New Standards for Litigants in Patent Cases: Inequitable Conduct is No Longer a Boiler Plate Defense
In recent years, an all too common defensive strategy to patent infringement claims has been to cry foul on the patent-holder and allege misconduct during the patenting process. Inequitable conduct, a judicially created equitable doctrine, is a defense to patent infringement allegations, which if successfully proven, can bar enforcement of the patent. However, inequitable conduct allegations may not have the same legal luster they once held based on the recent Federal Circuit holding in Therasense, Inc. v. Becton, Dickinson & Co.
Years of fluctuating opinions on the issue of inequitable conduct and its remedies, coupled with the over-use of the defense, has “plagued not only on the courts but also the entire patent system.” Fearing the guillotine-like effects of inequitable conduct charges, those applying for patents have deluged the PTO (Patent and Trademark Office) with often hundreds of unnecessary documents in an attempt to comply with the disclosure requirements during the patenting process. Such document submissions have created a backlog at the PTO. Moreover, fearing their clients may lose a patent infringement claim, an estimated “80 percent of patent infringement cases included allegations of inequitable conduct” as a defense. However, those days may now be over as Therasense will likely be a dramatic game-changer in the strategic side of patent litigation.
The Federal Circuit’s en banc decision under Chief Judge Rader sets forth new standards for establishing a defense of inequitable conduct. First, the opinion clarified what is meant by the term intentionally deceive: “to prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” Rather than the amorphous criteria for intent that previously included negligence, gross negligence, and that the applicant “should have known,” now claims must be supported by clear and convincing evidence. Further, if nondisclosure of information regarding prior art is the foundation of an inequitable conduct claim, there must be clear and convincing evidence that the “applicant made a deliberate decision to withhold a known material reference.” Thus, a defendant can no longer just point to a general nondisclosure, but rather, must have sufficient evidence to show the applicant “knew of the reference, knew that it was material, and made a deliberate decision” to withhold it from the PTO.
Unlike cases that treat intent and materiality interchangeably, Judge Rader clarified that the two are “separate requirements” under an inequitable conduct defense. This distinction abolishes the use of a “sliding scale” by courts whereby a weak showing of intent could simply be supplemented with a strong showing of materiality and vice versa. Because these two elements are separate, neither can be inferred based on the existence of the other, forcing courts to now “weigh the evidence of intent to deceive independent of its analysis of materiality.”
The court also discussed the form of proof for intent, recognizing that “direct evidence of deceptive intent is rare,” therefore allowing judges to make inferences from “indirect and circumstantial evidence.” Because varying judicial inferences previously encouraged the proliferation of inequitable conduct claims, the court established that a clear and convincing evidence standard again must be met. However, the specific intent to deceive must be the “single most reasonable inference able to be drawn from the evidence.” Therefore, if “multiple reasonable inferences” as to the applicant’s intent can be drawn, then the defense will fail to meet this heightened standard.
Second, the ruling held that “but-for materiality” is required to prove inequitable conduct on the part of an applicant. The stringent standard of but-for materiality comes down to a simple question- had the PTO known of the prior art that an applicant failed to disclose, would the PTO have allowed their claim? If the PTO “would not have allowed a claim had it been aware of the undisclosed prior art,” the prior art is but-for material. However, like with most rules, the court carved out an exception-- but-for proof is not necessary in cases of “affirmative egregious conduct”. Thus, if a company filed an “unmistakably false affidavit” then the misconduct is per se material. According to Judge Rader, this exception will help to restore a needed balance in patent law between encouraging “honesty before the PTO” and reducing “unfounded accusations of inequitable conduct.”
Finally, the remedy for inequitable conduct was dramatically changed. Previously, the remedy for inequitable conduct had earned itself the title of being the “‘atomic bomb’ of patent law” because of its far-reaching and potentially devastating financial, reputational and intellectual effects. A successful inequitable conduct defense could “render the entire patent unenforceable,” was unable to be “cured by reissue or reexamination” and could “spread from a single patent to render unenforceable other related patents and applications in the same technology.” Thus, once the trigger was pulled on an inequitable conduct defense, a company’s entire patent portfolio could face the firing squad. However, this majority holding recognized the concept of basic fairness undergirding the doctrine of inequitable conduct and held that courts should limit their application of the complete unenforceability remedy to “instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.”
The Therasense ruling will require patent attorneys to curb their inclination to over-use the defense of inequitable conduct and may alleviate the prior art research pressures of filing for a patent. Attorneys will also need to revise their trial strategies since those who do not update their playbook with the Federal Circuit’s new rules will likely fail on their inequitable conduct allegations. With stricter standards for proving intent and materiality and new limits on the application of inequitable conduct as a remedy, courts can predict more hesitation from alleged patent-infringers and the PTO can expect less prior art paperwork flooding their office.
This article has also been co-authored by Tara L. Tedrow, summer clerk and a rising third year law student