The Resurgence of Inequitable Conduct
By Irfan Lateef and Joshua Stowell
Inequitable conduct, once a ubiquitous response to patent infringement claims, is again gaining traction as a high-profile and effective infringement defense. Although numerous factors have contributed to the resurgence, a handful of recent decisions by the Federal Circuit appear to play a prominent role.
Critics allege that the recent decisions elevate the duty of disclosure to an unattainable level by changing the two prongs of an inequitable conduct defense to (1) enlarge the scope of material references and (2) decrease the standard for proving deceptive intent. Patent holders contend that the lower intent standard encourages inequitable conduct claims and submits more patents to unfair scrutiny. Judge Newman, of the Federal Circuit, has warned that the recent decisions risk returning patent law to the “plague” of inequitable conduct claims that were pervasive in patent litigation before the advent of the Federal Circuit. Critics further contend that the enlarged scope of materiality increases the odds that patent prosecutors will inadvertently fail to disclose some trivial reference, permitting defendants to turn otherwise-routine examinations into manipulated tales of deception. It is argued that the result of these combined effects is that patentees could ultimately have more of their patents declared unenforceable. This unpredictability in the enforceability of patents could disincentivize innovation and undermine the patent system.
Supporters of the recent decisions counter that an ex parte process, like obtaining a patent, justifies a high duty of disclosure. According to proponents, patent examiners lack the time and resources to verify every argument and to locate every piece of relevant prior art. Consequently, examiners must heavily rely on applicants. Supporters believe that the liberal enforcement of inequitable conduct standards will ultimately encourage applicants’ veracity. Moreover, supporters contend that requiring patentees to conduct exhaustive reviews of prior art will increase the quality of patents and the efficiency of the patent system.
While the debate over the proper scope of the inequitable conduct doctrine continues, attorneys are left scrambling to understand and implement the evolving doctrine. The following sections highlight some of the current inconsistencies in inequitable conduct jurisprudence and provide suggestions for confronting them.
History
Inequitable conduct is a judicially created doctrine that owes its origins to a series of Supreme Court cases in the 1940s. In those early cases, the Court, for the first time, refused to enforce patents obtained as a result of fraud on the Patent and Trademark Office (PTO). The early Court formulated a legal standard for establishing inequitable conduct akin to common law fraud and required defendants to demonstrate a material misrepresentation and some level of wrongful intent on the part of the patent holder. If the defendants met their burden, the Court would then balance the equities involved in the case and determine whether the actions of the patent holder warranted a finding of inequitable conduct and the severe penalty of patent unenforceability.
As the doctrine continued to develop, different legal standards arose for the materiality and intent prongs of the analysis. With regard to materiality, district and appellate courts applied a dizzying array of standards covering a range of conduct. At the narrow end of the spectrum, courts applied an objective but-for standard, which limited materiality to situations in which the examiner would not have granted the patent but for the misrepresentation of the applicant. At the other end of the spectrum, the PTO introduced a reasonable examiner standard, which based materiality on whether a reasonable examiner would have considered the misrepresentation or omission important during prosecution. Although all the standards persisted to some extent, the reasonable examiner standard became the dominant legal test.
In 1992, however, the PTO modified its definition of materiality and created an arguably narrower standard. The new definition limited materiality to references that refuted a position or argument made by the patentee regarding patentability or established, either alone or in combination with additional prior art, a prima facie case of unpatentability. The PTO created the new definition to objectify the materiality inquiry. In the face of this new PTO standard, many courts abandoned the former standards, including the popular reasonable examiner standard, and focused on the narrower definition.
On the intent side, courts applied a range of legal standards, from gross negligence to willful conduct and deceptive intent. Yet, over time, a large number of courts, including the Federal Circuit in its early days, gravitated toward the more easily proved gross negligence standard. Under the gross negligence standard, a defendant could prove a patentee’s intent to deceive by demonstrating that the patentee knew or should have known that it was making a material misrepresentation to the Patent Office.
Critics of the should-have-known standard, however, argued that it required an unreasonable level of precision for an area of law as complex as patent prosecution. In fact, during this time, courts declared a large number of otherwise-valid patents unenforceable simply because the patent prosecutor made a mistaken or uninformed misrepresentation during prosecution. Further, the relatively low level of evidence necessary to prove intent increased the success rates of inequitable conduct claims and encouraged accused infringers to allege inequitable conduct in virtually every patent suit. The vast number of inequitable conduct charges eventually caused the Federal Circuit to label them an “absolute plague” on the patent system. Critics ultimately maintained that the gross negligence standard decreased the predictability of the patent system and undermined innovation.
In recognition of the problems with the gross negligence standard, the Federal Circuit adopted a more objective means for determining inequitable conduct. In Kingsdown, [1] the Federal Circuit established that courts must consider all the evidence surrounding a particular misrepresentation, including evidence of good faith, and that defendants must prove both materiality and intent by clear and convincing evidence. Under this new standard, defendants could no longer prove a patentee’s intent to deceive by merely alleging that the patentee was grossly negligent. Instead, the clear and convincing standard required defendants to present some extra indicia of intent to deceive to render a patent unenforceable. This heightened standard had the desired effect, as the number of inequitable conduct charges decreased in the following years.
Recent Decisions Regarding Inequitable Conduct
A series of recent inequitable conduct decisions have arguably altered the scope of the materiality requirement and lowered the standard for proving intent to deceive.
Materiality. The Federal Circuit recently clarified that the narrower PTO standard introduced in 1992 did not replace any of the previous standards, including the reasonable examiner standard, but merely provided one more test for materiality. [2] The impact of that decision is that courts and patentees now must wrestle with several materiality standards when confronting inequitable conduct charges. Critics have voiced frustration with the numerous materiality standards, particularly the reasonable examiner standard, as each standard tends to yield unpredictable and inconsistent results. Patent prosecutors and patentees complain that even after spending large amounts of time and effort to identify material references, they are still left with a level of uncertainty concerning their fulfillment of the duty of disclosure.
Additionally, critics argue that the Federal Circuit has recently stretched materiality beyond its logical limits under the guise of the reasonable examiner standard. For example, the Federal Circuit adopted the position that “under the reasonable examiner standard, a misstatement or omission may be material even if disclosure of that misstatement or omission would not have rendered the invention unpatentable.” Yet, critics argue, the sole purpose for disclosing references to the PTO is to educate the examiner on the patentability of the invention. Requiring applicants to disclose references that do not ultimately impact patentability arguably exposes patentees to liability based on irrelevant matters. Critics point to the recent McKesson decision as an example. [3] In McKesson, the Federal Circuit surprised most patent prosecutors by affirming the district court’s inequitable conduct holding based on the patentee’s failure to disclose the allowance of a continuation application in a related case before the same examiner only months earlier.
Intent. Critics argue that recent decisions lower the standard required to demonstrate intent to deceive below the clear and convincing standard required by Kingsdown. Patentees point to the increasing number of decisions that base findings of intent to deceive on inferences and presumptions. In fact, the Federal Circuit has adopted the position that it will generally infer intent to deceive in cases where the misrepresentation is “highly material,” the applicant knew of the information, the applicant “knew or should have known” of the materiality of the information, and the applicant has not provided a credible explanation for the withholding. [4] Critics are quick to point out that examining what the applicant should have known returns the intent inquiry to the gross negligence standard that Kingsdown purported to eliminate.
Further, Kingsdown required the court to consider all the evidence, including evidence of good faith, when addressing the intent prong. Yet lately the court seems to view evidence of good faith with a critical eye. In one recent case, evidence elicited during trial suggested that the patentee honestly believed a reference did not need to be disclosed to the PTO because it did not impact patentability. [5] On appeal, the Federal Circuit rejected the good-faith evidence stating, “there is no such thing as a good faith intent to deceive.” The court’s decision and rhetoric strongly suggests that once it infers an intent to deceive, no amount of good-faith evidence can rebut the inference.
The Federal Circuit’s response to all these criticisms is that direct evidence of deceptive intent is rarely ever available, and therefore, practical concerns require the court to infer intent in most situations. Further, the court continues to claim, despite holdings suggesting the contrary, that mere failure to cite a reference to an examiner cannot alone support a finding of intent to deceive. The court continues to state that the defendant must present some extra indicia of an intent to deceive for the court to infer intent, and that the extra indicia requirement protects patentees from wrongful inequitable conduct decisions.
Implications
An arguably lower standard for inequitable conduct has practical implications for patent prosecutors and litigators alike. On the prosecution side, commentators suggest that the broadening of the materiality prong means prosecutors will need to conduct more expansive searches of the references in their possession and excruciatingly thorough reviews of related and co-pending applications. However, patentees may also want to exercise caution when citing huge amounts of material to the patent office to avoid charges of concealing the most relevant references in a mountain of immaterial documents. Further, prosecutors will need to exercise extreme caution when making any representations to the Patent Office, as the court has shown a tendency to hold affirmative representations to particularly exacting standards. The net result is that patent prosecutors should anticipate spending more time and effort on preparing patent disclosures, and patentees should anticipate higher prosecution costs as a result of the increased attorney time. Moreover, as a result of the increased number of disclosures that an already-overwhelmed PTO receives, some patentees may experience even longer examination periods.
On the litigation side, commentators indicate that the decreased standard for proving intent will only increase inequitable conduct attacks on granted patents. Such attacks will tend to add yet another layer of complexity to already-complex cases and place a premium on experienced patent litigators. Additionally, provided the increased opportunities and costs associated with inequitable conduct claims, litigators should counsel their clients about these matters before the onset of litigation if possible.
Critics worry that the new inequitable conduct standards subject patent holders to an unfair level of scrutiny, substantially increase the costs of patent practice, and ultimately result in the unenforceability of otherwise-valid intellectual property. Critics also worry that defendants can now too easily spin minor omissions into clever tales of deception and inequitable conduct. Patent commentators suggest that if the Federal Circuit does not revise and reconcile inequitable conduct jurisprudence, the Supreme Court or Congress may need to intervene to restore balance and predictability to patent law.
ENDNOTES:
- Kingsdown Med. Consultants v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988).
- Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1315–16 (Fed. Cir. 2006).
- McKesson Info. Solutions, Inc. v. Bridge Med., Inc., 487 F.3d 897 (Fed. Cir. 2007).
- Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181 (Fed. Cir. 2006).
- Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1368 (Fed. Cir. 2007).