The Federal Circuit Attempts to Right the Inequitable Conduct Ship

In Ferring B.V. v. Barr Laboratories, Inc., 437 F.3d 1181 (Fed. Cir. 2006), the Federal Circuit affirmed a summary judgment of inequitable conduct. The decision set forth a four-part test for finding summary judgment of inequitable conduct:

1. failure to disclose highly material information;

2. the applicant knew of the information;

3. the applicant knew or should have known of the materiality of the information; and

4. the applicant has not provided a credible explanation for withholding the information.

The Ferring test effectively creates a presumption of intent to deceive when highly material information is not disclosed by the applicant. The burden then shifts to the applicant to come forward with an explanation for not disclosing the information. In dissent, Judge Pauline Newman correctly opined that Ferring is the first case to find inequitable conduct “when there was no evidence of intentional omission and not even circumstantial evidence of deceptive intent.” Id. at 1203 (Newman, J., dissenting).

While the Ferring decision set forth a low threshold for proving intent to deceive the PTO, McKesson Information Solutions, Inc. v. Bridge Medical, Inc., 487 F.3d 897 (Fed. Cir. 2007), took a swipe at the materiality prong of the inequitable conduct analysis. McKesson affirmed a finding of equitable conduct based on the failure to disclose information from other patent applications pending before the PTO that few, if any, patent practitioners would have deemed necessary. For the first time, the court found that patent practitioners were required to disclose details of the prosecution of related applications, even when the related applications were disclosed to the PTO and even when the related applications were pending before the same examiner.

Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.

In the wake of Ferring and McKesson, a recent decision by the Federal Circuit harkens back a higher standard of proof. Star involves two patents related to tobacco curing: U.S. Patent Nos. 6,202,649 (the '649 patent) and 6,425,401 (the '401 patent). During the prosecution of the '649 patent, Star's prosecution counsel, Sughrue Mion, PLLC, (“Sughrue”), received a letter from Dr. Harold Burton, a consultant working for Star, regarding tobacco curing in China (the “Burton letter”). Sughrue considered the Burton letter, but decided it was not relevant to the '649 patent and did not disclose it to the PTO.

Subsequently, Star decided to replace Sughrue as prosecution counsel and retained Banner & Witcoff, Ltd. (“Banner”) to continue the prosecution. Sughrue transferred the file to Banner. The file included the Burton letter, but Banner did not take notice of the letter or disclose it to the PTO. Banner later filed a continuation application, which ultimately issued as the '401 patent.

Star brought suit against R.J. Reynolds (“RJR”) in May 2001 after the '649 patent issued, but while the prosecution of the '401 patent was ongoing. During the litigation, Star periodically filed supplemental information disclosure statements for the still-pending '401 patent, including additional prior art raised by RJR and RJR's interrogatory responses regarding invalidity. In June 2002, Banner became aware of the Burton letter, but decided the letter was not material and thus did not disclose it to the PTO.

The district court conducted a bench trial on RJR's inequitable conduct defense in early 2005. RJR argued that the Burton letter was material, and that Star conspired to prevent Sughrue from disclosing the letter by hiring substitute counsel and purposely keeping the substitute counsel ignorant of the letter. For its part, Star argued that the Burton letter was not material and the change of counsel was because of dissatisfaction with Sughrue's performance in an unrelated matter. The district court found the Burton letter to be material and Star's explanation for substituting counsel not credible. Accordingly, the district court held both the '649 and '401 patents unenforceable due to inequitable conduct.

Righting the Ship

The Federal Circuit reversed the district court's finding of unenforceability on both patents. Before addressing the merits of the decision, the Federal Circuit devoted considerable ink to reviewing and reiterating the court's long-standing standards for proving inequitable conduct. In particular, the court reiterated that the burden of proving inequitable conduct lies with the accused infringer and the accused infringer must prove threshold levels of both materiality and intent by clear and convincing evidence. Even if these threshold levels are established, the court must still determine whether the alleged conduct is “egregious enough to warrant holding the entire patent unenforceable.” Star, 537 F.3d at 1365. The court emphasized that the severity of the penalty for inequitable conduct mandates strictly maintaining the burden of proof on the accused infringer and the rigid enforcement of the high standard of proof for both materiality and intent.

Just as it is inequitable to permit the patentee who obtained his patent through deliberate misrepresentations or omissions of material information to enforce the patent against others, it is also inequitable to strike down an entire patent where the patentee only committed minor missteps or acted with minimal culpability or in good faith. Id. at 1366.

The court further emphasized that deceptive intent cannot be presumed solely from materiality. Moreover, deceptive intent cannot be proven merely by showing that the patentee decided to withhold information later found to be material. Instead, the accused infringer must prove that the patentee withheld the information with the specific purpose of deceiving the PTO. While acknowledging that deceptive intent can be inferred from indirect and circumstantial evidence, the court warned that such indirect and circumstantial evidence must be clear and convincing, and the inference of deceptive intent must be the only reasonable inference that can be drawn from the evidence.

The '649 Patent

With regard to the '649 patent, the Federal Circuit held that the district court's finding of deceptive intent was clearly erroneous. As previously noted, the district court was persuaded by RJR's theory that Star replaced its prosecution counsel for the purpose of preventing the Burton letter from being disclosed. The Federal Circuit found a lack of clear and convincing evidence to support this theory. In particular, RJR failed to provide any evidence that Star was aware of the contents of the Burton letter or that the letter was the reason for changing counsel. The only evidence of record indicated that the inventor was not aware of the Burton letter, and the Star executive that made the decision to switch counsel was never even asked whether he knew about the Burton letter or whether it influenced his decision to switch counsel.

The Federal Circuit rejected the inferences the district court drew from the circumstantial evidence of intent to deceive. The district court inferred that Star was motivated to replace Sughrue because the firm had concerns about whether to disclose the Burton letter. However, there was no evidence that the lawyers at Sughrue communicated those concerns with anyone at Star. The district court inferred that Star used an intermediary firm to facilitate the transfer of files between Sughrue and Banner to prevent the latter from learning about the Burton letter. Again, RJR's lack of evidence that Star was aware of Sughrue's concern negated this inference. Lastly, the district court relied on Star's failure to instruct Banner to disclose the Burton letter. This inference failed because there was no evidence that Star knew anything about the contents of the Burton letter.

The Federal Circuit went even further in rejecting the inequitable conduct claims of RJR. Witnesses for Star testified that the company switched firms because of Sughrue's unsatisfactory performance in another matter. The district court found Star's explanation not credible, and largely based its finding of deceptive intent on that credibility determination. Typically, a finding that a patentee's explanation lacks credibility is sufficient to support an inference of deceptive intent. However, in Star, the Federal Circuit held that “even if Star's explanations are not to be believed, it remained RJR's burden to prove its allegation ' ” Id. at 1368. In sharp contrast to Ferring, in which the burden was placed on the patentee to provide a credible explanation for failing to disclose information, the court in Star held the accused infringer to its burden to prove deceptive intent. “The patentee need not offer any good faith explanation unless the accused infringer first carried his burden to prove a threshold level of intent to deceive by clear and convincing evidence.” Id.

The '401 Patent

With regard to the '401 patent, the district court relied on additional evidence to find deceptive intent ' Banner's failure to disclose the Burton letter. Rather than address the effect of this additional evidence on Star's intent to deceive, the Federal Circuit reversed the finding of inequitable conduct for this patent based on materiality, the other prong of the inequitable conduct determination. In particular, during the prosecution of the '401 patent, Star disclosed RJR's interrogatory responses from the ongoing litigation to the PTO. In those responses, RJR detailed its own research and field tests regarding the subject matter of the '649 and '401 patents. The Federal Circuit found that the Burton letter and other test data not disclosed to the PTO were cumulative of the information in the disclosed interrogatory responses. Because cumulative information is not material, the court reversed the finding of inequitable conduct with respect to the '401 patent without addressing Star's intent to deceive.

Conclusion

It is difficult to reconcile the varying inequitable conduct opinions recently issued by the Federal Circuit. It can be argued that there are factions within the Federal Circuit that have different views as to the appropriate standard for proving inequitable conduct. On the other hand, some of the opinions may be explained by unique factual circumstances and the deferential standard of review exercised by the Federal Circuit.

It is difficult to dispute that the holdings in Ferring and Star are conflicting. In both cases, there was a lack of evidence regarding the reason for failing to disclose material information. In Ferring, the lack of evidence was taxed against the patentee, and a summary judgment of inequitable conduct was affirmed. In Star, the accused infringer was held to its burden of proof, and the lack of evidence resulted in a reversal of the district court's finding of inequitable conduct on the merits. It remains to be seen whether recent decisions, such as Ferring, are aberrations or sign posts for a lower standard of proof. If they are aberrations, Star may prove to be the case that righted the inequitable conduct ship.

Darryl J. Adams, a member of this newsletter's Board of Editors, is Special Counsel in the Austin, TX office of Baker Botts LLP, where he focuses his practice on patent litigation. He can be reached at [email protected].

The patent application process ' referred to as patent prosecution ' is ex parte. To ensure the integrity of the application process, patent applicants have a duty to prosecute patents with candor, good faith, and honesty. A breach of that duty raises the defense of inequitable conduct. Inequitable conduct typically requires proof that: 1) the patentee withheld material information or made a material misrepresentation; and 2) the patentee did so with the intent to deceive the U.S. Patent and Trademark Office (the “PTO”).

The U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) has long maintained a high bar for proving inequitable conduct. This high bar is appropriate given the severity of the remedy ' unenforceability of the entire patent ' and the relative ease of using hindsight to find fault with the prosecution of a patent. Several recent decisions, however, have pointed toward a sinking standard for proving inequitable conduct, which has created an atmosphere of uncertainty about the proper scope of the inequitable conduct defense. The Federal Circuit's recent opinion on the subject, Star Scientific, Inc. v. R.J. Reynolds Tobacco Co. , 537 F.3d 1357 (Fed. Cir. 2008), appears to be an attempt to right the ship by reiterating the standards for proving inequitable conduct that were established more than 20 years ago.

Sinking Standard

In Ferring B.V. v. Barr Laboratories, Inc. , 437 F.3d 1181 (Fed. Cir. 2006), the Federal Circuit affirmed a summary judgment of inequitable conduct. The decision set forth a four-part test for finding summary judgment of inequitable conduct:

1. failure to disclose highly material information;

2. the applicant knew of the information;

3. the applicant knew or should have known of the materiality of the information; and

4. the applicant has not provided a credible explanation for withholding the information.

The Ferring test effectively creates a presumption of intent to deceive when highly material information is not disclosed by the applicant. The burden then shifts to the applicant to come forward with an explanation for not disclosing the information. In dissent, Judge Pauline Newman correctly opined that Ferring is the first case to find inequitable conduct “when there was no evidence of intentional omission and not even circumstantial evidence of deceptive intent.” Id. at 1203 (Newman, J., dissenting).

While the Ferring decision set forth a low threshold for proving intent to deceive the PTO, McKesson Information Solutions, Inc. v. Bridge Medical, Inc. , 487 F.3d 897 (Fed. Cir. 2007), took a swipe at the materiality prong of the inequitable conduct analysis. McKesson affirmed a finding of equitable conduct based on the failure to disclose information from other patent applications pending before the PTO that few, if any, patent practitioners would have deemed necessary. For the first time, the court found that patent practitioners were required to disclose details of the prosecution of related applications, even when the related applications were disclosed to the PTO and even when the related applications were pending before the same examiner.

Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.

In the wake of Ferring and McKesson, a recent decision by the Federal Circuit harkens back a higher standard of proof. Star involves two patents related to tobacco curing: U.S. Patent Nos. 6,202,649 (the '649 patent) and 6,425,401 (the '401 patent). During the prosecution of the '649 patent, Star's prosecution counsel, Sughrue Mion, PLLC, (“Sughrue”), received a letter from Dr. Harold Burton, a consultant working for Star, regarding tobacco curing in China (the “Burton letter”). Sughrue considered the Burton letter, but decided it was not relevant to the '649 patent and did not disclose it to the PTO.

Subsequently, Star decided to replace Sughrue as prosecution counsel and retained Banner & Witcoff, Ltd. (“Banner”) to continue the prosecution. Sughrue transferred the file to Banner. The file included the Burton letter, but Banner did not take notice of the letter or disclose it to the PTO. Banner later filed a continuation application, which ultimately issued as the '401 patent.

Star brought suit against R.J. Reynolds (“RJR”) in May 2001 after the '649 patent issued, but while the prosecution of the '401 patent was ongoing. During the litigation, Star periodically filed supplemental information disclosure statements for the still-pending '401 patent, including additional prior art raised by RJR and RJR's interrogatory responses regarding invalidity. In June 2002, Banner became aware of the Burton letter, but decided the letter was not material and thus did not disclose it to the PTO.

The district court conducted a bench trial on RJR's inequitable conduct defense in early 2005. RJR argued that the Burton letter was material, and that Star conspired to prevent Sughrue from disclosing the letter by hiring substitute counsel and purposely keeping the substitute counsel ignorant of the letter. For its part, Star argued that the Burton letter was not material and the change of counsel was because of dissatisfaction with Sughrue's performance in an unrelated matter. The district court found the Burton letter to be material and Star's explanation for substituting counsel not credible. Accordingly, the district court held both the '649 and '401 patents unenforceable due to inequitable conduct.

Righting the Ship

The Federal Circuit reversed the district court's finding of unenforceability on both patents. Before addressing the merits of the decision, the Federal Circuit devoted considerable ink to reviewing and reiterating the court's long-standing standards for proving inequitable conduct. In particular, the court reiterated that the burden of proving inequitable conduct lies with the accused infringer and the accused infringer must prove threshold levels of both materiality and intent by clear and convincing evidence. Even if these threshold levels are established, the court must still determine whether the alleged conduct is “egregious enough to warrant holding the entire patent unenforceable.” Star, 537 F.3d at 1365. The court emphasized that the severity of the penalty for inequitable conduct mandates strictly maintaining the burden of proof on the accused infringer and the rigid enforcement of the high standard of proof for both materiality and intent.

Just as it is inequitable to permit the patentee who obtained his patent through deliberate misrepresentations or omissions of material information to enforce the patent against others, it is also inequitable to strike down an entire patent where the patentee only committed minor missteps or acted with minimal culpability or in good faith. Id. at 1366.

The court further emphasized that deceptive intent cannot be presumed solely from materiality. Moreover, deceptive intent cannot be proven merely by showing that the patentee decided to withhold information later found to be material. Instead, the accused infringer must prove that the patentee withheld the information with the specific purpose of deceiving the PTO. While acknowledging that deceptive intent can be inferred from indirect and circumstantial evidence, the court warned that such indirect and circumstantial evidence must be clear and convincing, and the inference of deceptive intent must be the only reasonable inference that can be drawn from the evidence.

The '649 Patent

With regard to the '649 patent, the Federal Circuit held that the district court's finding of deceptive intent was clearly erroneous. As previously noted, the district court was persuaded by RJR's theory that Star replaced its prosecution counsel for the purpose of preventing the Burton letter from being disclosed. The Federal Circuit found a lack of clear and convincing evidence to support this theory. In particular, RJR failed to provide any evidence that Star was aware of the contents of the Burton letter or that the letter was the reason for changing counsel. The only evidence of record indicated that the inventor was not aware of the Burton letter, and the Star executive that made the decision to switch counsel was never even asked whether he knew about the Burton letter or whether it influenced his decision to switch counsel.

The Federal Circuit rejected the inferences the district court drew from the circumstantial evidence of intent to deceive. The district court inferred that Star was motivated to replace Sughrue because the firm had concerns about whether to disclose the Burton letter. However, there was no evidence that the lawyers at Sughrue communicated those concerns with anyone at Star. The district court inferred that Star used an intermediary firm to facilitate the transfer of files between Sughrue and Banner to prevent the latter from learning about the Burton letter. Again, RJR's lack of evidence that Star was aware of Sughrue's concern negated this inference. Lastly, the district court relied on Star's failure to instruct Banner to disclose the Burton letter. This inference failed because there was no evidence that Star knew anything about the contents of the Burton letter.

The Federal Circuit went even further in rejecting the inequitable conduct claims of RJR. Witnesses for Star testified that the company switched firms because of Sughrue's unsatisfactory performance in another matter. The district court found Star's explanation not credible, and largely based its finding of deceptive intent on that credibility determination. Typically, a finding that a patentee's explanation lacks credibility is sufficient to support an inference of deceptive intent. However, in Star, the Federal Circuit held that “even if Star's explanations are not to be believed, it remained RJR's burden to prove its allegation ' ” Id. at 1368. In sharp contrast to Ferring, in which the burden was placed on the patentee to provide a credible explanation for failing to disclose information, the court in Star held the accused infringer to its burden to prove deceptive intent. “The patentee need not offer any good faith explanation unless the accused infringer first carried his burden to prove a threshold level of intent to deceive by clear and convincing evidence.” Id.

The '401 Patent

With regard to the '401 patent, the district court relied on additional evidence to find deceptive intent ' Banner's failure to disclose the Burton letter. Rather than address the effect of this additional evidence on Star's intent to deceive, the Federal Circuit reversed the finding of inequitable conduct for this patent based on materiality, the other prong of the inequitable conduct determination. In particular, during the prosecution of the '401 patent, Star disclosed RJR's interrogatory responses from the ongoing litigation to the PTO. In those responses, RJR detailed its own research and field tests regarding the subject matter of the '649 and '401 patents. The Federal Circuit found that the Burton letter and other test data not disclosed to the PTO were cumulative of the information in the disclosed interrogatory responses. Because cumulative information is not material, the court reversed the finding of inequitable conduct with respect to the '401 patent without addressing Star's intent to deceive.

Conclusion

It is difficult to reconcile the varying inequitable conduct opinions recently issued by the Federal Circuit. It can be argued that there are factions within the Federal Circuit that have different views as to the appropriate standard for proving inequitable conduct. On the other hand, some of the opinions may be explained by unique factual circumstances and the deferential standard of review exercised by the Federal Circuit.

It is difficult to dispute that the holdings in Ferring and Star are conflicting. In both cases, there was a lack of evidence regarding the reason for failing to disclose material information. In Ferring, the lack of evidence was taxed against the patentee, and a summary judgment of inequitable conduct was affirmed. In Star, the accused infringer was held to its burden of proof, and the lack of evidence resulted in a reversal of the district court's finding of inequitable conduct on the merits. It remains to be seen whether recent decisions, such as Ferring, are aberrations or sign posts for a lower standard of proof. If they are aberrations, Star may prove to be the case that righted the inequitable conduct ship.

Darryl J. Adams, a member of this newsletter's Board of Editors, is Special Counsel in the Austin, TX office of Baker Botts LLP, where he focuses his practice on patent litigation. He can be reached at [email protected].