US Appellate Court Toughens Standard For Proving Inequitable Conduct In Patent Litigation

The United States Court of Appeals for the Federal Circuit has held that an accused infringer must now establish that a patent applicant committed inequitable conduct by clear and convincing evidence.  The en banc ruling in Therasense, Inc. v. Becton, Dickinson and Company (Fed. Cir. 2011) is a significant departure from existing jurisprudence on the issue, and is sure to have a far-reaching impact on the conduct of patent litigation and the enforceability of many United States patents.

The patent at issue in this case, U.S. Patent No. 5,820,551, is for a disposable blood glucose test strip for diabetes management. The trial court found the patent unenforceable due to inequitable conduct because the patent applicant’s lawyer failed to disclose briefing made to the European Patent Office during prosecution of related patent applications. A three-judge panel of the Federal Circuit had previously upheld that trial court’s judgment.

Inequitable conduct as a challenge to a patent’s enforceability involves two different elements – whether there was intent to deceive the United States Patent & Trademark Office (USPTO), and whether the deception was material to patentability. While the standards for both elements have evolved over time, it has generally been that only a showing of negligence in some form was required for intent, and for materiality, a substantial likelihood that a reasonable examiner would consider a prior art reference important in deciding whether to allow the application to issue as a patent.

These rather low standards have made inequitable conduct a common defense in patent litigation. Not surprisingly, this has had many consequences for patents, for the conduct of litigation, and for the attorneys involved. The Federal Circuit noted that the frequent use of the defense has a tendency to expand the scope of discovery and negatively impact the participation of the prosecuting attorney in the litigation as well as his or her professional reputation. A finding of inequitable conduct can also infect other related patents and applications in the same technical family.

The Federal Circuit’s new standard is that the accused infringer must prove both elements by clear and convincing evidence. To establish intent, one must show that the applicant knew of a potential prior art reference, knew that it was material, and deliberately decided not to disclose it. Notably, the Federal Circuit departed from a “sliding scale” approach that blurred the line between intent and material by specifically noting that each element is separate requirement for establishing inequitable conduct. It specifically advised, for example, that a trial court may not infer intent solely from materiality and must instead weigh the evidence of intent to deceive independently.

As for materiality, the new standard requires a “but-for” test that a prior art reference is material if the USPTO would not have allowed a claim had it been aware of the undisclosed prior art reference. This requires the trial court to evaluate whether the USPTO would have allowed the claim if it had been aware of the undisclosed prior art reference, giving claims their broadest reasonable construction.

The Federal Circuit also carved out an exception in cases of serious misconduct as it relates to materiality. Where the patent application has engaged in affirmative acts of egregious misconduct, the “but for” aspect of the materiality test does not apply, and the misconduct itself satisfies the materiality requirement.

While many will view the Federal Circuit’s new inequitable conduct test as a welcome change in the law and attempt to introduce clarity, it is likely not the last time a court will try to address the issue. The decision in Therasense was also notable for its split among the judges – six sided with the majority, but the remaining five chose to either dissent (four judges) or concur (one judge). Such a split indicates that we may well see the United States Supreme Court decide to take up the issue again in the future.