Therasense and the Doctrine of Inequitable Conduct

Perhaps signaling an interest in revisiting the doctrine in its entirety, in April 2010, the Federal Circuit asked for briefing on six questions regarding the defense of inequitable conduct (“IC”) to patent infringement. Therasense, Inc. v. Becton, Dickinson & Co., 2010 WL 1655391 (Fed. Cir. Apr. 26, 2010). To date, the court has received more than 30 briefs from more than 100 amici curiae, presenting diverse and interesting proposals for the court's consideration. Oral argument is scheduled for Nov. 9, 2010.

The IC defense finds its roots in a trilogy of older Supreme Court cases including Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945). Presently, IC requires clear and convincing evidence that a person with a duty of candor owed to the PTO: 1) misrepresented (or failed to disclose) material information with 2) an intent to deceive or mislead. If sufficient materiality and intent are found, the court balances the equities to determine whether the conduct was sufficiently egregious to declare the subject patent(s) unenforceable.

What Exactly Is the Problem Presented By the IC Defense?

The “problem,” according to the bulk of amici, is that IC pleadings have become a “plague.” Publications cited by amici suggest that IC is pled in more than 40% of patent cases. See C. Mammen, Controlling the “Plague”: Reforming the Doctrine of Inequitable Conduct, 24 Berkeley Tech. L.J. 1329, 1357-1361 (2009) (“Mammen”). The actual extent of the problem, however, is obscured by the lack of data that reliably determine the true rate of pleading IC. For example, the studies do not address the frequency at which IC pleadings are dismissed after the initial filing, or are successfully amended to comply with the enhanced pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Exergen Corp. v. Wal-Mart Stores Inc., 575 F.3d 1312, 1328 (Fed. Cir. 2009) (IC requires pleading “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO”).

Still, trial courts are seeing an increased number of IC pleadings. To date, however, there are no clear data as to whether this increase has negatively impacted the ability of the trial courts to ably resolve IC claims, as there is no statistically significant change in the frequency at which IC is presented to the Federal Circuit on appeal. See Mammen, at 1348-1361.

Amici also complain that the case law fails to provide a uniform standard for adjudicating IC allegations. For example, courts have articulated five different “materiality” standards: 1) objective “but for” (misrepresentation so material that patent should not have issued); 2) subjective “but for” (misrepresentation caused examiner to grant patent that examiner otherwise would not have granted); 3) “but it may have” (misrepresentation may have influenced examiner); 4) old Rule 56 standard (37 C.F.R. ' 1.56 (1977)) (information material if “there is a substantial likelihood that a reasonable examiner would consider it important in deciding” whether to grant patent (also called “reasonable examiner” standard)); and 5) new Rule 56 standard (37 C.F.R. ' 1.56 (1992)) (information material if not cumulative to information already of record, and a) by itself or combined with other information, establishes prima facie case of unpatentability of a claim or b) is inconsistent with a position taken in communications with the PTO regarding patentability). See Digital Control Inc. v. Charles Machinery, 437 F.3d 1309, 1314-1316 (Fed. Cir. 2006).

Finally, amici frame the problem of the IC defense as ranging from being unduly expensive to being grossly unfair to the practitioner who is alleged to have committed the inequitable conduct in view of the impact such a finding can have on that person's reputation and career.

The Solution Needs to Depend on the Actual Problem

The Federal Circuit has the opportunity to provide clear standards before the IC “plague” infects the entire system. Not surprisingly, the solutions proposed by amici to “fix” the problem vary widely. Indeed, at least two amici argue that the IC defense is beyond the court's powers and perhaps unconstitutional. While thoughtfully presented, it does not seem likely that the Federal Circuit will agree that courts are powerless to address all disingenuous conduct short of fraud, particularly in light of the Supreme Court's suggestion in Precision Instrument that fraud and IC are distinct, and neither should be condoned.

Several of the amici contend that IC should be more difficult to establish. Thus, one group of amici advocate for a fraud standard ' namely, clear and convincing evidence that the wrongdoer had the “specific intent” to deceive the PTO. The fraud proponents advocate minor variations of the “materiality” element, including the requirement of clear and convincing evidence that “but for” the misrepresented information the asserted claim(s) would not have issued. The proposal to convert IC into a full fraud standard faces several hurdles.

First, the Supreme Court has suggested in Precision Instruments that IC and fraud are different. And the Federal Circuit has noted that sufficient recklessness can satisfy common law fraud's “intent to deceive” element. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1069 (Fed. Cir. 1998). Moreover, if limited to common law fraud, IC would substantially overlap the antitrust defense that can arise from attempted enforcement of a fraudulently obtained patent. Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965). Although fraud proponents would impose restrictive evidentiary thresholds to support a fraud holding, experience teaches us that “[d]irect evidence of intent or ' deliberate scheming is rarely available in instances of inequitable conduct. '” Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326, 1346 (Fed. Cir. 2005) (citation omitted).

Finally, the different fraud-based “but for” materiality proposals lead to an IC defense that substantially overlaps invalidity defenses such as anticipation and obviousness. If particular information invalidates an asserted claim, then the asserted claim is invalid, regardless of whether the information was misrepresented to the PTO.

Advancing the same goal as the fraud proponents, another amici argues that the definition of materiality should be brought into accord with the MPEP's direction that examiners review several sources of information in their review of a patent application, and that an omission of information contained in such sources should be insufficient to support an inference of intent to deceive the PTO. While perhaps academically appealing, this is not a practical proposal considering the well-documented meager amount of time an examiner can devote to any particular patent application. See Nat'l Research Council for the Nat'l Academies, A Patent System for the 21st Century at 147 (Stephen A. Merrill et al., eds. 2004) (an examiner spends an average of 20 hours on an application, from initial examination to allowance, appeal or abandonment).

An alternative solution is to limit any determination of whether IC occurred, and the proper consequences therefor, to administrative proceedings before the PTO. In addition to reducing litigation costs, amici assert that this will permit the practitioner accused of acting “inequitably” during patent prosecution the opportunity to participate in the proceedings where IC is first determined. Not only does this present the same shortcoming of burdening the examiner as the prior suggestion, it would seem to gut the duty of candor and instead turn a blind eye to the non-disclosure that is a large part of the foundation of the IC defense.

Indeed, the PTO's amicus brief rejects as unworkable the prospect of limiting IC to administrative proceedings. For example, 28 U.S.C. ' 2462 requires administrative disciplinary proceedings be brought within five years of the alleged misconduct. Consequently, administrative proceedings related to IC could well be generally time-barred because IC allegations are frequently raised beyond this five-year limit. Additionally, the PTO cannot issue subpoenas during an administrative investigation, thus constraining its ability to investigate IC.

In contrast to many other amici, the PTO seeks a uniform standard for materiality and intent, but otherwise leaves the current system largely intact. Thus, the PTO argues that the current formulation of Rule 56 is the proper test for materiality (i.e., information is material if it either establishes a prima facie case of unpatentability, or contradicts any of the applicant's patentability arguments). Likewise, the PTO advocates that intent to deceive should be found either from direct evidence or because it is the single most reasonable inference to be drawn in light of all the evidence.

This proposal ignores the argument of numerous amici curiae that the IC defense is relatively costly in litigation and prosecution. As for litigation, however, the costs related to IC represent a fraction of the total litigation costs. The moderate additional burden arising from IC allegations placed on the patentee in patent litigation seems unlikely to generate much sympathy. As for the burden on prosecution, some amici assert that the threat of IC allegations in future litigation puts applicants in a no-win position: Disclose too much, and one may be accused of burying material information; disclose less, and one may be accused of failing to disclose material information. While no universal guidance exists regarding what information to share with the PTO during prosecution, the conundrum articulated by these amici would seem to be largely overcome from the definition of materiality advocated by the PTO and the disclosure of sufficient information in a sufficiently concise manner to avoid charges of reckless or grossly negligent disclosure.

It is hoped that Therasense won't represent a missed opportunity to strengthen our patent and judicial systems. From a policy standpoint, don't we expect patent applicants, agents and attorneys to conduct themselves in a manner that is not grossly negligent or reckless? Assuming we do, who bears the costs associated with avoiding that behavior and the consequences for conduct that falls below the standard of care we expect: an accused infringer that is innocent of misconduct before the PTO, or the patentee? In today's economy, the pressure to lower costs has turned much patent prosecution into a commodity-like service. At some price point, the lowest bidder cannot be reasonably expected to provide the high level of competency and attention to detail necessary to procure a patent that will be less susceptible to IC-like problems.

It is our view that, from a cost-benefit perspective, placing IC determinations at the enforcement end of our patent system shifts costs associated with IC allegations to the stage that can most easily absorb them. The patentee that chooses litigation has determined that it is likely economically beneficial to sue an accused infringer. The few patents that are litigated bear the bulk of known costs caused by IC, which seems more “equitable” than shifting such costs to earlier stages in the pipeline to every patent applicant.

Scott R. Miller is a partner and Manuel Nelson is of counsel in the Los Angeles office of Connolly Bove Lodge & Hutz LLP. Miller focuses his practice on litigation and non-litigation intellectual property matters and Nelson has assisted clients in a variety of technologies. They can be reached respectively at [email protected] or 213-787-2510; [email protected] or 213-787-2515.

Perhaps signaling an interest in revisiting the doctrine in its entirety, in April 2010, the Federal Circuit asked for briefing on six questions regarding the defense of inequitable conduct (“IC”) to patent infringement. Therasense, Inc. v. Becton, Dickinson & Co., 2010 WL 1655391 (Fed. Cir. Apr. 26, 2010). To date, the court has received more than 30 briefs from more than 100 amici curiae, presenting diverse and interesting proposals for the court's consideration. Oral argument is scheduled for Nov. 9, 2010.

The IC defense finds its roots in a trilogy of older Supreme Court cases including Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co. , 324 U.S. 806 (1945). Presently, IC requires clear and convincing evidence that a person with a duty of candor owed to the PTO: 1) misrepresented (or failed to disclose) material information with 2) an intent to deceive or mislead. If sufficient materiality and intent are found, the court balances the equities to determine whether the conduct was sufficiently egregious to declare the subject patent(s) unenforceable.

What Exactly Is the Problem Presented By the IC Defense?

The “problem,” according to the bulk of amici, is that IC pleadings have become a “plague.” Publications cited by amici suggest that IC is pled in more than 40% of patent cases. See C. Mammen, Controlling the “Plague”: Reforming the Doctrine of Inequitable Conduct, 24 Berkeley Tech. L.J. 1329, 1357-1361 (2009) (“Mammen”). The actual extent of the problem, however, is obscured by the lack of data that reliably determine the true rate of pleading IC. For example, the studies do not address the frequency at which IC pleadings are dismissed after the initial filing, or are successfully amended to comply with the enhanced pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Exergen Corp. v. Wal-Mart Stores Inc. , 575 F.3d 1312, 1328 (Fed. Cir. 2009) (IC requires pleading “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO”).

Still, trial courts are seeing an increased number of IC pleadings. To date, however, there are no clear data as to whether this increase has negatively impacted the ability of the trial courts to ably resolve IC claims, as there is no statistically significant change in the frequency at which IC is presented to the Federal Circuit on appeal. See Mammen, at 1348-1361.

Amici also complain that the case law fails to provide a uniform standard for adjudicating IC allegations. For example, courts have articulated five different “materiality” standards: 1) objective “but for” (misrepresentation so material that patent should not have issued); 2) subjective “but for” (misrepresentation caused examiner to grant patent that examiner otherwise would not have granted); 3) “but it may have” (misrepresentation may have influenced examiner); 4) old Rule 56 standard (37 C.F.R. ' 1.56 (1977)) (information material if “there is a substantial likelihood that a reasonable examiner would consider it important in deciding” whether to grant patent (also called “reasonable examiner” standard)); and 5) new Rule 56 standard (37 C.F.R. ' 1.56 (1992)) (information material if not cumulative to information already of record, and a) by itself or combined with other information, establishes prima facie case of unpatentability of a claim or b) is inconsistent with a position taken in communications with the PTO regarding patentability). See Digital Control Inc. v. Charles Machinery , 437 F.3d 1309, 1314-1316 (Fed. Cir. 2006).

Finally, amici frame the problem of the IC defense as ranging from being unduly expensive to being grossly unfair to the practitioner who is alleged to have committed the inequitable conduct in view of the impact such a finding can have on that person's reputation and career.

The Solution Needs to Depend on the Actual Problem

The Federal Circuit has the opportunity to provide clear standards before the IC “plague” infects the entire system. Not surprisingly, the solutions proposed by amici to “fix” the problem vary widely. Indeed, at least two amici argue that the IC defense is beyond the court's powers and perhaps unconstitutional. While thoughtfully presented, it does not seem likely that the Federal Circuit will agree that courts are powerless to address all disingenuous conduct short of fraud, particularly in light of the Supreme Court's suggestion in Precision Instrument that fraud and IC are distinct, and neither should be condoned.

Several of the amici contend that IC should be more difficult to establish. Thus, one group of amici advocate for a fraud standard ' namely, clear and convincing evidence that the wrongdoer had the “specific intent” to deceive the PTO. The fraud proponents advocate minor variations of the “materiality” element, including the requirement of clear and convincing evidence that “but for” the misrepresented information the asserted claim(s) would not have issued. The proposal to convert IC into a full fraud standard faces several hurdles.

First, the Supreme Court has suggested in Precision Instruments that IC and fraud are different. And the Federal Circuit has noted that sufficient recklessness can satisfy common law fraud's “intent to deceive” element. Nobelpharma AB v. Implant Innovations, Inc. , 141 F.3d 1059, 1069 (Fed. Cir. 1998). Moreover, if limited to common law fraud, IC would substantially overlap the antitrust defense that can arise from attempted enforcement of a fraudulently obtained patent. Walker Process Equip., Inc. v. Food Mach. & Chem. Corp. , 382 U.S. 172 (1965). Although fraud proponents would impose restrictive evidentiary thresholds to support a fraud holding, experience teaches us that “[d]irect evidence of intent or ' deliberate scheming is rarely available in instances of inequitable conduct. '” Warner-Lambert Co. v. Teva Pharms. USA, Inc. , 418 F.3d 1326, 1346 (Fed. Cir. 2005) (citation omitted).

Finally, the different fraud-based “but for” materiality proposals lead to an IC defense that substantially overlaps invalidity defenses such as anticipation and obviousness. If particular information invalidates an asserted claim, then the asserted claim is invalid, regardless of whether the information was misrepresented to the PTO.

Advancing the same goal as the fraud proponents, another amici argues that the definition of materiality should be brought into accord with the MPEP's direction that examiners review several sources of information in their review of a patent application, and that an omission of information contained in such sources should be insufficient to support an inference of intent to deceive the PTO. While perhaps academically appealing, this is not a practical proposal considering the well-documented meager amount of time an examiner can devote to any particular patent application. See Nat'l Research Council for the Nat'l Academies, A Patent System for the 21st Century at 147 (Stephen A. Merrill et al., eds. 2004) (an examiner spends an average of 20 hours on an application, from initial examination to allowance, appeal or abandonment).

An alternative solution is to limit any determination of whether IC occurred, and the proper consequences therefor, to administrative proceedings before the PTO. In addition to reducing litigation costs, amici assert that this will permit the practitioner accused of acting “inequitably” during patent prosecution the opportunity to participate in the proceedings where IC is first determined. Not only does this present the same shortcoming of burdening the examiner as the prior suggestion, it would seem to gut the duty of candor and instead turn a blind eye to the non-disclosure that is a large part of the foundation of the IC defense.

Indeed, the PTO's amicus brief rejects as unworkable the prospect of limiting IC to administrative proceedings. For example, 28 U.S.C. ' 2462 requires administrative disciplinary proceedings be brought within five years of the alleged misconduct. Consequently, administrative proceedings related to IC could well be generally time-barred because IC allegations are frequently raised beyond this five-year limit. Additionally, the PTO cannot issue subpoenas during an administrative investigation, thus constraining its ability to investigate IC.

In contrast to many other amici, the PTO seeks a uniform standard for materiality and intent, but otherwise leaves the current system largely intact. Thus, the PTO argues that the current formulation of Rule 56 is the proper test for materiality (i.e., information is material if it either establishes a prima facie case of unpatentability, or contradicts any of the applicant's patentability arguments). Likewise, the PTO advocates that intent to deceive should be found either from direct evidence or because it is the single most reasonable inference to be drawn in light of all the evidence.

This proposal ignores the argument of numerous amici curiae that the IC defense is relatively costly in litigation and prosecution. As for litigation, however, the costs related to IC represent a fraction of the total litigation costs. The moderate additional burden arising from IC allegations placed on the patentee in patent litigation seems unlikely to generate much sympathy. As for the burden on prosecution, some amici assert that the threat of IC allegations in future litigation puts applicants in a no-win position: Disclose too much, and one may be accused of burying material information; disclose less, and one may be accused of failing to disclose material information. While no universal guidance exists regarding what information to share with the PTO during prosecution, the conundrum articulated by these amici would seem to be largely overcome from the definition of materiality advocated by the PTO and the disclosure of sufficient information in a sufficiently concise manner to avoid charges of reckless or grossly negligent disclosure.

It is hoped that Therasense won't represent a missed opportunity to strengthen our patent and judicial systems. From a policy standpoint, don't we expect patent applicants, agents and attorneys to conduct themselves in a manner that is not grossly negligent or reckless? Assuming we do, who bears the costs associated with avoiding that behavior and the consequences for conduct that falls below the standard of care we expect: an accused infringer that is innocent of misconduct before the PTO, or the patentee? In today's economy, the pressure to lower costs has turned much patent prosecution into a commodity-like service. At some price point, the lowest bidder cannot be reasonably expected to provide the high level of competency and attention to detail necessary to procure a patent that will be less susceptible to IC-like problems.

It is our view that, from a cost-benefit perspective, placing IC determinations at the enforcement end of our patent system shifts costs associated with IC allegations to the stage that can most easily absorb them. The patentee that chooses litigation has determined that it is likely economically beneficial to sue an accused infringer. The few patents that are litigated bear the bulk of known costs caused by IC, which seems more “equitable” than shifting such costs to earlier stages in the pipeline to every patent applicant.

Scott R. Miller is a partner and Manuel Nelson is of counsel in the Los Angeles office of Connolly Bove Lodge & Hutz LLP. Miller focuses his practice on litigation and non-litigation intellectual property matters and Nelson has assisted clients in a variety of technologies. They can be reached respectively at [email protected] or 213-787-2510; [email protected] or 213-787-2515.