Alleged infringers will have a tougher time proving that a patent applicant deceived the patent office under a new standard set by the U.S. Court of Appeals for the Federal Circuit.

Under the doctrine of inequitable conduct, a patent is unenforceable if the patent applicant is found to have withheld material information from the patent office with the intent to deceive. In a May 25 en banc decision, the Federal Circuit ruled that information is only material if the patent office would have denied the patent had the information been disclosed.

The court recognized an exception to this standard "in cases of affirmative egregious misconduct."

As for the question of intent, the court stated 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."

Noting that charges of inequitable conduct have become a litigation strategy plaguing the courts, the Federal Circuit stated: "This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public."

The full court barely reached a majority decision in the case, Therasense Inc. (now Abbott Diabetes Care Inc.) v. Becton, Dickinson and Company. Six judges signed the opinion, one judge concurred in part and dissented in part and four dissented.

A three-judge panel of the court had upheld a district court ruling that a patent covering technology used in disposable blood glucose test strips was unenforceable because Abbott withheld information from the U.S. Patent and Trademark Office that it had submitted to the European Patent Office.

The full court vacated the decision and remanded it to the district court to determine whether the PTO would have granted the patent but for Abbott's failure to disclose the EPO briefs and whether there is clear and convincing evidence that Abbott's patent attorney or director of R&D knew of the briefs and their materiality and made a conscious decision not to disclose them.

For its part, PTO announced it "is carefully studying the important en banc decision" and it "expects to soon issue guidance to applicants related to the prior art and information they must disclose to the Office in view of Therasense."

New Standard Is An Improvement, BIO Says

The case had been closely watched by the life sciences industry whose companies frequently face claims of inequitable conduct. The Pharmaceutical Research and Manufacturers of America, the Biotechnology Industry Organization and several companies filed amicus briefs advising the court on how to define the doctrine (Also see "Inequitable Conduct: Drug Industry Implores Federal Circuit To Revise Standard For Finding Deception In Patent Prosecution" - Pink Sheet, 16 August, 2010.).

BIO expects the new materiality standard will result in fewer successful claims of inequitable conduct.

"It's certainly stricter than what we had before and it's better because it's focused on what harm" an omission may have caused, said Hans Sauer, BIO's deputy general counsel of intellectual property.

However, Sauer said there is some uncertainty as to the meaning of the court's "egregious misconduct" exception.

"We don't know how broad that is," he said. "It's possible that over time there will be drift there" and cases will claim conduct that doesn’t look particularly egregious.

Inequitable Conduct Casts "Shadow Of A Hangman's Noose"

The Federal Circuit cited the problems that have been created as the standards for inequitable conduct have declined over the years. The court said such claims have become a litigation strategy, discouraging settlement and deflecting attention from the merits of validity and infringement issues. The court cited one study that estimated that 80% of patent infringement cases included inequitable conduct allegations.

"Left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system," Chief Judge Randall Rader wrote for the majority. "With inequitable conduct casting the shadow of a hangman's noose, it is unsurprising that patent prosecutors regularly bury PTO examiners with a deluge of prior art references, most of which have marginal value."

Sauer said BIO hopes the decision will eliminate litigation pressures caused by inequitable conduct claims and also allow applicants and examiners to engage in a more relaxed exchange about the merits of an invention. He noted that applicants have said as little as possible about an application to avoid being accused of misrepresenting something later on.

Companies that in the past were found to have withheld material information from the patent office would not be found liable under the new standard. Sauer said that previously there were several standards under which information could be deemed material. He noted that the most commonly used standard has been whether information would have been important to a reasonable examiner.

Such a standard could capture a broad swath of information. For example, Sauer cited one case in which a biotech company failed to disclose that a scientific expert who submitted a declaration to the patent office had been a past consultant to the firm. Although the expert's declaration was accurate and the patent was valid, the court ruled it unenforceable.

Dissenting Judges Support PTO's Standard

In a dissenting opinion, Judge William Bryson wrote that the majority's new test "does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether."

Bryson was joined by Judges Arthur Gajarsa, Timothy Dyk and Sharon Prost. They stated that the court needed simply to reaffirm the principles set down in the early years of the court in accordance with the PTO's current disclosure rule.

That rule requires proof that the information at issue either established a case of unpatentability by itself, or in combination with other information, or was inconsistent with a position taken by the applicant before the PTO in arguing the invention's patentability.

The majority opinion stated that the patent office's standard "sets such a low bar for materiality, adopting this standard would inevitably result in patent prosecutors continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy."

Judge Kathleen O'Malley dissented from the portions of the majority opinion which describe the test lower courts are to apply in assessing materiality.

"The majority defines materiality under a but-for test, with an exception for intentionally false affidavits filed with the PTO," she wrote. "The dissent, on the other hand, defines materiality according to [the PTO's] Rule 56. Both tests fail to provide district courts with flexibility to find inequitable conduct in an extraordinary case where the conduct in question would not be defined as such under either test."

By Brenda Sandburg

Inequitable Conduct "Plague" Cured By Federal Circuit's Therasense Decision

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