By Kevin E. Noonan —

Many of the amicus curiae briefs that have been filed in the en banc rehearing of Therasense, Inc. v. Becton, Dickinson & Co. have mentioned (if not bemoaned) the negative effects the Federal Circuit's inequitable conduct jurisprudence has had on the functioning of the U.S. Patent and Trademark Office.  So the content of the PTO's own brief, filed in support of neither party, is of great interest.  As might be expected, the Office also believes that how the Federal Circuit has developed the case law on inequitable conduct has increased the burdens on the Office and led to inefficiencies that have contributed to the current backlog of unexamined applications.  Unlike some of the other amici, however, the Office's brief takes a more Goldilocks approach to the question of how to remedy the situation, disagreeing with those who take the position that dramatic changes must be effected by the en banc Court.

Like other briefs, the PTO's brief argues that a large portion of the problems it faces stem from the "multiple formulations" for both the materiality and intent prongs that have arisen as the inequitable conduct case law was developed since the last time the Court considered the issue en banc (Kingsdown Medical Consultants, Ltd. v. Hollister Inc.).  As a consequence, and coupled with the sanction of unenforceability, the brief argues that patent applicants "with some regularity . . . [either] minimize their exposure to material information," for example by foregoing prior art searches, or "submit to the agency large numbers of prior art references of questionable materiality."  Neither alternative fosters the Office's mission, says the brief, and the situation has made the Office "deeply concerned."

The brief starts its legal (as opposed to policy) arguments by tracing the origins of the inequitable conduct doctrine to both common law fraud and the equitable principle of unclean hands.  The brief cautions against "adjusting" the standards for inequitable conduct in favor of either one over the other, asserting that the doctrine could become "murkier" (if predicated too heavily on unclean hands) or too rigid (if predicated too heavily on common law fraud principles).  The Office finds the Golden Mean between these two doctrines in its own Rule 56, which should be the standard of materiality applied by the courts.  One benefit of using Rule 56, according to the brief, is that the Office "is in the best position to know what information is essential to determining the patentability of a claimed invention," reflecting the Office's "expertise and experience."  The brief also says Rule 56 is "consistent with Supreme Court precedent and provides clear guidance to applicants" concerning the information that should be submitted to comply with the duty of disclosure.

In support of its argument on this materiality standard, the brief parses the now-familiar trilogy of Supreme Court cases that represent 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); and Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814 (1945).  The brief also notes the role of the CCPA in crafting the modern inequitable conduct doctrine in Norton v. Curtiss, 433 F.2d 779 (CCPA 1970), saying that the Federal Circuit's predecessor court "blended" the earlier doctrines, "borrowing the materiality and intent elements from common law fraud; but expanding the type of conduct swept into each to account for the unclean hands doctrine."  The basis for the court's blending was, the brief asserts, to "make an applicant's duty of honesty and candor to the PTO meaningful."  In this milieu, honesty and candor, the court opines, are "necessary," even "essential" elements.  And in the Office's opinion, the CCPA achieved an "appropriate" blend, leading to a "sound" inequitable conduct basis.

In addition to being a product of the Office's own expertise, the Office argues that Rule 56 should be the standard of materiality applied by the courts in the face of the extant "five different standards for materiality" (objective "but for"; subjective "but for"; the "but it may have been" standard; the "reasonable examiner" standard; and, of course, Rule 56).

The brief argues that the Rule 56 standard is objective (as opposed to the reasonable examiner standard), and that it utilizes the Office's own competency in deciding what art is material to patentability.  In addition, the brief argues that Rule 56 "presents clear and straightforward guidance for applicants regarding what information they should submit to the PTO to satisfy [the] duty of disclosure."  The Office also distinguishes Rule 56 from the "but for" standards argued by other amici, on the grounds that the latter standard would permit applicants "to engage in a level of purposeful gamesmanship" regarding patentability.  In contrast, the Office argues, using Rule 56 "ensures that applicants deal honestly with the agency about all patentability matters."  Such a standard of honesty is consistent with the Supreme Court's recognition of the public interest aspects of patents.  Finally, with regard to materiality, the brief disavows the former "reasonable examiner" standard, which was too vague, ambiguous and difficult to consistently apply.

The brief further distinguishes its Rule 56 recommendation from the "but for" standard espoused by others by stating that the "but for" standard is too narrow, inter alia by requiring the accused infringer to prove invalidity before inequitable conduct, "leaving little work for the inequitable conduct doctrine to do."  The brief also cautions that using a "but for" standard would permit applicants to freely "engage in a wide variety of misconduct," provided that "it could not later be proven that the patent would not have issued "but for" the misconduct.  In addition, according to the brief, the "but for" standard is contrary to Supreme Court precedent, and it contends that a case used elsewhere to support the "but for" standard, Corona Cord Tire Co. v. Dovan Chemical Corp., did not fail to find inequitable conduct so much as fail to consider a defense that had not been asserted.

The brief also rejects the notion that inequitable conduct could be relegated to an administrative disciplinary proceeding.  The procedural circumstances are ill-fitted to the Office moving that quickly to bring a complaint.  Moreover, the Office does not have the resources to perform the kinds of investigations necessary for the Office's disciplinary actions to be much of an administrative remedy for a torrent of inequitable conduct cases.

Turning to the intent prong, the PTO's brief urges that deceptive intent be "judged by the single most reasonable inference" standard in view of the totality of the evidence.  Specific intent, the brief argues, is consistent not only with Supreme Court precedent but also the Federal Circuit's own earlier precedent in Kingsdown Medical.  While not foreclosing evidence of materiality to be used as one of the "circumstances" to be considered, the brief emphasizes that the intent prong must be separately proven by clear and convincing evidence.

The brief recognizes two conflicting (or at least not consistent) lines of precedent regarding the intent to deceive:  the first, exemplified by Ferring B.V. v. Barr Labs., Inc., regarding the "knew or should have known" standard, and Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., where the standard is closer to a inference being drawn than based on the evidence, but one representing "the single most reasonable inference to be drawn regarding intent."  The brief argues that the test in Ferring steps into some important priority questions with regard to the standard for intent.  The brief argues that the Ferring Court was over-inclusive by adding gross negligence to the intent prong of the test, something prohibited by both the Supreme Court (in Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976); securities fraud liability) and the Federal Circuit (Kingsdown Medical).  This inclusion is not warranted, as in any of the trilogy of cases discussed herein, which involved "affirmative deception and not negligence."  The brief also notes that in rejecting negligence as satisfying the intent prong, the Court should also reject the "should have known" standard.  In view of the severity of the sanction, the PTO argues that the "underlying mental state of the intent prong should be correspondingly high."  Citing Star Scientific, the brief argues that it is just as inequitable to "strike down an entire patent where the patentee only committed minor missteps or acted with minimal culpability" as it is to enforce a patent obtained through inequitable conduct.  The brief returns to its policy concerns by noting that "raising" the intent standard to require specific intent would reduce the incentive on applicants to (over) submit "an excessive number of prior art references that may or may not be material."

The Office's brief also breaks ranks with other amici over the question of equitable balancing of evidence in the materiality and intent prongs, trusting that it would be the "rare case" where a court would find materiality and intent both by clear and convincing evidence and then not hold that inequitable conduct had been proven.  The brief argues that, while both intent and materiality must be established independently, materiality can be used as evidence for intent.  The lynchpin of this argument is that the applicant must be shown to have been aware ("appreciated the materiality of the [withheld] information"), and that this is not applied according to a "sliding scale."  Indeed, the brief argues that the Court should consider the degree to which the "sliding scale" is "misunderstood" and that the Court should "clarify that a high degree of materiality does not mean that only a negligible amount of intent is desired."  But the brief accepts that the absence of a credible explanation of the failure to disclose material information can be considered when inferring intent.

Conversely, the brief argues that the way the Court balances intent and materiality should be "clarified."  The reasonable expectation is that a finding of both materiality and intent generally will lead to a finding of inequitable conduct.  But this cannot devolve into formula, according to the brief, in view of the equitable roots of the doctrine and Supreme Court precedent.  "Balancing" is not accurately represented as a sliding scale or a rigid rule.  "Rather, it simply requires a court to consider all of the evidence of record" in rendering a decision.

Finally, the brief argues that standards of materiality and intent from other agencies are not helpful in properly interpreting these factors with regard to inequitable conduct.

For additional information regarding this topic, please see:

• "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 American Bar Association (ABA) has filed a brief in the Therasense, Inc. v. Becton, Dickinson & Co. case, in support of neither party but arguing forcefully that the current state of the Federal Circuit's jurisprudence on inequitable conduct is in need of correction.  The brief follows a recommendation from the Intellectual Property Law (IPL) committee of the Association, identified as ABA Report with Recommendation #107B (Policy adopted August 2009), included with the brief as an appendix.  This recommendation stemmed from the work of a Task Force established by the ABA-IPL with instructions to "start from scratch" and "develop a comprehensive, consensus policy on the [inequitable conduct] defense for use in both legislative and judicial advocacy."  The brief states that the Report was the result of meetings with "diverse members of the legal profession and various ABA entities," including the Section of Administrative Law and Regulatory Practice, the Section on Science and Technology, the Business Law Section, and the Section on Litigation.

The ABA advocates the following requirements for establishing an inequitable conduct defense:

[I]nequitable conduct [is] shown only upon proof by clear and convincing evidence that: (1) a person having a duty of candor and good faith to the PTO misrepresented or omitted material information; (2) in the absence of such misrepresentation or omission, the PTO, acting reasonably, would not have granted or maintained in force at least one patent claim; and (3) the misrepresentation or omission was made with a specific intent to deceive the PTO, which intent cannot be established by the mere materiality of the misrepresentation or omission.

The brief also sets forth the reasons the ABA believes changing the current inequitable conduct standard is necessary.  These include themes common in Appellants' brief and several other amicus briefs (and indeed, frequently voiced by commentators and even Chief Judge Rader himself), that the defense is plead too often, with too little basis, and with deleterious effects on both patent litigation and prosecution before the PTO.  This belief is supported by statistics showing that the frequency of inequitable conduct appeals doubled between 2004-2008 (Rader, 2010, Always at the Margin: Inequitable Conduct in Flux, 59 Am. U. K. Rev. 777,779), but that inequitable conduct was found only 25% of the time (citing statistics from the University of Houston Law Center at http://patstats.org).  For example, in 2009, defendants established the defense only 6 out of 38 times it was plead (~15% success rate).

The brief asserts that the ABA has concluded, "after careful study," that this "excessive invocation of the inequitable conduct defense" is the result of the "vagueness" of the Court's current test for establishing inequitable conduct.  This "vagueness" includes the multiplicity of standards (5) that the Court has sanctioned, including the current PTO standard, the earlier PTO "reasonable examiner" standard, and the "objective but for," subjective "but for," and "but it may have" standards, citing Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309,1314-1316 (Fed. Cir. 2006).  In addition to these different tests, with different levels of materiality and proofs of materiality, the Court has also permitted a showing of materiality to reduce the required evidence of intent (citing American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984).  The brief particularly highlights the inherent subjectivity and imprecision of the "reasonable examiner" test, stating that "the fact that this standard is still applied after-the-fact in litigation leads to the untenable situation where a patentee may be found to have committed inequitable conduct even though he or she fully complied with the applicable PTO regulations."  Moreover, using this standard makes possible situations where "the entire patent (and possibly related patents) may be rendered unenforceable based upon the misrepresentation or omission of anything later deemed to have been 'important' even where every requirement for patentability has been met, and there is no injury to the public through the issuance of otherwise invalid claims."

The brief also asserts the Report's conclusion that the application of the inequitable conduct defense by the Court has "permitted inequitable conduct to found based on the mere fact that misrepresented or omitted information is material — in the absence of any other evidence of deceptive intent," citing the Court's opinions in Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1313-14 (Fed. Cir. 2008), Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1191 (Fed. Cir. 2006), and Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1070-71 (Fed. Cir. 1998).  The brief cites a "circular overemphasis" on materiality that permits inequitable conduct to be found "largely on evidence of materiality with just a threshold showing of deceptive invent what may itself by largely inferred from the materiality of the alleged misconduct," citing Praxair quoting Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1257 (Fed. Cir. 1997).

In addition to distortions in patent litigation ("relentless discovery," and disputes over privilege and crime-fraud exceptions thereof that "tax the trial court's resources and unnecessarily multipl[ies] the contentiousness of the proceedings") and prosecution ("over-disclosure to avoid any alleged omission and under-representation to avoid any alleged misrepresentation," emphasis in original), the brief raises the point, originally expressed by Judge Nichols in Burlington Indus. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988):

[Lawyers asserting inequitable conduct] get anywhere with the accusation in but a small percentage of the cases, but such charges are not inconsequential on that account.  They destroy the respect for one another's integrity, for being fellow members of an honorable profession, that previously made the bar a valuable help to the courts in making a sound disposition of their cases, and to sustain the good name of the bar itself.

The brief argues that its proposed inequitable conduct standard, based on principles from common-law fraud ("reliance, injury and intent") would return the doctrine to its historical roots, specifically the triad of Supreme Court cases from which it arose (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); and Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945)).  These cases all involved actual fraud, wherein perjured testimony was presented, material information concealed, and specific intent to deceive established.  Importantly, the brief argues that these cases all involved detrimental reliance by the PTO on the misconduct to grant invalid patents.  The brief cites other, earlier Supreme Court cases, including Corona Cord Tire Co. v. Dovan Chem. Corp., 276 U.S. 358 (1928), where the Court refused to find the patent unenforceable even though misconduct was discerned, because the conduct "though perhaps reckless, [was] not . . . essential material to [the patent's] issue."  In contrast, the brief points out that the Federal Circuit has acknowledged that under its husbandry "the concept of inequitable conduct doctrine has expanded over time such that it no longer includes the principles of fraudulent intent and detrimental reliance as absolute requirements," citing Agfa Corp. v. Creo Prods. Inc., 451 F.3d 1366, 1375 n 3 (Fed. Cir. 2006).

The consequence of this departure from Supreme Court principles by the Federal Circuit, according to the brief, is "an overbroad and vaguely-defined inequitable conduct defense."  Under the ABA's proposal, the first two elements (a misrepresentation or omission and PTO action in granting a patent that would not have been granted absent the misrepresentation or omission) track the principles of detrimental reliance in common-law fraud.  This amounts to an "objective but for" test for materiality (which the brief contends it is "similar to"), assuring that "inequitable conduct will only be found where the PTO's reliance . . . has resulted in actual harm through the issuance of an otherwise invalid claim."  Beneficial consequences of adopting this standard would be to "eliminate assertion of inequitable conduct 'where the patentee only committed minor missteps,'" and would "reduce the burden on the PTO by removing the incentive to over-disclose information to the examiner."  The brief envisions standards of inequitable conduct that would be distinct between the Office and during litigation, wherein misconduct that would not be sufficient to support a finding of inequitable conduct during litigation could be sufficient to deserve sanctions before the PTO.  (The brief contends that the Office has sufficient sanctions in place, such as disciplinary proceedings against practitioners, to police any such misconduct.)

The third requirement of the ABA's proposed test for inequitable conduct, deceptive intent, would require an independent determination of specific intent to deceive, consistent with the common law fraud standard.  The brief argues that this requirement would require "independent and clear" evidence (direct or circumstantial) of specific intent that could not be substituted by "greater" showings of materiality.  The brief also argues that this requirement would be a "stronger gatekeeper" by specifically precluding assertion of the defense under Rule 11 when there is insufficient evidence to support it.

The brief concludes that the proposed standard is "a fair and balanced approach" to solving the problems that have arisen with current inequitable conduct doctrine:

[I]t preserves the defense as a deterrent and remedy for those relatively rare instances where it is proven that the applicant acted with fraudulent intent and the PTO detrimentally relied on such to issue otherwise invalid claims.  But it erects the defined boundaries missing from the current law, which has resulted in excess not only on litigation, but on the overall patent system.

For additional information regarding this topic, please see:

• "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