Federal Circuit Strikes Hard Against the “Plague” of the Inequitable Conduct Defense

By Kerry Timbers. A Co-Chair of the Litigation Practice Group

June 2011 IP Update

Kerry L. TimbersAt the end of May, the Federal Circuit — the court that hears all patent appeals — drastically toughened the standards for proving the inequitable conduct defense in patent infringement litigation. In the process, the court expressed its scorn for the overuse of this defense by accused infringers.

Signaling the importance it attached to this shift, the entire court — rather than the typical three-judge panel — participated in the decision. In Therasense, Inc. v. Becton, Dickinson & Co., the court considered the widespread, practically reflexive, assertion of the inequitable conduct defense.

With this defense, an accused infringer alleges that, when the inventor applied for his patent, he failed to tell the patent examiner about a prior art reference, or otherwise engaged in conduct that deceived the Patent and Trademark Office (PTO) into granting a patent.  If such conduct rises to the level of “inequitable conduct,” the entire patent is unenforceable.

In a stinging indictment of the current state of the law and practice of the inequitable conduct defense, the majority opinion deplored the “numerous unforeseen and unintended consequences” of the defense.

The court linked the inequitable conduct defense with a string of transgressions, saying that it:

  • “expands discovery” in litigation,
  • “disqualifies the prosecuting attorney from the patentee’s litigation team,”
  • “cast[s] a dark cloud over the patent’s validity,”
  • “focuses on the moral turpitude of the patentee with ruinous consequences for the reputation of his patent attorney,”
  • “discourages settlement,”
  • “deflects attention from the merits of validity and infringement issues,”
  • “increase[s] the complexity, duration and cost of patent infringement litigation,”
  • “is the ‘atomic’ bomb of patent law,”
  • “can … render unenforceable other related patents and … endanger a substantial portion of a company’s patent portfolio,” and
  • has become “an absolute plague … [and] has plagued not only courts but also the entire patent system.”

Nor, in the court’s view, are such offenses confined to the arena of patent litigation.  In the PTO itself, the inequitable conduct defense, or more particularly, the anxiety it causes in patent applicants:

  • “cast[s] the shadow of the hangman’s noose,”
  • “[causes] patent prosecutors [to] regularly bury the PTO examiners with a deluge of prior art references, most of which have marginal value … a tidal wave of disclosure [that] makes identifying the most relevant prior art more difficult … [and] strains the [PTO’s] examining resources and directly contributes to the backlog”
  • has “impaired patent quality,” and
  • “has been overused to the detriment of the public.”

This is tough talk from the very court that is most responsible for the current incarnation of this “judge-made” defense — it is like a father who lets his son play with knives, then rebukes him for injuring his little brother.  And like a disappointed parent, the court has decided to impose discipline, laying down rules that make it much harder to get into the silverware drawer, in an effort to right what has gone so very wrong.

In the judicial equivalent of “you are grounded forever,” the court explains that “[because] low standards for intent and materiality have inadvertently led to many unintended consequences, … [t]his court now tightens the standards for finding both intent and materiality in order to redirect the doctrine that has been overused to the detriment of the public.”

The new standards are tight indeed.  First, “the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.”  In cases of alleged nondisclosure of prior art references, “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.”

To make this showing, “the specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence,’ and ‘must be sufficient torequire a finding of deceitful intent in light of all the circumstances’ (emphasis added). . . [W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.”

This contrasts sharply with the longtime practice under which intent and materiality were considered together on a “sliding scale,” and in which intent could be inferred from a finding of “gross negligence or even negligence.”

Second, a “but-for” standard now applies to showing the materiality of prior art that was allegedly not disclosed to the PTO:  It must be proven that “the PTO would not have allowed the claim had it been aware of the undisclosed prior art.”

This is a clean break with the standard that has long prevailed in both trial courts and in the PTO itself, whereby materiality is proven by a prima facie case of unpatentability, or if it refutes or is inconsistent with a patentability position the patent applicant takes.  The court considered the PTO standard to be “such a low bar for materiality” that it would perpetuate the vices of the current standard.

As in many families, parents do not always see eye to eye.  The new rules were approved by the slimmest margin, 6 to 5.  Although the concurring and dissenting judges agree that the inequitable conduct defense is sick, they differ as to the cure.

Judge O’Malley in concurrence warns that the wrongs imputed to the defense do not justify what he sees as “broad legal standards that diverge from doctrines explicated by the Supreme Court.”  Judge Bryson’s dissent in effect blames the parents, saying that the “lack of a clear and uniform standard,” and “doctrinal uncertainty” are to blame for the misbehavior of accused infringers.

The dissenters reserve their severest objection, however, for the materiality standard.  These judges would have preserved the PTO’s standard for proving materiality, and not adopted the “radical approach” of the majority, which in the dissent’s view “comes close to abolishing” the defense altogether.

The lesson for litigants is clear.  It will now be much harder to prove inequitable conduct in most cases, and much easier for district court judges to throw out the defense on summary judgment.  It may be that the dissent is correct, that the new rules make it nearly impossible to prove inequitable conduct.

For those seeking patents in the PTO, it is the clear hope of the court that the new rules will lead to less disclosure of “marginal” references, and to better examinations based on only the most pertinent art.  However, long-ingrained patterns of behavior will not change overnight, and for a long time to come, patent prosecutors will likely continue to play it safe by over-disclosing prior art.