Frederick Frei and Sean Wooden analyse case law around inequitable conduct one year after the landmark decision in Therasense v Becton Dickinson, and find that the defence remains viable.
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The May 25 2011 Federal Circuit en banc decision in Therasense v Becton, Dickinson and Co made it harder to prove inequitable conduct in US patent cases, and was expected to do away with such allegations altogether. The America Invents Act further complicates the issue, as it mandates supplemental examination proceedings, which provide additional government assurances that a patent is valid and secured legitimately, presumably making the inequitable conduct defence even more of a dead letter. But one year after the ruling, case law has proven that inequitable conduct remains a viable defence to patent infringement, and will for some time.
In Therasense v Becton, Dickinson, the Federal Circuit issued a significant split ruling on the elements necessary to establish an inequitable conduct defence to patent enforceability. The six-judge majority held that, in addition to a specific intent to deceive, in most circumstances a so-called but-for showing of materiality was required to support the defence; in other words, the party asserting the defence must establish that but for the misrepresentation or omission, the patent would not have issued. Further, materiality and intent were held to be separate requirements and were no longer part of a sliding scale where a greater showing of one permitted a lesser showing of the other. In instances of egregious misconduct, a but-for showing would not be required. One example of such egregious misconduct was explicitly stated to be the filing of an unmistakably false affidavit. The Federal Circuit pointed out that the egregious misconduct exception provided a measure of flexibility to capture extraordinary circumstances.
Therasense did not address pleading requirements for inequitable conduct. As later noted in Delano Farms Co v Calif Table Grape Comm'n (2012), pleading requirements continue to be governed by Exergen v Wal-Mart Stores, Inc (Fed Cir 2009), which indicates that an inequitable conductdefence will survive a motion to dismiss only if the complaint alleges facts from which the court canreasonably infer that a specific person both knew of the invalidating information and withheld itwith the specific intent to deceive the USPTO.
The Therasense decision brought to a close an almost 30-year effort by the Federal Circuit to tighten up the standards for pleading and proving inequitable conduct, which the Court had earlier described as "a plague" on the patent system. Indeed, the Federal Circuit prefaced its holding by stating that it "now tightens the standards for finding both intent and materiality in order to redirect [the inequitable conduct] doctrine that has been overused to the detriment of the public".
After the holding in Therasense, it was widely believed that the court had sounded the death knell to the inequitable conduct defence by imposing evidentiary requirements that could rarely be met. However, a review of the more than 100 court decisions that have cited Therasense in the last year indicates that the inequitable conduct defence is still alive and well and will be sustained in appropriate cases.
Silence is not golden
In Therasense, the alleged misconduct had been the failure to disclose briefs that the patent applicant had submitted to the European Patent Office (EPO) regarding the European counterpart of a co-owned related patent. The trial court had found the patent unenforceable due to this failure to disclose. The Federal Circuit reversed and remanded, instructing the court to determine whether the USPTO would not have granted the patent but for the failure to disclose the briefs. The court also vacated the trial court finding of intent to deceive because it had decided this issue under the wrong standard. The court was instructed to determine whether there was clear and convincing evidence demonstrating that the patent applicant knew of the EPO briefs, knew of their materiality and made the conscious decision not to disclose them in order to deceive the USPTO. On remand, the Therasense trial court reconsidered the inequitable conduct defence under the new standard and confirmed its prior ruling of inequitable conduct and unenforceability. The case involved blood glucose testing and centered around one sentence which contained the words "optionally, but preferably". At the USPTO, the applicant submitted a sworn declaration that represented that such a phrase would be understood by those of skill in the art to require a protective membrane when it was used with whole blood and that the sentence would not have been interpreted to the contrary. However, at the EPO, the applicant argued that while a protective membrane was preferable with live blood, it was optional in all other cases, including whole blood, and was never required.
While there was no direct evidence as to what the USPTO would have done if it had the EPO briefs, the court stated that the inference was that the examiner would have continued to reject the application and that this inference was shown by clear and convincing evidence. The court recognised that an applicant's lack of explanation for withholding information could not be used to support a knowledge of materiality finding. However, relying on the Federal Circuit's opinion in American Calcar, Inc v American Honda Motor Co, Inc (2012), the court stated that if the patentee remains silent after the threshold showing has been made, that silence may be considered adverse evidence and be used to support a finding of specific intent to deceive.
In American Calcar, the Federal Circuit, shortly after Therasense, vacated a finding of inequitable conduct and unenforceability with respect to three patents dealing with navigation systems and remanded the case to the trial court. The Federal Circuit held the court had used an erroneous standard to determine materiality, based on USPTO Rule 56 and the so-called reasonable examiner standard, both of which were rejected in Therasense, and had also used an erroneous standard to determine specific intent to deceive the USPTO. The trial court made no specific finding that any of corrected data had been submitted to his patent department, the court was unable to find that the applicant had a specific intent to deceive the USPTO. The trial court made no specific finding that any of the inventors knew the reference was material and had deliberately decided to withhold it from the Office. Rather, the court used the erroneous sliding scale standard which was based on a high degree of materiality and a lesser showing of intent.
The omitted reference described the operational details of the 1996 Acura RL navigation system. On remand, the court reached the same result and found that these details were but-for material (and not cumulative) to the three patents in issue. Further, the court found that the only reasonable inference that could be drawn from the evidence was that the inventor had the specific intent to deceive the USPTO. The court rejected the argument that the founder of the company, who worked closely with the patent attorney to prepare the patent application, was merely negligent. The court found it highly significant that the owner had disclosed significant information to the patent attorney, but withheld other information. This demonstrated a "deliberative process, not an accident or a mistake".
Credibility is key
In Aventis Pharma SA v Hospira Inc (2012), the court affirmed a pre-Therasense judgment of inequitable conduct rendered after a bench trial. In Aventis, the references were but-for material because the trial court had properly found the claims to be invalid over them. In finding that the inventor withheld the references with the specific intent to deceive the USPTO, the court rejected the inventor's contentions that there was more than one inference that could be drawn from his conduct and found the inventor's testimony explaining why he withheld the prior art to be not credible.
The claimed invention dealt with the chemotherapy cancer drug docetaxel, which was administered in an aqueous solution. The prior art surfactant used to form the solution triggered allergic reactions, including anaphylactic shock. The two patents in issue related to the use of other surfactants and to decreasing the amount of ethanol to reduce alcohol intoxication and the anaphylactic effects on patients. One prior art reference disclosed the use of a polysorbate as a surfactant with another cancer drug. The inventor had testified that this reference was not cited because the experiments that he and his co-inventors performed with docetaxel resulted in solutions that did not demonstrate eight hours of stability and accordingly were judged to be failures. The trial court found it telling that the inventors had cited a prior art reference which identified the problem they sought to solve, but did not cite another reference which revealed the solution to the problem. With respect to the inventor's contention that the use of polysorbate was a failure, the trial court indicated that the inventor had only discussed tests that demonstrated low stability and did not discuss other experiments he conducted that demonstrated high stability. The inventor had sought to explain away the other reference by indicating that the pertinent sentence disclosing the combination of polysorbate and docetaxel had been added after he reviewed a draft of the article. The trial court found this testimony not to be credible and to be inconsistent with other aspects of the inventor's testimony.
In Hospira, Inc v Sandoz, Inc (2012), a table in the patent specification contained erroneous data. The court indicated that it appeared that the examiner relied on the data and the argument based on that data to find the claims allowable. Interestingly enough, the corrected version of the data would still have shown unexpected results, although not as significant as the erroneous data. Nevertheless, the court found that it was likely that the examiner would still have rejected the claims even if it had been presented with the corrected data. However, because the inventor could not recall whether the corrected data had been submitted to his patent department, the court was unable to find that the applicant had a specific intent to deceive the USPTO.
A withheld reference met the but-for materiality standard because it invalidated the patent under Section 103. With respect to intent, the court indicated that although the inventor had made a deliberate decision to withhold the reference, the court could not conclude that he did so knowing that it was material. The inventor's explanation was that the reference was not given to the USPTO because he believed it was irrelevant to the patent. While specific intent was one inference that could be drawn, it was not the only reference and therefore the proof to establish specific intent to deceive was insufficient. Accordingly, inequitable conduct was not established. Several other post- Therasense decisions have been decided similarly to Hospira (see box).
Egregious misconduct
In Metris USA, Inc v Faro Technologies, Inc (2012), the alleged infringer sought to dispense with the requirement of but-for materiality by arguing that the inventor's evasive and false testimony about his relationship with defendant Faro constituted egregious misconduct under Therasense. The court rejected this argument because the conduct did not take place before the USPTO. It is the affirmative conduct before the USPTO that serves as the basis for the exception to the but-for materiality requirement.
Another case, Powell v The Home Depot, USA Inc (2011), held that when a patent applicant fails to update the record to inform the USPTO that the circumstances that supported a petition to make special no longer existed, that conduct does not constitute inequitable conduct. The reason for this is that it obviously fails the but-for materiality standard, and it was not the type of unequivocal act, such as the filing of an unmistakably false affidavit, that would rise to the level of affirmative egregious misconduct.
However, in Network Signatures, Inc v State Farm Mutual Insurance Co (2012), the court found that the attorney's statement contained in a petition to revive a patent after failure to pay a maintenance fee was false and material. The statement had indicated that the failure to pay the maintenance fee was unintentional. In fact, it had been intentional. The court held that such a statement was not egregious misconduct within the meaning of Therasense because there was "insufficient evidence of subsequent steps taken to deceive the USPTO or activities rising to the level of paying witnesses to lie or creating false articles with deceptive attribution to make such a finding". Nevertheless, the court held that the misstatement was but-for material because the USPTO would not have revived the patent if it knew the facts. The patent was held to be unenforceable.
The AIA and inequitable conduct
The America Invents Act (AIA) – which will be fully in effect by March 2013 – contains several provisions that indirectly or directly deal with inequitable conduct. The collective impact of these provisions should reduce the number of inequitable conduct defences that are litigated.
For example, supplemental examination is contained in Section 12 of the Act and becomes effective on September 16 this year. It will apply to patents issued before, on or after that date and is only available to the patent owner who is permitted to submit any information and ask the USPTO to consider, reconsider or correct information relevant to the patent. After supplemental examination, the Office will reexamine the patent if there is a substantial new question of patentability. Supplemental examination can be used to cure inequitable conduct, but not where the inequitable conduct allegations were already pending before the request for supplemental examination was filed. Indeed, under the explicit provisions of Section 257 (c)(1) of the Act, a patent shall not be held unenforceable on the basis of conduct occurring prior to its issuance if the information was considered, reconsidered or corrected during the supplemental examination.
However, under Sections 257(e) and (f), supplemental examination apparently can not cure fraud which must be reported to the attorney general for consideration of criminal sanctions. Nor does Section 257 (f)(2) and (3) of the statute limit or restrict the ability of the USPTO to investigate misconduct or impose sanctions for misconduct. Unfortunately, the statute does not define the differences between inequitable conduct (which can be corrected) and fraud which apparently cannot. In light of the stringent standards imposed by the Therasense ruling, the two are closer than ever before.
Section 20 of the Act also relates to possible instances of inequitable conduct. Consequently, establishing "error without deceptive intent" is no longer a requirement for correcting inventorship (Section 116), obtaining a foreign filing licence (Sections 184 and 185), obtaining a reissue patent (Section 251), disclaimer (Section 253), addressing inventorship issues (Section 256), or suing for patent infringement (Section 288).
The Federal Circuit and Congress have taken concrete steps to reduce the frequency of inequitable conduct allegations. For conduct that becomes the successful subject of supplemental examination, the defence is no longer available. However, in other cases where a lower court makes discrete findings of fact establishing but-for materiality and specific intent to deceive the USPTO and otherwise adheres to the Therasense holding, there is a high probability that the Federal Circuit will affirm those findings and hold that the patent in issue is unenforceable. In other words, inequitable conduct post-Therasense is a viable defence even if it is difficult to establish and less likely to be raised.
AT A GLANCE: INEQUITABLE CONDUCT FINDINGS SINCE THERASENSE
Therasense (ND Cal 2012): district court, on remand from Federal Circuit Therasense decision, confirmed prior ruling of inequitable conduct and unenforceability – patentee's silence after threshold showing was adverse evidence use to support specific intent to deceive finding and but for test met.
Inequitable conduct found? YES
American Calcar, Inc v American Honda Motor Co, Inc (Fed Cir 2012): court vacated finding of inequitable conduct and unenforceability and remanded based on district court's use of an erroneous standard to determine specific intent to deceive.
Inequitable conduct found? NO
Aventis Pharma SA v Hospira Inc (Fed Cir 2012): court affirmed pre-Therasense finding of inequitable conduct based on correct finding of specific intent to deceive and satisfaction of but for test.
Inequitable conduct found? YES
Hospira, Inc v Sandoz, Inc (D NJ 2012): although but-for test was met, court did not find inequitable conduct because specific intent to deceive was not only possible inference drawn from patentee's conduct.
Inequitable conduct found? NO
Joy MM Delaware, Inc v Cincinnati Mine Machinery Co (WD Pa 2011): court held no intent to deceive, and hence no inequitable conduct, where inventor and patent attorney reviewed reference and concluded no more relevant than other prior art they had reviewed.
Inequitable conduct found? NO
Ameranth, Inc v Menusoft Systems Corp (ED Tex 2011): court held, in post-trial motion ruling, that defendants failed to prove by clear and convincing evidence that inventor withheld references with specific intent to deceive. References met but for test, but without proof of intent, no inequitable conduct.
Inequitable conduct found? NO
Techs Inc v Research in Motion Ltd (ND Cal 2011): court granted summary judgment of noinequitable conduct for insufficient evidence of intent to deceive.
Inequitable conduct found? NO
BASF Corp v Aristo, Inc (ND Ind 2012): court granted summary judgment of no inequitable conduct because reference not material and no intent to deceive.
Inequitable conduct found? NO
Metris USA, Inc v Faro Technologies, Inc (D Mass 2012): no inequitable conduct based on allegedly evasive and false testimony before court, because only conduct before the PTO is relevant and can serve as basis for exception to but for materiality requirement.
Inequitable conduct found? NO
Powell v The Home Depot, USA, Inc (Fed Cir 2011): court held failure to update record to indicate circumstances supporting petition to make special no longer exist was not inequitable conduct as it fails but-for test and is not affirmative egregious misconduct.
Inequitable conduct found? NO
Network Signatures, Inc v State Farm Mutual Insurance Co (CD Cal 2012): court held attorney's knowingly false statement in petition to revive abandoned patent was but-for material and patent was held to be unenforceable.
Inequitable conduct found? YES
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