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November 12, 2010

AIPLA Reports

A Periodic Notification of AIPLA Activities and

Current Developments in Intellectual Property Law

Copyright © 2010 AIPLA

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Patents/Inequitable Conduct/En Banc Review
En Banc Oral Argument Reveals Difficult Issues for Inequitable Conduct
Therasense, Inc. v. Becton, Dickinson and Co., Fed. Cir., No. 2008-1511, oral argument 11/9/2010.

The current state of inequitable conduct law has increased the cost of litigation, distorted patent disclosures, and impaired investments in innovations, judging from a November 9, 2010 oral argument on the issue before the en banc Federal Circuit. The parties to the case and the Solicitor of the PTO agreed that the law needs to be revised, although they did not agree on the change to be made.

 
Appellant’s Argument
 
John Whealan, of George Washington University Law School, argued for appellant Therasense Inc. (now known as Abbott Diabetes Care, Inc.) that the time has finally come to restore inequitable conduct law to its Supreme Court precedents, which involved only the most egregious types of common law fraud that caused a patent to issue.  Specifically, he maintained, the Federal Circuit should revitalize the intent standard of Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc), should adopt a materiality standard that is based on causation and reliance, and should eliminate the sliding scale that allows materiality alone to determine intent to deceive.
 
The intent determination, which arguably should be the first consideration, requires proof that a person subjectively appreciated the importance of the information and deliberately decided to hide it, according to Whealan.  On materiality, Judge Lourie asked if he was advocating a “but for” standard, essentially “no harm, no foul,” to which Whealan answered yes.  Judge Dyk maintained that observed that common law fraud does not require but-for causation, adding that the “importance” and “but for” are not necessarily the same.  Whealan replied that in the Supreme Court cases say the fraud “caused” the issuance of the patent.
 
Judge Prost asked for Whealan to explain the difference between the “but for” materiality standard and the materiality standard in the PTO’s Rule 56(b) on the duty of disclosure.  Whealan answered that Rule 56(b)(1), which invokes a prima facie case of unpatentability, has some merit, but he pointed out that the alternative in (b)(2) that definition by requiring information that refutes or is inconsistent with the applicant’s position.  However, fundamentally the court should not simply adopt Rule 56 as a matter of law because the PTO has no substantive rulemaking authority and the rule is subject to change as the agency sees fit, he added.
 
On the matter of causation, Judge Dyk interjected, where does the Supreme Court say that the patent would not have issued but for the misconduct?  Even if the Supreme Court has not specifically articulated causation, according to Whealan, that factor is apparent on the face of the cases where the conduct was so bad that the patent could not have issued.  What about an affidavit stating falsely that an inventor is a small entity entitled to lower fees; would you argue that such a lie to the PTO is acceptable, Judge Gajarsa asked.  No I would not, Whealan answered, but I would argue that inequitable conduct is the wrong doctrine for policing such misconduct.
 
But what about using the inequitable conduct doctrine to ensure applicants’ compliance with the duty to make sufficient disclosures for the PTO to do its job, Judge Linn asked.  The PTO’s interests in disclosure and the court’s interest in sanctioning fraud are different, according to Whealan.  The result of using the latter to serve the former, he said, has been boundless and indiscriminate disclosures by applicants to ward off liability, and such disclosures serve no PTO goal.
 
PTO Argument
 
PTO Solicitor Raymond Chen agreed with much of Whealan’s argument, such as the position that the intent-materiality balancing test needs to be clarified, but he disagreed with the argument that the Supreme Court cases call for a “but for” test of materiality.  But don’t applicants under the present system overload the PTO with irrelevant and obscure disclosures to avoid inequitable conduct charges, Judge Linn asked.  Yes, that is the current situation, Chen conceded, but he added that the court can remedy the problem by clarifying the materiality standard, by emphasizing the bad faith nature of the conduct under Kingsdown, and by adopting a version of Rule 56. 
 
Responding to Judge Prost, Chen said that there are problems with both the “but for” standard and the “reasonable examiner” standard that has been applied by the courts.  [Ed. Note: Courts have applied a “reasonable examiner” standard of materiality that was part of Rule 56, but the PTO abandoned that standard in 1992 for a “prima facie unpatentability” standard.  See 57 Fed. Reg. 2021.]  He specifically observed that the “but for” standard allows applicants to hide important information from examiners, risking that examiner decisions in the ex parte context may be based on misinformation.  Judge Linn suggested that the PTO can always discipline applicants or practitioners without consideration of whether the patent issues.  The Supreme Court standard, according to Chen, is to police conduct resulting in invalid patents but also conduct that casts doubt on applicant’s representations.  This is the target of the (b)(2) requirement for information that refutes or is inconsistent with the applicant’s position, he explained. 
But doesn’t that requirement, as the appellant argues, swallow up the disclosure rule and continue the flood of disclosures under the current law, Judge Moore asked.  The problem is not the (b)(2) requirement but with the vagueness of the “reasonable examiner” standard, Chen answered.  What if an applicant has disclosed overwhelming support for patentability but there is a very small minority of information that is inconsistent with its position; required under (b)(2), Judge Bryson asked.  Chen’s answer was yes, explaining that it is in the public interest for the PTO to make a fully informed decision.  But there isn’t there also a public interest in reducing the problems of over-pleading inequitable conduct, Judge Newman asked, and there’s no reason to think either (b)(1) or (b)(2) would correct this.  Chen replied that the PTO’s 1992 abandonment of the “reasonable examiner” standard was meant to address the litigation problems; the court can now make further improvements by emphasizing the intent standard under Kingsdown and by ratcheting up the pleading requirements, he added.
 
Appellees’ Argument
 
Rachel Krevans of Morrison Foerster and representing appellee Bayer Healthcare LLC, agreed that inequitable conduct has become a “plague” on the patent system, but argued that the law has recently changed to address the problems.  Recent Federal Circuit decisions have placed renewed emphasis on the intent standard set out in Kingsdown, and the definite pleading requirements in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1330 (Fed. Cir. 2009), will eliminate unfounded allegations of misconduct, she maintained.  She also stated that Rule 56(b)(2) is not as broad as feared because Rule 56 requires disclosure of information “known” to be material, i.e., known to be inconsistent with the applicant’s position.  What if the applicant’s position is that the invention is not obvious, Judge Moore asked; doesn’t this requirement cast a broad net for the applicant to provide information that the invention is arguably obvious? 
 
The rule applies only the specific position being advocated, not to any issue of patentability, Krevans replied.  To Judge Linn’s question of whether she was simply advocating the application of Rule 56 to decide inequitable conduct, Krevans answered yes.  Judge Linn observed that Rule 56 is subject to change and that it could return to the “reasonable examiner” standard.  Under the “but for” rule.
 
Bradford J. Badke of Ropes & Gray and representing appellee, Becton, Dickinson and Company, said that the “but for” standard will permit lying with no consequences. Judge Gajarsa asked if the issue of intent should be considered before materiality, but Badke maintained that high materiality is relevant to intent.  He later clarified that intent should not be inferred from the level of materiality alone and that other factors such as the egregiousness of the conduct could be considered.
 
To hear an audio recording of the oral argument, click here.
The read the en banc order, click here.