Federal Circuit Tightens Standards for Inequitable Conduct SUMMARY On May 25, 2011, the United States Court of Appeals for the Federal Circuit issued its long-awaited en banc opinion in Therasense, Inc. v. Becton, Dickinson & Co. addressing the inequitable conduct doctrine. Inequitable conduct is an equitable defense to patent infringement that can render a patent unenforceable upon a showing that a patent holder withheld or misrepresented material information during prosecution of a patent with intent to deceive the U.S. Patent and Trademark Office. The Therasense opinion expressly tightens the doctrine, affirming that it can only succeed upon a showing of both (1) specific intent to deceive the PTO and (2) either but-for materiality or affirmative acts of egregious misconduct. BACKGROUND Inequitable conduct is an equitable defense to patent infringement that, if proven, can bar enforcement of a patent. The doctrine evolved from a series of Supreme Court decisions that applied the equitable defense of unclean hands to patent cases where there had been egregious misconduct, such as the manufacture of evidence or perjury, during prosecution of an asserted patent before the U.S. Patent and Trademark Office ( PTO ). As the inequitable conduct doctrine evolved, it diverged from unclean hands in two key ways. First, it embraced a broader scope of conduct, including not only egregious affirmative acts but also the nondisclosure of information, most commonly prior art references, to the PTO. Second, a finding of inequitable conduct became not merely a defense in a specific litigation, but resulted in the permanent unenforceability of the entire patent (and sometimes related patents), which led to the defense being referred to as the atomic bomb of patent law. 1 The Federal Circuit has long held that both intent to deceive the PTO and a level of materiality are required for a finding of inequitable conduct, but the standards for meeting these requirements have varied. In some cases, gross or even ordinary negligence was found sufficient to meet the intent New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com
requirement. Likewise, some courts held that any information inconsistent with the patentee s position and withheld from the PTO may be material, even if such information, if disclosed, would not have affected patentability. In Therasense, the defendant raised an inequitable conduct defense based on Therasense s submission of an affidavit and argument to the PTO about a different (prior art) Therasense patent that seemed to be inconsistent with briefs Therasense submitted to the European Patent Office ( EPO ) during prosecution of a counterpart to that patent. Based on Therasense s failure to disclose the EPO briefs to the PTO, the district court held the patent unenforceable. After a divided panel of the Federal Circuit affirmed, the Federal Circuit granted Therasense s petition for rehearing en banc. THE FEDERAL CIRCUIT S EN BANC OPINION In its opinion, the Federal Circuit states that it granted en banc review because it [r]ecogniz[ed] the problems created by the expansion and overuse of the inequitable conduct doctrine. 2 In particular, the court notes that the prior formulation of the defense resulted in unintended consequences, including increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. 3 Thus, the Therasense opinion expressly tightens the doctrine s intent and materiality requirements in order to redirect a doctrine that has been overused to the detriment of the public and plagued not only the courts but also the entire patent system. 4 Intent. The intent element of inequitable conduct requires the accused infringer to prove that the patentee acted with intent to deceive the PTO. In Therasense, the court made clear that the intent element requires both knowledge and deliberate action. Thus, [i]n 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. 5 That is, the accused patent infringer must prove by clear and convincing evidence that the patentee knew of a prior art reference, knew that the reference was material, and made a deliberate decision to withhold it. 6 Accordingly, while intent may be inferred from indirect and circumstantial evidence, this standard will be satisfied only if specific intent to deceive is the single most reasonable inference to be drawn from the evidence. The court also noted that absent a showing of intent to deceive, a party accused of inequitable conduct does not need to offer a good faith explanation for its failure to disclose a reference, and no inference can be drawn solely from the absence of such an explanation. Materiality. The court s new formulation of the materiality element is one of but-for materiality. Thus, when an applicant fails to disclose prior art to the PTO, that failure is material only if the PTO would not have allowed a claim had it been aware of the undisclosed prior art. 7 This standard raises the bar for materiality by rejecting formulations that allowed for a finding of inequitable conduct upon a showing that -2-
an omitted reference merely refutes or is inconsistent with any position the applicant took regarding patentability. 8 However, the court carved out one exception to the but-for materiality standard that incorporates elements of the unclean hands doctrine for affirmative acts of egregious misconduct. Egregious misconduct, such as the filing of a false affidavit, the court held, is necessarily material. The exception applies to affirmative acts only; thus, the court stressed that neither mere nondisclosure of prior art references to the PTO nor failure to mention prior art references in an affidavit constitutes affirmative egregious misconduct. 9 Prior to the Federal Circuit s en banc decision in Therasense, formulations of the inequitable conduct doctrine permitted sliding scale analyses of intent and materiality. Under a sliding scale analysis, a strong showing of materiality could permit a reduced showing of intent, and vice versa. The Federal Circuit in Therasense rejected the sliding scale approach, stating that under the new formulation, intent and materiality cannot be inferred from one another. Rather, evidence of intent and materiality must be weighed independently, and both must be proven, for a finding of inequitable conduct. Because the district court found that Therasense had engaged in inequitable conduct without finding butfor materiality and based merely on a negligence standard for intent, the Federal Circuit vacated the district court s judgment and remanded the case for proceedings consistent with the new standards. IMPLICATIONS The Federal Circuit s ruling in Therasense marks a clear departure from earlier formulations of the inequitable conduct doctrine, establishing guidelines for a higher burden for defendants in patent infringement suits to meet when asserting the defense of inequitable conduct. The new standards for intent and materiality are likely to result in a reduction in the number of allegations of inequitable conduct by defendants in patent infringement suits and an increase in the number of dismissals of such allegations, particularly in light of the Federal Circuit s express statements that its intent is to cabin a defense that has been widely overused to the detriment of patentees, the courts and the PTO. * * * Copyright Sullivan & Cromwell LLP 2011-3-
ENDNOTES 1 2 3 4 5 6 7 8 9 Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008-1511, -1512, -1513, -1514, -1595, slip op. at 21 (Fed. Cir. May 25, 2011). Id. at 15. Id. at 24. Id. at 23-24. Id. at 24 (emphasis in original). Id. Id. at 27. Id. at 32 (quoting and rejecting application of materiality standard from PTO Rule 56 proposed by the dissent). Id. at 29-30. -4-
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