The Federal Circuit’s En Banc Decision in Therasense Tightens the Inequitable Conduct Standards

The Federal Circuit’s decision in Therasense Inc. v. Becton, Dickinson & Co.¹ tightened the standards for proving inequitable conduct before the Patent Office. The decision vacated and remanded the district court’s finding of inequitable conduct based on Therasense’s failure to disclose contrary statements Therasense made to the European Patent Office regarding its interpretation of a prior art reference.

Writing for the majority,² Judge Rader explained that inequitable conduct evolved from a trio of Supreme Court cases that applied the doctrine of unclean hands to dispose of patent cases involving “egregious misconduct.”³ Inequitable conduct, therefore, is a “judge-made” doctrine to provide an equitable remedy for deliberate schemes to defraud the Patent Office and the courts.⁴ Over time, however, the doctrine evolved to encompass a wider scope of misconduct and became a potent infringement defense because it may render an entire patent—and, potentially, an entire family of patents—unenforceable. Inequitable conduct, thus, became a common litigation defense pled in the majority of patent cases. Accordingly, the Federal Circuit “tighten[ed] the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.”⁵

In general, inequitable conduct requires finding that the patent applicant intended to deceive the Patent Office by misrepresenting or omitting material information. Regarding the intent requirement, the Federal Circuit clarified that the defense requires a showing of “specific intent” to deceive the Patent Office. The court stated that “[t]he accused infringer must prove by clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.”⁶ Misrepresentations or omissions that amount to gross negligence or negligence, therefore, do not “satisfy this intent requirement.”⁷ The court also rejected the “sliding scale” approach to intent, “where a weak showing of intent can be found sufficient in view of a strong showing of materiality, and vice versa.”⁸ Instead, the district courts must “weigh the evidence of intent to deceive independent of its analysis of materiality.”⁹ The majority approvingly cited the decision in Star Scientific Inc. v. R.J. Reynolds Tobacco Co.,¹⁰ noting that the “patentee need not offer any good faith explanation unless the accused infringer first . . . prove[s] a threshold level of intent to deceive by clear and convincing evidence.”¹¹ The court stated, however, that intent may be inferred from “indirect and circumstantial evidence” because direct evidence of deceptive intent is “rare.” Nonetheless, specific intent to deceive may only be found, in light of all the circumstances, when it is “the single most reasonable inference able to be drawn from the evidence.”¹²

Holding that the district court did not find intent to deceive under the “knowing and deliberate” standard as set forth in the opinion, the majority vacated the district court’s finding of intent.¹³ Judge O’Malley agreed with the majority regarding intent.¹⁴ Judge Bryson’s dissent agreed with the majority regarding the intent necessary to find inequitable conduct, but would have upheld the district court’s decision, noting that the district court had found specific intent to deceive the Patent Office.¹⁵

With regard to the materiality requirement for inequitable conduct, the majority articulated a “but-for” test for materiality with respect to undisclosed references.¹⁶ Rejecting the Patent Office’s regulation governing materiality as the standard for inequitable conduct,¹⁷ the majority noted that “[w]hen an applicant fails to disclose prior art to the [Patent Office], that prior art is but-for material if the [Patent Office] would not have allowed a claim had it been aware of the undisclosed prior art.”¹⁸ There is a notable exception to the but-for test “[w]hen the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit.”¹⁹ The majority found the basis for its but-for test in Corona Cord Tire Co. v. Dovan Chemical Corp.,²⁰ a 1920s Supreme Court decision dealing with false affidavits filed in the Patent Office.²¹

Applying its newly articulated rule to the case at hand, the majority found that “neither mere nondisclosure of prior art references . . . nor failure to mention prior art references in an affidavit constitutes affirmative egregious misconduct.”²² The district court’s finding of materiality, based upon the improper materiality standard of the Patent Office, was vacated, and the decision remanded to the district court.²³

Judge Bryson disagreed with the majority’s newly articulated but-for test for materiality. The dissent noted that the majority’s reliance on Corona was misplaced, stating that “Corona predates the creation of the inequitable conduct doctrine and has never been cited by the Supreme Court in any case addressing unclean hands or inequitable conduct.”²⁴ Instead, the dissent pointed to Kingsland v. Dorsey,²⁵ which endorsed the statement that the Patent Office “requires the highest degree of candor and good faith.” Judge Bryson’s dissent also noted that the but-for standard for materiality is too restrictive to serve the purposes for which the inequitable conduct doctrine was designed and postulated that the majority’s materiality test “does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether.”²⁶ Believing that the Patent Office is in the best position to determine the level of disclosure needed to review patent applications, the dissent argued for adhering to the materiality standard advocated by the Patent Office and provided in 37 C.F.R. §1.56. Following the Patent Office’s existing standard for materiality, Judge Bryson found that the lower court’s finding of inequitable conduct should be affirmed.

By comparison, Judge O’Malley’s concurrence-in-part focused on the equitable nature of the doctrine and refuted the very notion of using “hard and fast rules.”²⁷ Citing the need for flexibility in dealing with equitable issues, Judge O’Malley rejected both the majority and the dissent’s suggestion of “tests for materiality to apply in all cases.”²⁸ As with Judge Bryson, Judge O’Malley would have affirmed the district court’s finding of inequitable conduct.

On May 26, 2011, the Patent Office announced that “it is carefully studying . . . the case of Therasense v. Becton, Dickinson to assess how it may impact agency practices and procedures” and that it “expect[ed] to soon issue guidance to applicants regarding the materials they must submit to the Office under their duty of disclosure.”²⁹ The Therasense decision has already been applied in at least one district court case, which dismissed a defendant’s post-trial inequitable conduct motion.³⁰

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¹ No. 2008-1511, slip. op. (Fed. Cir. May 25, 2011) (en banc).

² Judges Newman, Lourie, Linn, Moore and Reyna joined Judge Rader in the majority. Judge O’Malley and Judge Bryson concurred with the majority with respect to the specific intent prong, but diverged regarding the materiality prong. Judges Gajarsa, Dyk and Prost joined the Bryson dissent.

³ Slip. op. at 15.

⁴ Id.

⁵ Id. at 24.

⁶ Id. at 24.

⁷ Id.

⁸ Id. at 25.

⁹ Id. (emphasis added).

¹⁰ 537 F.3d 1357, 1365 (Fed. Cir. 2008).

¹¹ Id. at 26.

¹² Id. at 25.

¹³ Id. at 36.

¹⁴ Slip. op. at 2 (O’Malley, J., concurring-in-part, dissenting-in-part).

¹⁵ Slip. op. at 35-38 (Bryson, J., dissenting).

¹⁶ Slip. op. at 19.

¹⁷ As it currently stands, Rule 56 (37 C.F.R. § 1.56) defines information as material if it is not cumulative and (1) “it establishes . . . a prima facie case of unpatentability of a claim” or (2) “it refutes, or is inconsistent with, a position the applicant takes . . . .” A previous version of the rule defined information as material where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.

¹⁸ Id. at 27.

¹⁹ Id. at 29.

²⁰ 276 U.S. 358 (1928).

²¹ Id. at 27.

²² Id. at 29-30.

²³ Id. at 36-37.

²⁴ Slip op. at 16 (Bryson, J., dissenting).

²⁵ 338 U.S. 318, 319 (1949).

²⁶ Id. at 5.

²⁷ Slip op. at 3 (O’Malley, J., concurring-in-part, dissenting-in-part).

²⁸ Id. at 4.

²⁹ Patent Office Press Release, available at http://www.uspto.gov/news/pr/2011/11-36.jsp.

³⁰ Ameranth, Inc. v. Menusoft Systems, Corp., et. al., 2:07-cv-271 (E.D. Tex. May 26, 2011) (while finding the undisclosed references material, the court did not find that the inventor withheld these references with a specific intent to deceive the Patent Office).