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Federal Circuit En Banc Tightens the Standards for Inequitable Conduct for Both Intent and Materiality

May 25, 2011

Decision icon Decision, en banc

Last Month at the Federal Circuit - June 2011

Judges: Rader (author), Newman, Lourie, Bryson (dissenting), Gajarsa (dissenting), Linn, Dyk (dissenting), Prost (dissenting), Moore, O’Malley (concurring-in-part, dissenting-in-part), Reyna

[Appealed from: N.D. Cal., Judge Alsup]

In Therasense, Inc. v. Becton, Dickinson & Co., Nos. 08-1511, -1512, -1513, -1514, -1595 (Fed. Cir. May 25, 2011) (en banc), the Federal Circuit vacated the district court’s finding of unenforceability due to inequitable conduct and remanded for further proceedings consistent with its tightened standards for inequitable conduct. 

In 1984, Therasense, Inc. (now Abbott Diabetes Care, Inc.) and Abbott Laboratories (collectively “Abbott”) filed a patent application which led to U.S. Patent No. 5,820,551 (“the ’551 patent”) regarding disposable blood glucose test strips for testing whole blood without a membrane.  During prosecution, the examiner rejected the claims over another Abbott patent, U.S. Patent No. 4,545,382 (“the ’382 patent”), which noted that the membrane was optional.  To overcome these rejections, Abbott’s patent attorney and director of research and development submitted a declaration stating that one skilled in the art would have read the ’382 patent specification to require a membrane when used with whole blood.  Then, while prosecuting the European counterpart to the ’382 patent several years later, Abbott represented that their invention did not require a membrane.

In 2004, Becton, Dickinson and Co. (“Becton”) sued Abbott in the District of Massachusetts seeking a DJ of noninfringement of U.S. Patent Nos. 6,143,164 (“the ’164 patent”) and 6,592,745 (“the ’745 patent”) involving its blood glucose test strip.  Abbott countersued in the Northern District of California alleging infringement of the ’164, ’745, and ’551 patents.  The District of Massachusetts transferred its case to the Northern District of California.  Abbott also sued Nova Biomedical Corp. (“Nova”), Becton’s supplier, and Bayer Healthcare LLC (“Bayer”).  The Northern District of California consolidated all of these cases. 

The district court granted SJ of noninfringement of all asserted claims in the ’164 and ’745 patents.  The district court also found nearly all of the asserted claims of the ’745 patent anticipated as well as several of the asserted claims of the ’551 patent obvious in light of the ’382 patent.  Further, the district court held the ’551 patent unenforceable for inequitable conduct because Abbott did not disclose to the PTO its briefs filed with the European Patent Office (“EPO”).  Abbott appealed and a panel of the Federal Circuit upheld the judgments of invalidity, unenforceability, and noninfringement, but the Federal Circuit granted Abbott’s petition for rehearing en banc.

Writing for the majority, Chief Judge Rader stated that inequitable conduct is an equitable defense that evolved from a trio of Supreme Court cases applying the doctrine of unclean hands to patent cases involving egregious misconduct.  In addition, the Court explained the divergence of inequitable conduct from the doctrine of unclean hands and the fluctuations of the standards for intent and materiality over time.  Due to these fluctuations, the Court noted that the inequitable conduct doctrine has plagued not only the courts but also the entire patent system.  Therefore, citing numerous issues of unintended consequences, the majority chose to “now tighten[] the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.”  Slip op. at 24.

First, as to the intent element, the Court held that an accused infringer must prove by clear and convincing evidence that the patentee acted with the specific intent to deceive the PTO.  In reaching this standard, the Court noted that the gross negligence and “should have known” standards are insufficient to satisfy the specific intent requirement.  In addition, the majority specifically noted that in cases involving nondisclosure of information, 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. 

Moreover, the Court explained that intent and materiality are separate requirements.  Therefore, a district court should not use a “sliding scale” to infer intent from materiality, but instead should weigh the evidence of intent to deceive independent of its analysis of materiality.  Still, the majority clarified that since direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence.  Nonetheless, to meet the clear and convincing evidence standard, the Court explained that the specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence.  Further, because the party alleging inequitable conduct bears the burden of proof, the majority explained that the patentee need not offer any good-faith explanation unless the accused infringer first proves a threshold level of intent to deceive by clear and convincing evidence.

Second, addressing the materiality element, the Court held that, as a general matter, the materiality required to establish inequitable conduct is but-for materiality, dismissing the definition of materiality in PTO Rule 56.  Therefore, in assessing the materiality of a withheld reference, the district court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference.  In making this patentability determination, the district court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.  Recognizing the early unclean hands from which inequitable conduct evolved, the majority carved out an exception to the
but-for materiality test for affirmative egregious misconduct.  The Court explained that in cases where the patentee has engaged in affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit, the misconduct is material as a patentee is unlikely to go to great lengths to deceive the PTO unless it believes it will affect the issuance of the patent.

Since the district court applied the PTO’s Rule 56 materiality standard, the Court vacated the district court’s finding of materiality and remanded for determination under the but-for materiality standard.  Further, since the district court found intent to deceive based on the absence of a good-faith explanation for failing to disclose the EPO briefs, the Court vacated the district court’s finding of intent and remanded for determination under the Court’s specific intent analysis.  Ultimately, the Court affirmed-in-part the district court’s judgment of obviousness, noninfringement, and anticipation while it vacated-in-part its finding of inequitable conduct and remanded-in-part for further proceedings consistent with its opinion. 

In a separate opinion, Judge O’Malley dissented-in-part to the majority’s opinion regarding materiality and concurred-in-part to the remainder of the majority’s decision and judgment.  Judge O’Malley joined the majority’s findings regarding the standard for the specific intent to deceive.  But, Judge O’Malley’s views diverged from the dissent regarding materiality, as she believed that both the majority and the dissent strain too hard to impose hard and fast rules.  Instead of the majority’s but-for materiality approach, Judge O’Malley would adopt a more flexible test, including discretion as to the remedy, such as rendering fewer than all claims unenforceable, dismissing the action before it, or another remedy as long as it was commensurate with the violation.  Specifically, Judge O’Malley would deem conduct material where (1) but for the conduct, the patent would not have issued; (2) the conduct constitutes a false or misleading misrepresentation of fact; or (3) the district court finds that the behavior is so offensive that the court is left with a firm conviction that the integrity of the PTO process as to the application-at-issue was wholly undermined.  Finally, Judge O’Malley noted that she would have affirmed the district court’s finding of materiality under her flexible and discretionary approach.

In a dissenting opinion, Judge Bryson, joined by Judges Gajarsa, Dyk, and Prost, proposed adhering to the materiality standard set forth in PTO Rule 56 instead of the majority’s fundamental change to the inequitable conduct doctrine through adoption of a but-for materiality test.  The dissent raised two reasons for its preference of the PTO’s Rule 56 materiality test.  First, the PTO is in the best position to know what information examiners need to conduct effective and efficient examinations, i.e., what information is material to the examination process.  Second, the higher but-for materiality standard adopted by the majority will not provide appropriate incentive for patent applicants to comply with the disclosure obligations the PTO places upon them.  Ultimately, the dissent would affirm the district court’s finding that the ’551 patent is unenforceable because the court’s factual findings were not clearly erroneous and because its legal analysis comports with the proper role of the doctrine of inequitable conduct in patent law.


Summary authored by Benjamin H. Huh, Esq.