‘Therasense’: raising the bar for inequitable conduct

By Mary Ferguson and Jeffrey M. Jacobstein

Addressing the standards necessary to prove inequitable conduct in patent cases, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, recently added new contours to a doctrine that, in its words, “has plagued not only the courts but also the entire patent system.”

In Therasense, Inc. v. Beckton, Dickenson and Co. (May 2011), the Federal Circuit clarified the legal framework for inequitable conduct claims while acknowledging and attempting to reconcile prior versions of a standard, which has “fluctuated over time.”

Materiality and intent

Inequitable conduct is a doctrine that evolved from a series of U.S. Supreme Court cases involving “unclean hands.” In those cases, the court exercised its equity power to prevent patent holders from enforcing patents that were acquired through flagrant misconduct, such as bribing researchers to lie about the date of invention.

From these cases emerged the two prongs of the modern standard for proving inequitable conduct:  materiality and intent.
For instance, in the case of a reference that was not submitted to the Patent Office, a patent will be held unenforceable if the reference was material to patentability and the patent holder intended to deceive the Patent Office by withholding the document.

Similarly, affirmative misstatements of material fact can lead to a finding of inequitable conduct. Once a patent challenger has proved both materiality and intent to deceive by clear and convincing evidence, the district court must weigh the equities to determine whether the applicant’s conduct warrants rendering the entire patent unenforceable.

Calling the expansive consequences of inequitable conduct the “atomic bomb” of patent law, the Federal Circuit expressly sought to provide clear, practical guidance to practitioners and litigators alike in order to curb the number of cases involving unwarranted charges of inequitable conduct.

The stakes are high, the court explained, because inequitable conduct as to one claim renders the entire patent unenforceable and cannot be cured by reissue.

Collateral damage can also be high. Inequitable conduct in one patent can render other related patents unenforceable. Antitrust and unfair competition allegations, as well as piercing the attorney-client privilege, can also result from an inequitable conduct determination.

No sliding scale

The Federal Circuit responded to these issues in Therasense, elaborating a heightened standard for both prongs of the inequitable conduct doctrine, i.e., the materiality and the intent requirements. The court reiterated that materiality and intent must be proved separately and there is no “sliding scale” where a strong showing of materiality can compensate for weak evidence of intent, or vice versa.

Furthermore, the court expressly cautioned that intent may not be inferred solely from materiality.

Prior to Therasense, courts often looked to 37 C.F.R. 1.56 to begin the inquiry into materiality.

As Rule 56 changed over time, the materiality test applied by the courts changed as well. Information could be material if it was inconsistent with a position that an applicant took during prosecution, if it established a prima facie case of unpatentability for a claim, or if a reasonable examiner would consider the information important in determining whether to allow an application to issue as a patent.

Finding this broad, wide-ranging analysis insufficient, the en banc majority in Therasense adopted a more stringent test for materiality, referred to as “but-for” materiality.

Under the “but-for” test of materiality, the court held that a reference is material “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” This standard requires a district court to consider whether a patent examiner would have acted differently had he or she known of the omitted information.

Furthermore, the Federal Circuit explained that courts should give claims their broadest reasonable construction, the same construction used during patent prosecution. Courts should then apply the preponderance of the evidence standard of proof to determine whether information is material to patentability.

As the court acknowledged, proving materiality under the “but-for” test will be easiest when an omitted reference anticipates a patent in suit.

However, non-anticipatory information may still be material under the “but-for” test due to the broad construction and preponderance of the evidence standard used to evaluate materiality.

The court also carved-out an important exception to the “but-for” test in cases involving “affirmative acts of egregious misconduct,” thereby retaining some flexibility in the materiality prong of the equitable inquiry.

Linking this exception to the early Supreme Court cases addressing “unclean hands,” the court acknowledged that but-for materiality need not always be shown.

Thus, where a patentee engaged in “‘deliberately planned and carefully executed scheme[s]’ to defraud the PTO and the courts,” the information will be material regardless of the “but-for” test.

The majority was careful to emphasize that while “mere nondisclosure” of a prior art reference is not sufficient to engage the exception, a false affidavit might.

With regard to intent, the Federal Circuit rejected a test based on an objective “should have known” standard and reaffirmed the requirement to prove that the applicant had a specific, individualized intent to deceive the Patent Office.

The court then went further, stating that the specific intent to deceive requires proof that “the applicant knew of the omitted reference, knew that the reference was material, and made a deliberate decision to withhold the reference.”

Recognizing that direct evidence of this subjective intent will be rare, the court held that intent can be inferred from circumstantial evidence. However, the court cautioned that intent to deceive must be “the single most reasonable inference able to be drawn from the evidence” and “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.”
Because the burden of proof is on the party alleging inequitable conduct, the patentees need not explain their actions during prosecution. Thus, intent to deceive cannot be inferred solely from the patentees’ failure to provide a good faith explanation for their conduct. Indeed, the court emphasized that the evidence “must be sufficient to require a finding of deceitful intent in the light of all the circumstances.”

The number of patent cases involving charges of inequitable conduct has risen dramatically in recent years.

In Therasense, the Federal Circuit responded by creating clear rules for both materiality and intent that will make it more difficult to establish inequitable conduct.

While it remains to be seen how these new standards will be applied in practice, early indications suggest that they will provide concrete benefits to patentees.

Mary Ferguson is a parnter at Finnegan, Henderson, Farabow, Garrett & Dunner, an intellectual property law firm. She can be contacted at [email protected]. Jeffrey M. Jacobstein is an attorney at Finnegan Henderson and can be contacted at [email protected].