Client Alert

On May 25, 2011, the United States Court of Appeals for the Federal Circuit, on appeal from the United States District Court for the Northern District of California, issued its en banc decision in Therasense, Inc. (now known as Abbott Diabetes Care, Inc.) v. Becton, Dickinson and Co., No. 2008-1511, slip. op. (Fed. Cir. May 25, 2011). The Federal Circuit maintained the general structure of the two prong test to prevail on a claim of inequitable conduct, holding that a party alleging inequitable conduct must prove that: (1) the patentee acted with specific intent to deceive the Patent Office and (2) the information withheld is material to the patentability of a claim of the asserted patent. The Court, however, clarified the intent requirement and narrowed the materiality requirement. With respect to intent, the Court found that "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." With respect to materiality, the Court held that "the materiality required to establish inequitable conduct is but-for materiality." "[P]rior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art." The Court specifically rejected the definition of materiality provided in USPTO Rule 56 (37 C.F.R. §1.56) and previously used by litigants attempting to prove inequitable conduct. The Court also carved out an exception to but-for materiality in cases where the accused can establish a case of affirmative egregious conduct akin to that required to establish unclean hands.

Summary
The district court originally held the patent-in-suit unenforceable for inequitable conduct because Abbott failed to disclose briefs it submitted to the European Patent Office during prosecution of the European counterpart application, finding that those briefs contained representations contrary to affidavits submitted during prosecution of the patent-in-suit. On appeal, a three-judge panel at the Federal Circuit upheld the district court's determinations of noninfringement, invalidity and unenforceability. Citing various problems caused by the expansion and overuse of the inequitable conduct doctrine, the Federal Circuit granted Abbott’s petition for rehearing en banc and vacated the judgment of the panel.

After receiving briefs from a large range of amici, the Federal Circuit took the opportunity to review the origins of inequitable conduct, tracing it back to Supreme Court's use of the doctrine of unclean hands to dismiss patent cases involving egregious conduct. Noting the significant impact of a finding of inequitable conduct on the enforceability of a patent, the Court observed that the standards for intent to deceive and materiality have fluctuated over time. The Court also echoed common complaints about inequitable conduct from both litigators and prosecutors, including (1) an increase in the complexity, duration and cost of patent infringement litigation; (2) overuse of the inequitable conduct defense; (3) burden on the court; (4) reduction in the likelihood of settlement; (5) burying patent examiners with "a deluge of prior art references, most of which have marginal value"; (6) straining PTO resources; (7) increasing PTO backlog; and (8) impairing patent quality.

In light of this backdrop, the Federal Circuit reaffirmed that materiality and intent are separate requirements, stating that "[a] district court should not use a 'sliding scale,' where a weak showing of intent may be found sufficient based upon a strong showing of materiality, and vice versa." The Federal Circuit clarified again that a court may not infer intent from materiality. A court may still infer intent from indirect and circumstantial evidence because direct evidence of deceptive intent is rare, but "the specific intent must be 'the single most reasonable inference able to be drawn from the evidence'... When there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found." The patentee need not offer any good faith explanation unless the accused infringer first proves a threshold level of intent to deceive by clear and convincing evidence.

In addition, the Federal Circuit set forth the new "but-for materiality" standard and rejected the PTO's standard for materiality defined in 37 C.F.R. § 1.56. The Federal Circuit held that in determining whether the PTO would have allowed the claim if the PTO had been aware of the undisclosed reference, the district court must assess patentability under a preponderance of the evidence standard. The Court further noted that if a reference is found to invalidate the claim of a patent by clear and convincing evidence, then that reference is necessarily material. "However, even if a district court does not invalidate a claim based upon a deliberately withheld reference, the reference may still be material if it would have blocked patent issuance under the PTO's different evidentiary standards."

The Federal Circuit also acknowledged that there is a limited "egregious conduct exception" to the "but-for materiality" prong to account for affirmative acts of misconduct, such as, but not limited to, filing an unmistakably false affidavit during prosecution. The Court acknowledged that the egregious misconduct exception gives the materiality standard "sufficient flexibility to capture extraordinary circumstances."

Impact of the Decision
The Federal Circuit's Therasense decision heightens the bar for proving inequitable conduct. Whether or not Therasense actually reduces the number of cases involving an accusation of inequitable conduct remains to be seen. However, accused infringers will need to plead inequitable conduct with increased particularity, making sure to set forth separate prima facie showings for both specific intent and but-for materiality. Accusations of inequitable conduct should adopt and mirror some of the critical language used by the Federal Circuit to describe the requirements to establish both specific intent and but-for materiality. As noted in Judge O’Malley’s dissenting-in-part opinion, accused infringers may also gear their inequitable conduct accusations more to the egregious conduct exception or an unclean hands defense to avoid the but-for materiality standard. On the flip-side, patentees should look for early opportunities to dismiss accusations of inequitable conduct through 12(b)(6) motion practice or early summary judgment motions.

As for Therasense's impact on patent prosecution, it remains unclear whether patent applicants will use the Federal Circuit's opinion to justify more limited prior art disclosures to the Patent Office. The Federal Circuit certainly recognized the problems inherent in the deluge of prior art on the Patent Office, but an applicant’s duty of disclosure under USPTO Rule 56 remains in force and effect.

If you have any questions or wish to discuss how this decision may impact your company, please contact your attorney at Brinks Hofer Gilson & Lione.

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