By Kevin E. Noonan —

We may have reached the high-water mark on the expansion of the inequitable conduct doctrine.  Recent decisions from the Federal Circuit seem to signal a retrenchment in the Court’s treatment of the doctrine, and its willingness to affirm district court judgments finding inequitable conduct, particularly in the context of summary judgment decisions.  One of the first indications of this new direction came in the Eisai Co. v. Dr. Reddy’s Laboratories, Inc. decision last month, where Judge Rader forcefully reminded us that finding inequitable conduct should be "a high bar," citing the Court’s en banc decision in Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988).  In doing so, the Court cast some doubt on the wisdom of recent decisions that expanded the inequitable conduct doctrine to encompass 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.).  Indeed, the beginnings of the trend may have started with Judge Rader’s spirited dissent in Aventis Pharma.  A determination of inequitable conduct, according to Judge Rader (at right) in the Eisai decision, should include evidence of affirmative instances of "culpable conduct" rather that mere omissions, citing the greater evidentiary difficulties that should attach when intent must be discerned from negligent conduct.  His opinion also emphasized that a defendant must establish intent by clear and convincing evidence.

This trend continues today in the Federal Circuit’s decision reversing summary judgment of inequitable conduct against the patentee in Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.  The patents-in-suit, U.S. Patent Nos. 6,202,649 and 6,425,401 (filed as a continuation of the ‘649 patent), were directed to methods for curing tobacco in a way that reduced the amount of a carcinogen, tobacco-specific nitrosamines (TSNAs), in the cured product used in cigarettes and other tobacco-containing products.  The undisclosed information was a letter from one of Star Scientific’s consultants, Dr. Harold Burton, relating to curing methods used in China that resulted in low levels of TSNAs.  The attorney who prosecuted the ‘649 patent was aware of this letter, but "ultimately concluded that neither [the letter itself] nor its content was material to the contemplated patent application," after speaking with Dr. Burton.  Also undisclosed was experimental data generated by Dr. Burton relating to reduced TSNA levels in cured tobacco.

During prosecution of these patents, Star Scientific transferred responsibility from its first set of prosecuting attorneys at Sughrue, Mion, Zin, Macpeak & Seas to a second set at Banner and Witcoff.  The Banner attorneys also became aware of the Burton letter, from litigation counsel (Crowell & Moring) in Star Scientific’s patent litigation in the District Court against R.J. Reynolds; litigation counsel opined that this information should be disclosed to the U.S. Patent and Trademark Office during prosecution of the ‘401 patent.  The Banner attorneys considered the Burton letter, and the experimental data, decided neither was material and did not need to be disclosed, and neither was disclosed during prosecution of the ‘401 patent.  The file transfer formed the basis for R.J. Reynolds’ inequitable conduct theory, which posited that Star Scientific did not want the Banner attorneys to be aware of the Burton letter or experimental data so it could be concealed from the Patent Office during prosecution of the ‘401 patent.  The District Court agreed and granted summary judgment in favor of R.J. Reynolds that neither patent was enforceable due to inequitable conduct.

The Federal Circuit disagreed, in a unanimous decision by Chief Judge Michel joined by Judges Schall and Dyk.  The Court began its analysis by setting up the analytical framework:

To successfully prove inequitable conduct, the accused infringer must present "evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the [PTO]."  Further, at least a threshold level of each element — i.e., both materiality and intent to deceive — must be proven by clear and convincing evidence.  And even if this elevated evidentiary burden is met as to both elements, the district court must still balance the equities to determine whether the applicant’s conduct before the PTO was egregious enough to warrant holding the entire patent unenforceable.  Thus, even if a threshold level of both materiality and intent to deceive are proven by clear and convincing evidence, the court may still decline to render the patent unenforceable [citations omitted].

The CAFC goes on to say that the "need to strictly enforce the burden of proof and elevated standard of proof in the inequitable conduct context is paramount," because the penalty, unenforceability, is "so severe."  The Court, ever mindful of the heightened levels of oversight scrutiny the Supreme Court is wont to exercise lately over its decisions, supported this sentiment by reminding us of Supreme Court precedent (specifically, Hazel-Atlas Glass Co. v. Hartford-Empire Co. and Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co.).  Courts must be "vigilant in not permitting the defense to be applied too lightly."  "Just 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 only committed minor missteps or acted with minimal culpability or in good faith."

Specifically with regard to the deceptive intent prong, the Court noted that "materiality does not presume intent" (they are separate prongs of the analysis), and then cited Molins PLC v. Textron, Inc.:

[T]he alleged conduct must not amount merely to the improper performance of, or omission of, an act one ought to have performed.  Rather, clear and convincing evidence must prove that an applicant had the specific intent to . . . mislead[] or deceiv[e] the PTO.  In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference.

What is required, said the Court, is a "specific intent to deceive the PTO."

Since the CAFC recognizes that "direct evidence of deceptive intent is rarely available," the required intent can be inferred from conduct and other "indirect and circumstantial evidence," citing Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1364 (Fed. Cir. 2007).  But this doesn’t lower the evidentiary requirements; indeed, it appears the Court believes that it raises them.  If a court must deal with inferences, such inferences "must not only be based on sufficient evidence and be reasonable in light of that evidence, but it must also be the single most reasonable inference able to be drawn from the evidence to meet the clear and convincing standard," citing Scanner Technologies Corp. v. ICOS Vision Systems Corp., 528 F.3d 1365 (Fed. Cir. 2008) (emphasis added).

With regard to the exercise of a court’s equitable discretion in finding inequitable conduct, in the absence of clear and convincing evidence of both materiality and intent a court has no discretion — it cannot find inequitable conduct, according to the Federal Circuit.  Even if a defendant establishes both intent and materiality by clear and convincing evidence, a finding of unenforceability on inequitable conduct grounds is not inevitable.  A court should "look to the equities" and balance all of these equities with the substance of the facts underlying the "clear and convincing" evidence of materiality and intent, "to determine whether the severe penalty of unenforceability should be imposed."  This determination is left to a court’s sound discretion.

In this case, the Federal Circuit disagreed that Defendants had shown clear and convincing evidence of intent as to patentee’s conduct in prosecuting the ‘649 patent, and also disagreed that the withheld information was material to the patentability of the ‘401 patent claims.  The Court found that R.J. Reynolds’ "quarantine" theory (of preventing the Banner attorneys from knowing what the Sughrue attorneys knew about the Burton letter and experimental data) was not established by clear and convincing evidence.  The Court found that Star Scientific had proffered other, plausible explanations for changing counsel.  While acknowledging that credibility determinations were properly within the province of the district court and should not be second-guessed by an appellate court, the Federal Circuit also cautioned against shifting the burden from R.J. Reynolds to Star Scientific:  Star Scientific did not bear the burden of rebutting R.J. Reynolds’ evidence unless and until Reynolds had established an intent to deceive by clear and convincing evidence.  "[A] patentee need not offer any good faith explanation unless the accused infringer first carried his burden to prove a threshold level of intent to deceive by clear and convincing evidence."  Here, the Federal Circuit found "major gaps" in the evidentiary bases for R.J. Reynolds’ theory, and accordingly found that the Defendants had not established intent by clear and convincing evidence.

With regard to the ‘401 patent, the issue was materiality and here the CAFC found that Star Scientific had provided additional information and evidence, including evidence from the litigation, that rendered the Burton letter and experimental data cumulative.  Ironically, key evidence provided by Star Scientific that rendered the undisclosed Burton letter and data cumulative was R.J. Reynolds’ response to one of Star Scientific’s interrogatories, outlining that changing curing conditions to reduce TSNA concentrations in cured tobacco was known in the prior art.

So far, it has been the Court’s veteran judges, like Judge Rader and Chef Judge Michel (at right), who have hewed more closely to the limitations on inequitable conduct set forth in Kingsdown and Molins.  The Court has shown a willingness in other areas, such as claim construction, to revisit and reaffirm its jurisprudence en banc when panels of the Court have significant drifted from those principles.  Perhaps the time is approaching when the Court will decide to revisit and reaffirm its Kingsdown and Molins principles for determining whether a patent should be deemed unenforceable for being improperly procured through inequitable conduct.

Star Scientific, Inc. v. R.J. Reynolds Tobacco Co. (Fed. Cir. 2008)
Panel: Chief Judge Michel and Circuit Judges Schall and Dyk
Opinion by Chief Judge Michel