Alert June 01, 2011

Therasense Decision Raises Bar for Proving Inequitable Conduct

On May 25, in Therasense Inc. v. Becton, Dickinson, & Co., No. 08-1511, the en banc U.S. Court of Appeals for the Federal Circuit raised the bar for proving inequitable conduct in patent actions. 

The inequitable conduct defense allows accused patent infringers to render a patent unenforceable where they demonstrate that the patentee misrepresented or concealed material information with the specific intent to deceive the PTO as to any single claim.  Accused infringers have long been required to demonstrate both materiality and deceptive intent by clear and convincing evidence.  However, there has been conflict and confusion concerning the appropriate definition of material and the standards for inferring deceptive intent from circumstantial evidence.

The majority opinion in Therasense, authored by Chief Judge Rader, held that what the court perceived as “low standards for intent and materiality” to prove inequitable conduct “have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO 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.”

As to materiality, the court adopted a “but-for” standard.  Now, courts “must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference,” giving the claims “their broadest reasonable construction” and applying the preponderance of the evidence standard.  In this regard, the court rejected the argument advanced by the PTO to equate the materiality standard for the inequitable conduct defense with the definition of materiality in PTO Rule 56, which provides that information is material if it establishes (by itself or with other information) a prima facie case of unpatentability, or if it contradicts an argument made by the applicant to the PTO.  Thus, even if an applicant breaches the duty of disclosure to the PTO, the breach will give rise to a defense to patent infringement only if the defendant can prove that had the duty been met, the patent would not have issued.  According to the dissenters, this gives applicants little incentive to bring damaging information to the attention of the PTO.  

The court recognized, however, an exception to the but-for standard:  “[C]onsistent with the early unclean hands cases” of the U.S. Supreme Court, “[w]hen the patentee has engaged in affirmative acts of egregious misconduct . . . the misconduct is material.”

The court clarified that the standard for proving intent is “specific intent to deceive the PTO,” which requires “clear and convincing evidence that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.”  That an applicant should have known of the materiality is not sufficient.  Circumstantial evidence is permitted, but is only sufficient if an intent to deceive is the “single most reasonable inference” to be drawn from the evidence.  There is language in the majority opinion that appears to go further and to suggest that an inference of intent is permitted only if deceptive intent is the only reasonable inference to be drawn:  “[W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” 

The court also rejected the “sliding scale” previously used by some courts to find inequitable conduct where the level of materiality was relatively high, but there was lower level of evidence of intent to deceive, and vice-versa.

Judge O’Malley joined the majority opinion, in part, but disagreed with the majority’s adoption of the but-for standard.  In a separate opinion, she wrote that her “views, respectfully, diverge from those of both the majority and the other dissenters . . because, when addressing the types of conduct that should be deemed of sufficient concern to allow for a finding of inequitable conduct, both the majority and dissent strain too hard to impose hard and fast rules.”  Rather than adopting either the but-for standard of materiality or the PTO Rule 56 standard, Judge O’Malley identified three different categories of facts sufficient to prove materiality, and which “reflect the concerns expressed by the Supreme Court in the case trilogy from which the doctrine emerged.”

Judge Bryson, joined by Judges Gajarsa, Dyk and Prost, dissented.  They agreed with the majority that specific intent is required, that it must be proven “by clear and convincing evidence” and that “there should be no ‘sliding scale’ whereby a strong showing as to one element can make up for weaker proof as to the other.”  Judge Bryson, however, considered the majority’s adoption of a but-for standard for materiality to be a “radical approach.”  The dissenters said they would apply the Rule 56 standard of materiality.