United States: Inequitable Conduct Post-Therasense: Two Important Recent Rulings

Inequitable conduct is a highly potent defense to patent infringement in the United States.  As the Court of Appeals for the Federal Circuit has pointed out, the defense has the effect of an "atomic bomb" and can "endanger a substantial portion of a company's patent portfolio."  Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1288-89 (Fed. Cir. 2011).  Unlike invalidity defenses, which pertain to particular claims of a patent, a finding of inequitable conduct renders the entire patent invalid and unenforceable, and may knock out continuations and divisionals of that patent as well.  A finding of inequitable conduct in a patent protecting an important commercial product can also lead to antitrust and unfair-competition claims against the patent holder in subsequent suits, which are not only costly to litigate but can expose the patent holder to punitive damages.  See id. at 1289.  A significant risk of unenforceability can also severely diminish the value of a patent portfolio intended for licensing or sale.

To prove inequitable conduct, the defendant must show that the patent applicant: (1) withheld or misrepresented so-called "material" information, and (2) did so with intent to deceive the U.S. Patent and Trademark Office (USPTO).  See id. at 1287.  Due to concern over the harsh effects of inequitable conduct on the patent holder, the Federal Circuit in Therasense tightened the standards required for finding inequitable conduct.  See id. at 1288-89.  Specifically, the Federal Circuit held that "the materiality required to establish inequitable conduct is but-for materiality," meaning that if the USPTO had been aware of the withheld or misrepresented information, it would not have issued the patent.  Id. at 1291.  As to intent, the court found that the challenger "must prove by clear and convincing evidence that the applicant knew of the [material information], knew that it was material, and made a deliberate decision to withhold it."  Id. at 1290.  The court elaborated that "the specific intent to deceive must be 'the single most reasonable inference able to be drawn from the evidence.'"  Id.  (quoting Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008)).  Thus, "when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found."  Id. at 1290-91.  However, where there is proof of "affirmative egregious misconduct" such as a "'deliberately planned and carefully executed scheme[ ]' to defraud the [USPTO]," it is not necessary to prove that the information at issue was "but-for" material.  Id. at 1292 (quoting Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 245 (1944)). 

In spite of the heightened requirements for finding inequitable conduct, two recent cases illustrate the types of behaviors that can render a patent unenforceable and provide guidance to applicants on how to correct errors during prosecution to avoid accusations of inequitable conduct.  The case of Worldwide Home Products, Inc. v. Time Inc., No. 11 Civ. 3633, slip op. (S.D.N.Y. Sept. 30, 2013), involved a patent claiming a set of clothes hangers that stack together in a particular, nested pattern.  The examiner had rejected the claims over a reference describing a prior clothes hanger set with an apparently similar design.  Id. at 2-3.  To distinguish the claimed hangers from the prior art hangers, the applicant's attorney amended the claims to add a further structural limitation and also held a telephone interview with the examiner about the rejection.  Id. at 3-4.  According to the court, the reference the examiner had cited did not provide very clear photographs or drawings of the prior art hangers, and so the examiner allowed the amended claims over that prior art.  See id. at 13-17.  The attorney prosecuting the application, however, at the time he made the claim amendments and discussed the application with the examiner, had physical samples of the prior art hangers in his possession.  Id. at 4.  In addition, a third party had sent the attorney high-resolution photographs of the prior art hangers before the patent issued.  Id. at 5-6.  The samples and photographs allegedly demonstrated that the claim amendments did not distinguish the claimed hangers from the prior art hangers.  Id.  The attorney, however, did not provide any information about the samples or photographs to the USPTO.  Id. at 6-8. 

The district court held that there was no question that the nondisclosed information about the hangers was "but-for" material to the patent application, as it was the basis for a claim rejection and also inferred from the surrounding circumstantial evidence that the nondisclosure was intentional.  Id. at 13, 15-18.  In particular, there was evidence of a "sense of urgency" for the applicant in obtaining this patent, as the applicant intended to immediately enforce it against the defendants in the lawsuit.  Id. at 5.  The prosecuting attorney testified that he was not aware that either the hangers or the high-resolution photographs of the hangers were prior art and thus material, and that this was why he did not submit the information.  Id. at 8.  Despite this testimony, the court found that the attorney had engaged in a "pattern of disingenuous behavior" and held the patent unenforceable.  Id. at 16-18. 

In Intellect Wireless, Inc. v. HTC Corp., No. 2012-1658, slip op. (Fed. Cir. Oct. 9, 2013), the Federal Circuit found a pattern of deceptive behavior in the submission of false declarations during prosecution and a failure to clearly correct the false statements.  The court also pointed out that submitting a false declaration "is exactly the sort of 'affirmative act[ ] of egregious misconduct' that renders the misconduct 'material.'"  Id. at 7 (alteration in original) (quoting Therasense, 649 F.3d at 1292). 

In Intellect Wireless, the inventor submitted a declaration to overcome a claim rejection that falsely stated that his invention had been "actually reduced to practice" (e.g., through building a prototype) and that the invention was demonstrated at a meeting on a particular date.  Id. at 3-5.  In fact, the invention had only been "constructively reduced to practice" (i.e., through the filing of a patent application).  Id.  While the applicant submitted a revised declaration stating that the applicant was relying on constructive rather than actual reduction to practice, the Federal Circuit found the revised declaration insufficient to cure the earlier false statements, in part because the revised declaration did not point out that the earlier statements were untrue.  Id. at 4-6.  Specifically, the court found that "the declaration nowhere expressly stated the actual facts" and that it did not "openly advise the USPTO of [the inventor's] misrepresentations."  Id. at 6.  The patent holder argued that, in any case, there was no specific intent to deceive the USPTO given the inventor's attempts to correct the record during prosecution.  Id. at 9.  But the court disagreed.  Instead, it found that the inventor and applicant engaged in a "pattern of deceit, which makes [an] inference [of intent to deceive] stronger."  Id. at 10.  Coming back to the revised declaration, the court further noted that it "dances around the truth" by referring to a "prototype" that had never been built and to a "product brochure" and "commercialization," despite the lack of a product.  Id. at 10-11. 

Intellect Wireless illustrates that great care should be taken in preparing and submitting declarations and other evidence of patentability to the USPTO as a court may view errors in a declaration to be inherently material.  But the case also indicates that, if factual mistakes are found in a declaration, openly and clearly identifying those mistakes and providing the correct facts in a later submission so that the examiner can evaluate the information before allowing the application may help to avoid a finding of inequitable conduct.  See id. at 5-6.  Both of these recent cases indicate that if mistakes are made during prosecution of an application, it may be possible to correct them during prosecution so long as the correct information is clearly presented to the examiner at a time when the examiner can act on the information.  It may also be possible after the 2011 America Invents Act to attempt to cure inequitable conduct once a patent has issued, either through the newly introduced "supplemental examination" procedure or through the filing of a reissue application.  But those postissuance procedures are costly, can be quite slow, and can create additional enforceability risks.  Thus, if mistakes are found during prosecution of a patent application, it may be best to attempt to correct them before a patent issues.

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