By Kevin E. Noonan --
Co-defendant Bayer Healthcare LLC has submitted its brief in the Federal Circuit's en banc reconsideration of inequitable conduct in Therasense Inc. v. Becton Dickinson & Co. The brief's basic argument is that the Court's application of the inequitable conduct doctrine needs to be revised in keeping with traditional standards and that the Court should apply an "unclean hands" approach. "The Court does not need the hatchet offered by Abbott and need only take a scalpel to a few targeted areas of the inequitable conduct doctrine," according to Bayer's brief. The inequitable conduct doctrine is broader than common law fraud, and should be applied with flexibility to protect the public's interest.
While conceding that that the Court's application of the doctrine needs to be modified, the brief takes the position that "this Court's materiality-intent framework properly tailors the general requirements of the doctrine to the specific context of duty of candor inequitable conduct cases." The modification Bayer suggests is that inequitable conduct should be returned to its roots in the equitable doctrine of unclean hands, which requires "an (a) intentional, (b) 'wrongful' act (c) connected to the patent that is the subject of the litigation." While broad, this standard falls well below common law fraud or the "but for" tests proposed by Abbott and several amici, and Bayer argues that this is consistent with Supreme Court precedent. According to Bayer's brief, the Supreme Court "trilogy" of inequitable conduct cases -- 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); and Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945) -- supports the argument that merely casting doubt on the validity of a patent can be sufficient, thereby negating the reliance requirement of fraud. The brief accuses Abbott and amici with "mischaracterizing" the Supreme Court's precedent, saying that the unclean hands doctrine is adequate and is "sound policy" because the patent grant is a "special privilege" that the Supreme Court has held requires an "uncompromising duty" of candor. The brief also contends that the special status of patents as "exception[s] to the general rule against monopolies" provokes a public interest that supports using the broader unclean hands doctrine rather than the common law standard advanced by Abbott and amici. Bayer further argues that a higher standard of candor is demanded due to the ex parte nature of patent prosecution. Paradoxically, however, (in view of the deleterious consequences for the Patent Office occasioned by the current inequitable conduct standard) the brief cites the "ever increasing" patent application burden as a reason applicants must be compelled to comply with a higher standard of disclosure.
Conveniently, Bayer rejects the rather well-defined requirements of common law fraud with the more "flexible" unclean hands doctrine, that is "not bound by formula or restrained by any limitation that tends to trammel the free and just exercise of discretion," citing Keystone. Moreover, the brief argues that a significant distinction between common law fraud and inequitable conduct is that inequitable conduct does not require reliance, citing Morton Salt (a patent misuse case) in support of this argument. In contrast, Bayer argues that the materiality-intent test "appropriately applies" the unclean hands doctrine in the context of inequitable conduct, saying that the test tracks the requirements for unclean hands: intent (intent), a wrongful act (failure to disclose), and a connection (nexus) between the wrongful act and the cause of action (i.e., a lawsuit based on improperly-procured patent).
Materiality is what determines whether there is a wrongful act -- it provides the link, since withholding immaterial information does not create a harm to the public. The brief cites Norton v. Curtiss, 433 F.2d 779 (CCPA 1970), and Molins PLC v. Textron, Inc. for the proposition that such withholding "constitutes the 'wrongful act' necessary to invoke unclean hands." The brief also cites language relating to "fraud or other inequitable conduct" from the Supreme Court's Precision decision to suggest the wrong that occasions inequitable conduct must be broader than fraud. Such an interpretation is consistent with the public interest, Bayer argues, since fraud is a wrong between private parties while inequitable conduct implicates a harm to the public (interestingly, citing a labor law case for this proposition). The brief also notes (not for the first time) that including requirements from common law fraud (specifically, the "but for" reliance prong) is contrary not only to Bayer's reading of Precision Instrument, but also to prior Federal Circuit precedent (which is what the Court is reconsidering by rehearing this case en banc, after all).
Bayer's brief does acknowledge that "the materiality-intent test may not be appropriate for every inequitable conduct allegation," specifically the "arguably less egregious conduct" cases. However, since intentional contravention of any PTO rule related to patentability should result in inequitable conduct, the brief suggests that such instances be subject to a different (and less draconian) remedy than complete unenforceability (although it does not suggest either where the line should be drawn nor any alternative remedies).
The brief does find a use for the common law fraud standard -- in Walker Process cases involving antitrust liability. The brief supports this argument with its reading of the Precision Instruments decision, but again uses Federal Circuit precedent (which is what the en banc Court has put at issue) to support the use of the fraud standard in determining the existence of Walker Process fraud (specifically Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1070 (Fed. Cir. 1998)). The brief also asserts that nothing in the 1952 Patent Act (as specifically codified at 35 U.S.C. § 292) mandates using a common law fraud standard for inequitable conduct (while recognizing that the statute does not provide any guidance on what standard should be used for finding inequitable conduct).
Bayer argues that the Court should adopt the PTO's Rule 56 as the proper standard for materiality. This standard is fair to patentees, Bayer's brief argues, since it would not impose in litigation a higher standard than is applied for prosecution. The brief specifically rejects the proposition by Abbott and some of the amici that materiality be required to rise to a "but for" standard, but agrees with "the near consensus of amici" regarding the uncertainties caused by the absence of a consistent standard for materiality and the inefficiencies that situation has created in the PTO. Using Rule 56 as a standard would benefit from the "considered, expert judgment of the PTO" on the matter, Bayer argues; included in this "considered . . . judgment" was the PTO's rejection of a proposed "objective 'but for' test" during adoption of the current version of Rule 56. Rule 56 provides an objective definition, according to Bayer, and is integrated into other PTO rules, like its disciplinary rules. Moreover, the brief argues, Rule 56 "fosters disclosure of information the PTO needs to examine patent applications." Bayer argues that Rule 56 properly puts the burden of disclosure (and deciding what gets disclosed) on the applicant; however, the brief attempts to support this position using arguments set forth by the Office in rejecting the objective "but for" test, "that the rule was unnecessary and would require prosecutors to scour the earth for any potentially inconsistent statement made by an applicant" (which arguably is exactly what now occurs).
Importantly for its arguments in this case, Bayer's brief rejects excluding attorney argument from the definition of material information, arguing that it should be treated like any other instance of argument "inconsistent with a position taken by an applicant." This standard would also be consistent with an unclean hands standard, Bayer argues, analogizing to how courts handle these determinations in other contexts. Again, Bayer argues that the Federal Circuit has "recognized that the materiality standard should reflect the PTO's standard," which begs the question of whether that precedent has been correctly decided. The brief is clear that Dígital Control Inc. v. Charles Machine Works, 437 F.3d 1309 (Fed. Cir. 2006), should be overruled, if only because it revived the logic of American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984), that was repudiated by the en banc Court in Kingsdown Med. Consultants, Ltd. v. Hollister, Inc. The brief also makes an administrative law argument on the grounds that Rule 56 "reflects the considered, formal, and expert judgment of the PTO and is therefore entitled to 'great respect' under United States v. Mead Corp., 533 U.S. 218 (2001)." And any other standard "would not promote efficient and effective patent prosecution"; the "reasonable examiner" test would undermine efficient patent examination (because it is too vague and is responsible for disruptive applicant behavior)," and the "but for" test because it is inconsistent with Federal Circuit precedent (again, seemingly missing the point of en banc review) and "was rejected by the PTO" (which decision is not binding on the Court). The brief also argues that the PTO needs a way to police applicant behavior that is broader than invalidity and that encompasses within its scope individuals outside the scope of PTO disciplinary proceedings.
With regard to intent, the brief asserts that "inequitable conduct requires proof of specific intent" that cannot be inferred solely from the materiality of withheld information, and citing Kingsdown Medical, negligence or recklessness is not enough. The brief argues that the en banc Court should repudiate those cases that adopted a "knew or should have known" standard, because intent requires "at least actual knowledge of ail three of the following: (a) the reference or information at issue; (b) the omission or misstatement regarding the reference or information; and (c) the materiality of the reference or information," citing Molins. However, intent can be inferred from the "totality of the circumstances," the brief argues, because there is no requirement for direct evidence of an intent to deceive (a "smoking gun," citing Paragon Podiatry Lab., Inc. v. KLM Labs. Inc., 984 F.2d 1182,1189 (Fed. Cir. 1993), because "[d]irect proof of wrongful intent is rarely available," citing LaBounty Mfg., Inc. v. U.S. ITC, 958 F.2d 1066, 1076 (Fed. Cir. 1992), so that "[i]ntent is generally inferred from the facts and circumstances surrounding the appiicant's overall conduct," citing M. Eagles Tool Warehouse, Inc. v. Fìsher Tooling Co., 439 F.3d 1335, 1340 (Fed. Cir. 2006). Such determinations are within the expertise of district courts to perform, and courts should have "wide latitude" to consider evidence from the totality of the circumstances in making these determinations. The brief also argues that the materiality of a reference can be one of the circumstances in the totality, somewhat diminishing any bright line between the two determinations. The brief states that:
If an applicant fails to disclose a reference that it knows is highly material, the limited range of possible innocent explanations provides greater justification to infer intent. The other facts and circumstances necessary to cross the threshold of clear and convincing evidence of specific intent to deceive are therefore less than if the information only barely crosses the materiality threshold.
In maiking this argument, the brief appears to come close to advocating a "balancing" test that it otherwise rejects. It also cites Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008), for the proposition that, in inferring intent, that inference must be "the single most reasonable inference." But Bayer argues that any such determination should be entitled to deference by the Federal Circuit, because the district court is entitled to such deference when the Court applies an "abuse of discretion" standard of review.
According to Bayer's brief, there should be no "balancing" between materiality and intent. Any balancing by the trial court is properly performed to determine whether the court should exercise its discretion to render the patent unenforceable, but only after threshold determinations of materiality and intent are established by clear and convincing evidence. Unenforceability is not an automatic consequence but should be imposed in the court's discretion after consideration of "all of the relevant circumstances."
Regarding the Federal Circuit's final question to the parties, Bayer argues that it does not think standards developed in other agencies or contexts are appropriate, "because of statutory, regulatory, and precedential differences" particularly with regard to copyrights and trademarks.
Turning to this case, Bayer argues that the district court's finding of inequitable conduct should be affirmed. Here, the same people (Abbott's lawyer and scientist) were involved in arguing to the PTO something that was contradictory to what was argued to the EPO. The existence of an inconsistent argument provides materiality, according to the brief, and the absence of an "innocent explanation" provides intent. The brief also emphasizes that the statements at issue are not limited to attorney argument, but include the scientific declaration and under circumstances where the Examiner could not properly assess the evidence since the arguments made before the EPO were not in front of the Examiner. In addition, the court's determination that the reference that was the "subject of inequitable conduct" was sufficient to invalidate Abbott's claims provided "but for" causation, so that the District Court's inequitable conduct decision should be upheld even should the en banc Court adopt a common law fraud standard for inequitable conduct.
For additional information regarding this topic, please see:
• "PhRMA Files Amicus Brief in Therasense Case," August 22, 2010
• "PTO Files Amicus Brief in Therasense Case," August 19, 2010
• "American Bar Association Files Amicus Brief in Therasense Case," August 17, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. -- Briefing Schedule Update," August 8, 2010
• "BIO Files Amicus Brief in Therasense Case," August 8, 2010
• "Pharma and Software Companies File Joint Amicus Brief in Therasense Case," August 3, 2010
• "IPO Files Amicus Brief in Therasense Case," August 2, 2010
• "Abbott Files Brief in Therasense Case," July 28, 2010
• "CAFC Sets Date for Oral Argument En Banc in Inequitable Conduct Appeal," June 9, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. -- Briefing Schedule Update," May 16, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. Briefing," May 13, 2010
• "Federal Circuit Grants En Banc Review in Therasense v. Becton Dickinson," April 28, 2010
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