Therasense, Inc. v. Becton, Dickinson & Co., — F.3d —-, 2011 U.S. App. LEXIS 10590 (Fed. Cir. 2011) (en banc) (RADER, Newman, Lourie, Linn, Moore & Reyna; O’MALLEY, concurring-in-part & dissenting-in-part; BRYSON, Gajarsa, Dyk & Prost, dissenting) Therasense.05252011.fc
MAJOR ISSUES: inequitable conduct rendering patents unenforceable; raising standards for materiality and intent; “but for” materiality; no “sliding scale”; no materiality required for affirmative egregious misconduct
COMMENTS: In a milestone decision, the Federal Circuit, sitting en banc, reviewed the standard of materiality for the inequitable conduct defense to patent infringement. In a majority opinion for six of the participating eleven judges, Chief Judge Rader “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.” On intent, the majority (1) rejected a “sliding scale” approach under which “a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa,” and (2) restricted the circumstances under which the necessary intent to deceive the PTO may be inferred. On materiality, the majority (1) adopted a “but-for” standard of materiality, (2) recognized “an exception in cases of affirmative egregious misconduct,” and (3) eschewed prior decisions that relied on the PTO’s Rule 56 definitions of materiality.
For a preliminary, critical evaluation of Therasense, see below.
CROSS REFERENCES: On the inequitable conduct defense and its history, see Chisum on Patents 19.03. For case law on the defense, see Chisum, Patent Law Digest 4000.
1. Close Vote; Questionable Viability
In view of the lack of consensus among the judges in Therasense, with the majority representing a bare 6 of the 11 participating judges and with strong opinions by concurring Judge O’Malley and dissenting Judge Bryson, there is doubt about the long-term viability of the Therasense approach to inequitable conduct. Historically, en banc decisions by close votes on important issues of patent law in the Federal Circuit did not stabilize the law. The division of opinion among the judges persisted in subsequent panel decisions and, in some instances, the Supreme Court intervened. An example is the 1985 en banc decision, SRI Int’l v. Matsushita Elec. Corp. of Am., 775 F.2d 1107 (Fed. Cir. 1985) (en banc), in which a badly-fractured court addressed, inconclusively, claim construction, the doctrine of equivalents, and prosecution history estoppel. The decision was followed over the years by en banc rulings and three Supreme Court decisions. Contrariwise, en banc decisions that were unanimous or nearly so have had a more permanent impact. Examples are A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 22 USPQ2d 1321 (Fed. Cir. 1992) (laches and estoppel) and Phillips v. AWH Corp., 415 F.3d 1303 or (Fed. Cir. 2005) (claim construction principles).
2. Driving Force: “Plague” of Inequitable Conduct Charges. Driving the majority decision to raise the standard of materiality were the perceptions, supported primarily by reference to amicus briefs rather than hard factual evidence, that accused infringers were charging inequitable conduct in a high percentage of infringement suits and that this “plague” of charges was having negative effects, not only making patent litigation more complex and uncertain but also negatively effecting examination in the Patent and Trademark Office (PTO) as patent prosecutors, fearing inequitable conduct charges, flood the PTO with the disclosure of marginally relevant information.
An implicit premise of the majority position, which the dissenting judges did not specifically challenge, was that a large number of the charges were groundless. If a significant percentage of the charges have merit, then the “plague” may be of a different sort, one of substandard prosecution practices. That not all inequitable conduct charges were groundless was suggested by the significant number of Federal Circuit panel decisions upholding inequitable conduct charges in the four calender years (2007-2010) before Therasense.
Not discussed by the majority, but articulated clearly by the dissent, is the prospect that a better and more effective solution to the overcharging “plague” (or “flood” or metasticized ”cancer”) would have been to tighten the standards for alleging inequitable conduct in litigation, such as by imposing stern sanctions on accused infringers and their litigation counsel who charge inequitable conduct without a sufficient basis in law and fact. Related to potential use of sanctions for groundless inequitable conduct charges is the use of strict pleading standards. Less than two years before Therasense, in August 2009, a Federal Circuit panel had imposed stringent pleading requirements. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). The Therasense majority did not consider whether the “plague” had lessened for cases initiated after August 2009.
Also questionable is whether the majority’s approach of raising the substantive standards for materiality and intent will successfully and permanently substantially reduce the number of inequitable conduct charges. In short, a key question is: will the majority’s raising of the intent and materiality levees contain the flood?
The majority’s distinction between charges of “mere nondisclosure”, for which a high materiality standard must be met, and charges of “affirmative egregious misconduct,” for which no materiality need be shown, is a fine one. It is a distinction that the Federal Circuit had previously considered but rejected in the context of Walker Process antitrust suits based on fraudulent patent procurement. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 46 USPQ2d 1097 (Fed. Cir. 1998). The distinction may be exploited by accused infringers hell bent on raising an inequitable defense to an otherwise iron-clad charge of patent infringement.
In fairness, one must concede that the majority’s tightened standards, faithfully applied, should deter to some extent a common and easy-to-make but questionable inequitable conduct charge: an allegation that a patent owner’s representatives knew of but did not cite a prior art reference, which was relevant to the patentability of a claim and not cumulative of other information before the PTO but which, after full consideration during a litigation, would not have precluded grant of the claim.
But identifying and dismissing this type of charge will not be as straightforward as might be initially assumed. First, the majority notes that a reference might be material because it would have barred allowance of a claim even though, subsequently in litigation, the claim is uphold as not invalid over the reference. This is because the PTO gives the claim a broader interpretation and imposes a different proof burden (preponderance of the evidence rather than clear and convincing evidence). Second, in case of a known, undisclosed reference, a persistent accuser may argue that a patent owner’s representative made an egregious affirmative misrepresentation to the PTO. For example, the representative may have stated that “the claim requires element X and nowhere in the prior art is X disclosed or suggested.” The accused infringer could allege that the falsity of the affirmative statement was established by the failure to disclose a known reference that taught X.
3. Distinguishing Patentability and Validity; “Objective” and “Subjective” “But For”; All Claims Rule; Effect on Jury Trial Right; Critique of Majority Approach. The majority clearly and carefully explained the difference between the materiality of a prior art reference or other item of information for purposes of patentability and its “but for” standard of materiality for purposes of the inequitable conduct defense. That distinction, coupled with the egregious misconduct exception, may reduce the likelihood that the majority’s goal of discouraging inequitable conduct charges in litigation will be fully achieved. It illustrates a fundamental flaw in the majority’s approach.
The majority noted that a court’s adjudication that a claim is invalid in view of an undisclosed reference “necessarily” means that the reference was material. This is because proof of invalidity to a court must be by clear and convincing evidence whereas the PTO’s burden is less, a preponderance of the evidence. Further, a court applies a claim construction that is either the same or narrower than that which the PTO applies.
The majority does not discuss the possibility that a given examiner may have allowed the claim under a mistaken assumption about the law and facts and would have allowed (erroneously) the claim even in light of the undisclosed reference. The majority’s “but for” standard asks “whether the PTO would have allowed the claim if it had been aware of the undisclosed” reference, implicitly meaning in light of all the facts and the correct law. This is what older cases referred to as an objective “but for” standard rather than a subjective “but for” standard.
The majority notes that the opposite adjudication, that is, a court’s adjudication that a claim is not invalid in view of an undisclosed reference, is not conclusive of materiality for two reasons (caveats).
First, the PTO applies a different and broader construction to claims. The PTO’s broadest reasonable construction rule can mean the PTO will reject a broadly-construed claims as “reading on” prior art even though a court would give the claim a narrower construction and uphold its patentability. This prospect complicates a district court’s task of determining the materiality of an undisclosed reference. The construction of a claim that PTO adopted may be evident from the prosecution history of a patent, but often that will not be true, and the parties will dispute about a broad construction. Possibly, by analogy to the Wilson Sporting Goods decision, Wilson Sporting Goods Co. v. David Geoffrey & Associates, 904 F.2d 677 (Fed. Cir. 1990), a court might require an accused infringer charging inequitable conduct to posit a hypothetical claim that is both reasonable and broad enough to establish unpatentability in view of the undisclosed reference.
Second, as noted, the burden of proof differs. The Federal Circuit has held that the PTO must establish unpatentability of a claim by a preponderance of the evidence. As the Supreme Court confirmed in Microsoft Corp. v. i4i Limited Partnership (June 9, 2011), a challenger to an issued patent claim must establish invalidity by a clear and convincing evidence.
Both caveats inject uncertainty into a field that is, as the majority assumes, already excessively litigious.
If the majority had fully equated materiality for patentability with effect on validity, it would have further reduced and simplified the task of adjudicating in equitable conduct claims (and, therefore, presumptively, helped contain the flood of inequitable conduct charges). Addressing a charge of inequitable conduct based on an undisclosed reference, a district court (or the International Trade Commission) could address first validity over the reference. If an asserted claim were valid, the reference would have been per se not material. Contrariwise if the asserted claim were invalid.
But even that simplification by equating validity and patentability would been incomplete. The majority reviewed and did not disapprove of the case law establishing that inequitable conduct in connect with any claim in a patent renders the entire patent (and all its claims and even some related patents) unenforceable. This will mean that accused infringers may continue to have viable inequitable conduct defenses even when a patent owner asserts successfully one or more claims in a patent if the patent has other, broader claims as to which an undisclosed prior art reference was material. The patent owner may not have asserted those claims. Indeed, the broader, potentially tainted claims may have been cancelled during a reexamination or disclaimed. Yet such a claim can be the foundation of an inequitable conduct charge.
In moving the standard of materiality and hence the question to the conclusion on inequitable conduct closer to–but not concentric with–the standard for validity over the prior art, the Therasense decision raises questions about the right to a jury trial. The Federal Circuit has held that the jury trial right does not apply to the inequitable conduct defense because is of the defense’s “equitable” nature. See Chisum on Patents 19.03[d]. It has held that the jury trial right does apply to validity questions, which are “legal” in nature, at least if monetary damages for infringement are at issue. Under Supreme Court authority, a court sitting in equity cannot first resolve an issue if the issue is common to a legal claim. The Federal Circuit has held that the issues in an inequitable conduct defense are generally not common to those in invalidity. This has allowed separate trials or concurrent trials with separate determinations, validity going to a jury, inequitable conduct being decided by the trial judge. By moving the standard of materiality closer to that for validity, Therasense makes it more likely that issues, such as the pertinence of a reference to patentability, will be common and hence subject to prior jury determination.
That questions such as these remain is further evidence suggesting that the majority’s solution to the problem of a “plague” (flood or cancer) of inequitable conduct charges problem may not be viable in the long term. The majority could have simplified the law but discouraged groundless inequitable conduct charges by (1) leaving the materiality standard at an easy to administer low level, (2) seriously enforcing the requirement that an intent to deceive be shown, and (3) encouraging the district courts to impose meaningful sanctions for groundless assertions of inequitable conduct during litigation.
Patent litigators as well as patent prosecutors should be subject to high standards. It is disturbing that the Federal Circuit majority would rule based on the assumptions that “allegations of inequitable conduct are routinely brought on `the slenderest grounds,’ Burlington Indus., 849 F.2d at 1422,” and that such routine practices of charging misconduct without adequate grounds have continued without effective judicial intervention since 1988 (the date of the Burlington opinion) and would be allowed to continue unless the definition of what constitutes misconduct is narrowed.