By Kevin E. Noonan —

The Federal Circuit delivered its en banc opinion on inequitable conduct last week in Therasense, Inc. v. Becton, Dickinson & Co.  Judge O'Malley wrote separately, concurring in part with the majority while also dissenting in part, in an idiosyncratic opinion that reflects, in part, her experience.  While a relative newcomer to the Federal Circuit, Judge O'Malley brings a distinguished career as a district court judge to the appellate bench, making hers a unique voice among her colleagues.

Judge O'Malley's (at left) focus is on what she terms "clear guidelines," for patent practitioners as well as the courts.  However, Judge O'Malley recognizes that absolute precision or the kind of "defining rules [that can exist] in the scientific world" are not only impracticable in the law, but in fact that under equitable principles, law is actually "imprecise by design."  This idea provides the basis for her disagreement with the majority, specifically with the Court's adoption of the "but-for" test for the materiality prong of their inequitable conduct analysis, as well as the parts of the decision that vacated and remanded the question of materiality to the District Court (while concurring with the decision to send the inequitable conduct question back to the lower court for reconsideration).  She writes that the majority opinion's guidance and direction with regard to the intent question mandate this remand, since the District Court's decision "understandably referred to standards governing its intent determination drawn from our prior case law" and the Federal Circuit clearly set forth the standard that "a district court must find that the conduct at issue is of 'sufficient culpability to require a finding of intent to deceive,'" citing Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988).  And like the other dissenters, she rejects any application of a "sliding scale" that would conflate or diminish the requirement that "intent to deceive and materiality must be found separately" (although like the dissent, albeit less broadly, in a footnote Judge O'Malley enunciates the type of "guidance" that has led to the conundrums and difficulties that the majority has tried to reduce in its opinion:

While I join this portion of the majority opinion (Part V), I do so with the understanding that the majority does not hold that it is impermissible for a court to consider the level of materiality as circumstantial evidence in its intent analysis.  As in all other legal inquiries involving multiple elements, the district court may rely on the same items of evidence in both its materiality and intent inquiries.  A district court must, however, reach separate conclusions of intent and materiality and may not base a finding of specific intent to deceive on materiality alone, regardless of the level of materiality.

Judge O'Malley's disagreement with both the majority and the dissent is that both, in her view, attempt to impose strict guidelines (or "hard and fast rules") on the inequitable conduct question that she finds incompatible with the equitable principles underlying the doctrine.  She cites Supreme Court cases for the propositions that the Chancellor in equity is given the power to "do equity" and to "mould each decree to the necessities of the particular case," citing Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982) (quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944)) and have the power to be flexible in "moulding" such decrees, citing Holmberg v. Armbrecht, 327 U.S. 392, 396 (1946).  And she notes that the Supreme Court has not found patent law to be an exception to these general rules of equitable jurisprudence, citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 393-94 (2006), as an example.

Both the majority opinion and the dissent err when they "eschew flexibility in favor of rigidity," suggesting "tests for materiality [that] apply in all cases."  Judge O'Malley sees both opinions as being inquiries that are "black or white, while equity requires judicial consideration of shades of gray."  Her concern is specifically directed at district courts, particularly in cases where neither of the tests (those proposed by the majority or the dissent) are met, yet equity "demands" that a patent not be enforced (albeit in "an extraordinary case").  She rejects the majority's panacea of using the "unclean hands" principle for "egregious misconduct," both because she objects to the majority's formulation that the inequitable conduct doctrine is distinct from "the unclean hands principles the Supreme Court described and explained in its trilogy of cases" (saying there is no authority to support this dichotomy" and noting that "[i]f 'unclean hands' remains available in cases of PTO misconduct, charges of unclean hands could simply supplant the very allegations of inequitable conduct the majority seeks to curb."  She finds equal fault with the dissent's proposal to define materiality by PTO Rule 56, since this would "not allow, for in- stance, for a finding of inequitable conduct for conduct not encompassed by Rule 56."

She sets forth her view as follows:

We should adopt a test that provides as much guidance to district courts and patent applicants as possible, but, in doing so, we may not disregard the equitable nature of the inquiry at hand.  Thus, we must make clear that, while we believe the test we offer encompasses virtually all forms of conduct sufficient to warrant a finding of inequitable conduct, we leave open the possibility that some form of intentional misconduct which we do not currently envision could warrant equitable relief.

This would be consistent with Supreme Court precedent and with "the flexible nature of equity jurisdiction."

Such flexibility should also extend to determination of the remedy for a finding of inequitable conduct, she argues, citing Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 386 (1970), for the proposition that "the lower courts should exercise the sound discretion which guides the determinations of courts of equity, keeping in mind the role of equity as the instrument for nice adjustment and reconciliation between the public interest and private needs as well as between competing private claims."  Judge Rader's "atomic bomb" of complete unenforceability is "neither compelled by statute, nor consistent with the equitable nature of the doctrine," and Judge O'Malley would expressly "hold that, in the exercise of its discretion, a district court may choose to render fewer than all claims unenforceable, may simply dismiss the action before it, or may fashion some other reasonable remedy, so long as the remedy imposed by the court is "commensurate with the violation," citing Columbus Bd. of Educ. v. Penick, 443 U.S. 449, 465 (1979).  Judge O'Malley believes that this would "reduce the incentive to use inequitable conduct as a litigation tactic and address many of the concerns that trouble my colleagues and were expressed by Abbott and certain amici in these en banc proceedings"; she also opines that "[c]areful application of the pleadings requirements set forth in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009)" can be used by district courts to address this problem.

The opinion also sets forth the judge's test for materiality:

(1) but for the conduct (whether it be in the form of an affirmative act or intentional non-disclosure), the patent would not have issued (as Chief Judge Rader explains that concept in the majority opinion);

(2) the conduct constitutes a false or misleading representation of fact (rendered so either because the statement made is false on its face or information is omitted which, if known, would render the representation false or misleading); or

(3) the district court finds that the behavior is so offensive that the court is left with a firm conviction that the integrity of the PTO process as to the application at issue was wholly undermined.

Finally, she joins the majority in rejecting the dissent's view that the proper materiality standard is PTO Rule 56, calling it "both too vague and too broad," particularly insofar as it would encompass acts that are "not sufficiently egregious to fall within the bounds of the Supreme Court trilogy from which the doctrine emerged."  Of course, the judge also rejects the majority's test, saying it is too narrow, since "[g]iven the scope and complexity of PTO proceedings, misconduct can and does occur outside the context of written affidavits."

Turning to the case at bar, Judge O'Malley would affirm that the EPO arguments not submitted to the PTO during prosecution of the '551 patent were material (saying this information would satisfy her proposed test "or any reasonable test for materiality that comports with Supreme Court precedent" as well as the majority's "but-for" test), so that a remand on the materiality issue "is neither necessary nor appropriate."

The majority addresses Judge O'Malley's objections by asserting as a "mischaracterization" limiting "affirmative egregious acts" to the example of the case below — filing a false affidavit.  The majority states that its test provides "clear guidance to patent practitioners and the courts [in the general case regarding "but for" materiality], while the egregious misconduct exception gives the test sufficient flexibility to capture extraordinary circumstances."  The majority contends that Judge O'Malley "appears to eschew the use of any test" due to the fact that for any test there may be instances that are not encompassed by the test.  While acknowledging the flexibility required for applying equitable doctrines, the majority notes that "[c]ourts have long applied rules and tests in determining whether a particular factual situation falls within the scope of an equitable doctrine," citing Winter v. Natural Res. Def. Council, Inc., 129 S.Ct. 365, 374 (2008) (preliminary injunctions); eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (permanent injunctions); Gutierrez v. Waterman S.S. Corp., 373 U.S. 206, 215 (1963)(laches), and in particular, Lonchar v. Thomas, 517 U.S. 314, 323 (1996) (stating that "[c]ourts of equity must be governed by rules and precedents no less than the courts of law . . . [because] the alternative is to use equity chancellor's conscience as a measure of equity, which alternative would be as arbitrary and uncertain as measuring distance by the length of each chancellor's foot").

No doubt the differing views of majority, the dissent, and Judge O'Malley's objections to both will be useful for the parties in the expected petition for certiorari and plaintiff's opposition to the petition.  Perhaps the most important party to be heard will be the Solicitor General, and his position is likely to depend on how the USPTO views the Federal Circuit's en banc opinion.  Director Kappos has indicated that guidelines for implementing the Court's opinion will be forthcoming (see "USPTO Studying Therasense Decision, Will Issue Guidance Soon") and that may provide the first inkling of whether the PTO believes that the Court's decision will positively or negatively affect its ability to properly provide effective patent examination.

Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc)
Before Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, Moore, O'Malley, and Reyna
Opinion by Chief Judge Rader, joined in full by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and joined in part by Circuit Judge O'Malley
Concurring-in-part and dissenting-in-part opinion by Circuit Judge O'Malley
Dissenting opinion by Circuit Judge Bryson, joined by Circuit Judges Gajarsa, Dyk, and Prost

For additional information regarding this and other related topics, please see:

• "USPTO Studying Therasense Decision, Will Issue Guidance Soon," May 26, 2011
• "Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc): The Dissenting Opinion," May 26, 2011
• "Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc)," May 25, 2011
• "Abbott Files Reply Brief in Therasense Case," November 8, 2010
• "Appellees File Reply Brief in Therasense v. Becton Dickinson," October 27, 2010
• "Bayer Submits Brief in Therasense v. Becton Dickinson," October 20, 2010
• "PhRMA Files Amicus Brief in Therasense Case," August 22, 2010
• "PTO Files Amicus Brief in Therasense Case," August 19, 2010
• "American Bar Association Files Amicus Brief in Therasense Case," August 17, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. — Briefing Schedule Update," August 8, 2010
• "BIO Files Amicus Brief in Therasense Case," August 8, 2010
• "Pharma and Software Companies File Joint Amicus Brief in Therasense Case," August 3, 2010
• "IPO Files Amicus Brief in Therasense Case," August 2, 2010
• "Abbott Files Brief in Therasense Case," July 28, 2010
• "CAFC Sets Date for Oral Argument En Banc in Inequitable Conduct Appeal," June 9, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. — Briefing Schedule Update," May 16, 2010
• "Therasense, Inc. v. Becton, Dickinson & Co. Briefing," May 13, 2010
• "Federal Circuit Grants En Banc Review in Therasense v. Becton Dickinson," April 28, 2010

By Kevin E. Noonan —

The Federal Circuit delivered its en banc opinion on inequitable conduct on Wednesday in Therasense, Inc. v. Becton, Dickinson & Co.  Four judges dissented from that opinion, with Judge Bryson writing for his fellow Circuit Judges Gajarsa, Dyk, and Prost.  Judge O'Malley wrote separately, concurring in part and dissenting in part.  Despite coming in at slightly longer than the majority opinion, Judge Bryson's dissent differs from the majority on but one aspect of inequitable conduct, the standard for assessing materiality.  The dissenting judges argue that the best measure of a material reference is the one used by the U.S. Patent and Trademark Office, codified as PTO Rule 56 (37 C.F.R. § 1.56).  Otherwise, the dissenters agree with the majority that "[t]here is broad consensus that the law of inequitable conduct is in an unsatisfactory state and needs adjustment" due to "differing standards" having been applied in making inequitable conduct decisions.  There is also consensus with the majority that such "doctrinal uncertainty has had adverse consequences both for patent litigation and for the PTO," including an excess of inequitable conduct claims in litigation and the resulting tendency for "some patent prosecutors to err on the side of 'over-disclosure; in order to avoid the risk of rendering all claims of an otherwise valid patent unenforceable because of the omission of some marginally relevant reference."

There is "substantial agreement" on resolving the issues of intent to deceive and the application of the "sliding scale":  indeed, "the parties to this case and most of the amici agree that proof of inequitable conduct should require a showing of specific intent to deceive the PTO," and that "negligence, or even gross negligence, should not be enough."  There is also agreement, according to the dissenting opinion, that courts should not apply a "sliding scale" "whereby a strong showing as to one element [i.e., materiality or intent to deceive] can make up for weaker proof as to the other."

The question, then, is the materiality standard, for which there is consensus among neither the parties, the amici, or the Court.  The dissent believes the proper (and broader) standard should be Rule 56:

[I]nformation is "material" if it is "not cumulative to information already of record or being made of record in the 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 on by the Office, or
        (ii)  Asserting an argument of patentability.

The dissent believes this is the proper standard for two reasons:  first, that the PTO is in the best position to determine whether information is material to its purposes (examination), and second that the majority's higher materiality standard will not provide "appropriate incentives" for patent applicants to comply with the duty of disclosure.  Judge Bryson believes that this standard is consistent with the Court's precedent, particularly J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553 (Fed. Cir. 1984).  There, according to the dissenting opinion, a five-judge panel of the court decided that:

• Inequitable conduct is broader than common-law fraud, citing Norton v. Curtiss, 433 F.3d 779, 793 (CCPA 1970);

• Failure to disclose material information could be just as culpable as providing false information; and

• PTO Rule 56 "established 'the appropriate starting point' because that standard 'most closely aligns with how one ought to conduct business with the PTO,'" citing Norton and Driscoll v. Cebalo, 731 F.2d 878, 884 (Fed. Cir. 1984).

While the Court has "occasional[ly] depart[ed]" from the intent standard established by Kingsdown Medical Consultants, Ltd. v. Hollister Inc., the dissent argues that the materiality standard as established by this line of precedent has been consistently applied by the Court (albeit admitting that "there has been some variation" in which version of the Rule has been applied).

The dissenting judges would reaffirm this standard, and their opinion characterizes the majority opinion as "radical" and that it "does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether."  The dissent believes that proper application of the principles enunciated in Kingsdown and the other cited prior precedent would be sufficient to resolve the deleterious effects of widespread use of the inequitable conduct defense, in concert with heightened pleadings requirements (Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009)), use of Rule 11 sanctions, and the exercise of the court's "equitable judgment," all of which the dissent finds preferable to the majority's "Draconian" solution (and none of which have been particularly effective to date).

Citing the PTO's amicus brief, the dissent argues that the "but for" materiality test makes inequitable conduct a redundancy, since only those claims that are invalid anyway would be unenforceable for inequitable conduct.  Thus, the dissent argues, this test provides little incentive to promote the policy goals of the duty of disclosure before the PTO (discounting the disciplinary aspects in view of deficiencies in the PTO's ability to detect inequitable conduct and ignoring the unlikelihood that most practitioners would intentionally put their careers in jeopardy).  The dissent cites several cases where the Court has rejected the "but for" materiality test, including Merck & Co. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1421 (Fed. Cir. 1989); Purdue Pharma L.P. v. Endo Pharms. Inc., 438 F.3d 1123, 1132 (Fed. Cir. 2006); Hoffmann-LaRoche, Inc. v. Promega Corp., 323 F.3d 1354, 1368 (Fed. Cir. 2003); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1179-80 (Fed. Cir. 1995); and A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1396 (Fed. Cir. 1986).  The dissent argues that the incentives of Rule 56 are necessary because "an open door may tempt a saint" and the "large stakes sometimes at issue in patent prosecution[]" make "a regime that ensures that a dishonest but potentially profitable course of action can be pursued with essentially no marginal added risk is an unwise regime no matter how virtuous its subjects."

The dissent also argues that the "but for" materiality standard is inconsistent with the three canonical Supreme Court cases that were the genesis of the inequitable conduct doctrine:  Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944); Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945), a view directly opposed to the majority's reading of these cases.  For the dissenting judges, none of these cases involved a determination by the Court that the patents in question would not have issued "but for" nondisclosure of the undisclosed information.  In the dissent's view, the Supreme Court trilogy established the following principles:

(1)  the public has a special interest in seeing that patent monopolies "spring from backgrounds free from fraud or other inequitable conduct";

(2)  as a corollary to that public interest, patent applicants "have an uncompromising duty to report to [the Patent Office] all facts concerning possible fraud or inequitableness underlying the applications";

(3)  all facts relevant to such matters must be submitted to the Patent Office, "which can then pass upon the sufficiency of the evidence";

(4)  the intentional failure to disclose to the Patent Office that a patent application is tainted by fraud is sufficient cause to justify not enforcing the patent; and

(5)  the misconduct in question need not constitute actionable fraud; it is sufficient if the conduct constitutes a willful act that violates standards of equitable conduct in dealing with the Patent Office.

In addition, the dissent cites Kingsland v. Dorsey, 338 U.S. 318, 319 (1949), for the principle that "the relationship of attorneys to the Patent Office requires the highest degree of candor and good faith.  In its relation to applicants, the Office . . . must rely upon their integrity and deal with them in a spirit of trust and confidence . . . ," and accordingly that it falls to the courts to police applicants' (and their counsels') behavior.  This forms the predicate for the dissent's argument that the Court should adopt the PTO's materiality standard, Rule 56.

The dissent relies on the Norton decision, where the Court both endorsed the Commissioner's (now Director's) authority to "strike a patent application for fraud on the PTO in violation of the PTO's Rule 56" as well as defining "fraud on the PTO" to be broader than common-law fraud, due to the "relationship of confidence and trust" between applicants (and their counsel) and the agency.  Thus, the Norton court held that "the test for materiality 'cannot be applied too narrowly if the relationship of confidence and trust between applicants and the Patent Office is to have any real meaning,' and that findings of materiality should not be limited to those cases in which the true facts, if they had been known, 'would most likely have prevented the allowance of the particular claims at issue.'"  According to the dissent, this standard was consistently applied ever since, citing cases decided throughout the Federal Circuit's history (although the dissenting opinion does recognize that the standard has changed, from a "reasonable examiner" under the 1977 version of the Rule to the current Rule, adopted in 1992).  Of course, if that was indeed the controlling standard, the majority's decision has now overruled it.

Finally, the dissent cites to other areas of the law, specifically securities law regarding insider trading (where the existence of undisclosed information is "regarded as material without the need to prove reliance," citing Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972), and Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156 (U.S. Mar. 22, 2011)) and proxy solicitations, citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976); mail and wire fraud, citing United States v. Olatunji, 872 F.2d 116; naturalization proceedings, citing  Kungys v. United States, 485 U.S. 759, 772 (1988); and even common law fraud, citing the Restatement (Second) of Torts  § 538, all for the proposition that materiality is not subject to a "but for" test in any of these instances.

The dissent summarizes its underlying policy objections succinctly:

Under this court's new rule, an applicant who conceals information with the intent to deceive the PTO will be free to enforce his patent unless it can be proved by clear and convincing evidence that the patent would not have issued but for the fraud.  Even though the majority justifies its new rule in part by asserting that it will improve the prosecution of patents before the PTO, I am convinced that the new rule is likely to have an adverse impact on the PTO and the public at large, a view that — significantly — is shared by the PTO itself.

As for the case at bar (which the dissenting judges believe "illustrate why the materiality standard of Rule 56 is a suitable test for inequitable conduct claims based on disclosure violations"), the dissent would affirm, believing that "the district court made all the findings necessary to support its holding that the '551 patent was unenforceable for inequitable conduct."

The majority opinion sets forth its views on the arguments made in the dissent.  The majority notes that the Federal Circuit "is not bound by the definition of materiality in PTO rules," citing Merck & Co., Inc. v. Kessler, 80 F.3d 1543, 1549-50 (Fed. Cir. 1996), for the proposition that the PTO does not have substantive rulemaking authority.  The majority also states that, with all due regard for "the PTO's knowledge in its area of expertise," the effects of inequitable conduct "ha[ve] had adverse ramifications beyond its effect on the PTO" (specifically, in litigation).  The opinion acknowledges that the Court has used Rule 56 in the past "as a starting point for determining materiality," and that the Rules standards have changed over time.  But this inconsistency in the PTO's definition of materiality "has led to uncertainty and inconsistency in the development of the inequitable conduct doctrine," citing Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1316 (Fed. Cir. 2006), for the application of the 1977 version of Rule 56, and Bruno Independent Living Aids, Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348, 1352-53 (Fed. Cir. 2005), for applying the 1992 version of the Rule.  The majority expressly states that it "declines to adopt the current version of Rule 56 in defining inequitable conduct because reliance on this standard has resulted in the very problems this court sought to address by taking this case en banc":

The first prong of Rule 56 is overly broad because information is considered material even if the information would be rendered irrelevant in light of subsequent argument or explanation by the patentee.  Under this standard, inequitable conduct could be found based on an applicant's failure to disclose information that a patent examiner would readily agree was not relevant to the prosecution after considering the patentee's argument.  Likewise, the second prong of Rule 56 broadly encompasses anything that could be considered marginally relevant to patentability.  If an applicant were to assert that his invention would have been non-obvious, for example, anything bearing any relation to obviousness could be found material under the second prong of Rule 56.  Because Rule 56 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.

The majority also disagrees with the dissent's view that "but for" materiality is not required in other contexts, specifically common law fraud where the opinion cites its own section of Restatement (Second) of Torts (§ 525) for the proposition that reliance is required.  More generally, the opinion states that copyright and trademark law are more appropriate analogous areas of law for comparison, and there "[b]ut-for proof is required to invalidate both copyrights and trademarks based on applicant misconduct," citing 17 U.S.C. § 411(b)(1) (copyright) and Citibank, N.A. v. Citibanc Group, Inc., 724 F.2d 1540, 1544 (11th Cir. 1984) (trademarks).

It is interesting to note that Footnote 1 of the dissent, relating to prohibiting the "sliding scale," in fact would return this aspect of the inequitable conduct to status quo ante:

It is important to distinguish between relaxing the required proof of intent if the proof of materiality is strong, which is impermissible, as opposed to considering the degree of materiality as relevant to the issue of intent, which is appropriate, particularly given that direct evidence of intent, such as an admission of deceptive purpose, is seldom available.  See Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1366 (Fed. Cir. 2007); Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1190-91 (Fed. Cir. 2006); GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1274 (Fed. Cir. 2001); Paragon Podiatry Lab., Inc. v. KLM Labs., Inc., 984 F.2d 1182, 1189 (Fed. Cir. 1993); Merck &  Co. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1422 (Fed. Cir. 1989).

Permitting evidence of materiality to color the assessment of the intent to deceive has resulted in precisely the situation the majority opinion is intended to remedy, as evidenced by the cases cited in support of this principle, which constitute many of the cases where arguably "minor misconduct" has been bootstrapped into an inequitable conduct finding.

Judge O'Malley in her opinion, concurring in part and dissenting in part, "do[es] not weigh in on the policy debate between the majority and the dissenters."  Her views will be discussed in a future Patent Docs post.

Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc)
Before Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, Moore, O'Malley, and Reyna
Opinion by Chief Judge Rader, joined in full by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and joined in part by Circuit Judge O'Malley
Concurring-in-part and dissenting-in-part opinion by Circuit Judge O'Malley
Dissenting opinion by Circuit Judge Bryson, joined by Circuit Judges Gajarsa, Dyk, and Prost

By Kevin E. Noonan —

The Federal Circuit delivered its en banc opinion on inequitable conduct today in Therasense, Inc. v. Becton, Dickinson & Co.  In an opinion written by Chief Judge Rader and joined by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and by Judge O'Malley in part, the Court issued clear standards for establishing the inequitable conduct defense.  Simply put, first, an omitted reference is a material reference only if "but for" its exclusion the claim or patent would not have issued.  Second, there must be clear and convincing evidence of a specific intent to deceive by the applicant.  Third, a court cannot use a "sliding scale" to find inequitable conduct, i.e., it cannot find sufficient a weak showing of intent based on a strong showing of materiality; both materiality and intent to deceive must be supported by clear and convincing evidence.  And finally, in view of the severity of the remedy of unenforceability, courts should apply equity to ensure that the remedy is not imposed for misconduct that was "immaterial to the issuance of the patent."

To recap the factual background of this case, the technology involves disposable blood glucose test strips for measuring the amount of glucose in blood, where the amount of glucose in the sample is read using an electrode.  Specifically claimed are test strips without a membrane over the electrode:

1.  A single use disposable electrode strip for attachment to the signal readout circuitry of a sensor to detect a current representative of the concentration of a compound in a drop of a whole blood sample comprising:
    a) an elongated support having a substantially flat, planar surface, adapted for releasable attachment to said readout circuitry;
    b) a first conductor extending along said surface and comprising a conductive element for connection to said readout circuitry;
    c) an active electrode on said strip in electrical contact with said first conductor and positioned to contact said whole blood sample;
    d) a second conductor extending along said surface comprising a conductive element for connection to said read out circuitry; and
    e) a reference counterelectrode in electrical contact with said second conductor and positioned to contact said whole blood sample,
    wherein said active electrode is configured to be exposed to said whole blood sample without an intervening membrane or other whole blood filtering member . . . .

(U.S. Patent No. 5,820,551).  The prior art (including patentee's own prior patent, U.S. Patent No. 4,545,382) contained protective membranes to prevent electrode fouling.  This patent contained language wherein a membrane was "optionally, but preferably" included in the test strip.  Attorney argument, supported by expert witness declaration (from Abbott's Director of R&D) asserted that the "membraneless" feature of the '551 patent claim distinguished over the '382 prior art.  The Examiner required a declaration that the prior art required a membrane, and Abbott's R&D Director attested that the worker of ordinary skill would understand the "optionally, but preferably" language in the '382 patent to require a membrane.

Prior to submitting this argument, however, counsel before the European Patent Office had submitted a response, supported by the same expert's declaration, in the European counterpart of the '382 patent that was directly contradictory to the arguments presented to the U.S. Examiner during prosecution of the '551 patent.  Before the EPO, the expert attested and the European attorney argued that the membrane was not necessary to control permeability, an argument used to distinguish over another prior art reference that disclosed a test strip having a membrane.

Litigation ensued between the parties, with Becton, Dickinson ("BD") filing a declaratory judgment action that its disposable glucose strip did not infringe two other Abbott patents (U.S. Patent Nos. 6,143,164 and 6,592,745), and Abbott (successor in interest to Therasense) counterclaimed for infringement of the '164, '745, and '551 patents.  The District Court granted summary judgment of non-infringement of the '143 and '745 patents, that the '745 patent claims were invalid for anticipation, and that claims 1-4 of the '551 patent were obvious over the '382 patent in view of U.S. Patent 4,225,410.  The District Court also found that the '551 patent was unenforceable for inequitable conduct, based on the failure to submit the briefs filed in the EPO during prosecution of the '551 patent.  The en banc Court vacated a prior panel decision in order to address the inequitable conduct issue.

The majority opinion starts, as it must, with the three canonical Supreme Court cases that were the genesis of the inequitable conduct doctrine:  Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944); Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945).  The opinion characterizes each of these cases as involving "the manufacture or suppression of evidence," either before the U.S. Patent and Trademark Office, during litigation or both, and notes that the remedy was that the case was dismissed, i.e., the patentee was precluded from obtaining relief from the court due to unclean hands.  The majority opinion notes that these cases each "dealt with particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence" and also involved "'deliberately planned and carefully executed scheme[s] to defraud' not only the PTO but also the courts," citing Hazel-Atlas Glass, 322 U.S. at 245.  However, from these origins the Court acknowledges that the inequitable conduct doctrine "came to embrace a broader scope of misconduct, including not only egregious affirmative acts of misconduct intended to deceive both the PTO and the courts but also the mere nondisclosure of information to the PTO."  The Court also notes that the remedy invoked also changed, from dismissal of the lawsuit to "unenforceability of the entire patent" involved in the lawsuit.

Along with "this wider scope and stronger remedy," the opinion states that a showing of both materiality and intent came to be required.  The opinion cites Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357 (Fed. Cir. 2008), for the conventional requirement for establishing inequitable conduct:  a finding that "applicant misrepresented or omitted material information with the specific intent to deceive the PTO" and that "[t]he accused infringer must prove both elements — intent and materiality — by clear and convincing evidence."  Finally, "[i]f the accused infringer meets its burden, then the district court must weigh the equities to determine whether the applicant's conduct before the PTO warrants rendering the entire patent unenforceable."

The majority opinion recognizes that the Supreme Court cases cited above did not contain any standard for materiality, and that those Supreme Court cases provide precedential support for a court to invoke the unclean hands doctrine "to supply a remedy for egregious misconduct."  The opinion also notes that the standards for establishing both materiality and intent have "fluctuated" over time, citing cases where the Court "espoused low standards for meeting the intent requirement," Driscoll v. Cebalo, 731 F.2d 878, 885 (Fed. Cir. 1984) (establishing a "knew or should have known" standard); Orthopedic Equip. Co., Inc. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1383-84 (Fed. Cir. 1983) (finding gross negligence sufficient to establish intent to deceive), and "a broad view of materiality," citing Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed. Cir. 1984) (applying a "reasonable examiner" standard based on 37 C.F.R. § 1.56 (1977)).  "Further weakening" what was required to establish inequitable conduct, according to the opinion, was the practice of using a "sliding scale" that permitted a finding of inequitable conduct "based on a reduced showing of intent if the record contained a strong showing of materiality, and vice versa."

The rationale for lowering the standards, according to the majority was to "foster full disclosure to the PTO."  However, the opinion notes that "[t]his new focus" had "numerous unforeseen and unintended consequences," including "increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality."  Citing a Report from the National Research Council of the National Academies, the opinion states that charging inequitable conduct "conveniently expands discovery into corporate practices before patent filing and disqualifies the prosecuting attorney from the patentee's litigation team," and in addition "cast a dark cloud over the patent's validity and paint the patentee as a bad actor."  The opinion also cites the doctrine's focus on "moral turpitude" as a reason why it "discourages settlement and deflects attention from the merits of validity and infringement issues," citing a Committee Position Paper from the AIPLA.

"Perhaps most importantly," according to the majority, the remedy of complete unenforceability of the entire patent makes inequitable conduct the "atomic bomb" of patent law, citing Chief Judge Rader's dissent from Aventis Pharma S.A. v. Amphastar Pharm., Inc., 525 F.3d 1334 (Fed. Cir. 2008).  Not only can't inequitable conduct be "cured by reissue," but the "taint . . . can spread from a single patent to render unenforceable other related patents and applications in the same technology family," citing Consol. Aluminum Corp. v. Foseco Int'l Ltd., 910 F.2d 804, 808-12 (Fed. Cir. 1990).  The opinion also notes that an inequitable conduct finding can be used to support claims sounding in antitrust and unfair competition, may invoke the "exceptional case" provisions of 35 U.S.C. § 285, and may be used to pierce the attorney-client privilege under the crime-fraud exception.  The opinion also asserts that the consequences of this state of affairs extends further than litigation and plagues "the entire patent system."  These negative effects include the practice of "patent prosecutors regularly bury[ing] PTO examiners with a deluge of prior art references, most of which have marginal value," constituting a "tidal wave of disclosure [that] makes identifying the most relevant prior art difficult."

In view of these negative and unintended consequences, the opinion directly states that "[t]his 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 section of the brief outlining how the Court has "tightened the standards" was joined by Judge O'Malley.)  First, the Court holds that an accused infringer "must prove that the patentee acted with the specific intent to deceive the PTO," citing Star Scientific.  Specifically, a finding of negligence, gross negligence, or the application of a "should have known" standard "does not satisfy this intent requirement," citing Kingsdown Medical Consultants, Ltd. v. Hollister Inc.  Rather, there must be clear and convincing evidence that an applicant "made a deliberate decision to withhold a known material reference," citing Molins PLC v. Textron, Inc. (emphasis in the opinion).  In the event that this standard remains unclear, the Court expressly set forth the requirement:  "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."  The opinion characterizes this standard as being consistent with the "origins in the trio of Supreme Court cases that set in motion the development of the inequitable conduct doctrine."

Second, the opinion states that "[i]intent and materiality are separate requirements," citing Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1359 (Fed. Cir. 2003), and thus "[a] district court should not use a 'sliding scale,' where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa."  In addition, "a district court may not infer intent solely from materiality."  Recognizing that "direct evidence of deceptive intent is rare," the opinion permits district courts to "infer intent from indirect and circumstantial evidence," citing Larson Mfg. Co. of S.D., Inc. v. Aluminart Prods. Ltd., 559 F.3d 1317, 1340 (Fed. Cir. 2009).  The opinion warns, however, that such an inferred intent "must be 'the single most reasonable inference able to be drawn from the evidence,'" citing Star Scientific, emphasizing that the evidence "'must be sufficient to require a finding of deceitful intent in the light of all the circumstances,'" citing Kingsdown Medical (emphasis in opinion).  Again leaving little room for doubt, the opinion states that "when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found," citing Scanner Techs. Corp. v. ICOS Vision Sys. Corp., 528 F.3d 1365, 1376 (Fed. Cir. 2008).  Finally, the absence of "a good faith explanation for withholding a material reference" by the patentee is not sufficient to establish an intent to deceive.

Acknowledging the failure of prior precedent to reduce the "proliferation of inequitable conduct charges" by focusing on the intent prong, the Court then addressed the materiality standard.  Once again stating the standard expressly, the Court holds that "as a general matter, the materiality required to establish inequitable conduct is but-for materiality," i.e., "[w]hen an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art"; the opinion cites Corona Cord Tire Co. v. Dovan Chem. Corp., 276 U.S. 358 (1928), as relevant and Supreme Court precedent consistent with this standard.  In the application of this materiality standard, the opinion states that a district court "must determine" whether the claim at issue would have been granted if the PTO was aware of the reference, using the preponderance of the evidence burden and giving the claims their "broadest reasonable construction," as would have occurred during ex parte prosecution.  The Court sets out an important indication of how this standard might be put into practice, stating that a "deliberately withheld reference" is "necessarily material" if a claim is "properly invalidated" by a court, since the clear and convincing evidence standard for invalidity is higher than the preponderance standard that the PTO applies.  The opinion does accommodate an exception to these principles in cases of "affirmative egregious conduct" as existed in the canonical Supreme Court precedential trio.  Such egregious misconduct is material per se, according to the opinion, and making this distinction "strikes a necessary balance between encouraging honesty before the PTO and preventing unfounded accusations of inequitable conduct."

Turning to the remedy, the opinion notes that inequitable conduct is an equitable doctrine, and thus its application is rooted in "basic fairness."  Thus, a finding of inequitable conduct having a remedy of complete unenforceability "should only be applied in instances where the patentee's misconduct resulted in the unfair benefit of receiving an unwarranted claim," citing the statement in Star Scientific that "[j]ust as it is inequitable to permit a 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 committed only minor missteps or acted with minimal culpability."  While not expressly cited, cases where inequitable conduct has been found for improperly claiming small entity status (Nilssen v. Osram Sylvania, Inc.), improperly filing a petition to make special (General Electro Music Corp. v. Samick Music Corp.), failing to disclose that a declarant had been a paid consultant prior to filing an expert declaration under 37 C.F.R. § 1.132 (Ferring B.V. v. Barr Laboratories, Inc.), misjoinder of inventorship (PerSeptive Biosystems, Inc. v. Pharmacia Biotech, Inc.), and inaccuracies in an expert declaration (Aventis Pharma S.A. v Amphastar Pharma, Inc.) seem to be encompassed by this characterization.

The majority vacated and remanded the case to the District Court to consider the inequitable conduct question in light of the standards set forth in the opinion, while affirming without comment or discussion the invalidity findings below.

Most of the rubrics and principles on which the opinion's standards are founded upon can be found in earlier precedent cited liberally throughout the majority opinion; in this regard, the case is similar to the en banc Court's treatment of claim construction standards in Phillips v. AWH Corp. in 2005.  However, the adoption of the "but-for" standard (and an "objective but-for" standard at that) clearly indicates that the Court majority has been persuaded that inequitable conduct has once again become a sufficiently significant plague that its exercise can only be curbed by "tightening" the objective grounds upon which it can be proven (after similarly tightening the requirements for how it is plead in Exergen Corp. v. Wal-Mart Stores, Inc.).

The dissenting and concurring opinions will be discussed in subsequent posts, along with the majority's rejoinder regarding the arguments set forth in those opinions.

Therasense, Inc. v. Becton, Dickinson & Co. (Fed. Cir. 2011) (en banc)
Before Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, Moore, O'Malley, and Reyna
Opinion by Chief Judge Rader, joined in full by Circuit Judges Newman, Lourie, Linn, Moore, and Reyna, and joined in part by Circuit Judge O'Malley
Concurring-in-part and dissenting-in-part opinion by Circuit Judge O'Malley
Dissenting opinion by Circuit Judge Bryson, joined by Circuit Judges Gajarsa, Dyk, and Prost