Therasense, Inc. v. Becton, Dickinson and Co.: A Radical Change in the Legal Standard of Inequitable Conduct
On May 25, 2011, the Federal Circuit issued its en banc opinion in Therasense, Inc. v. Becton, Dickinson and Co., radically changing the legal landscape of the inequitable conduct doctrine. In creating these new standards, the Therasense majority aimed to balance the competing goals of encouraging honesty of applicants before the United States Patent & Trademark Office (“PTO”) and setting a logistically appropriate standard for determining whether inequitable conduct occurred. The majority stressed that the “low standards for intent and materiality” set in its previous opinions coupled with the harsh consequences of inequitable conduct have resulted in “unintended consequences.” Specifically, under the old standards, “allegations of inequitable conduct are routinely brought on the slenderest grounds” and “patent prosecutors regularly bury PTO examiners with a deluge of prior art references, most of which have marginal value.” To address these concerns, the majority tightened the requirements for findings of both materiality and intent to deceive.
Changes in Legal Standard
Under the old standard, in order to invalidate a patent, the party alleging inequitable conduct had to show “clear and convincing evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information [to the PTO], and (2) intended to deceive the [PTO].” Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1363-64 (Fed. Cir. 2007).
The Therasense majority first tightened the intent requirement by reaffirming previous cases stressing the need for clear and convincing evidence of specific intent to deceive. Thus, proof of negligence and gross negligence is not sufficient, and in cases of nondisclosure, the evidence must show that the “applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.” As before, deceptive intent may inferred from indirect and circumstantial evidence. However, the specific intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.” Furthermore, the patentee need not offer a good faith explanation unless the accused infringer first proves a threshold level of intent to deceive by clear and convincing evidence.
The intent requirement was further tightened by the rejection of the “sliding scale” approach which allowed parties alleging inequitable conduct to show less proof of intent when materiality was high, and vice-versa. See Cargill, 476 F.3d at 1364; American Hoist & Derrick Co. v. Sowa & Sons, 725 F. 2d 1350, 1362-63 (Fed. Cir. 1984). By re-affirming that “[i]ntent and materiality are separate requirements,” the majority forbade district courts from inferring intent solely from a high showing of materiality. For example, no longer can a district court infer intent “if there has been a failure to supply highly material information and if the . . . record establishes that (1) the applicant knew of the information; (2) the applicant knew or should have known of the materiality of the information; and (3) the applicant has not provided a credible explanation for the withholding.” Ferring B.V. v. Barr Lab., Inc., 437 F.3d 1181, 1192 (Fed. Cir. 2006).
The majority likewise tightened the standard of proof for materiality. Prior Federal Circuit case-law allowed for at least five different standards of proving materiality: (1) the information refutes or is inconsistent with a position the applicant takes in … asserting an argument of patentability; (2) a “reasonable examiner” would have considered the information or prior art “important” in deciding whether to allow the application; (3) the misrepresentation was so material that the patent should not have issued; (4) the misrepresentation actually caused the examiner to approve the patent application when he would not otherwise have done so; and (5) the misrepresentation may have influenced the patent examiner in the course of prosecution. Out of these different tests the majority chose the more stringent “but for” standard of materiality. The majority instructed: “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 undisclosed reference.” Notably, district courts were also instructed to “apply the preponderance of the evidence standard and give claims their broadest reasonable construction,” in determining whether a claim would have been allowed. Arguably, this lowers the standard since preponderance of the evidence rather than clear and convincing evidence is now required to show materiality. However, while it’s true that the evidentiary burden is lessened, “but for” materiality is a harder fact to prove then the other standards.
Finally, in recognizing the roots of inequitable conduct in the doctrine of “unclean hands,” the majority created “an exception in cases of affirmative egregious misconduct.” Consequently, even where “but for” materiality cannot be demonstrated, misconduct is found material where “the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit.”
Ideally, the new standard for inequitable conduct set out in Therasense will achieve the majority’s desired result of fewer irrelevant disclosures to the PTO during prosecution, and fewer charges of inequitable conduct during litigation. Such an outcome would conserve precious resources for the both the PTO and the courts, allowing the former to reduce the patent backlog, and the latter on adjudicating more substantiated legal arguments. However, many have expressed concern that the changes will actually exacerbate the problems. As alluded to above, the preponderance of the evidence standard for “but for” materiality is a lower evidentiary burden than was previously required for materiality. Additionally, while the new standard may reduce the amount of marginally relevant disclosures during prosecution, a potential dearth of relevant disclosures could reduce the quality of issued patents and ultimately result in increased enforcement costs. Finally, while a finding of inequitable conduct still renders the entire patent unenforceable, some argue that the “but for” standard “may have opened the door for litigants to argue that unenforceability should be determined on a claim by claim basis.”
It also remains to be seen how district courts will apply these new standards in practice. The “single most reasonable inference” standard for inferring specific intent from circumstantial evidence could see varied application by the district courts. For example, one court may infer intent where one inference among several seems a good deal more plausible, while another court may refuse to infer intent unless there is indisputably only one reasonable inference. Likewise, the affirmative acts of egregious conduct exception may receive a variety of interpretations as to the content and scope of qualifying misconduct. After all, districts courts were only instructed that filing an unmistakably false affidavit definitely falls within the scope of the exception.
Allegedly, Becton-Dickinson filed a motion to stay the issuance of the mandate of the case pending its petition for writ of certiorari to the Supreme Court. Due to the drastic changes affected by Therasense and the Supreme Court’s recent penchant for reviewing Federal Circuit decisions, it would not be surprising if these new standards are rejected or modified within the next few years.