This time, Spicy IP brings to its readers an incisive post by D. Christopher Ohly and Sailesh K. Patel on the matter of inequitable conduct during the filing and prosecution of a patent application. Chris Ohly, a well reputed and leading patent litigator in the US, and Sailesh Patel, another brilliant patent attorney and partner at Schiff Hardin, LLP., had even before this offered their joint expertise and scholarship to the Spicy IP readers here.
(Statutory Warning: Very long post)
Inequitable Conduct: Therasense En Banc
On November 15, 2010, Therasense, Inc. v. Becton Dickinson and Co., No. 2008-1511o (January 25, 2010), was argued en banc. The Federal Circuit ordered en banc review in Therasense to consider whether “the materiality-intent-balancing framework for inequitable conduct [should] be modified or replaced?” and “if so, how?” The Federal Circuit’s decision in Therasense, or the Supreme Court’s determination if certiorari is sought and granted after the Federal Circuit decision, will likely determine standards of proof of inequitable conduct in patent cases for decades to come. [The substantive elements of “inequitable conduct” are: “(1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO. See Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed.Cir.2008); Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178, 1181 (Fed.Cir.1995); 37 C.F.R. § 1.56 (2008).” Exergen Corp. v. Wal-Mart Stores, Inc., 573 F.3d 1312, 1327 n.3 (Fed. Cir. 2009).]
A patent creates a publicly sanctioned monopoly—a right to exclude others from making, using or selling a claimed invention. [Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 149, 150 (1989); 35 U.S.C. § 154 (2006). The Patent Clause grants Congress only limited power to create patent monopolies. U.S. Const. art. I, § 8, cl. 8; see Bonito Boats, 489 U.S. at 146.] The doctrine of “inequitable conduct” was judicially crafted to ensure that the “special privilege of a patent monopoly”[Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 492 (1942)] is not procured fraud or other conduct that should disable a patentee from enforcing patent rights. In an early case, the Supreme Court determined that a patentee seeking to enjoin infringement of a patent must have clean hands:
This Court has declared: “It is a principle in chancery, that he who asks relief must have acted in good faith. The equitable powers of this court can never be exerted in behalf of one who has acted fraudulently or who by deceit or any unfair means has gained an advantage. To aid a party in such a case would make this court the abetter of iniquity.”[Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933), quoted in R. Goldman, Evolution of the Inequitable Conduct Doctrine in Patent Cases, 7 Harv. J. Law & Tech. 37, 47 (1993)]
Implicit in the Constitution’s Patent Clause is the principle that “free exploitation of ideas will be the rule, to which the protection of a federal patent is the exception.”[Bonito Boats, 489 U.S. 141, 151 (1989); Graham v. John Deere Co., 383 U.S. 1, 5 (1966); Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248 (1850)].
The far-reaching social and economic consequences of a patent, the Supreme Court has said, “give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.”[Precision Instrument Manufacturing. Co. v. Automotive Maintenance Machinery Co., 324 U,S. 806, 816 (1945). See Goldman, at 50. See also Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1315 (Fed. Cir. 2006). See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 175, 176 (1965)]
Application of these principles has proven more difficult for the courts than, at first, it might have been imagined. The Patent Act of 1952 seemingly recognized the court-fashioned inequitable conduct doctrine, in Section 282, which allows a defense against patent infringement allegations based upon “uneforceability,” but which provides no further guidance. Over the years following enactment of the Patent Act, but before creation of the Federal Circuit in 1983, the courts developed several standards to assess whether inequitable conduct had been established, including standards for materiality and intent, in judging whether a fraud had been perpetrated on the United States Patent and Trademark Office during patent the process of obtaining a patent (prosecution and examination).[See Goldman, at 53–67] This may simply be a reflection of the common-law notion that the “law does not define fraud; it needs no definition; it is as old as falsehood and as versable as human ingenuity.”[Weiss v. United States v. McGuire, 122 F.2d 675, 681 (5th Cir. 1941)]
The basics were announced by the Federal Circuit, however, in a 1983 decision: “Establishing that a patent was procured by fraud or with such egregious conduct as to render it unenforceable requires clear, unequivocal, and convincing evidence of an intentional misrepresentation or withholding of a material fact from the PTO.”[Orthopedic Equip. Co. v. All Orthopedic Appliances, 707 F.2d 1376, 1383 (Fed. Cir. 1983); Goldman, at 69] Over time, several often conflicting decisions were rendered that appeared to make the sufficiency of proof of intent depend on materiality, or otherwise render the inequitable conduct easier to establish.[See C.A. Cotropia, Modernizing Patent Law’s Inequitable Conduct Doctrine, Berkeley Tech. L. J. 24:773, 776 (2009)(the “‘bleed through’ from the materiality finding is responsible for most of the intent doctrine’s current ambiguity.”)]
By 1988, the Federal Circuit began to complain that “the habit of charging inequitable conduct in almost every major patent case has [been] an absolute plague.”[Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988)] In the decades since, these complaints have been frequently echoed in other Federal Circuit decisions, and by patentees who have sought legislative relief in the course of debates about a Patent Reform Act. In Therasense, the patent bar has hope that the Federal Circuit may make better sense of prior decisions, Patent Office regulations and a variety of other relevant factors.
The Therasense Facts and Initial Opinion
The patent in Therasense covered disposable diabetes glucose test strips, which measure the level of glucose in a sample of blood, usually a single drop. A prior art patent, U.S. 4,545,382 (the’382 patent), issued to the same inventors, disclosed strips as follows: “Optionally, but preferably when being used on live blood, a protective membrane surrounds both the enzyme and the mediator layers, permeable to water and glucose molecules.”
In the EPO, Abbott was faced with possible revocation of a European counterpart to Abbott’s ‘382 patent, EP 0 078 636 (the ’636 patent), a patent “with virtually identical specifications.” The ‘636 patent was revoked as obvious over a German reference. In the EPO, Abbott argued that the ‘636 patent was distinguishable from the German reference because the “optionally, but preferably” language in the EU ‘636 patent, identical to the language in the US ‘382 patent, was “unequivocally clear” and that the “protective membrane [described in the EU ‘636 patent] is optional, however, it is preferred when used on live blood.”
Abbott pursued the patent for thirteen years in the USPTO through several continuation applications that were repeatedly rejected for anticipation and obviousness, including rejections over the prior art ’382 patent. However, none of the EPO statements and proceedings was disclosed to the PTO. At some point, new claims were drafted including electrochemical sensors lacking a membrane. Abbott argued that they were novel because they taught a sensor that “did not require a protective membrane when testing whole blood.” Abbott argued that “optionally, but preferably” would not have been read by a PHOSITA to confirm that “a membrane is not necessary when testing live blood in vivo or whole blood in vitro.”
In litigation over the US patent, the trial court found that Abbott’s EPO statements directly contradicted its representations to the PTO. By describing the “‘[o]ptionally, but preferably’ language as ‘unequivocally clear,’” in the EPO, Abbott contradicted representations to the PTO that a PHOSITA would have understood the words as mere “patent phraseology” that “did not convey a clear meaning.” Rejecting the prosecuting attorney’s testimony, the trial court stated: This argument conveniently overlooks the fact that he consciously chose to withhold. Counsel who steer a course toward obtaining a strong patent should err on the side of disclosure, not nondisclosure. And, it must be said, after so many rejections over so many years, it seems clear that Abbott’s primary goal was to eke out some claim, saving a fight over enforceability for a later day.[Therasense, Inc. v. Becton-Dickinson and Company, 565 F.Supp. 108, 1113-15 (N.D. Cal. 2008)]
The inventor disclosed the inconsistent EPO information to the patent prosecutor, and “made direct representations to the PTO—representations that were materially misleading by omission.” Thus “he was obligated to avoid intentional deception,” and was “duty-bound to avoid making an intentionally misleading submission, whether or not he told [the prosecuting attorney] about the inconsistency.”[Therasense, Inc. v. Becton-Dickinson and Company, 565 F.Supp. 108, 1115 (N.D. Cal. 2008)]
The trial court found that the patentee’s “explanations for withholding the EPO documents were so incredible that they suggested intent to deceive.”[Therasense, Inc. v. Becton-Dickinson and Company, 593 F.3d 1289, 1306 (Fed. Cir. 2010)]
The initial Federal Circuit panel commented that these factual findings were based on assessments of credibility that are “virtually unreviewable” and were “amply supported,” adding that, even under the clear and convincing evidence standard, there was no error in the trial court’s finding of bad faith, or intent to deceive the PTO. The panel found the withheld EPO information to be “highly material,” stating that, to “deprive an examiner of the EPO statements — statements directly contrary to Abbott’s representations to the PTO — on the grounds that they were not material would be to eviscerate the duty of disclosure.” It affirmed the trial court’s judgment, holding the Abbott patent unenforceable for inequitable conduct. .”[Therasense, Inc. v. Becton-Dickinson and Company, 593 F.3d 1289, 1305-08 (Fed. Cir. 2010)]
The Therasense En Banc Argument
Prior to argument of Therasesnse before the Federal Circuit en banc, it was widely assumed that the court would continue to by narrow the range of cases in which inequitable conduct may be asserted, for example by reinvigorating a “but for” test of materiality, or by enhancing the type of required proof of intent.[See, e.g., Exergen]
A critical moment occurred during questioning of Abbott’s counsel (the patentee), in rebuttal. The Court asked whether the challenged conduct would “satisfy the but-for causation test?” The “but for” causation test is, of course, standard fare in fraud cases.[See, e.g., Martens Chevrolet, Inc. v. Seney, 292 Md. 328, 333 (1982); Impala Platinum Limited v. Impala Sales (USA), Inc., 283 Md. 296, 323 (1978); McAleer v. Horsey, 35 Md. 439, 454 (1871); Maryland Civil Pattern Jury Instructions, 11:1 (2d Ed., 1984)(elements of cause of action for fraud include proof that “but for” a concealment or misrepresentation, a plaintiff would not have done the thing from which his damages resulted)] The reply by Abbott’s counsel was necessary: the challenged conduct would not meet the “but for” test.[Transcript of Argument, http://www.patentlyo.com/files/therasense-v-becton—transcription.pdf, Tr. 55, lines 14-16] An opposite answer may have ensured affirmance. However, if the conduct challenged in Therasense did not satisfy the “but-for” causation test, almost no case would.
Predictions?
The probable result of Therasense is far from clear, if it ever was. It seems likely that the Federal Circuit will not depart from previous cases that have imposed “fraud like” standards on pleading and proof in cases in which inequitable conduct is alleged. On the other hand, the court may not require proof of “but for” causation.
Return to the standards of proof of fraud imposed in other civil cases, including cases under state common law and federal civil statutes would harmonize patent law with other jurisdprudence andwould enable trial court judges, who are likely more familiar with a variety of other fraud laws, to apply well known principles with far greater confidence that their judgments will not be revisited or reversed on appeal. For example, adoption of such well-known fraud standards would permit imposition of liability for inequitable conduct not only on the specific “individuals associated with the filing and prosecution of a patent application,” but also, under developed standards, on those corporate assignees of patent applications which, in total, may know and have a duty to disclose more than such individuals. [See, e.g., New York Central & Hudson River Railroad Co. v United States, 212 U.S. 481, 493, 29 S.Ct. 304, 306 (1909), quoting Telegram Newspaper Co. v. Comm., 172 Mass. 294, 52 N.E. 445, with approval (“We think that a corporation may be liable criminally for certain offenses of which a specific intent may be a necessary element. There is no more difficulty in imputing to a corporation a specific intent in criminal proceedings than in civil. A corporation cannot be arrested and imprisoned in either civil or criminal proceedings, but its property may be taken either as compensation for a private wrong or as punishment for a public wrong.”); and United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987). See also United States v. T.I.M.E.-D.C, Inc., 381 F. Supp. 730,738 (W.D. Va. 1974)( “Corporations compartmentalize knowledge, subdividing the elements of specific duties and operations into smaller components. The aggregate of those components constitutes the corporation’s knowledge of a particular operation. It is irrelevant whether employees administering one component of an operation know the specific activities of employees administering another aspect of the operation … Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly.”)] Moreover, adoption of such well-established common law standards would permit imposition of liability for inequitable conduct in cases of reckless or deliberate indifference.[See SEB S.A. v. Montgomery Ward & Co., et al., 594. F.3d 1360 (Fed. Cir. 2010), cert. granted 131 U.S. 458 (2010)(argued February 2011). Deliberate indifference requires (1) an “awareness of facts from which the inference could be drawn that a substantial risk of serious harm exists” and (2) the actual “drawing of the inference.” Elliott v. Jones, 2009 U.S. Dist. LEXIS 91125 (N.D. Fla. Sept. 1, 2009)]
To adopt well-established common law fraud principles in toto, in patent cases in which inequitable conduct is alleged, would bring the specific conduct at issue in Therasense within well established boundaries for assessment of responsibility for intentional non-disclosure or fraud. Adoption of such standards will have the salutary effect of importing into patent litigation concepts that have been well developed by other litigants in both civil and criminal cases. It will help to bring about the certainty for which litigants have searched for decades, and it may even help to vaccinate the patent litigation system against the “absolute plague” of inequitable conduct allegations. Time will tell whether the forthcoming decision in Therasense makes sense.
