 1358-59 (Fed. Cir. 2010); Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., 607 F.3d 817, 829 (Fed. Cir. 2010); Symantec Corp. v. Computer Assocs. Int'l, Inc., 522 F.3d 1279, 1297 (Fed. Cir. 2008); and McKesson Info. Solutions, Inc. v. Bridge Med., Inc., 487 F.3d 897, 913 (Fed. Cir. 2007).  Use of this standard, the brief argues, has resulted in a resurgence of the "full-blown plague on the patent system, evidenced by "a ten-fold increase in the number of cases in which inequitable conduct has been pled as a percentage of total patent cases."  The negative effects on the patent system are not confined to litigation, according to the brief:  during patent prosecution applicants have an incentive to adopt a "cite everything, say nothing" practice.  As a result, "USPTO examiners are routinely buried under a paper avalanche of prior art references, most of which are of marginal value."  Moreover, applicants have an incentive not to disclose or put on the record "any statements about the cited references [that] may later be characterized in litigation as material misrepresentations."  The brief invokes the current backlog for examination as but one consequence of the inequitable conduct doctrine "distort[ing] the entire patent system."

The solution is adoption of the objective "but for" test, according to the brief.  In addition to being "closely [aligned] with the 'unclean hands' underpinnings of inequitable conduct as stated in Precision Instrument and Keystone Driller," this test would "[limit] application of inequitable conduct to those situations where the applicant has in fact 'acted fraudulently, or . . . by deceit or any unfair means has gained an advantage,'" citing Keystone Driller, 290 U.S. at 245.  In contrast, the "reasonable examiner" standard has extended the inequitable conduct doctrine to be applied "to situations where there is only the possibility of gaining an unfair advantage, and even to situations where no advantage was gained at all."  Finally, the brief argues that adopting the "objective 'but for' test" will result in bifurcation of invalidity and inequitable conduct determinations, which would either limit how frequently the defense was plead or how often it was plead successfully.

While stating black letter law that intent should not be based solely on a high showing of materiality, the brief argues that recent Federal Circuit decisions have not consistently required intent to be established by clear and convincing evidence.  Examples cited in the brief include Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306 (Fed. Cir. 2008), Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007), Aventis Pharma v. Amphastar Pharms., 525 F.3d 1334 (Fed. Cir. 2008), cert. denied, 129 S. Ct. 2053 (2009), and Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181 (Fed. Cir. 2006).  "[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" is how the Court has enunciated this standard.  The IPO argues that the proper standard is the one enunciated in Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365-66 (Fed. Cir. 2008), specifically that intent should be "the single most reasonable inference able to be drawn from the evidence."

The brief then argues that balancing is appropriate for a court to determine in equity whether to find a patent unenforceable for inequitable conduct.  However, the brief reminds the en banc Court that the proper requirement is for both materiality and intent to deceive to be independently found by clear and convincing evidence, and only then should the court perform the balancing test, citing Monsanto Co. v. Bayer BioScience B.V., 363 F.3d 1235, 1239 (Fed. Cir. 2004).

The brief also contains a "Statement of Interest" for the IPO, which describes itself as "a trade association representing companies and individuals in all industries and fields of technology who own or are interested in U.S. intellectual property rights."  Its membership includes "200 companies and a total of over 11,000 individuals" and include "inventor[s], author[s], executive[s], law firm[s], or attorney members" who "receive about thirty percent of the patents issued by the U.S. Patent and Trademark Office to U.S. nationals."  The motivation for filing the brief is described as follows:

IPO submits this brief because of the frequency with which inequitable conduct issues arise in patent litigation and the resulting need for a clearly articulated and consistently applied standard for determining inequitable conduct.

In addition to filing the brief "on behalf of neither party," the IPO also declined to take a position on the facts or merits of the case between the parties.

IPO member Paul Berghoff, assisted by MBHB associate Kurt Rhode, were counsel for IPO on the brief.

Comments

[Skeptical]

While reading the brief, I was struck by the disparity with what the brief was wanting ("but for") and the statement:

"herein 'the scope of inequitable conduct may range from outright fraud, to deceit, to gaining an advantage by unfair means.' Behavior and activity amounting to inequitable conduct 'that may render a patent unenforceable is broader than "common law fraud," ' "

Specifically the "advantage by unfair means" and the "broader than common law fraud" speak against a strict "but for" standard. It seems like the IPO wants to hide this difference in plain sight.

[Moocow]

Skeptical:
you're pointing out something that everybody's been struggling with. If the Supreme Court had said anywhere that it demands a "but for" standard, you'd think that somebody would have figured that out by now.
The really important point is: a "but for" standard is not inconsistent with, and therefore permissible under the Supreme Court cases. Nothing in those cases bars the Federal Circuit from adopting the test if it believes that's best for the system at this time.
The unclean hands cases, you point it out yourself, have really no standard at all. That doctrine could deny relief for infringement even if the plaintiff's misconduct has nothing to do with the patent office. All that's required is that the litigant be a scumbag. That's no standard.
All this talk about resurrecting the unclean hands doctrine will only give infringers new ideas. Let's leave it for dead and go with "but for" materiality.

[Skeptical]

Moocow,

I cannot agree with your statement of "The really important point is: a "but for" standard is not inconsistent with, and therefore permissible under the Supreme Court cases."

Clearly, were such a statement be true, it would have to square with two phrases hiding in plain sight that I brought forward: "advantage by unfair means" and the "broader than common law fraud".

It does not.

"But for" would eviscerate the "advantage by unfair means" as that statement currently does not require the advantage to have been successfully played out, and is a much lower threshold.

Similarly, you ignore the differences in scope between intent as in common law fraud and the current "broader than common law fraud", without explanation.

This reminds me of the early nineties when in a particular industry improprieties were being splashed on the front pages and the response was to limit action beyond that which was called out by law to the point of addressing "even the appearance of" such improprieties. I equate the current very broad reading of inequitable conduct to be along those lines, where even the appearance of inequitable conduct is to be avoided (and as Kevin points out - this does carry the ramification that excessive prior art will be submitted on IDS's). While you are correct in that the wider parameters of the existing law are far less clear than a "but for" standard, I think the CAFC will once again look over their shoulders and hesitate to make a bright-line rule - even one such as this that would move the patent world closer to the rest of the law.

[Moocow]

Skeptical:
I don't think "but for" materiality eviscerates Keystone Driller's "wrongful advantage" language. With tongue-in-cheek, I would counter that there's nothing wrongful about the advantage gained by someone who procures a valid patent.

But the better distinction follows if we keep in mind that the unclean hands doctrine and the modern inequitable conduct doctrine really serve two different purposes. The former was invoked by the Supreme Court to deal with unclean litigants, the latter was created by the CCPA to deal with unclean patents.

Thus, for example, a patentee who perfectly innocently procures a patent in the PTO, later discovers that it contains invalid claims, and then conceals the evidence of invalidity and enforces that patent, could properly be denied relief under the unclean hands doctrine - yet there was no "inequitable conduct." Heck, a DJ plaintiff who doesn't even HAVE a patent could be denied relief under the unclean hands doctrine if its conduct is bad enough. That tells me that unclean hands really has very little to do with what we understand by "inequitable conduct" today.

Conversely, a licensee who enforces a patent without knowledge that the licensor concealed something material during prosecution could not be reached by the unclean hands doctrine - there's nothing unclean about such a litigant - yet lose the patent due to "inequitable conduct" irrespective of its validity.

So, given insufficient overlap between the two doctrines, we have to qualify the Court's statements in Keystone Driller and Precision Instrument. A broad range of reprehensible conduct could qualify to make a litigant "unclean." But not every litigant is automatically unclean just because there was inequitable conduct in the PTO. And the Supreme Court never set any standards that define impermissible conduct in the PTO if the litigant was not unclean. That's why I think the CAFC is free to do what it believes to be in the system's best interest.

[Skeptical]

Moocow,

First, thank you for your post - You have elucidated, or to borrow from former Justice Stevens, you have pellucidly distinguished actions during prosecution (IC) and actions post prosecution (clean hands) and I believe, in fact, that the conflation of these two, have, in no small part, added to the confusion of application, of any of the various doctrines, to any identifiable standard.

Or in other words - we have more than one thing on the table and there is some confusion about which item we are talking about at any one particular time.

Second, I believe that the CAFC is expressly NOT free to do what it may believe to be in the system's best interest because the Supreme Court has both historically chided the CAFC for bright-line rule making in attempts to clarify patent jurisprudence AND chided the CAFC for even trying to make patents distinct from the rest of the legal world.

In effect, the CAFC has been placed in a dammed if you do and dammed if you don't conundrum.