Federal Circuit narrows use of inequitable conduct defense in patent infringement cases

This week the Federal Circuit issued an opinion that raises the bar for defendants who assert inequitable conduct as a defense in patent infringement litigation.  The defense of inequitable conduct evolved over time as courts barred enforcement of a patent when the patent holder engaged in actions that misled or defrauded the courts or the USPTO.  As applied by the courts, inequitable conduct required both intent and materially affected the outcome of a case — such as a situation where an inventor was aware of a prior disclosure of an invention but intentionally withheld that information from the USPTO. 

Over time, the standards for intent and materiality changed.  In particular, in the 1980’s the Federal Circuit issued several opinions that made it easier to find inequitable conduct.  For example, those opinions stated that the “intent” requirement included situations where the patent holder “knew or should have known” that the withheld information was material.  The 1980’s decisions also adopted a “sliding scale” for the intent and materiality requirements, meaning that the requirement to show intent was reduced if the withheld reference was highly material.

In this week’s opinion, Therasense Inc. v. Becton Dickinson & Co., the court established a new and more stringent standard for proving inequitable conduct.  Under the new standard:

To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.  A finding that the misrepresentation or omission amounts to gross negligence under a “should have known” standard does not satisfy this intent requirement. . . . In other words, 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. 

The court also rejected prior “sliding scale” decisions for materiality, and said that materiality is a “but-for” standard:

When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed the claim had it been aware of the undisclosed prior art.  Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the reference. 

The court left open a few exceptions to the “but-for” standard, such as situations of “affirmative egregious misconduct” or the filing of an “unmistakably false affidavit” with the USPTO. 

The court’s decision to adopt the new standard resulted from previous “low standards for intent and materiality [that] led to unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources,  and impaired patent quality.”  Stating that: “Left unfettered, the inequitable conduct doctrine has plagued not only the courts but also the entire patent system”, the court noted now-routine use of inequitable conduct as a defense has caused “patent prosecutors [to] regularly bury USPTO examiners with a deluge of prior art references, many of which have marginal value.” 

Although the decision brings some clarity to previously conflicting rulings to the doctrine of inequitable conduct, four Federal Circuit judges dissented and one judge dissented in part.  This may lead to Supreme Court review, or it may signal that the new standard will be refined in future Federal Circuit decisions.

UPDATE:  My colleagues Dan Scolnick and Paul Legaard recently published an article with additional details about the Therasense case.  To view the article on the Pepper Hamilton website, click here.