Therasense’s Effect on the Inequitable Conduct Doctrine
The Doctrine of Inequitable Conduct is a defense available in patent infringement actions suggesting that an applicant has an ethical duty to the United States Patent and Trademark Office. The defense requires the defendant to show that the applicant “intentionally withheld material information from or misled the examiner.” Black’s Law Dictionary (9th ed. 2009). In recent years, this doctrine has undergone a substantial transformation.
Title 37 of the Code of Federal Regulations (37 C.F.R. 1.765) requires each applicant to exhibit “a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section.” As a result of this obligation, applicants have tended to provide too much information to the USPTO in an effort to avoid allegations of fraud, misrepresentations and concealment of information. If an applicant does not provide enough information, he/she/it can become a prime target for a patent infringement lawsuit. This is where the inequitable conduct defense comes in. If Party A files a patent infringement action against Party B, Party B can counterclaim, alleging that Party A breached its duty of candor to the court by not disclosing enough information about his/her/its invention. Although effective once proven, this defense is difficult to prove in the first place. A successful defendant must show that the concealed or misrepresented information is 1) material, and 2) the applicant intended to deceive the USPTO. Intent is a difficult element to meet as it must be proven by clear and convincing evidence and “cannot always be inferred from a pattern of conduct that may be described as grossly negligent.” Kingsdown Medical Consultants, Ltd. V. Hollister, Inc., 863 F.2d 867, 872-73 (Fed. Cir. 1988).
Last year in Therasense, Inc. v. Becton, Dickinson & Co, the Federal Circuit did away with the “reasonable examiner” approach and established a “but-for” standard for determining materiality. 649 F.3d 1276, 1291 (Fed. Cir. 2011). The Court held that “the materiality required to establish inequitable conduct is but-for materiality.” Id. So in essence, “[w]hen an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” Id. In a case of nondisclosure, the court, applying the preponderance of the evidence standard, “must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference.” Id. at 1291-92. On the issue of intent, the court stated that intent cannot be inferred “solely from materiality.” Id. at 1290. Instead, it “must weigh the evidence of intent to deceive independent of its analysis of materiality.” Id. Although a court may rely on circumstantial evidence in making an intent determination, because of the high standard the plaintiff must meet (clear and convincing evidence standard), the specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.” StarScientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008).
The Therasense case is significant because it transformed the Inequitable Conduct doctrine in two respects. First, contrary to Driscoll v. Cebalo, 731 F.2d 878 (Fed. Cir. 1984), it held that “a finding that the misrepresentation or omission amounts to gross negligence or negligence under a ‘should have known’ standard does not satisfy this intent requirement.” Second, contrary to Am. Hoist &Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350 (Fed. Cir. 1984), a court “should not use a ‘sliding scale’ where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa.” Therasense, 649 F.3d at 1290. Following the case, the UPTO proposed to amend 37 C.F.R. §§ 1.56 and 1.555 to require submission of material information, as defined in Therasense. As of March 2012, the proposal has not gone into effect.
Commentators believe that this case, based on the high standards a plaintiff has to meet, coupled with the America Invents Act, which was promulgated on September 16, 2011 by the U.S. Congress, will result in a reduction of the number of patents found to be unenforceable. It has been less than a year since Therasense was decided and the America Invents Act was enacted, so the effects have yet to be seen. Most provisions of the America Invents Act will become effective in the fall of 2012. What is clear at this time, however, is that district courts are now equipped with the knowledge pertaining to the application of the equitable conduct doctrine. The decision removed the ambiguity surrounding the standards to be applied in determining the two prongs of this defense and created clearer standards.
In its first post-Therasense case, the U.S. Court of Appeals for the Federal Circuit applied the standards set forth in Therasense in the Powellv. Home Depot, Inc. in November of 2011. The district court hearing that case determined that the plaintiff had intentionally omitted a fact from the USPTO. On appeal, the Federal Circuit held that under the higher standard of Therasense, there was no inequitable conduct because the plaintiff’s conduct failed the “but-for” materiality standard. This case tends to show that the new standard allows for less judicial discretion, and instead will likely result in more consistent rulings on the issue of inequitable conduct.