Inequitable Conduct: Getting to Therasense and Beyond

1. Inequitable Conduct: Getting to Therasense and Beyond John D. Murnane Melinda R. Roberts October 18, 2012

2. Overview • Overview of Inequitable Conduct • The Therasense decision • Pre-Therasense • Post-Therasense

3. I. Overview of Inequitable Conduct

4. Inequitable Conduct, Generally • Equitable defense to patent infringement • Alleges misconduct at the Patent Office • Usually predicated on a failure to disclose information during a patent prosecution • Evolved and expanded from the unclean hands doctrine • Relates to Patent Rule 56 (37 C.F.R. § 1.56): “Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [PTO], which includes a duty to disclose to the [PTO] all information known to that individual to be material to patentability.”

5. Inequitable Conduct, Generally • Can result in severe penalties: • Entire patent or patent family may be deemed unenforceable even if inequitable conduct only relates to one (even unasserted) claim • Cannot be cured by reissue or reexamination* • Recovery of legal fees • Attorney’s reputation may be damaged • Risk of other claims (e.g., antitrust)

6. Pleading Inequitable Conduct • Must be pleaded with particularity under F.R.C.P. 9(b) by identifying “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the [Patent Office]” Exergen Corp. v. Walmart Stores, Inc. 575 F.3d 1312, 1328 (Fed. Cir. 2009). • “Moreover, although “knowledge” and “intent” may be averred generally, a pleading of inequitable conduct under Rule 9(b) must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual (1) knew of the withheld material information or of the falsity of the material misrepresentation, and (2) withheld or misrepresented this information with a specific intent to deceive the PTO.” Id. at 1328-29.

7. Inequitable Conduct Standard (Pre-Therasense) Materiality • Inequitable Conduct required: • Materiality of alleged fraud • Many different standards for materiality existed pre-Therasense: e.g., the objective and subjective “but for” tests; the “but it may have” test; the “reasonable examiner” test; Patent Rule 56 (1992) test) • General intent to deceive based on totality of circumstances • Satisfied with showing of gross negligence or even negligence • Courts used a “sliding scale”: a strong showing of intent could compensate for a weak showing of materiality and vice versa Intent

8. II. The Therasense Decision

9. Facts of Therasense • Invention related to disposable blood glucose testing strips • Misconduct related to patent holder’s failure to disclose to the PTO statements made to the EPO regarding a prior art patent Procedural History of Therasense • Patent originally filed in 1984 • In the next 13 years, patentee faced multiple rejections and many continuation applications were filed • Alleged misconduct occurred in 1997 • District court found inequitable conduct in 2008 • Divided Federal Circuit panel affirmed in 2010 • Federal Circuit granted en banc review in 2010

10. Sidebar: Importance of Federal Circuit • Established under Article III of the U.S. Constitution • Has nationwide jurisdiction in a variety of subject areas including patents (28 U.S.C. § 1295) • Appeals to Federal Circuit come from all federal district courts and certain administrative agencies’ decisions, including the Board of Patent Appeals and Interferences • Intellectual property cases account for 31% of Federal Circuit’s caseload

11. Inequitable Conduct Under Therasense • The Therasense court “now tightens the standards for finding both intent and materiality in order to redirect [the inequitable conduct] doctrine that has been overused to the detriment of the public.” 649 F.3d 1276, 1290 (Fed. Cir. 2011). • Inequitable Conduct requires a separate showing of both: • But-for Materiality • Specific Intent to Deceive • Each must be established by clear and convincing evidence • Note: Therasense rejects the use of a sliding scale to offset weak showing of intent with strong showing of materiality, and vice versa

12. Materiality Under Therasense • But-for Materiality Standard: • “When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” • Note: If a district court invalidates a claim based on undisclosed prior art, it is automatically material. • Evidentiary Standard: • Party alleging inequitable conduct must show but-for materiality by clear and convincing evidence • In determining whether information is material, courts should apply the preponderance of the evidence standard give claims their “broadest reasonable construction”

13. Materiality Under Therasense, cont. • Exception: Affirmative Egregious Misconduct • Affirmative egregious misconduct before the PTO is material (i.e., showing of but-for materiality not needed in these cases) • Rationale: “…a patentee is unlikely to go to great lengths to deceive the PTO with a falsehood unless it believes the falsehood will affect issuance of the patent.” • Example: Patentee files an unmistakably false affidavit • But a failure to update a Petition to Make Special, after circumstances underlying the petition changed, was not affirmative egregious misconduct. Powell v. The Home Depot, U.S.A. Inc., 663 F.3d 1221 (Fed. Cir. 2011). • Likewise, an attorney's statement contained in a petition to revive a patent after failure to pay a maintenance fee, while false and material, was not affirmative egregious misconduct because there was "insufficient evidence of subsequent steps taken to deceive the USPTO or activities rising to the level of paying witnesses to lie or creating false articles with deceptive attribution to make such a finding.“ Network Signatures, Inc. v. State Farm Mutual Insurance Co., No. SACV 11-00982 JVS, 2012 WL 2357307, at *8 (C.D. Cal. June 13, 2012)

14. Intent under Therasense • Intent Standard: Requires specific intent to deceive • Applicant knew of the reference, knew it was material and made a deliberate decision to withhold it • “misrepresentation or omission amount[ing] to gross negligence or negligence under a ‘should have known’ standard does not satisfy this intent requirement.”

15. Intent under Therasense, cont. • Evidentiary Standard: Party alleging inequitable conduct 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.” • May still be inferred from indirect or circumstantial evidence • But inference must be “the single most reasonable inference able to be drawn from the evidence” • “…when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.” • “The absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive.”

16. Outcome in Therasense Case • Federal Circuit vacated District Court’s finding of inequitable conduct and remanded for further consideration • On remand, the District Court again found inequitable conduct and struck down the entire patent as unenforceable

17. III. Pre-Therasense

18. The “Plague” of Inequitable Conduct [T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague. Reputable lawyers seem to feel compelled to make the charge against other reputable lawyers on the slenderest grounds, to represent their client’s interests adequately, perhaps. They get anywhere with the accusation in but a small percentage of the cases, but such charges are not inconsequential on that account. Burlington Industries, Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988)

19. The “Plague” Explained • Overuse of inequitable conduct • Increases complexity and duration of litigation • Interferes with effective and efficient examination of patent applications • Detrimentally impacts profession

20. Overuse of Inequitable Conduct • Alleged merely for value as a litigation tactic • Offers pro-defendant narrative (patentee as bad actor) • Disqualifies prosecuting attorney from litigation team • Functions as an “atomic bomb” to render entire patent or patent family unenforceable and risk other penalties • Various studies show inequitable conduct was pled in somewhere between 40% to 80% of patent cases pre-Therasense

21. Inequitable Conduct Increases Complexity and Duration of Litigation • Expands scope of discovery • Opens door to additional areas and time periods of discovery (e.g., corporate practices before patent filing) • Pushes limits of attorney-client privilege and crime-fraud exception • Leads to increased discovery disputes and motion practice • Adds to contentiousness of litigation and discourages settlement • Deflects attention from validity and infringement • Extreme nature of penalties requires vigorous litigation of even weak allegations

22. Inequitable Conduct Interferes With Examination of Patent Applications • Results in over-disclosure or “reference flooding” or “data-dumping” – e.g.,where patent prosecutors end up disclosing every piece of remotely relevant prior art • Disincentivizes patent attorneys from helping PTO understand the relevancy of references during prosecution • Results in issuance of more vulnerable patents data data data data data data

23. Inequitable Conduct Detrimentally Impacts Legal Profession [Assertions of inequitable conduct] destroy the respect for one another’s integrity, for being fellow members of an honorable profession, that previously made the bar a valuable help to the courts in making a sound disposition of their cases, and to sustain the good name of the bar itself. Burlington Industries, Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) The inequitable conduct finding in this case, for example, has destroyed the career of Mr. Pope, who had 35 years of experience prosecuting patents with highly respected law firms and companies, including appellee Bayer. He had never previously even been accused of inequitable conduct. But the finding of inequitable conduct in this case has put his license with the Illinois and Patent Bars at stake. As a direct result, he has also been terminated from his law firm and the only other legal job he could get. Petition for Rehearing En Banc, Therasense, Inc. v. Becton, Dickinson and Co., 04-CV-2123 at 15 (Feb. 24, 2010)

24. IV. Post-Therasense

25. Inequitable Conduct and the America Invents Act (2011) • The AIA creates a supplemental examination procedure for patents (35 U.S.C. § 257). Effective September 16, 2012, available to any patent regardless of issue date • A patent owner may request supplemental examination of a patent any time after its issuance “to consider, reconsider, or correct information believed to be relevant to that patent.” • Can be based on any information – not just prior art patents and printed publications • If PTO finds a substantial new question of patentability is presented, re-examination is ordered • Patent may not be held unenforceable based on conduct relating to the information considered or corrected during supplemental examination. • Except where inequitable conduct allegations were already pending before the request for supplemental examination was filed

26. Inequitable Conduct and the America Invents Act, cont. • Supplemental Examination can be used to amend claim, cure inequitable conduct and improve value of a patent • But it cannot be used to cure fraud • PTO can still investigate and impose sanctions for misconduct • Also, invoking supplemental examination risks the possible revocation of an otherwise granted patent • And re-examination may result in requirement to narrow claims

27. Impact of Therasense on PTO • Therasense rejected PTO’s materiality standard • PTO’s proposed rulerevises its materiality standard to match the materiality standard as defined in Therasense (Federal Register Vol. 76, No. 140, July 21, 2011) • PTO identified the following reasons to harmonize its own standard with the Therasense jurisprudence: • Therasense’s materiality standard should reduce the frequency with which applicants and practitioners are being charged with inequitable conduct, thereby reducing the incentive to submit information disclosure statements containing marginally relevant information and enabling applicants to be more forthcoming and helpful to the PTO • Therasense’s materiality standard should continue to prevent fraud on PTO and other egregious forms of misconduct • Harmonization of the materiality standards is simpler for the patent system as a whole

28. Impact of Therasense on District Courts • Some evidence fewer inequitable conduct claims being brought • Therasense’s impact at the pleading stage: • Do pleadings that present “multiple reasonable inferences” violate Therasense? • Are “knew or should have known” pleadings no longer sufficient? • Deadline to amend pleadings? • More motions to dismiss? • Therasense’s impact at the discovery stage: • New boundaries of discovery? • More discovery disputes?

29. Impact of Therasense on District Courts, cont. • Therasense’s impact at the trial stage: • More motions for summary judgment? • Separate claim construction for Inequitable Conduct and Infringement/Validity phases? • “broadest, reasonable interpretation” v. “correct” claim construction • Bifurcation of Inequitable Conduct and Infringement/Validity phases? • New role for experts? • Resurgence of other defenses (e.g., unclean hands)?

30. Questions?

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