By Kevin E. Noonan —
As we reported last week, a draft of the Senate Judiciary Committee’s report on the Patent Reform Act of 2007 (S. 1145) has been circulated on the internet. The 106-page draft report
contains sections on the background and purpose of the bill, the
legislative history of the bill, a section-by-section summary of the
bill, a placeholder for a cost estimate, a regulatory impact
evaluation, and a list of the changes to Titles 15, 28, and 35 that
would result if the Senate bill were passed into law. The circulation
of the draft report suggests that Senator Patrick Leahy,
Chairman of the Senate Judiciary Committee, intends to keep his
mid-December patent reform bill pledge to seek "favorable Senate action
as early as the floor schedule permits" (see "Patent Reform Discussed on Senate Floor"). In view of the length of the draft report, Patent Docs has been
providing a discussion of selected sections of the bill since the draft report began to circulate. Today, we address section 12 of the bill.
Section 12 of S. 1145 amends Title 35 to add new Section 298, as follows:
§ 298. Inequitable conduct
A party advancing the proposition that a patent should be cancelled or held unenforceable due to inequitable conduct shall prove independently, by clear and convincing evidence, that material information was misrepresented, or omitted, from the patent application with the intention of deceiving the USPTO. Information is material if a reasonable examiner would consider such information important in deciding whether to allow the patent application; any such information is not cumulative. Although intent to deceive the USPTO may be inferred, it may not be done so based solely on the gross negligence of the patent owner or its representative, or on the materiality of the information misrepresented or not disclosed. The party asserting the defense or claim shall comply with the pleading requirements set forth under Federal Rules of Civil Procedure 9(b). If the court finds inequitable conduct, the court has discretion to (1) hold the entire patent unenforceable, (2) hold 1 or more claims unenforceable, or (3) hold that patentee is not entitled an injunction.
The draft report advises that the intent of this new section is to codify (for the first time) the inequitable conduct defense and the consequence of unenforceability to a finding that a patent (or any claim thereof) was obtained through inequitable conduct. Like obviousness (in the context of patentability), the inequitable conduct defense was originally developed by the courts; unlike obviousness, the defense was not codified in the 1952 Patent Act. A succinct statement of the equitable basis for the defense can be found in the Supreme Court’s Precision Instrument Mfg. Co. v. Automotive Maintenance Machine Co. opinion:
A patent by its very nature is affected by a public interest. As recognized by the Constitution, it is a special privilege designed to serve the public purpose of promoting the "Progress of Science and useful Arts." At the same time, a patent is an exception to the general rule against monopolies and to the right to access a free and open market. The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.
324 U.S. 806, 816 (1945). Despite this "paramount [public] interest," however, there was no positive, affirmative requirement in either the Patent Act or USPTO regulations that an applicant honor a duty of candor until 1977. The first version of Rule 56, embodying and imposing this duty of candor, required disclosure of "[material] information where there is a substantial likelihood that a reasonable examiner would consider [the information] important in deciding whether to allow the application to issue as a patent." This standard was modified in 1992, to recite that "information is material to patentability when it is not cumulative to information already of record or being made of record in an application, and (1) it establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or (2) it refutes, or is inconsistent with, a position the applicant takes in: (i) opposing an argument of unpatentability relied upon by the Office or (ii) asserting an argument of patentability"; which is the current standard.
In practice, the inequitable conduct defense is almost always asserted, becoming by the late 1980’s a "plague on the patent system." Burlington Industries Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988). Part of that plague, according to the draft report, has been inconsistent definitions of what constitutes a reference "material to patentability" under the Federal Circuit’s jurisprudence. (This assertion, as well as the revisions to statutory damages provisions, both evince the same disparagement of the Federal Circuit’s work by Congress as has been evidenced by the Supreme Court (see "Is It Time for the Supreme Court to Stop Flogging the Federal Circuit?") and a desire for the Court’s discretion to be bounded by more certain statutory requirements.) These five definitions are (according to the draft report):
(1) the objective "but for" standard, where the misrepresentation was so material that the patent should not have issued;
(2) the subjective "but for" test, where the misrepresentation actually caused the examiner to approve the patent application when he would not otherwise have done so;
(3) the "but it may have" standard, where the misrepresentation may have influenced the parent examiner in the course of prosecution;
(4) the old Rule 56 standard where it is likely a reasonable examiner would have considered the information important in deciding whether to issue of the patent; and
(5) the new Rule 56 standard where the information is not cumulative and (i) establishes a prima facie case of unpatentability (either alone or in combination with other references), or (ii) refutes or is inconsistent with a position the applicant has taken (the new Rule 56 standard).
See Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309, 1314-16 (Fed. Cir. 2006); see also American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed. Cir. 1984). The Federal Circuit justifies these different tests on the grounds that there is "no reason to be bound by any single standard," a stance the draft report clearly rejects.
The Senate Judiciary Committee’s report asserts that the new Section 298 of Title 35 "codifies and improves the doctrine of inequitable conduct." The draft report discusses the purpose and intent of each subsection:
- Subsection 298(a) requires a party advancing an inequitable conduct argument to prove that claim by clear and convincing evidence, as does current inequitable conduct jurisprudence.
- Subsection 298(b) codifies the "reasonable examiner" test, finding a reference to be material to patentability if the reasonable examiner would consider the non-cumulative information important in deciding whether to allow the patent application. The draft report singles out this provision as being relevant to overcoming a misapplication of the law by the Federal Circuit. Specifically, the draft report states that the Federal Circuit has appeared "to emphasize improperly the first part of this definition (reasonably important to an examiner) without giving necessary consideration to the latter part of the definition (in deciding whether to allow the patent)," citing Nilssen v. Osram Sylvania, Inc., 2007 WL 2937322 (Fed. Cir. 2007); McKesson Information Solutions, Inc. v. Bridge Medical, Inc., 487 F.3d 897 (Fed. Cir. 2007); Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1309 (Fed. Cir. 2006). However, nothing in the cases cited in the draft report indicates that the Federal Circuit failed to consider the entire scope of the materiality standard with respect to the "ultimate" question of whether a patent would have been granted over the undisclosed prior art.
- Subsection 298(c), consistent with current case law, permits an intent to deceive the Patent Office be inferred, but limits the inference to exclude cases of merely "gross negligence" (on either the applicant’s or their representative’s part) and further is not to be based on the materiality of the information or reference either misrepresented or not disclosed. This portion is the most significant change, since it prevents application of the "balancing test" used by the court to find inequitable conduct when information of high materiality is misrepresented or not disclosed. While having some logic with regard to the "gross negligence situation," this subsection would appear to make more difficult a challenge based on nondisclosure of highly material information where there is little or no evidence of intent. Since the Federal Circuit, and the draft report, recognize that there is rarely direct evidence of intent, this provision may reduce the effectiveness (and as a consequence, the frequency) of inequitable conduct determinations.
- Subsection 298(d) that a party asserting the defense or claim comply with the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. The pleadings requirement is intended to address the potential for harassment by infringers during patent litigation.
- Subsection 298(e) grants the court discretion to fashion the appropriate remedy (presumably under the "exceptional case" standard). The remedies section is intended to address the potential for harassment by infringers during patent litigation, and the remedies section is intended to give District Courts greater discretion than they currently have (where an inequitable conduct finding renders all claims unenforceable); the provision regarding injunctions is consistent with the equitable nature of injunctive relief and inequitable conduct itself.
The entire new Section 298 is intended, the draft report asserts, to "not chill meaningful disclosures with the Office for fear of a future allegation." The section clarifies at least three aspects of the inequitable conduct defense: imposition of the "reasonable examiner" test; elimination of the balancing inquiry between materiality and evidence of intent; and increased discretion for courts to decide how draconian (or not) is the penalty a patentee must pay for committing inequitable conduct. It also would appear to refute the proposition that misrepresentation is almost always material and/or evinces an intent to deceive. In this respect it is a more certain codification of the inequitable conduct doctrine than § 103, where more than a half-century after the statute was enacted the courts are still trying to define the standard of non-obviousness (see KSR Int’l Co. v. Teleflex Inc.). It is clear, however, that the provisions of § 298 address (and seem to correct) the problems the Committee considered in current inequitable conduct jurisprudence.
For additional information on the draft report, please see:
- "First Inventor to File Provisions," Section 2, January 17, 2008
- "Assignee Filings, Mandatory Publication, and Third Party Submissions," Sections 3 and 7, January 16, 2008
- "Late Patent Filings," Section 13 January 15, 2008
- "Draft Report on Senate Patent Reform Bill Circulated," Sections 9 and 15, January 14, 2008
For additional information regarding this topic, please see:
- "U.S. Senate Mailbox Filling with Letters against Passage of Patent ‘Reform’ Bill," January 18, 2008
- "Patent Reform Discussed on Senate Floor," December 21, 2007
- "Enjoined New Rules and Patent Reform Finally Appearing on Biotech Industry’s Radar," December 20, 2007
- "Chinese IP Judge Discusses Implications of U.S. Patent Reform Bill and Two Congressmen Heed Warning," December 17, 2007
- "IPO President Seeks Deletion of Patent Reform Provision," December 12, 2007
- "Senate May Act on Patent ‘Reform’ Bill in the New Year," December 2, 2007
- "The Wall Street Journal Gets It Half Right," November 5, 2007
- "BIO CEO Provides Briefing on Follow-On Biologics and Patent Reform," September 18, 2007
- "Patent ‘Reform’ Bill Passes House of Representatives," September 9, 2007
- "Reversal in Microsoft Case Weakens Patent Reform Argument," August 7, 2007
- "San Francisco Chronicle Opines on Patent Reform," August 6, 2007
- "Patent Reform Bill to Be Delayed?" June 12, 2007
- "Senate Judiciary Committee Holds Hearing on Patent Reform," June 10, 2007
- "Could Creating a U.S. ‘Utility Model’ Patent Fulfill the ‘Need’ for Patent Law Reform?" May 21, 2007
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