The Far-Reaching Effects of Inequitable Conduct

The Federal Circuit recently held that an applicant's failure to disclose material notes to the U.S. Patent and Trademark Office ('PTO') can result in a finding of inequitable conduct that may render a patent, and even related patents, unenforceable. In Monsanto Co. v. Bayer Bioscience, N.V, No. 2007-1109, ___ F.3d ___, 2008 WL 200027, 85 U.S.P.Q.2d 1582 (Fed. Cir. Jan. 25, 2008) ('Monsanto III'), the Federal Circuit affirmed the District Court for the Eastern District of Missouri's holdings: 1) that a patent was unenforceable for inequitable conduct based on the applicant's failure to disclose its employee's notes that directly contradicted claims made by the applicant during prosecution; and 2) that the district court had jurisdiction to declare three related patents unenforceable as well despite the fact that the patent holder had previously filed a motion to dismiss claims based on these three patents and had signed a covenant not to sue for infringement thereof.

In 2000, Monsanto Co. ('Monsanto') brought a declaratory judgment action against Bayer Bioscience N.V. ('Bayer') challenging the validity and enforceability of four Bayer patents (the 'Bayer Patents'), and asserting that Monsanto's transgenic corn products did not infringe these patents. The Bayer Patents all related to the insertion of the amino terminal portion of an insecticidal toxin from Bacillus thuringiensis genes (the 'Bt toxin') into plants. Bt toxins, which are proteins, are toxic to certain crop-destroying insects, but harmless to humans. Thus, plants that are genetically engineered to produce the Bt toxin in sufficient quantities are insect-resistant, yet still safe for human consumption.

'Patents Unenforceable'

After trial and on remand from the Federal Circuit, the District Court for the Eastern District of Missouri found that all of the Bayer Patents were unenforceable due to inequitable conduct. Specifically, the district court found that Bayer's failure to disclose information in its possession that directly contradicted arguments asserted by Bayer during prosecution of the Bayer Patents constituted a breach of the duty of candor and good faith to the PTO and thereby rendered the patents unenforceable due to inequitable conduct. Monsanto v. Bayer Bioscience N.V., No. 400cv01915, slip. op. at 24 (E.D. Mo. Aug. 28, 2006) ('Monsanto II'). The district court further held that although Bayer had filed a Statement of Non-Liability, whereby it had covenanted not to sue Monsanto over the three related Bayer Patents, these patents were nevertheless unenforceable based on the inequitable conduct. The district court found that it retained independent jurisdiction over the dismissed patents as a result of Monsanto's request for attorney fees under 35 U.S.C. '285. Monsanto III at *10.

Bayer appealed both decisions. On appeal, the Federal Circuit unanimously affirmed the district court's decision, finding no clear error in its analysis.

The '565 Patent

The Federal Circuit first considered the district court's conclusion that U.S. Patent No. 5,545,565 ('the '565 Patent') was unenforceable due to inequitable conduct. The '565 Patent claimed chimeric genes consisting of 'a truncated Bt toxin gene ' of a specific amino acid sequence and the regulatory region of a gene 'naturally expressed in plant cells, which enables the gene to be transcribed in plants ' .” Monsanto III at *1.

During prosecution of the '565 Patent, the PTO initially rejected Bayer's claims based on a lack of enablement, specifically, that the expression of Bt genes in plants was in a state of 'unpredictability.' Monsanto II at 12. In order to overcome this rejection, Bayer submitted the declaration of Stefan Jansen (the 'Jansen Declaration'), which stated, in pertinent part, that '[t]he test results ' demonstrate that any truncated Bt gene can generally be used to provide an insect-controlling amount of the ' Bt ' toxin in generally any plant transformed with the truncated Bt gene.' Id. Although the Jansen Declaration was submitted to the PTO in 1991, the record showed that Bayer was unsuccessful in getting Bt corn to express a detectable level of the Bt gene as late as 1993. None of Bayer's test results, which directly conflicted with the Jansen Declaration, were disclosed to the PTO.

The PTO also preliminarily rejected Bayer's claims as obvious. During prosecution, Bayer had disclosed an abstract that had been distributed by Dr. Wayne Barnes (the 'Barnes Abstract') at a molecular biology conference. Based on the Barnes Abstract and other prior art references, the PTO had found that the claims of the '565 Patent were anticipated. In particular, the Examiner observed that the Barnes Abstract provided the motivation to genetically engineer plant cells with a truncated Bt toxin gene and taught 'fusion proteins for truncated Bt crystal proteins with NPT-II.' Monsanto III at *4. In response, Bayer argued that the Barnes reference failed to 'identify which Bt toxin gene should be utilized[,] ' show that the fusion gene would work in plants[,]' or show that the disclosed amino acid portion of the protein was toxic. Id. at *4. Further, Bayer contended that the Barnes Abstract provided 'no concrete evidence' that Barnes had actually made the construct. Id. at *4. To this end, Bayer argued that the use of words such as 'may' and 'should' indicated that Barnes's research had not moved past the theoretical phase and was merely speculative. Bayer further emphasized that the Barnes Abstract did not disclose: 1) a gene in which the second half of a Bt toxin gene has been replaced with codons of the NPTII selectable marker ('NPTII marking'); or 2) a gene construct containing both the Bt gene and a Kanamycin resistance gene in which both genes are expressed ('Dual Expression'). Based on Bayer's representations regarding the speculative nature of the Barnes Abstract, the PTO reversed its rejections and allowed the '565 Patent to issue.

Despite the issuance of the '565 Patent, the record showed that Bayer possessed information directly contradicting the claims that it had made to the PTO in order to overcome the obviousness rejection. Specifically, Bayer failed to disclose to the PTO certain notes taken by one of its employees, Dr. Celestina Mariani, which were based on a poster on display at a booth occupied by Dr. Wayne Barnes at a scientific conference. Monsanto II at 12. During the conference, Dr. Mariani had had the opportunity to observe and take extensive notes from a poster presented by Dr. Barnes on Bt genetics (the 'Mariani Notes') and '[w]hile in front of the poster, Dr. Mariani made a drawing of the same schemes presented on the poster.' Monsanto II at 14-15. Although these notes were widely distributed at Bayer and Dr. Wouter Meulemanns, who was responsible for prosecuting the '565 Patents, had even questioned Dr. Mariani about the notes, Bayer failed to disclose the Mariani Notes during prosecution of the '565 Patent and only disclosed the Barnes Abstract. Notably, in contrast to the Barnes Abstract, the Mariani Notes demonstrated that the Barnes Poster disclosed both NPTII Marking and Dual Expression.

With respect to the Mariani Notes, the Federal Circuit found that '[t]he undisputed evidence established that the arguments Bayer made to the Examiner to overcome the rejection based on the Barnes Abstract cannot be reconciled with the information about the Barnes poster disclosed in the Mariani Notes.' Monsanto III at *7. Having found that Bayer's failure to disclose the Mariani Notes was alone sufficient to support holding the '565 Patent unenforceable, the Federal Court did not reach a decision as to whether the false statements made by Bayer during patent prosecution in order to overcome the enablement rejection also amounted to inequitable conduct. Id. at *9.

Additional Bayer Patents

In addition to affirming the finding of inequitable conduct with respect to the '565 Patent, the Federal Circuit affirmed the district court's finding that it had jurisdiction to declare the other three Bayer Patents unenforceable even though they were technically no longer a part of the case. Prior to the district court's decision, Bayer had filed a Statement of Non-Liability whereby Bayer had covenanted not to sue Monsanto over the remaining three Bayer Patents.

Despite this, the Federal Circuit affirmed the district court's finding that these patents were unenforceable for inequitable conduct as well. In so holding, the Federal Circuit unequivocally held that a district court's jurisdiction to determine whether there was inequitable conduct in the prosecution of patents that are otherwise no longer in suit and to rule on attorney fees pursuant to 35 U.S.C. '285 'confers on that court the jurisdiction to hold such patents unenforceable for inequitable conduct.' Monsanto III at *10. The Federal Circuit emphasized that '[a] district court has no discretion to decide whether a patent is unenforceable once it enters a finding of inequitable conduct. To the contrary, this court has long held that the unenforceability of a patent follows automatically once a patent is found to have been obtained via inequitable conduct.' Monsanto III at *11.

Michael A. Epstein, a member of this newsletter's Board of Editors, is a partner in the New York office of Weil, Gotshal & Manges. His practice focuses on all aspects of intellectual property law including transactional and litigation matters. He can be reached at 212-310-8432 or [email protected].

The Federal Circuit recently held that an applicant's failure to disclose material notes to the U.S. Patent and Trademark Office ('PTO') can result in a finding of inequitable conduct that may render a patent, and even related patents, unenforceable. In Monsanto Co. v. Bayer Bioscience, N.V, No. 2007-1109, ___ F.3d ___, 2008 WL 200027, 85 U.S.P.Q.2d 1582 (Fed. Cir. Jan. 25, 2008) ('Monsanto III'), the Federal Circuit affirmed the District Court for the Eastern District of Missouri's holdings: 1) that a patent was unenforceable for inequitable conduct based on the applicant's failure to disclose its employee's notes that directly contradicted claims made by the applicant during prosecution; and 2) that the district court had jurisdiction to declare three related patents unenforceable as well despite the fact that the patent holder had previously filed a motion to dismiss claims based on these three patents and had signed a covenant not to sue for infringement thereof.

In 2000, Monsanto Co. ('Monsanto') brought a declaratory judgment action against Bayer Bioscience N.V. ('Bayer') challenging the validity and enforceability of four Bayer patents (the 'Bayer Patents'), and asserting that Monsanto's transgenic corn products did not infringe these patents. The Bayer Patents all related to the insertion of the amino terminal portion of an insecticidal toxin from Bacillus thuringiensis genes (the 'Bt toxin') into plants. Bt toxins, which are proteins, are toxic to certain crop-destroying insects, but harmless to humans. Thus, plants that are genetically engineered to produce the Bt toxin in sufficient quantities are insect-resistant, yet still safe for human consumption.

'Patents Unenforceable'

After trial and on remand from the Federal Circuit, the District Court for the Eastern District of Missouri found that all of the Bayer Patents were unenforceable due to inequitable conduct. Specifically, the district court found that Bayer's failure to disclose information in its possession that directly contradicted arguments asserted by Bayer during prosecution of the Bayer Patents constituted a breach of the duty of candor and good faith to the PTO and thereby rendered the patents unenforceable due to inequitable conduct. Monsanto v. Bayer Bioscience N.V., No. 400cv01915, slip. op. at 24 (E.D. Mo. Aug. 28, 2006) ('Monsanto II'). The district court further held that although Bayer had filed a Statement of Non-Liability, whereby it had covenanted not to sue Monsanto over the three related Bayer Patents, these patents were nevertheless unenforceable based on the inequitable conduct. The district court found that it retained independent jurisdiction over the dismissed patents as a result of Monsanto's request for attorney fees under 35 U.S.C. '285. Monsanto III at *10.

Bayer appealed both decisions. On appeal, the Federal Circuit unanimously affirmed the district court's decision, finding no clear error in its analysis.

The '565 Patent

The Federal Circuit first considered the district court's conclusion that U.S. Patent No. 5,545,565 ('the '565 Patent') was unenforceable due to inequitable conduct. The '565 Patent claimed chimeric genes consisting of 'a truncated Bt toxin gene ' of a specific amino acid sequence and the regulatory region of a gene 'naturally expressed in plant cells, which enables the gene to be transcribed in plants ' .” Monsanto III at *1.

During prosecution of the '565 Patent, the PTO initially rejected Bayer's claims based on a lack of enablement, specifically, that the expression of Bt genes in plants was in a state of 'unpredictability.' Monsanto II at 12. In order to overcome this rejection, Bayer submitted the declaration of Stefan Jansen (the 'Jansen Declaration'), which stated, in pertinent part, that '[t]he test results ' demonstrate that any truncated Bt gene can generally be used to provide an insect-controlling amount of the ' Bt ' toxin in generally any plant transformed with the truncated Bt gene.' Id. Although the Jansen Declaration was submitted to the PTO in 1991, the record showed that Bayer was unsuccessful in getting Bt corn to express a detectable level of the Bt gene as late as 1993. None of Bayer's test results, which directly conflicted with the Jansen Declaration, were disclosed to the PTO.

The PTO also preliminarily rejected Bayer's claims as obvious. During prosecution, Bayer had disclosed an abstract that had been distributed by Dr. Wayne Barnes (the 'Barnes Abstract') at a molecular biology conference. Based on the Barnes Abstract and other prior art references, the PTO had found that the claims of the '565 Patent were anticipated. In particular, the Examiner observed that the Barnes Abstract provided the motivation to genetically engineer plant cells with a truncated Bt toxin gene and taught 'fusion proteins for truncated Bt crystal proteins with NPT-II.' Monsanto III at *4. In response, Bayer argued that the Barnes reference failed to 'identify which Bt toxin gene should be utilized[,] ' show that the fusion gene would work in plants[,]' or show that the disclosed amino acid portion of the protein was toxic. Id. at *4. Further, Bayer contended that the Barnes Abstract provided 'no concrete evidence' that Barnes had actually made the construct. Id. at *4. To this end, Bayer argued that the use of words such as 'may' and 'should' indicated that Barnes's research had not moved past the theoretical phase and was merely speculative. Bayer further emphasized that the Barnes Abstract did not disclose: 1) a gene in which the second half of a Bt toxin gene has been replaced with codons of the NPTII selectable marker ('NPTII marking'); or 2) a gene construct containing both the Bt gene and a Kanamycin resistance gene in which both genes are expressed ('Dual Expression'). Based on Bayer's representations regarding the speculative nature of the Barnes Abstract, the PTO reversed its rejections and allowed the '565 Patent to issue.

Despite the issuance of the '565 Patent, the record showed that Bayer possessed information directly contradicting the claims that it had made to the PTO in order to overcome the obviousness rejection. Specifically, Bayer failed to disclose to the PTO certain notes taken by one of its employees, Dr. Celestina Mariani, which were based on a poster on display at a booth occupied by Dr. Wayne Barnes at a scientific conference. Monsanto II at 12. During the conference, Dr. Mariani had had the opportunity to observe and take extensive notes from a poster presented by Dr. Barnes on Bt genetics (the 'Mariani Notes') and '[w]hile in front of the poster, Dr. Mariani made a drawing of the same schemes presented on the poster.' Monsanto II at 14-15. Although these notes were widely distributed at Bayer and Dr. Wouter Meulemanns, who was responsible for prosecuting the '565 Patents, had even questioned Dr. Mariani about the notes, Bayer failed to disclose the Mariani Notes during prosecution of the '565 Patent and only disclosed the Barnes Abstract. Notably, in contrast to the Barnes Abstract, the Mariani Notes demonstrated that the Barnes Poster disclosed both NPTII Marking and Dual Expression.

With respect to the Mariani Notes, the Federal Circuit found that '[t]he undisputed evidence established that the arguments Bayer made to the Examiner to overcome the rejection based on the Barnes Abstract cannot be reconciled with the information about the Barnes poster disclosed in the Mariani Notes.' Monsanto III at *7. Having found that Bayer's failure to disclose the Mariani Notes was alone sufficient to support holding the '565 Patent unenforceable, the Federal Court did not reach a decision as to whether the false statements made by Bayer during patent prosecution in order to overcome the enablement rejection also amounted to inequitable conduct. Id. at *9.

Additional Bayer Patents

In addition to affirming the finding of inequitable conduct with respect to the '565 Patent, the Federal Circuit affirmed the district court's finding that it had jurisdiction to declare the other three Bayer Patents unenforceable even though they were technically no longer a part of the case. Prior to the district court's decision, Bayer had filed a Statement of Non-Liability whereby Bayer had covenanted not to sue Monsanto over the remaining three Bayer Patents.

Despite this, the Federal Circuit affirmed the district court's finding that these patents were unenforceable for inequitable conduct as well. In so holding, the Federal Circuit unequivocally held that a district court's jurisdiction to determine whether there was inequitable conduct in the prosecution of patents that are otherwise no longer in suit and to rule on attorney fees pursuant to 35 U.S.C. '285 'confers on that court the jurisdiction to hold such patents unenforceable for inequitable conduct.' Monsanto III at *10. The Federal Circuit emphasized that '[a] district court has no discretion to decide whether a patent is unenforceable once it enters a finding of inequitable conduct. To the contrary, this court has long held that the unenforceability of a patent follows automatically once a patent is found to have been obtained via inequitable conduct.' Monsanto III at *11.

Michael A. Epstein, a member of this newsletter's Board of Editors, is a partner in the New York office of Weil, Gotshal & Manges. His practice focuses on all aspects of intellectual property law including transactional and litigation matters. He can be reached at 212-310-8432 or [email protected].