GOOD NEWS FOR PATENT OWNERS, THE DEFENSE OF INEQUITABLE CONDUCT IS DRAMATICALLY RESTRICTED BY FEDERAL CIRCUIT COURT OF APPEALS

The patent law defense of inequitable conduct, sometimes referred to as fraud on the Patent Office, has been dramatically restricted by an en banc ruling of the Court of Appeals for the Federal Circuit, the court of appeals responsible for all patent cases. In Therasense, Inc. v. Becton, Dickinson and Co., a decision entered by the fully assembled Federal Circuit Court of Appeals, higher standards have been established for proving the necessary elements of the inequitable conduct defense to enforcement of a patent. The decision reflects the disfavored nature of the defense, and hopefully will lead to reduced expense and distraction in patent enforcement litigation.

The patent law defense of inequitable conduct is one that developed judicially over a period of decades dating back to a trio of Supreme Court decisions in the 1930s and 40s. Since the Patent Office does not have an investigative arm or tools of its own, the defense recognizes that a patent applicant must be truthful in communicating with the Patent Office and has a duty to inform the Patent Office of important information regarding the invention disclosed in an application. The defense typically involves one of two types of offense, either a misrepresentation to the Patent Office regarding information that has been submitted or the failure to provide known important information to the Patent Office. The defense has several elements, but as developed over time proof of the defense came down to a balancing of two factors: the degree of materiality or relevance of the information involved and the level of wrongful intent behind the conduct of the applicant and its attorney. Although the defense ultimately required proof by clear and convincing evidence, the balancing test created a sliding scale that could result in a much reduced degree of proof on either factor.

The ascendancy of the inequitable conduct defense and its widespread allegation was due in great part to the remedy this defense provides.# If inequitable conduct is found, the patent is unenforceable in its entirety. Other patent defenses are more specific. A patent can have a number of different claims to areas of protection, and other defenses of non-infringement and invalidity only apply on a claim-by-claim basis. The Therasense court therefore called the inequitable conduct defense the “atomic bomb of patent law,” since intentionally withheld or misrepresented information could render an entire patent unenforceable even though the information may not have prevented the patent from issuing or otherwise invalidated any single claim.

The level of proof required by courts evolved with the defense. Eventually proof of materiality only required establishing the information was something a reasonable examiner would consider to be important to know, regardless of whether it would be a basis for rejecting a claim, and wrongful intent could be inferred from conduct in combination with the sliding scale of materiality.

Allegations of inequitable conduct eventually reached such proportions that courts and practitioners alike decried abuse of the defense. A prior decision by the Federal Circuit recognized that the defense was rarely successful, but bemoaned the rampant allegation of inequitable conduct: “[T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague. Reputable lawyers seem to feel compelled to make the charge against other reputable lawyers on the slenderest grounds…” In an earlier en banc decision the Federal Circuit Court of Appeals had tried to stem the flood of inequitable conduct charges by heightening the intent factor and ruled that gross negligence was insufficient to meet the intent requirement of the defense.# The flood continued unchecked however. The Court of Appeals recognized that this state of affairs had led to many negative impacts, including increased cost and complexity of patent enforcement litigation and reduction in likelihood of settlement of litigation. Both the type and quantity of discovery activities associated with the inequitable conduct defense were a significant addition to the already expensive and complex enterprise that makes up patent enforcement litigation.

In the Therasense decision the Federal Circuit Court of Appeals has now handed down a new set of standards to be applied to the inequitable conduct defense. Proof of the two factors, materiality and wrongful intent, continues to be required, but the Therasense decision heightens the standard for each factor.

Under the new standards the party raising the defense must prove the patentee acted with the specific intent to deceive the Patent Office. Although the specific intent may still be inferred from indirect and circumstantial evidence, that inference must be the single most reasonable inference to be drawn from the collective circumstantial evidence. When multiple reasonable inferences may be drawn, intent to deceive cannot be found. The absence of a good faith explanation for the failure to submit the information to the Patent Office does not itself prove intent to deceive.

Additionally, in the case of an alleged failure to submit known information to the Patent Office, the undisclosed information must be proven to be sufficiently relevant that the Patent Office would not have allowed one of the patent claims if the examiner had known of the information. This “but for” test, that the claim would not have been allowed “but for” the withholding of information, applies only to the category of cases involving undisclosed information. In the category of cases in which the conduct of the patentee involves affirmative acts of misconduct, such as the submission of a false affidavit, the conduct is considered sufficiently material to find the defense. The application of this but-for test by a court will be somewhat unusual, in that the court will apply the standards used by patent examiners in reviewing an application, which differ from those later applied by courts in reviewing the validity of an issued patent. Nonetheless, this but-for standard heightens and provides a brighter demarcation to the level of materiality necessary for undisclosed information to rise to the level of rendering a patent unenforceable.

Application of this newly established set of standards will itself undergo an evolution as courts apply the standards to different factual settings. Regardless, at least in the short run this new state of the law should reduce the frequency of an inequitable conduct defense being alleged, and hopefully limiting the defense to those few cases in which the defense is justified. The fall-out should be a reduction in cost and complexity of patent lawsuits, which in their own right present complexity enough for the courts and the litigants.