Federal Circuit en banc decision on Inequitable Conduct in Prosecution of Patent Applications
On May 25, the Court of Appeal for the Federal Circuit en banc handed down its long-awaited decision in the case of Therasense (now known as Abbott Diagnostics Care Inc) v. Becton Dickinson. The effect of the decision is likely to reduce significantly the risk that when litigating a patent a defendant will succeed in persuading the court that the patent is unenforceable as a result of failure to advise United States Patent and Trademark Office (USPTO) of some piece of prior art during prosecution of the application. As such, patent litigation should become simpler, more predictable and less expensive.
The issue before the court was the scope of the doctrine of inequitable conduct. Prior to this decision, the law had been that in a lawsuit to enforce the patent for an accused infringer to establish that there had been inequitable conduct in proceedings before the USPTO during prosecution of a patent application, three factors had to be considered: whether there was an intent to deceive the USPTO, whether the act or omission complained of was material and the degree of intent and materiality shown. As long as a minimum threshold was proven on intent and materiality, a sliding scale would be applied whereby a high degree of materiality could compensate for a low degree of intent and vice versa. This had led to the use of differing standards to decide the materiality of conduct before the USPTO.
In its en banc decision in Therasense, the majority of the Federal Circuit ended the use of the sliding scale holding that both intent and materiality had to be proven to a high level and that in cases where the alleged inequitable conduct was an act of omission in failing to advise the USPTO of something, to meet the materiality requirement, the omission had to be such that “but for” the omission, the patent would not have been issued. This change in standard does not, however, apply in cases where an affirmative falsehood has been made and does not of itself have any effect on the USPTO’s rule on this issue (Rule 56).
The wording of this rule has changed over the years, which is one reason why the majority of the judges in the Therasense case rejected it as a basis for determining whether a patent should be rendered unenforceable by lack of compliance with it. In its present form, the rule requires applicants to disclose information if it establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or it refutes, or is inconsistent with, a position the applicant takes in: (i) opposing an argument of unpatentability relied on by the Office, or (ii) asserting an argument of patentability. Failure to comply with the rule permits the USPTO to refuse the application and can lead to disciplinary charges against an attorney or agent who breaches it.
In the Therasense case, while prosecuting a patent application for a disposable electrode blood glucose test strip for use in management of diabetes, Abbott was confronted with prior art in the form of one of its own earlier patents. A key element on the claim in issue was that the electrode was configured “to be exposed to [a] whole blood sample without an intervening membrane or other whole blood filtering member”. The prior patent stated that its strip it “optionally but preferably” contained a protective membrane when being used on live blood (i.e. blood within the body. Confronted with this prior art, Abbott argued and submitted an affidavit saying that when testing whole blood a protective membrane was actually required and that the “optionally but preferably” language was “mere patent phraseology”. The examiner apparently accepted these submissions and the patent was granted. When Abbott came to enforce the patent, the defendant pointed out that in order to secure grant of the European equivalent of what was now the prior art reference, Abbott had argued that the European application differed from the earlier prior art cited against it in that Abbott’s device lacked any semipermeable membrane that would control glucose molecule access to the electrode. Abbott had argued that the optional membrane was present either as a safety feature or to prevent red blood cells interfering with the test. Abbott had never advised the USPTO about the apparently inconsistent view it had taken over the meaning of the “optionally but preferably” language of the prior art reference.
The district court and a panel of the Federal Circuit (by a 2-1 majority) held that the applicant’s failure to advise the USPTO of the arguments submitted in Europe which seemed inconsistent with the arguments submitted in prosecution in the USPTO was inequitable conduct resulting in the patent being held to be unenforceable.
In view of the confused state of the law on the question of inequitable conduct, the Federal Circuit agreed to review the decision en banc.
The Court split 6-4-1.
The majority, in an opinion by Chief Judge Rader, held that the general rule to be applied in determining inequitable conduct resulting from failure to disclose information to the patent office was to ask whether the patent would not have issued “but for” the omission and remanded the case to the district court for a determination of whether the USPTO would have allowed the application if it had known of the arguments that were filed in the European Patent Office.
The four dissenters in an opinion by Judge Bryson believed that inequitable conduct should generally be found whenever there was a breach of the current version of USPTO’s Rule 56.
Judge O’Malley in his lone opinion pointed out that the doctrine of inequitable conduct is an equitable one and felt that both the “but for” test and the Rule 56 tests were too inflexible. He would have given the district courts greater opportunity to exercise their discretion, including the possibility of providing remedies that were less draconian than holding the entire patent unenforceable where this was appropriate in the light of the inequitable conduct that had occurred.
All the opinions recognized the roots of the inequitable conduct defense in the general equitable doctrine of “unclean hands.” In three decisions in the 1930’s and 40’s, the United States Supreme Court found the traditional maxim the “he who comes for equity must have clean hands” to apply to matters arising during prosecution of the patent application giving rise to the suit before it. All the judges writing in Therasense agreed that the pre-existing state of the law was unsatisfactory in that it had led to both over use of allegations of inequitable conduct in litigation and encouraged applicants to flood the patent office with marginally relevant references during prosecution to try to avoid allegations of inequitable conduct.
There was also agreement among the Therasense opinions that a finding of inequitable conduct required a showing of a specific intent to mislead the Patent Office and using some threshold for materiality. The Therasense opinions also agreed that the “sliding scale” used in previous cases lead to uncertainty and should be changed, although the better reasoned prior opinions emphasized that some evidence on each of the materiality and intent issues was required, although the same fact could be relevant to both issues and intent could be shown by circumstantial evidence.
The disagreement among the Therasense opinions was on the standards of intent and materiality to be employed.
The majority noted that:
While honesty at the USPTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained USPTO resources, increased USPTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.
On the question of intent, the majority (1) reiterated the rule that a court could not infer intent from materiality, (2) confirmed that clear and convincing evidence was required that the applicant knew of the reference, knew it was material and made a deliberate decision to withhold it was required and (3) stated that to meet the clear and convincing evidence requirement,
[t]he specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence.
Furthermore, it was noted that
[b]ecause the party alleging inequitable conduct bears the burden of proof, the patentee need not offer any good faith explanation unless the accused infringer first … proves a threshold level of intent to deceive by clear and convincing evidence
On the question of materiality the court held:
as a general matter, the materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the USPTO, that prior art is but-for material if the USPTO would not have allowed a claim had it been aware of the undisclosed reference. … In making the patentability determination, the court should apply the preponderance of the evidence standard and give the claims their broadest reasonable construction.
An exception to the but-for test was, noted:
[T]his court recognizes an exception in cases of affirmative egregious conduct,
pointing out that
[a]fter all a patentee is unlikely to go to great lengths to deceive the USPTO with a falsehood unless it believes that the falsehood will affect issuance of the patent.
This statement harmonized the leading Supreme Court cases with the present “but for” test because all three cases involved egregious conduct – false affidavits about prior art, lies about authorship of prior art, false oaths concealing Inventorship, as part of a conspiracy between contending patent owners, Noting the dissent’s view that the test set out for materiality in the current USPTO rules should be adopted by the court, the majority opined that:
because Rule 56 sets such a low bar for materiality adopting this standard would inevitably result in patent practitioners continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy.
The dissent disagreed. In its view, the reasonable examiner – prima facie unpatentability tests set out in USPTO Rule 56 should have been adopted for two reasons:
First the USPTO is in the best position to know what information examiners need to conduct effective and efficient examinations, i.e. what information is material to the examination process. Second, the higher standard of materiality adopted by the majority will not provide appropriate incentives for patent applicants to comply with the disclosure obligations the USPTO places upon them.
In support of this, it was noted that in its amicus brief filed in this case, the USPTO had argued that its current rule should set the standard.
The dissent furthermore considered that the heightened test of materiality adopted by the majority was inconsistent with prior case law of the Federal Circuit and its predecessor court, the Court of Customs and Patent Appeals. The dissent additionally argued that the Supreme Court cases that had initially created the doctrine of inequitable conduct had concluded that patent applicants
“have an uncompromising duty to report to the Patent Office all facts concerning possible fraud or inequitableness underlying the applications” and saw the “but-for” standard reduced the incentive for patent applicants to comply with this duty.
The USPTO has announced that it is reviewing the decision and will issue guidance to applicants as soon as possible.
There is a possibility that the Supreme Court will grant certiorari to review this decision, particularly in view of the dissent’s characterization of the decision as being inconsistent with Supreme Court precedent, we advise continued attention to the scope and content of prior art disclosures in issued patents as part of a pre-lawsuit analysis. Of course, as USPTO Rule 56 remains unchanged, it remains prudent to continue to submit prior art and other facts that might be relevant to patentability in the same way as before this decision.