Federal Circuit Changes Standards to Make it More Difficult to Prove Inequitable Conduct

On May 25, 2011, the Federal Circuit released its long-awaited en banc decision in Therasense, Inc. v. Becton Dickinson and Co. (Appeal No. 2008-1511), in which it raised the standard for proving inequitable conduct and rendering a patent unenforceable.  The decision makes it more difficult for accused infringers to prove the two elements required for inequitable conduct, namely (i) that the patent applicant withheld “material” information (i.e., important or relevant information) from the patent examiner, or the applicant submitted material information that was false or misleading, and (ii) the applicant intended to deceive the Patent Office by withholding material information or submitting the material information that was false or misleading.

Materiality Standard is Raised

In the opinion, the Federal Circuit redefined the type of information that can potentially support a defense of inequitable conduct if it is withheld, misleading, or incorrect -- i.e., what constitutes “material” information.  Under the new standard, information is material only “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.”  The Federal Circuit refers to this as the “but-for” standard.

More specifically, the Federal Circuit states:

This court holds that, as a general matter, the materiality required to establish inequitable conduct is but-for materiality.  When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art. 

Slip Opinion at 27.

The Court went on to explain how the “but-for” standard is to be applied by the district courts in making a materiality determination.  In particular, in making a materiality determination, the courts are to use the broadest reasonable interpretation of the claims, and apply a preponderance of the evidence standard in determining whether the PTO would not have allowed the claim had it been aware of the reference:

Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference.  In making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.  § 706, 2111 (8^th ed. Rev. 8, July 2010).  Often the patentability of a claim will be congruent with the validity determination—if a claim is properly invalidated in district court based on the deliberately withheld reference, then that reference is necessarily material because a finding of invalidity in a district court requires clear and convincing evidence, a higher evidentiary burden than that used in prosecution at the PTO.  However, even if a district court does not invalidate a claim based on a deliberately withheld reference, the reference may be material if it would have blocked patent issuance under the PTO’s different evidentiary standards [i.e., broadest reasonable claim interpretation and preponderance of the evidence standard].

Slip Opinion at 27-28.

Note, however, the Federal Circuit recognized an exception to the “but-for” test.  Under the exception, information may be found to be material even if it would not have affected the allowance of a claim, where an applicant actively attempted in an extreme manner to mislead the PTO:

Although but-for materiality generally must be proved to satisfy the materiality prong of inequitable conduct, this court recognizes an exception in cases of affirmative egregious misconduct.  This exception to the general rule requiring but-for proof incorporates elements of the early unclean hands cases before the Supreme Court, which dealt with “deliberately planned and carefully executed scheme[s]” to defraud the PTO and the courts.  Hazel-Atlas [Glass Co. v. Hartford-Empire Co.], 322 U.S. [238,] 245.  When the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material.

Slip Opinion at 29.

By adopting the “but-for” standard, the Federal Circuit explicitly declined to adopt the PTO’s Rule 56 standard for defining materiality:  “Tying the materiality standard for inequitable conduct to PTO rules, which understandably change from time to time, has led to uncertainty and inconsistency in the development of the inequitable conduct doctrine.”  Slip Opinion at 32.  The Federal Circuit further found that Rule 56’s definition of materiality was too broad, and if adopted by the Federal Circuit, would encourage applicants to submit excess information to the PTO that had marginal, if any relevance to patentability, and patent litigators to continue to charge inequitable conduct in nearly every case as a litigation strategy.

Standard for Proving Intent is Clarified

In its opinion, the Federal Circuit generally adopted the intent standard from Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008), and clarified that an accused infringer must prove by clear and convincing evidence that the applicant:

a)   knew of the reference;

b)   knew that it was material [i.e., previously used “should have known” standard is insufficient]; and

c)   made a deliberate decision to withhold it.

Slip Opinion at 24.

The Federal Circuit acknowledged that intent to withhold information or deceive the PTO is rarely directly shown, and it is usually shown indirectly from the facts -- in other words, the intent to deceive can be inferred or presumed.  However, in such circumstances, the Federal Circuit stated:

[T]he specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.”  Star, 537 F.3d at 1366.  Indeed, the evidence “must be sufficient to require a finding of deceitful intent in the light of all the circumstances.”  Citing Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 873 (Fed. Cir. 1988). 

Slip Opinion at 25-26.

The Federal Circuit also adopted holdings from Star emphasizing that:

a)  the elements of materiality and intent to deceive must each be separately proven by clear and convincing evidence;

b)  a district court should not use a “sliding scale,” where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa;

c)  the patentee need not offer any good faith explanation unless the accused infringer first proves a threshold level of intent to deceive by clear and convincing evidence; and

d)  absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.

Slip Opinion at 25-26.

Conclusion

The Federal Circuit’s adoption of a “but-for” standard for materiality is most noteworthy, and is consistent with the Court’s ongoing efforts to curb the “plague” of inequitable conduct allegations in patent litigation, and their negative effects on the PTO, courts, parties, and patents.  

With the en banc court largely adopting the panel decision in the Star case, this opinion provides needed clarification, and should resolve the conflicting standards set forth in prior Federal Circuit panel decisions, such as Ferring B.V. v. Barr labs, Inc. 437 F.3d 1181, 1191 (Fed. Cir. 2006), which emphasized a “should have known” standard to infer intent to deceive in cases involving information having high materiality.

Of the eleven Federal Circuit judges who decided this case, six supported the majority opinion, one submitted an opinion concurring-in-part and dissenting-in-part, and four dissented.  Accordingly, it is possible that the U.S. Supreme Court will further address the issues raised in this case.

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