written by

Brent P. Lorimer
Shareholder at Workman Nydegger

posted on 15 August 2011 | 0 Comments

The Federal Circuit Giveth and Taketh Away –Therasense v Becton Dickinson

The opinions of the Federal Circuit and Supreme Court over the past ten to fifteen years have had few bright moments for patent owners.  Proving infringement has become more difficult, and proving invalidity has become easier.  The Federal Circuit’s recent decision in Therasense v. Becton Dickinson and Co. departs from this trend, increasing in significant ways the burden on defendants attempting to prove patents unenforceable for inequitable conduct.

The theory behind the doctrine of inequitable conduct is that applicants for a patent, their lawyers, and those actively involved in pursuing the patent owe the patent office an unwavering duty of candor.  Unlike litigation, the process of obtaining a patent is ex parte, i.e., there is no adversary to point out flaws in the arguments of the patent owner.  As a result, the patent owner and those involved in the process of obtaining a patent have a duty to disclose material information of which they are aware to the patent office, and must also be completely forthright in the assertions they make in support of patentability.  If anyone associated with the process intentionally withholds material information or makes misrepresentations material to the patentability of the application, and does so with intent to deceive, the patent may be found unenforceable for inequitable conduct.

Inequitable conduct has been referred to by the Federal Circuit as the “atomic bomb” of patent litigation.  This is because a finding of inequitable conduct renders all of the claims of the patent, and sometimes whole families of patents, unenforceable.  A finding of inequitable conduct can and often does serve as the basis for a finding that the patent owner has to pay the legal fees of the defendant.  Referred to as “fraud on the patent office,” inequitable conduct as originally formulated was extraordinarily difficult to prove, and not often asserted.  In recent times, however, the requirements to prove inequitable conduct have been relaxed, and the incidence of its assertion has increased dramatically, to the point where judges and commentators have referred to it as a “plague.”  For defendants faced with legitimate allegations of infringement of a valid patent, inequitable conduct has become a defense of choice, because it carries with it huge strategic and economic risks for the patent owner.

Proof of inequitable conduct requires proof of intent to deceive and materiality.  The Federal Circuit in Therasense dramatically altered the requirements for both elements, making both more difficult for the would-be challenger to prove.

Intent

The district court in Therasense found inequitable conduct based on a finding that the patent owner “knew or should have known” of the materiality of a withheld reference.  The Therasense court rejected that standard, holding that a defendant asserting inequitable conduct must establish that the patent applicant (1) knew of material information (2) knew that it was material, and (3) made a deliberate decision to withhold or misrepresent it.  In the pre-Therasense world, defendants often argued that a strong case of materiality could compensate for weak evidence of intent, under the so-called “sliding scale” theory.  The Federal Circuit in Therasense rejected that theory, holding that intent to deceive must be established independent of the court’s analysis of materiality. 

Proof of intent to deceive is rarely, if ever, proven by a smoking-gun memo or other direct evidence.  Rather, the jury must infer deceptive intent from circumstantial evidence.  Where such evidence is capable of multiple inferences, intent to deceive cannot be established unless deceptive intent is the single most reasonable inference.  If other reasonable inferences can be drawn, intent to deceive cannot be found.

Materiality

In the pre-Therasense era, the standard for materiality was even more varied than the standard for intent to deceive.  In the simplest (and most relaxed) formulation, the standard for proving materiality required proof that withheld information would have been important to a reasonable examiner in considering the patentability of the applicant’s invention.  The “important to a reasonable examiner” standard did not require proof that the patent would not have issued if the information had been disclosed, only that a reasonable examiner would have considered it “important.”  An alternative formulation was created by the Patent Office rules, which stated that information was “material” if the information established a prima facie case of unpatentability, or was inconsistent with positions taken by the patent applicant. 

The Therasense court rejected both of these standards.  Instead, information is now material only if the Patent Office would not have issued a claim if it had been aware of the information.  This “but-for” test is considerably more stringent than the previous tests, because the relevant question is no longer whether the information might have been “important,” but rather whether it would have prevented the claim in question from issuing at all.

Weighing the Equities

Determined to re-calibrate the inequitable conduct calculus, the Federal Circuit held that even if deceptive intent and materiality are established, the trial court must further consider whether declaring all of the claims of a patent unenforceable is consistent with basic fairness.  If not, no inequitable conduct should be found.   In the words of the Court, “just 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.” 

A Nod to Defendants

Proponents of the more relaxed standards of proof for inequitable conduct argued that adoption of the “but-for” and “deliberate decision to deceive” tests for materiality and deceptive intent unnecessarily and inappropriately tie the hands of trial judges in rectifying misconduct by patent owners and their lawyers.  In a decidedly muted acknowledgement of this criticism, the Federal Circuit created an exception to its rigorous standards for “affirmative egregious misconduct” by the patent owner or its agents.  False affidavits offered in support of obtaining a patent were offered as an example of such “egregious” conduct. 

Even after Therasense, the debate over inequitable conduct rages on.  Four justices dissented from the majority opinion, and a fifth dissented in part.  It remains to be seen whether the Supreme Court will take this issue on, as it has done with other contentious patent issues.  §In the meantime, it is significantly more difficult to prove inequitable conduct than it was before Therasense.