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Fraud/Inequitable Conduct on the USPTO Now Requires Both Intent and Materiality – No Sliding Scale

The Federal Circuit Court of Appeals, in ruling en banc on the “atomic bomb” of patent litigation, revised decades worth of fraud and inequitable conduct law to establish a clear, two-part test to establish inequitable conduct. Therasense, Inc. v. Becton, Dickinson and Co., Case No. 2008-1511 (Fed. Cir. May 25, 2011)(en banc)(available here). Driving the Court’s decision was its opinion that the charge of inequitable conduct before the Patent Office (USPTO) , left unfettered, resulted in a plague on the courts and the entire patent system. Slip opn. p. 23.

For 13 years, Therasense (now Abbott Diabetes Care, Inc.) ( prosecuted U.S. Patent No. 5,820,551 before the USPTO. The issue before the Court involved contradictory statements made by Therasense in the U.S. prosecution of the ‘551 patent and the corresponding prosecution of the European patent in the European Patent Office (“EPO”) ( Becton ( had sued Therasense seeking a declaration that the ‘551 patent was invalid. “Of primary relevance here, the district court held the ’551 patent unenforceable for inequitable conduct because Abbott did not disclose to the PTO its briefs to the EPO filed on January 12, 1994 and May 23, 1995.”

Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent. This doctrine evolved from three basic Supreme Court cases that applied the doctrine of unclean hands to dismiss patent cases involving egregious misconduct: Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933)(involving the manufacture and suppression of evidence), Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944) (evidence manufactured and suppressed) overruled on other grounds by Standard Oil Co. v. United States, 429 U.S. 17 (1976), and Precision Instruments Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945)(the facts showed that the patentee suppressed evidence of perjury before the USPTO and attempted to enforce the perjury tainted patent).

Over time, inequitable conduct diverged from the doctrine of unclean hands by adopting a different and more potent remedy – unenforceability of the entire patent rather than mere dismissal of the instant suit. See Precision, 324 U.S. at 819 (dismissing suit); Hazel-Atlas, 322 U.S. at 251 (noting that the remedy was limited to dismissal and did not render the patent unenforceable); Keystone, 290 U.S. at 247 (affirming dismissal of suit). In line with this wider scope and stronger remedy, inequitable conduct came to require a finding of both intent to deceive and materiality. Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008).

Prior to the Therasense decision, to prevail on the defense of inequitable conduct, the accused infringer had to prove, by clear and convincing evidence, that the patent applicant misrepresented or omitted material information with the specific intent to deceive the USPTO. The accused infringer had to prove both elements—intent and materiality— by clear and convincing evidence. If the accused infringer met that burden, then the trial court weighed the equities to determine whether the patentee’s conduct warranted rendering the entire patent (and potentially the associated patent portfolio) unenforceable.

Over time, court decisions lowered the standards for meeting the intent requirement, finding it satisfied based on gross negligence or even negligence. See Driscoll v. Cebalo, 731 F.2d 878, 885 (Fed. Cir. 1984) (“Where they knew, or should have known, that the withheld reference would be material to the PTO’s consideration, their failure to disclose the reference is sufficient proof of the existence of an intent to mislead the PTO.”); Orthopedic Equip. Co., Inc. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1383-84 (Fed. Cir. 1983) (requiring only gross negligence to sustain a finding of intent).

As for materiality, the Federal Circuit had previously adopted a broad view of materiality, using a “reasonable examiner” standard based on the PTO’s 1977 amendment to Rule 56. See Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed. Cir. 1984); see also 37 C.F.R. § 1.56 (1977) (a reference is material if “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”). The Federal Circuit held in Therasense that “materiality” required to establish inequitable conduct is a but-for materiality. pg. 27.

The en banc Therasense decision clarifies that:

“To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO. Star, 537 F.3d at 1366 (citing Kingsdown, 863 F.2d at 876). A finding that the misrepresentation or omission amounts to gross negligence or negligence under a ‘should have known’ standard does not satisfy this intent requirement. Kingsdown, 863 F.2d at 876. ‘In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference.’ Molins, 48 F.3d at 1181. In other words, the 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. ” p. 24 (emphasis added).

The Court’s decision goes further to state that “intent and materiality are separate requirements. A district court should not use a ‘sliding scale,’ where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa…Instead, a court must weigh the evidence of intent to deceive independent of its analysis of materiality. ” p. 25 (citation omitted).

The trial court may infer intent from indirect and circumstantial evidence because direct evidence of deceptive intent is rare. pg. 25, see Larson Mfg. Co. of S.D., Inc. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1340 (Fed. Cir. 2009). “However, to meet the clear and convincing evidence standard, the specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence.’ Star, 537 F.3d at 1366. Indeed, the evidence ‘must be sufficient to require a finding of deceitful intent in the light of all the circumstances.’ Kingsdown, 863 F.2d at 873. Hence, when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found. See Scanner Techs. Corp. v. ICOS Vision Sys. Corp., 528 F.3d 1365, 1376 (Fed. Cir. 2008)” p. 25-26.

“Because the party alleging inequitable conduct bears the burden of proof, 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.’ Star, 537 F.3d at 1368. The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.” p. 26

The revised standard for inequitable conduct does not apply to cases of affirmative egregious misconduct which are “deliberately planned and carefully executed scheme[s]” to defraud the USPTO and the courts. The two-step process set forth in Therasense may result in lower litigation costs since both materiality and intent are now independently analyzed, thereby removing the potentially subjective “sliding scale” factor before the trial court.

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