Inequitable Conduct: Analysis of Post-Therasense Court Decisions and the Supplemental Examination Provision of the America Invents Act, Contributed by Peter G. Thurlow and Maya Elbert, Jones Day
It was once commonplace for defendants to assert an inequitable conduct defense in a patent litigation to render a patent unenforceable. The United States Court of Appeals for the Federal Circuit (“Federal Circuit”) recognized that “the habit of charging inequitable conduct in almost every major patent case has become an absolute plague.”1 According to one study, inequitable conduct allegations were raised in an astounding 80 percent of patent infringement litigations.2 Judge Rader, writing for the majority in Therasense, commented that inequitable conduct allegations, routinely brought on the slenderest grounds, had become a common litigation tactic, hanging “a dark cloud over the patent’s validity,” painting the patentee “as a bad actor,” and “casting the shadow of a hangman’s noose” over patent prosecutors.3 Because a determination of inequitable conduct regarding any claim of a litigated patent renders the entire patent, and sometimes the entire family of patents, unenforceable, Judge Rader dubbed the remedy for inequitable conduct the “atomic bomb” of patent law.4 This article reviews the impact of the Federal Circuit’s en banc Therasense decision and further discusses the potential impact of the America Invents Act’s (“AIA”) new supplemental examination provision on inequitable conduct.
Inequitable Conduct Standard Post-Therasense
The Federal Circuit in Therasense raised the standard for finding a patent unenforceable on the basis of inequitable conduct in three principal ways.5 First, the materiality required to establish inequitable conduct is a “but-for” materiality, i.e., information undisclosed by the applicant is deemed material only if the United States Patent and Trademark Office (the “Patent Office”) would not have allowed a claim had it been aware of the undisclosed information.6 In making this “but-for” materiality determination, Therasense directed courts to apply the preponderance of the evidence standard used by the Patent Office, not the clear and convincing evidentiary standard applied by courts in determining patent invalidity.7 The Federal Circuit, however, recognized an exception to the rule requiring “but-for” materiality for acts of affirmative egregious misconduct, such as the submission of false affidavits.8 Second, under Therasense, intent can be established only 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.”9 In the absence of direct evidence of intent, a “specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence,’” which is “sufficient to require a finding of deceitful intent.”10 Third, materiality and intent are separate requirements that cannot be inferred from or weighed against each other.11 Notably, the Federal Circuit’s Therasense decision is likely to remain the law of the land for years to come, as a petition for a writ of certiorari was not filed in the United States Supreme Court.
Effect of Therasense on District Court Rulings
Since the May 25, 2011 Therasense decision, district courts have rendered final decisions in fourteen cases involving inequitable conduct. In the seven cases to reach final judgments after a bench trial or defendants’ post-trial motions, no court found inequitable conduct.12 Out of five summary judgment motions of no inequitable conduct, two were granted13 and three were denied due to the existence of a genuine issue of material fact.14 Additionally, of the two requests for a preliminary injunction opposed by defendants on the basis of, inter alia, inequitable conduct, the courts ruled that the defendants’ inequitable conduct defenses lacked substantial merit.15
A number of the cases found that the undisclosed information was not material under the “but-for” standard16 while other courts found that undisclosed information was, in fact, material.17 The Therasense inquiry appears to be straightforward when a patent’s claims are also found invalid based on the undisclosed information because, if a reference renders a patent claim invalid under the clear and convincing standard required for invalidity, the reference is “but-for” material under the preponderance of the evidence standard required to find materiality.18 However, in cases where the undisclosed information was not enough to render the patent invalid, courts have grappled with the issue but ultimately did not find “but-for” materiality.19 This suggests that, post-Therasense, a finding that an undisclosed reference is material will be closely tied to a finding that the reference invalidates at least one claim of the patent.
As difficult as it may be for a patent challenger to establish materiality, post-Therasense district court decisions indicate that it may be even more difficult to establish the requisite level of intent. As noted above, in the absence of direct evidence of deceitful intent, courts can find specific intent only when it is “the single most reasonable inference to be drawn” from the evidence requiring such a finding.20 Post-Therasense, courts have been reluctant to infer intent based on circumstantial evidence. In fact, only one district court found the specific intent required by Therasense.21 This suggests that, absent direct evidence of intent to deceive, specific intent will be hard to show. Notably, not one of the above-mentioned district court decisions found inequitable conduct under the new Therasense standard. Further, post-Therasense, the Federal Circuit has not affirmed a lower court’s determination of inequitable conduct, or reversed a lower court’s determination of no inequitable conduct.22
Effect of Therasense on Inequitable Conduct Pleadings
A related question is how the Therasense decision will affect pleadings, i.e., whether defendants will be less inclined to plead inequitable conduct.
The standard for pleading inequitable conduct was set forth in Exergen,23 where the Federal Circuit held that inequitable conduct must be pleaded with particularity under Federal Rule of Civil Procedure 9(b) by identifying “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the [Patent Office].”24 Therasense, without changing the Exergen standard for pleading inequitable conduct in form, heightens it in substance since all of the elements of the new inequitable conduct standard, including “but-for” materiality and specific intent, must be supported with particularized allegations. In Delano Farms Co. v. The California Table Grape Comm’n, the Federal Circuit held that a pleading must recite facts from which a court “may reasonably infer that a specific individual both knew of invalidating information that was withheld from the PTO and withheld that information with a specific intent to deceive the PTO.”25 Further, in Abaxis, Inc. v. Cepheid, the district court held that it is insufficient to allege facts showing that an applicant knew that a reference existed and assert that the applicant “should have known” of its materiality.26 Rather, the court in Abaxis held that particularized pleadings must support a reasonable inference that the applicant knew that the undisclosed reference was “but-for” material to the patent-in-suit.27 Notably, only one of the above-mentioned post-Therasense district court cases, and only one post-Therasense Federal Circuit decision ruling on the pleadings, found that inequitable conduct was effectively plead.28 This suggests that Therasense not only makes proving inequitable conduct difficult, but may also make it harder for defendants to plead.
Furthermore, in Pfizer Inc. v. Teva Pharms. USA, Inc., a district court awarded $378,285 in attorney’s fees to a plaintiff for a defendant’s pursuit of baseless inequitable conduct allegations.29 In that case, according to the court, “a busy young law partner who devised a somewhat ‘sloppy’ system for sorting foreign litigation material” failed to disclose one of such litigation documents to the Patent Office—a document that “hardly approach[ed] the but-for materiality required by Therasense.”30 The circumstances of the non-disclosure prompted the defendant to pursue its inequitable conduct claim on the theory of “willful blindness.”31 The district court found that the defendant continued to pursue its inequitable conduct claim while it could not have reasonably believed it would succeed because there was no evidence of “but-for” materiality, affirmative egregious misconduct, or specific intent to deceive the Patent Office as required by the Therasense standard.32 Accordingly, the court found that the defendant’s pursuit of inequitable conduct was “frivolous” and “exceptional” under 35 U.S.C. § 285, and awarded the plaintiff attorney’s fees.33 The court called this case “the archetype of the action the Federal Circuit was aiming to curtail” in Therasense.34 The court further opined that Therasense “provides substantial encouragement to an award of attorney fees” in such cases, and that “courts must be willing to impose consequences for parties who continue to overreach in the aftermath of its issuance.”35 Pfizer suggests that we may see more awards of attorney’s fees in the future for “frivolous” inequitable conduct claims.
Supplemental Examination Provision of the AIA
Under the supplemental examination provision of the AIA, enacted on September 16, 2011, 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.”36 This provision allows a patent owner to have prior art that was not considered during the initial examination of the patent to be considered after the patent has been granted. Importantly, once such information is considered, the patent cannot later be held unenforceable on the basis of conduct relating to such information.37 This provision takes effect on September 16, 2012, and applies to any patent issued before, on, or after that date.
It appears that the supplemental examination provision will be used prior to initiating a patent infringement action to clean up the record of a patent and thereby minimize the chance of the patent being held unenforceable due to inequitable conduct. However, the supplemental examination provision was added to the patent reform bill prior to the issuance of the Therasense decision. Following Therasense, and in light of our discussion above regarding cases decided thereafter, a patent owner may decide that the risks of requesting supplemental examination outweigh the chances the patent may be found unenforceable due to inequitable conduct. More specifically, if the Patent Office finds that a reference presented in the request raises a substantial new question of patentability, the patent will be reexamined according to the current ex parte reexamination rules.38 There is a strong likelihood of a reexamination being granted in response to a request for supplemental examination. According to recent statistics on ex parte reexamination, 92 percent of all requests since July 1, 1981, have been granted.39 The risk that the claims of a patent will either be canceled or amended during reexamination is also high―even when a patent owner has requested reexamination, the claims have been canceled or amended in 79 percent of reexaminations.40 Further, the Patent Office is more likely to find claims invalid than a court, because the Patent Office applies the preponderance of the evidence standard, whereas courts apply the much higher clear and convincing evidence standard. Moreover, even if a patent’s claims are upheld on reexamination, any amendment of the claims may preclude the patentee from recovering past damages. Lastly, an ex parte reexamination proceeding takes a long time, about 26.3 months from filing the request to the ex parte certificate being granted, thereby potentially delaying the start of litigation.41 Therefore, there are significant risks in requesting supplemental examination.
A remaining question is whether applicants will use supplemental examination. Like most legal questions, we believe that the answer is “it depends.” In some situations, this provision will add to the patentee’s arsenal of anti-inequitable conduct weapons and will reduce the defendant’s opportunities for alleging inequitable conduct. In particular, supplemental examination can effectively preempt inequitable conduct challenges by allowing a patentee to come forward to the Patent Office with previously undisclosed information. While Therasense comes to the patentee’s rescue after the patent infringement action has commenced, the supplemental examination provision provides a patentee with a tool for strengthening its patent against inequitable conduct attacks before the patent infringement action is initiated. However, taking into account the above-described risks of supplemental examination, supplemental examination is certainly not a “one size fits all” strategy.
A request for supplemental examination would benefit a patentee that becomes aware of a reference not previously considered by the Patent Office that the patentee considers “material” under the Therasense standard, particularly when the patentee believes the reference would likely invalidate the patent under the clear and convincing standard applied by the courts. In such a case, the patentee may want to file a request for supplemental examination to preempt future inequitable conduct defenses, and then narrow the claims during the resulting reexamination to distinguish the claims from the reference. The claim amendments could prevent the patentee from obtaining past damages due to intervening rights, but the reexamined patent would be more likely to survive litigation, and could still be asserted to obtain an injunction or post-reexamination damages in a district court infringement action or an exclusionary order in a Section 337 proceeding in the International Trade Commission.
The Future of Inequitable Conduct
A review of post-Therasense court decisions demonstrates that the courts have not found any patents unenforceable due to inequitable conduct. In addition, a review of court decisions involving pleadings indicates that it is more difficult to successfully plead inequitable conduct. In fact, in egregious cases, plaintiffs may be awarded attorney’s fees when defendants pursue baseless inequitable conduct allegations. The supplemental examination provision of the AIA was initially intended to curtail allegations and findings of inequitable conduct. However, based on the high inequitable conduct standard imposed by the Federal Circuit in the Therasense decision and the risks associated with a patent undergoing reexamination, a patent owner will need to examine whether the risks outweigh the benefits associated with requesting supplemental examination.
Peter Thurlow is a partner in the Intellectual Property Practice at Jones Day in New York and leads the Firm’s global patent prosecution group. He specializes in domestic and international patent prosecution, patent litigation support, and due diligence for IPOs and venture capital investments. Peter is also chairperson of the Patent Law Committee for the New York Intellectual Property Law Association (NYIPLA) and represents the NYIPLA at USPTO meetings on various matters. Peter has closely followed patent reform and has provided ongoing counsel to Jones Day clients and the NYIPLA throughout the patent reform debate and since the passage of the America Invents Act.
Maya Elbert, Ph.D., is an associate in the Intellectual Property Practice at Jones Day in New York. She focuses her practice on patent prosecution and transactional work in the areas of biotechnology and pharmaceuticals. Maya experience in the preparation and prosecution of domestic and international patent applications, preparation of patent validity and non-infringement opinions, and in conducting due diligence investigations, freedom-to-opera analyses and prior art searches. She also received a Ph.D. in pharmacology has conducted scientific research in the fields of cell biology, molecular biology, biochemistry, and developmental biology.
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