Matthew R. Osenga, Esq.
Goodman Allen & Filetti, PLLC
Glen Allen, VA
This article is a follow-up to my earlier piece published in the Winter 2011 edition of Paradigm. In that article, I discussed how confusing standards have caused an “absolute plague” in patent cases, where inequitable conduct is now being charged against the patent owner in nearly every case.
As I noted in the earlier article, inequitable conduct has two elements. First, an individual associated with prosecution of the application must have made a misrepresentation, failed to disclose material information, or submitted false information to the United State Patent and Trademark Office (PTO. Second, the misrepresentation or failure must have been done with a specific intent to deceive the PTO.
In an attempt to shield themselves from allegations of withholding material information, patent applicants would dump huge numbers of prior art references on patent examiners, many of which were of marginal relevance. Patent examiners are already overburdened with too many applications to examine and too little time to do so. This has resulted in a large backlog and long pendency times for applications at the PTO.
The Court of Appeals for the Federal Circuit recognized this problem and agreed to reconsider the standards for inequitable conduct in the case of Therasense v. Becton, Dickinson. This case was decided by the 11 active members of the court in 3 separate opinions.
The court first took up the issue of the state of mind required to prove inequitable conduct. All of the judges seemed to be of one mind that the misrepresentation or withholding of information must be done with the specific intent to deceive the PTO. It is not enough to prove that the applicant was negligent or grossly negligent as some recent cases seemed to suggest. “In other words, . . . the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.”
The court had previously used a confusing sliding scale to infer intent, based on the materiality of the information. If the information was highly material, intent could be inferred. If the evidence of intent to deceive was strong, the materiality could be assumed or inferred. The court specifically abolished this sliding scale analysis. “[A] district court may not infer intent solely from materiality. Instead, the court must weigh the evidence of intent to deceive independent of its analysis of materiality.”
The court recognized that, because direct evidence of intent is rare, a court may infer intent from direct or indirect circumstantial evidence. It is rare that applicants will have a memo in the file that recounts the specific intent to hide information from the PTO. If multiple inferences or explanations can be drawn from the evidence, however, the court may not infer the requisite specific intent to deceive. “[T]he evidence must be sufficient to require a finding of deceitful intent in the light of all the circumstances. . . . [W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” (emphasis in original).
The burden of proof does not lie with the patent holder. The simple absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive. The patent owner is not required to provide such an explanation.
Next, the court moved on to the issue that caused the biggest disagreement—materiality. How should the court determine whether a misrepresentation or a withholding of information is material? The Federal Circuit answered by trying to give a bright-line test.
“[T]he materiality required to establish inequitable conduct is but-for materiality. When 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 art.” The court’s view is that a patent should only be rendered unenforceable for inequitable conduct if the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.
This is a significant tightening of the standard from previous practice. The court then provided guidance on how this new standard should be applied in patent cases. “[T]he court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference. In making this determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.”
When a court is to consider whether a particular piece of prior art both renders a patent claim invalid and whether it was material for inequitable conduct purposes, it needs to conduct two separate assessments of the claims compared to the prior art. On the validity assessment, the court must construe the claims in light of the specification and prosecution history and then determine whether the prior art invalidates the claims by clear and convincing evidence. On the inequitable conduct assessment, the court must give the claims their broadest reasonable construction and determine whether the prior art invalidates the claims by a preponderance of the evidence. As much as the bright line rule is appreciated, this sounds like a lot more work for district courts.
In certain circumstances of extreme misconduct, the interests of justice would seem to require a remedy even if the but-for materiality test cannot be proven. The court did provide for an exception for what it characterized as “cases of affirmative egregious misconduct.” The example given was the submission of an unmistakably false affidavit. In such cases, the misconduct is material regardless of the but-for standard. The exception does not apply to omissions, only to affirmative acts of misconduct.
The dissenting judges argued that the “but-for” test is too rigid and will effectively kill the inequitable conduct defense. Applicants and attorneys will no longer have an incentive to disclose to the PTO material that may be harmful to applicant. The concurring judge, formerly a district court judge herself, argued that courts need more flexibility in determining when inequitable conduct has occurred. The court’s standards are too rigid for proper application.
This case represents a significant change to patent law and will affect both patent litigation and patent prosecution. In litigation, accused infringers will no longer be able to simply allege inequitable conduct in every case as a litigation tactic. They must now be able to prove by clear and convincing evidence that the patent applicant would not have obtained the patent but-for the misconduct and that the applicant acted with a specific intent to deceive the PTO. To even allege inequitable conduct, the applicant must have more than mere suppositions or hypothetical information.
In prosecution, as long as applicants disclose to the PTO all references that they know to be material, they should be shielded from inequitable conduct allegations. This does not mean that material information can be deliberately withheld, but as long as they have a reasonable belief that all material references have been submitted, they should no longer fear the sword of Damocles.
Does this mean that attorneys and applicants will now be lying and withholding information from the PTO in most cases? There will certainly be applicants and attorneys who do so, but they were able to do so under the old standard as well. It is doubtful that this opinion will have the effect of encouraging misconduct. It should, however, clean up the “plague” of inequitable conduct.