Federal Circuit Reins In Doctrine of Inequitable Conduct in Therasense, Inc. v. Becton, Dickinson & Co.
On May 25, 2011, the Court of Appeals for the Federal Circuit handed down an en banc decision in Therasense, Inc. v. Becton, Dickinson & Co., revamping the standards used for judging patentees’ inequitable conduct in patent infringement cases. Significantly, the decision raises the bar for accused infringers wishing to demonstrate the requisite intent and materiality needed to support a finding of inequitable conduct. In particular, the decision reaffirms that intent and materiality standards are to be independently applied, and establishes a “but-for” test for materiality that is satisfied only when a patent claim would not have been allowed in prosecution but-for an alleged bad act (for example, a failure to disclose certain prior art references). It is hoped that the heightened standards will reduce the incidence of unwarranted inequitable conduct claims made by accused infringers during patent litigation, and reduce the volume of marginally relevant prior art disclosures made by patentees during patent prosecution.
Therasense sued Becton, Dickinson (“BD”) in the United States District Court for the Northern District of California, inter alia, for infringing U.S. Patent No. 5,820,551. Abbott filed the original application leading to the ’551 patent in 1984. The ’551 patent involves disposable blood glucose test strips for diabetes management. When blood contacts a test strip, glucose in the blood reacts with an enzyme on the strip, resulting in the transfer of electrons from the glucose to the enzyme. A mediator transfers these electrons to an electrode on the strip. Then, the electrons flow from the strip to a glucose meter, which calculates the glucose concentration based on the electrical current.
During prosecution, the original application saw multiple rejections for anticipation and obviousness, including repeated rejections over U.S. Patent No. 4,545,382, another patent owned by Therasense. In 1997, Therasense amended the claims to claim a new sensor that did not require a protective membrane for whole blood. Therasense asserted that this distinguished over the sensors disclosed by the ’382 patent, whose electrodes allegedly required a protective membrane. In response to a request by the examiner, Therasense submitted a declaration to this effect in the U.S. Patent and Trademark Office (“PTO”). Several years earlier, while prosecuting the European counterpart to the ’382 patent, Therasense made representations to the European Patent Office (“EPO”) arguing that such a membrane could be used in their invention but was not required. This representation was not disclosed to the examiner examining the original application leading to the ‘551 Patent.
Following a bench trial, the district court determined that claims 1-4 of the ’551 patent were invalid due to obviousness in light of the ’382 patent and U.S. Patent No. 4,225,410. In addition, and of relevance to the present decision, the district court held the ’551 Patent as unenforceable for inequitable conduct because of Therasense’s failure to disclose its representations to the EPO regarding the European counterpart to the ’382 patent.
Therasense appealed the decision of the district court to the Federal Circuit. In a 2010 decision rendered by a three-judge panel, the judgment of inequitable conduct and unenforceability was upheld (with a dissenting opinion by Judge Linn). Subsequently, the Court granted a petition made by Therasense for an en banc rehearing.
In the en banc decision, the Court vacated the district court’s judgment of inequitable conduct , and remanded for reconsideration in accordance with the new inequitable conduct standards. Five judges (Newman, Lourie, Linn, Moore and Reyna) fully joined a majority opinion authored by Judge Rader. Judge O’Malley authored a separate opinion, concurring in part and dissenting in part with the majority opinion. Judge Bryson authored a dissenting opinion, joined by three judges (Gajarsa, Dyk and Prost).
In the majority opinion, Judge Rader traces the origins of the inequitable conduct doctrine to a trio of early 20th century Supreme Court decisions (Keystone Driller Co., Hazel-Atlas Glass Co. and Precision Instrument Manufacturing Co.) that applied the doctrine of unclean hands in dismissing patent cases in which the patentee engaged in “particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence.” Since this time, he argues that the standards for finding inequitable conduct have relaxed to encourage patentees’ full disclosure of prior art to the PTO, and that available remedies for inequitable conduct have become an “atomic bomb” encompassing unenforceability of the entire patent at issue and other related patents, initiation of other causes of action (for example, including antitrust and unfair competition claims), and assertions of “exceptional” case status obtaining enhanced damages. The majority opinion summarizes these effects as follows:
While honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.
In tightening the standards, the majority opinion reminds that the intent standard has for some time required the accused infringer to “prove by clear and convincing evidence that the [patentee] knew of [an omitted reference], knew that it was material, and made a deliberate decision to withhold it.” Because the intent and materiality present “separate requirements,” the opinion withdraws the so-called “sliding scale” provision “where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa.” While intent may be inferred from indirect and circumstantial evidence, it may not be inferred “solely from materiality,” and in order to meet a clear and convincing standard, must be the “single most reasonable inference able to be drawn from the evidence” and “sufficient to require a finding of deceitful intent in the light of all the circumstances.”
The majority asserts that elements of a higher intent standard were previously applied from time to time without reducing the number of inequitable conduct actions brought before the courts, and on this basis holds that an adjustment to the current materiality standard is needed as well. The majority opinion references Corona Cord as “[supporting] a [heightened] but-for materiality standard,” and holds that this standard is to be applied as a general matter, bur “recognizes an exception in cases of affirmative egregious conduct.” While the opinion provides examples of such conduct (for example, “such as the filing of an unmistakenly false affidavit”), it provides no particular test. The opinion expressly declines to adopt the definition of materiality adopted by the PTO in 37 C.F.R. § 1.56:
[Information] is material to patentability when it is not cumulative to information already of record or being made of record in the application, and
(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or
(2) It refutes, or is inconsistent with, a position the applicant takes in:
(i) Opposing an argument of unpatentability relied on by the Office, or
(ii) Asserting an argument of patentability
Judge O’Malley’s concurs with the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, and with the majority’s holdings that a specific finding of intent to deceive the PTO must be made independently from a finding as to materiality and without application of the “sliding scale,” and that intent may be found from inferential evidence only when “the single most reasonable inference able to be drawn from the evidence.” He dissents from the remainder of the majority opinion (and from the dissenting opinion) by finding that each “[strains] too hard to impose hard and fast rules.” His opinion asserts that , because inequitable conduct is “based in equity,” courts should remain flexible to apply discretion based on “the necessities of the particular case.”
Like Judge O’Malley, Judge Bryson in his dissenting opinion agrees with the majority that the intent standard requires a showing of specific intent to deceive the PTO, and that the intent and materiality standards each require showings by clear and convincing evidence without application of the “sliding scale” provision. The dissenting opinion however disagrees with the majority’s but-for standard for materiality, arguing instead for the continued application of the PTO standard expressed in 37 C.F.R. § 1.56:
With respect to the issue of materiality, the majority has adopted a test that has no support in this court’s cases and is inconsistent with a long line of precedents dating back to the early years of this court. The effect of the majority’s new test, moreover, does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether. … I would adhere to the materiality standard set forth in the PTO’s disclosure rule for two basic reasons: First, the PTO is in the best position to know what information examiners need to conduct effective and efficient examinations. … Second, the higher standard of materiality adopted by the majority will not provide appropriate incentives for patent applicants to comply with the disclosure obligations the PTO places upon them.
Judge Bryson also dissents from the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, finding that the present district court holding is not subject to reversible error.
Time will tell whether the Federal Circuit’s decision in Therasense will lead to reductions in the incidence of unwarranted inequitable conduct claims made by accused infringers during patent litigation, and in the volume of marginally relevant prior art disclosures made by patentees during patent prosecution. Because of the advantages provided until now in basing inequitable conduct claims on highly material omissions in order to obtain a sliding scale reduction in the level of proof required for the intent element, many of the claims made to date may in fact satisfy the new materiality standard. This may sufficiently embolden accused infringers to continue to raise such claims at nearly the same rate even if the heightened intent standard causes such claims to have a lower success rate. Similarly, patentees may find that it is easier to continue present liberal prior art disclosure practices during patent prosecution than to be more selective about prior art disclosures as may be allowed in accordance with the heightened standards. In this decision, the differing opinions among the judges on the en banc panel and the relatively bright-line rules adopted by the majority in contrast to other applications of the unclean hands doctrine may invite the Supreme Court’s favorable response to a further petition for certiorari.