December 12, 2011
LES Insights
By John C. Paul; D. Brian Kacedon; Mindy L. Ehrenfried
Authored by Mindy L. Ehrenfried, D. Brian Kacedon, and John C. Paul
Defendants in patent-infringement litigations often reflexively assert an affirmative defense of unenforceability based on inequitable conduct by those prosecuting an asserted patent. In some instances, defendants put forth this defense despite little or no evidence of such conduct when filing the answer. One reason, perhaps, is that the presence of an inequitable conduct defense in a case provides at least some leverage to defendants in settlement negotiations.
With the Federal Circuit's decision in Therasense, Inc. v. Becton, Dickenson & Co., 649 F.3d 1276 (Fed. Cir. May 25, 2011) (en banc), the court heightened the standards for both requirements for a finding of inequitable conduct-materiality and intent. First, the court held that a defendant must prove a specific intent to deceive the USPTO by clear and convincing evidence. In addition, the decision to deceive the USPTO must be knowing and deliberate. Second, the court held that the defendant must show "but-for materiality," meaning that if the USPTO knew of the undisclosed reference, the USPTO would not have issued the patent.
In light of this heightened standard, defendants should consider whether the facts reasonably support asserting an inequitable-conduct defense at trial. As demonstrated by a recent order in Pfizer Inc., et. al. v. Teva Pharmaceuticals USA, Inc., 2-10-cv-00128 (E.D. Va. Oct. 17, 2011),1 asserting a weak inequitable-conduct defense at trial can cost a defendant the attorneys' fees to combat such a defense.
Pfizer Inc. and Pfizer Limited (collectively, "Pfizer") filed a patent-infringement suit against Teva Pharmaceuticals USA, Inc. in the United States District Court for the Eastern District of Virginia. Eight months later, Teva filed a motion to amend its Answer and Counterclaim to include an additional defense asserting that Pfizer engaged in inequitable conduct during the prosecution of the asserted patent. The court allowed Teva to amend its Answer and Counterclaim, noting that it was a "close question."
Three days into the trial, Teva filed another motion to file a second Amended Answer and Counterclaim, raising new arguments for its inequitable-conduct claim. First, Teva argued that Pfizer's in-house and outside counsel intentionally withheld from the U.S. Patent and Trademark Office information related to the asserted patent's Canadian counterpart. Moreover, Teva characterized Pfizer's failure to submit the information as "willful blindness" in order to prevent any delay in the asserted patent's issuance. The court denied Teva's motion, leaving only Teva's initial inequitable-conduct claim for argument during trial.
At trial, the court held Pfizer did not commit inequitable conduct. The court specifically stated "there is utterly no evidence" of either element of inequitable conduct. Pfizer then filed a motion for an award of attorney fees under 35 U.S.C. § 285.
The court granted Pfizer's motion for attorney fees, finding Teva's inequitable-conduct arguments "exceptional" within the meaning of 35 U.S.C. § 285. The court first rejected Teva's argument that any ruling on attorney fees before the appellate court's ruling would be premature. The court cited two reasons in favor of ruling promptly: the facts and issues were current and the appellate court could review the underlying decision and the decision on fees simultaneously.
Moving on to the merits of Pfizer's "exceptional case" argument, the court explained that a court may award attorney fees if the prevailing party proves the case is exceptional and if the court, in its discretion, determines an award is appropriate. Courts find "exceptional cases" where there is (1) "material inappropriate conduct related to the matter in litigation" (e.g., willful infringement or fraud), (2) misconduct during litigation, or (3) evidence that the litigation is brought in subjective bad faith and the litigation is objectively baseless. An "objectively baseless" suit is one that is "so unreasonable that no reasonable litigant could believe it would succeed."
The court here found that Teva knew its inequitable-conduct argument was "unjustified" and objectively baseless. Two factors influenced the court's decision. First, during prosecution, the patent examiner explicitly stated that further foreign references were not wanted and would not affect the issuance of the patent. Contrary to Teva's assertion, the prosecuting attorney's failure to disclose information related to the asserted patent's Canadian counterpart was hardly a deliberately crafted scheme to defraud the PTO. Rather, the prosecuting attorney's actions directly resulted from the patent examiner's instructions. Thus, the court concluded that Teva failed to show either requirement for an inequitable-conduct claim-materiality of the conduct or intent to deceive-by Pfizer's nondisclosure of information about the Canadian patent.
Second, in between Teva's first and second motions to amend its Answer and Counterclaim, the Court of Appeals for the Federal Circuit issued its opinion in Therasense, in which the Federal Circuit held that an alleged infringer must prove both materiality and intent separately and by clear-and-convincing evidence, the highest standard in civil litigation. Given the heightened standards of proof enumerated in Therasense, the court found that Teva's later pursuit of its inequitable-conduct claim (indeed, Teva sought to expand its claim in the wake of Therasense) constituted an exceptional case.
The court further deemed an award of attorney fees appropriate. The court characterized Teva's actions as the "archetype" of what the Federal Circuit sought to address in its Therasense decision, namely to discourage frivolous and wasteful pursuits of inequitable-conduct claims. Finally, the court rejected Teva's argument to reduce the amount of fees Pfizer requested. Leading up to the trial, the court partially granted Teva's motion to continue and to take two additional depositions as it investigated its inequitable-conduct argument. Thus, Teva asserted that the court should not award fees incurred during discovery sanctioned by the court. While the court acknowledged Pfizer cited no authority authorizing fees for court-sanctioned discovery, the court also noted that Teva cited no authority prohibiting the authorization of such an award. The court thus awarded attorney fees to Pfizer and declined to reduce the award amount.
Licensors who bring patent-infringement suits and prevail should consider filing for attorney fees, including discovery fees, where the infringer asserted and pursued an inequitable-conduct defense despite little to no evidence to support its argument.
Licensees who find themselves defending against patent infringement should carefully consider whether to pursue an inequitable-conduct defense if the evidence does not reveal affirmative egregious misconduct or but-for materiality of the alleged inequitable conduct.
1 The Pfizer decision: available at http://law.justia.com/cases/federal/district-courts/virginia/vaedce/2:2010cv00128/252220/497
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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