Making Sense Out of Inequitable Conduct in TheraSense
Article Date: Thursday, November 04, 2010
Written By: Richard T. Matthews & Jason Navari
Each individual associated with a patent application is required to disclose to the U.S. Patent and Trademark Office (PTO) any non-cumulative, material information relative to the patentability of any pending claim before the PTO. 37 CFR §1.56. One defense that may be raised during litigation in a patent infringement case is unenforceability of the patent as a result of inequitable conduct by the patentee in procuring the patent. A charge of inequitable conduct is often leveled against a patentee on the basis that the patentee failed to disclose all material information to the PTO, thus violating the duty of disclosure to the PTO. The finding of inequitable conduct even with regard to just one claim typically renders the entire patent unenforceable.
Charges of inequitable conduct are common in patent litigation. In fact, the practice has become so ubiquitous that the Federal Circuit described it as a “plague” on the patent system. See generally Burlington Indus. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988). The last en banc review by the Federal Circuit of the inequitable conduct doctrine occurred in 1988, in Kingsdown Medical Consultants, Ltd. v. Hollister Inc., which articulated the required elements necessary to find inequitable conduct. 863 F.2d 867 (Fed. Cir 1988). Many commentators have suggested that Kingsdown was an effort by the Federal Circuit to stem the proliferation of inequitable conduct charges. See James Hanft et al., The Return of the Inequitable Conduct Plague: When “I Did Not Know” Unexpectedly Becomes “You Should Have Known,” 19 Intellectual Property and Technology Law Journal, 1, 1-2 (2007); Erik Puknys et al., APPLICATION OF THE INEQUITABLE CONDUCT DOCTRINE AFTER KINGSDOWN, 25 Santa Clara Computer & High Tech L.J., 839, 847 (2009). Kingsdown held that inequitable conduct requires a finding that the omission or misrepresentation be both (1) material to patentability and (2) made with a specific intent to deceive the PTO. Moreover, both the materiality of the information to patentability and the intent to deceive must be separately proven by clear and convincing evidence.
Despite the seemingly clear delineation of the inequitable conduct standard in Kingsdown nearly 23 years ago, numerous commentators and judges, including Chief Judge Rader of the Federal Circuit, have asserted that the defense of inequitable conduct has now become a mere litigation tactic. See Randall R. Rader, Always at the Margin: Inequitable Conduct in Flux, 59 Am. U. L. Rev. 779 (2010); Aventis Pharma S.A. v. Amphastar Pharmaceuticals, Inc., 525 F.3d 1334, 1349 ( Fed. Cir. 2008) (Rader J., dissenting)(“inequitable conduct, once a plague, has taken on a new life as a litigation tactic”). Adding to the problem is the Federal Circuit’s own conflicting decisions establishing a materiality-intent balancing framework where evidence supporting a finding of specific intent to mislead the Patent Office may be inferred from the materiality of an act or omission, such that intent may be established when an applicant knew, or should have known, of the materiality of an act or omission. Aventis Pharma S.A. v. Amphastar Pharms., 525 F.3d 1334, 1350 (Fed. Cir. 2008) (Rader, J., dissenting, “the judicial process has too often emphasized materiality almost to the exclusion of any analysis of the lofty intent requirement for inequitable conduct...merging intent and materiality at levels far below the Kingsdown rule has revived the inequitable conduct tactic.”).
The materiality-intent elements of the inequitable conduct defense are expected to be clarified further in an en banc rehearing of the Federal Circuit’s decision in TheraSense Inc. v. Becton, Dickinson & Co., 593 F.3d 1289 (Fed. Cir. 2010). The original panel in TheraSense affirmed a district court’s holding of inequitable conduct, finding that the patentee made statements during prosecution of the patentee’s U.S. application regarding a prior art reference (U.S. patent) that were inconsistent with statements made to the European Patent Office (EPO) about a foreign patent application that was a counterpart of the U.S. prior art reference. A majority of the Federal Circuit panel focused on the materiality of the omission made by the patentee and affirmed a finding of deceptive intent based on the district court’s interpretation of witness testimony. Id. at 1313. In a dissenting opinion, Judge Linn disagreed with the majority on both standards of materiality and intent under Federal Circuit precedent, arguing that a lower threshold for finding deceptive intent contradicts Kingsdown’s requirement of clear and convincing evidence necessary to prove specific intent to deceive. Id. at 1312, 1320. Following the panel decision, the patentee moved for a rehearing en banc, which was granted by the Federal Circuit.
The patent at issue, U.S. patent number 5,820,551 (“the ‘551 patent”), was asserted against Becton, Dickinson & Co. (BD) on the basis that BD’s glucose test sensors infringed certain claims of the ‘551 patent. TheraSense, Inc. v. Becton, Dickinson & Co., 565 F. Supp. 2d 1088 (N.D. Cal. 2008). The ‘551 patent claims are directed to a glucose test strip designed to function without a membrane over the strip’s sensor. The application which led to the ‘551 patent (U.S. Ser. No. 08/470,352; “the ‘352 application”) was prosecuted for 14 years before the PTO, and is owned by TheraSense’s parent, Abbott. Id. at 1109.
The inequitable conduct charge made by BD alleged that Abbott knew about statements made by Medisense (a previous owner of the ‘352 application acquired by Abbott) in arguments to the EPO during prosecution of an EP application and failed to disclose such statements to the PTO during prosecution of the ‘352 application. The EP application was the European counterpart of a prior art reference to the ‘352 application, U.S. patent number 4,545,382 (“the ‘382 patent”). The district court in TheraSense found that statements made during prosecution of the EP application directly contradicted certain statements made to the PTO regarding the ‘382 patent during prosecution of the ‘352 application. Specifically, Medisense argued that the EP application was “unequivocally clear” in disclosing an optional membrane on the sensor, which was merely preferred for live blood, as opposed to a prior art reference that required a membrane. Id. at 1109.
After Medisense was acquired by Abbott, the arguments made during prosecution of the EP application were made known to Abbott’s in-house counsel, who was handling prosecution of the ‘352 application before the PTO. At the time, the ‘352 application was facing rejection over the ‘382 patent (with a common specification as the counterpart EP application) in the U.S., and the same language regarding an optional membrane was at issue in the PTO. Id. at 1105. The ‘382 patent referred to the use of a membrane as “optionally, but preferably when being used on live blood.” Abbott’s in-house counsel and technical director filed with the PTO in ‘352 application a declaration supporting arguments that the ‘382 patent would be understood by a person of ordinary skill in the art as “requiring a membrane for use with whole blood.” The arguments made to the EPO during prosecution of the EP application were not disclosed to the PTO by Abbott, and the ‘352 application issued as the ‘551 patent over the ‘382 patent prior art. During trial, both Abbott’s in-house counsel and technical director testified that they believed that the statements Medisense made to the EPO were immaterial. Id. at 1116.
The district court held, however, that the statements made to the EPO were highly material because they were directed to the same the same subject matter present in the specifications of both the ‘382 patent and the EP application, that patentability in both cases depended on interpretation of that subject matter, and that the statements made to the PTO directly contradicted Medisense’s statements to the EPO. In its ruling on the intent to deceive, the district court found the testimony of both Abbott’s in-house attorney and technical director lacked credibility, noting that there was clear and convincing evidence that both “knew or should have known that the withheld information would have been highly material to the examiner.” The district court focused on the materiality of the withheld information by inferring a specific intent to deceive. Id. at 1113.
On Jan. 25, 2010, the Federal Circuit affirmed the district court’s holding of inequitable conduct, finding that “[t]his is one of those rare cases in which a finding of inequitable conduct is appropriate, particularly in light of the critical nature of the representations to the PTO,” focusing on the materiality of the omission and acts. TheraSense, 593 F.3d 1289, 1300 (Fed. Cir. 2010). The majority found that the district court’s findings regarding the EPO statements were highly material because they contradicted a position taken before the PTO, distinguishing the Federal Circuit’s own precedent regarding both materiality of attorney argument and the reasonableness of inferences that could be drawn from the evidence. Id. at 1303. Relying on the fact that both Abbott’s in-house prosecuting attorney and technical director had no plausible rationale for the nondisclosure, the majority relied on the district court’s assessment that neither of the witnesses’ testimony was credible, therefore supporting the finding of an intent to deceive. Id. at 1306, 1308.
In a lengthy dissenting opinion, Judge Linn focused on the fact that the district court and the majority erred on both the materiality and intent prongs in view of Federal Circuit precedent. Regarding materiality, Judge Linn opined that the majority erred in adopting an unfavorable inference of materiality when there was an equally reasonable favorable inference that the EPO submission was immaterial, as Abbot’s in-house counsel had testified. In Scanner Techs. Corp. v. ICOS Vision Sys. Corp., the Federal Circuit ruled that “[w]henever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference. All reasonable inferences must be drawn from the evidence, and a judgment then rendered on the evidence as informed by the range of reasonable inferences. Where the rule is breached, no inequitable conduct may be found.” 528 F.3d 1365, 1376 (Fed. Cir. 2008).
As for intent, Judge Linn averred that the majority failed to apply the correct subjective standard when measuring the intent to deceive, rather than an objective standard that is more appropriate for assessing the materiality element. Again citing Federal Circuit precedent, including Kingsdown, “inequitable conduct requires not intent to withhold, but rather intent to deceive,” and that the requisite level of intent is “‘specific intent’ – not simple negligence, or even gross negligence,” Judge Linn points out that the question is not whether it is plausible that the statement was immaterial, but whether it is plausible that the patentee subjectively believed the statement was immaterial. TheraSense, 593 F.3d at 1320.
In Abbott’s petition to the Federal Circuit for rehearing en banc, it argued that: (1) the inequitable conduct doctrine needs reform; (2) the majority’s decision deepens persistent confusion about inferring deceptive intent and significantly lowers the standard for proving it; (3) the panel opinion creates intra-circuit conflict by permitting intent to be inferred from a reasonable dispute over materiality; and (4) the majority undermines the rule that arguments about prior art are not material when the PTO has the underlying prior art.
In granting Abbott’s request for rehearing en banc, the Federal Circuit vacated the Jan. 25, 2010 panel decision and specifically requested that the following six questions be addressed in new briefing:
1. Should the materiality-intent balancing framework for inequitable conduct be modified or replaced?
2. If so, how? In particular, should the standard be tied directly to fraud or unclean hands? See Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co.,324 U.S. 806 (1945); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), overruled on other grounds by Standard Oil Co. v. United States, 429 U.S. 17 (1976); Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240 (1933). If so, what is the appropriate standard for fraud or unclean hands?
3. What is the proper standard for materiality? What role should the United States Patent and Trademark Office’s
rules play in defining materiality? Should a finding of materiality require that but for the alleged misconduct, one or more claims would not have issued?
4. Under what circumstances is it proper to infer intent from materiality? See Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc).
5. Should the balancing inquiry (balancing materiality and intent) be abandoned?
6. Whether the standards for materiality and intent in other federal agency contexts or at common law shed light on the appropriate standards to be applied in the patent context?
Oral arguments are scheduled for Nov. 9, 2010. No less than 26 amicus curiae briefs have been filed in support of neither party that advocate for reform of the inequitable conduct doctrine. A complete list of the amici briefs and the court decisions to date can be found at http://www.patentlyo.com/patent/2010/08/TheraSense-briefs-enbanc.html (Patently-O patent law blog, authored by Dennis Crouch) (last accessed Sept. 29, 2010) . It is instructive to note that nearly all amicus curiae briefs argue that the inequitable conduct doctrine should be clarified for a variety of reasons. Several briefs argue for a return to the origin of inequitable conduct based in common-law fraud and in the unclean hands doctrine, citing a trilogy of Supreme Court cases. See generally, TheraSense, Brief of amici curiae Pharmaceutical Research and Manufacturers of America (PhRMA) in Support of Neither Party. Other briefs advocate a return to the standards as articulated in Kingsdown, particularly requiring clear and convincing evidence for establishing a specific intent to deceive. See generally, TheraSense, Brief of amici curiae Biotechnology Industry Organization (BIO) in Support of Neither Party. Note that Kingsdown held “conduct that amounts to ‘gross negligence’ does not of itself justify an inference of an intent to deceive,” rather the “involved conduct, viewed in light of all evidence, including evidence of good faith, must indicate sufficient culpability to require a finding of an intent to deceive.” Kingsdown, 863 F.2d at 876. The Kingsdown court refused to infer intent from a knowing failure to disclose material information alone, stating that by itself, a knowing failure to disclose is insufficient to show the “deceitful intent element of inequitable conduct.” Id. at 875. Since Kingsdown, however, a number of Federal Circuit decisions have added to the court’s inequitable conduct jurisprudence, thereby creating confusion regarding the sufficiency of proof required to show intent to deceive under the materiality-intent balancing test.
The materiality-intent balancing test, as articulated in McKesson Info. Solutions Inc. v. Bridge Med. Inc., requires that 1) a patentee misrepresented or withheld “material” information known to the applicant; and 2) the misrepresentation/omission was the result of an “intent to deceive” the PTO. 487 F.3d 897, 913 (Fed. Cir. 2007). As stated in McKesson, “[t]he court must then determine whether the questioned conduct amounts to inequitable conduct by balancing the levels of materiality and intent.” As currently formulated, this standard does not expressly require a specific intent element, yet Kingsdown, as previously stated, requires establishing a subjective intent to deceive.
The Federal Circuit’s direction on the required showing to meet the intent element has also proven to be inconsistent at best. Where proving “intent to deceive” by direct evidence is often difficult, the intent element may be based on a totality of the circumstances established with circumstantial evidence. Star Scientific Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008). Moreover, any inference made in regard to the evidence “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.” The totality of the circumstances standard was recited in Star Scientific, a case specifically referenced by Judge Linn in his dissent. While Kingsdown specifically noted that intent and materiality require separate analysis, several post-Kingsdown decisions have inferred deceptive intent from a finding of materiality.
Specifically, the Federal Circuit in Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., stated that “intent may be inferred where a patent applicant knew, or should have known, that withheld information would be material to the PTO’s consideration of the patent application.” 120 F.3d 1253 (Fed. Cir. 1997. Even though this aspect of the Critikon decision is based on law expressly overruled by Kingsdown, several recent Federal Circuit decisions have inferred deceptive intent based on the materiality of the omission or withheld information, relying on the above finding by the Critikon court. See Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1202 (Fed. Cir. 2006) ((Newman, J., dissenting) (opining that the majority’s finding of deceptive intent where an applicant knew or should have known that omitted information was material was “directly contrary to Kingsdown” ); Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1373 (Fed. Cir. 2003) (Newman, J., dissenting) (stating that by inferring intent, the majority cast the safeguards of Kingsdown aside and “finds misrepresentation in correct science, infers malevolence from verb tense, and grounds intent to deceive on personal slurs by a hostile witness”); Aventis Pharma S.A. v. Amphastar Pharms., Inc., 525 F.3d 1334, 1350 (Fed. Cir. 2008) (Rader, J., dissenting) (noting that “the judicial process has too often emphasized materiality almost to the exclusion of any analysis of the lofty intent requirement” and, in so doing, has “[m]erg[ed] intent and materiality at levels far below the Kingsdown rule”).
The materiality prong of the materiality-intent balancing test has also been judged by a variety of standards, thereby adding to the confusion surrounding the test for inequitable conduct. The Federal Circuit has stated in recent cases that materiality is ascertained by what is “important to a reasonable examiner,” which is a standard based in part on PTO Rule 37 C.F.R. §1.56. Star Scientific, 537 F.3d at 1367. But, the Federal Circuit has also indicated that several other standards for judging materiality may be applied, stating that “[e]ven though the PTO’s ‘reasonable examiner’ standard became the dominant standard, in no way did it supplant or replace the remaining case law precedent. Rather, it provided an additional test of materiality, albeit a broader and all-encompassing test.” Digital Control Inc. v. Charles Machine Works, 437 F.3d 1309, 1315 (Fed. Cir. 2006). This has led to multiple standards of materiality emerging from district courts, including “the objective ‘but for’ standard,” where the misrepresentation was so material that the patent should not have issued; “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; and “the ‘but it may have’ standard,” where the misrepresentation may have influenced the examiner in the course of prosecution. Id. at 1316. Judge Linn noted in his dissent in TheraSense that the Federal Circuit has five standards for judging materiality, and argues that adding a sixth is unlikely to clarify the existing test for materiality. TheraSense, 593 F.3d at 1320.
In view of the conflicting Federal Circuit inequitable conduct standards that have occurred since Kingsdown, time is ripe for an en banc review of the inequitable conduct standard as a whole. Since the inequitable conduct defense has proliferated in patent infringement litigation cases over the years, all while impacting both patent practitioners and the PTO, close scrutiny will be given to the Federal Circuit’s en banc decision in the TheraSense case. If the court gives any credence to the amicus curiae briefs submitted thus far, changes in the inequitable conduct standard are likely. While the facts of each inequitable conduct case may differ, arguably creating pretext for custom rules to reach the right result, sacrificing predictability and certainty in the law will never be acceptable policy. For this reason alone, it is expected (and hoped by many) that the Federal Circuit’s en banc rehearing in TheraSense will result in a clearer standard, thereby minimizing this current “plague” on the patent system.
Rick Matthews is Litigation Counsel for Hultquist IP, in Research Triangle Park, NC.
Jason Navari is an associate at Hultquist IP.
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