Making It Less Costly For Patentees To File Lawsuits To Protect Their Inventions

The Federal Circuit Court of Appeals, which hears all patent appeals, placed significant limitations on an equitable, judge-made defense that has become commonplace in patent litigation, namely, the “inequitable conduct” defense.  In Therasense, Inc. v. Becton, Dickinson and Co., ––– F.3d ––––, 2011 U.S. App. LEXIS 10590 (Fed. Cir. 2011), Chief Judge Rader, writing for a majority of the en banc panel, criticized the increasing use of the defense as one that has “plagued not only the courts but also the entire patent system.” Justifying the rationale for the decision, Judge Radar cited numerous grounds, including a 1988 study estimating that 80% of patent infringement cases include inequitable conduct allegations.

Under a well-settled rule that itself is not changed by the Therasense Court’s opinion, to establish inequitable conduct, the accused infringer must provide evidence that the applicant: (1) misrepresented or omitted material information; and (2) did so with specific intent to deceive the patent office. Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008). Concerned that over time, courts have lowered the standards for the “intent” and “materiality” components of the inequitable conduct rule, the Therasense Court articulated three principle changes to the rule for establishing inequitable conduct.

First, after Therasense, the district courts must treat intent and materiality as separate requirements. Therasense, supra, 2011 U.S. App. LEXIS, 10590 at * 33. No longer can a court rely on a sliding–scale analysis to offset weak evidence of an intent to deceive with strong evidence of materiality, or vice versa. Nor can courts infer intent from materiality. In short, intent and materiality are separate requirements and the evidence must be sufficient for each of these elements to stand on their own.

Second, a higher level of proof of “intent” is required to be successful in establishing inequitable conduct. Now, under Therasense, 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. Therasense, supra, 2011 U.S. App. LEXIS, 10590 at * 32 (citing Molins PLC v. Textron, Inc., 48 F.3d 1172, 1181 (Fed. Cir. 1995)). In other words, alleged infringers must establish knowledge plus deliberate action.

A key factor limiting use of  the inequitable conduct defense is that the district court no longer can rely on evidence of negligence, or even gross negligence, on the part of the applicant. The alleged infringer must show that the patentee acted with an actual, specific intent to deceive. As daunting as that may sound, the Therasense Court, in an apparent compromise, said that specific intent may be inferred from indirect and circumstantial evidence. But the alleged infringer should not be too quick to see this as a gaping hole in the new standard because inference of specific intent to deceive will only be allowed so long as the intent is “the single most reasonable inference able to be drawn from the evidence.” Therasense, supra, 2011 U.S. App. LEXIS, 10590 at * 34.

Third, rejecting the “reasonable examiner” test, the materiality standard now required to establish inequitable conduct is “but-for materiality.” Therasense, supra, 2011 U.S. App. LEXIS, 10590 at * 37. That means when an applicant fails to disclose prior art, that prior art is “but-for material” if the United States Patent and Trademark Office (“PTO”) would not have allowed a claim had it been aware of the undisclosed prior art. In determining materiality of a withheld reference, the district court must determine whether the PTO would have allowed the claim had it been aware of the undisclosed reference.

The “but-for” standard will not be applied, however, if the patentee engaged in affirmative acts of “egregious misconduct,” like “filing of an unmistakably false affidavit.” In other words, it always is material when a patentee engages in an affirmative act of deception.

What is the likely long-term impact of the decision? The number of patent infringement lawsuits involving allegations of inequitable conduct will decrease. Theoretically, patentees who wish to use litigation to protect against infringers will be faced with lower costs of already complex and costly litigation.

Will Therasense be the last word? Perhaps not. Four judges dissented, calling Judge Rader’s opinion “a more radical approach.” The Federal Circuit Court split raises the odds that the U.S. Supreme Court will at some point consider the issue. In the meantime, parties asserting the inequitable conduct defense will have to consider the additional costs to their clients the new standard undoubtedly has created.