Victory for Biotech: Federal Circuit Tightens the Standard for Proving Inequitable Conduct Defense in Patent Infringement Cases
BioWorld Perspectives Contributing Writers
Editor's note: Timothy D. Johnston is a partner in the Boston law firm of Nutter McClennen & Fish LLP, where he specializes on intellectual property, and other complex commercial, litigation. Rory P. Pheiffer is an associate at Nutter, concentrating on domestic and international patent prosecution.
On May 25, 2011, in its much-anticipated decision in Therasense, Inc. v. Becton, Dickinson and Co., et al., the Federal Circuit (the U.S. appeals court with jurisdiction over patent cases) substantially raised the bar for the defense of "inequitable conduct" to a level that some think will make it virtually impossible to prove in patent infringement cases. This is very good news for biotechnology companies, for which patents are often a critical asset, and for the patent system, which has been increasingly bogged down by what were often baseless attempts to challenge the enforceability of patents. (See BioWorld Insight, June 20, 2011.)
In our experience, inequitable conduct is invoked almost as a matter of course by those accused of patent infringement. A common assertion is that the patent applicant and/or its attorney(s) breached the duty to disclose material information (i.e., information that affects the patentability of an invention) to the U.S. Patent and Trademark Office (PTO) during prosecution of the patent and that, as a result, the patent is unenforceable. A finding of inequitable conduct has been described as the "atomic bomb" of patent litigation because it knocks out the entire patent (not just a particular claim) and can damage the reputation of the prosecuting attorney. This provides potent leverage for those accused of patent infringement and obviously makes it more difficult for patent holders to enforce their patents.
Charges of inequitable conduct have been particularly problematic for patents that cover biotech products. Not only did the Therasense case involve a patent related to blood glucose testing strips, but one recent study found that between 1988-2006, 42 percent of all appeals to the Federal Circuit on the issue of inequitable conduct involved patents on biologics, drugs, medical devices, diagnostics or agricultural biotechnology products.
It is likely that charges of inequitable conduct have been so prevalent in the biotech space because, as the Biotechnology Industry Organization (BIO) alluded to in amicus curiae brief to the Federal Circuit in Therasense: Patents on biotechnology products are procured "against a backdrop of fast-moving science and competing business needs that make it virtually impossible" to "keep an eye on all potentially relevant information" involving advances in the field. As a result, owners of biotech patents seeking to enforce their patent rights are often faced with a situation in which an inadvertent omission is transformed into an allegation that the owner committed fraud on the PTO when obtaining the patent.
Further, as BIO states in its amicus brief, by sowing uncertainty about the enforceability of a patent, an assertion of inequitable conduct can inhibit licensing by the patent holder. Such licensing, however, is vital to technology transfer and investment in the biotech arena.
Perhaps recognizing these negative effects, among others, the Court In its decision in Therasense, signaled that it was determined to stop this so-called "plague" of asserting inequitable conduct. The Court's decision seeks to return inequitable conduct to its roots as a defense for situations involving truly egregious, outcome-determinative misconduct in the procurement of patents. The Federal Circuit's ruling requires that an accused patent infringer prove both specific intent to deceive the PTO and that any information omitted from or misrepresented in a patent application was "but-for" material.
'Knowing and Deliberate' Standard.
The Federal Circuit held that there must be clear and convincing evidence that a patent applicant and/or its attorney(s) "made a deliberate decision" to withhold a known material reference from the PTO. What an applicant/attorney "should have known" is irrelevant, as is negligence or even gross negligence by the applicant/attorney. The Court also made clear that "intent and materiality are separate requirements" and that intent cannot merely be inferred from materiality.
Recognizing, however, that direct evidence of intent to deceive is rare, the Court held that intent may still be inferred from indirect and circumstantial evidence, but only if it is "the single most reasonable inference able to be drawn from the evidence." The Court stated that "when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found."
'But-For' Materiality Standard.
The Court split as to the standard for materiality. The majority rejected the patchwork of materiality standards that had developed over the last thirty years in favor of a single, strict standard — "but-for" materiality. Under this standard, undisclosed prior art (e.g., past inventions) is "but-for material if the PTO would not have allowed a claim [and issued a patent] had it been aware of" that art. The dissent preferred a materiality standard in line with the PTO's rules, which are viewed as requiring an applicant/attorney to be more inclusive in disclosing prior art. The Court held, however, that "but-for" materiality need not be proven in cases of egregious, affirmative misconduct that would not have caused the PTO to deny a patent, such as filing an unmistakably false affidavit to support patentability.
These stricter standards for proving inequitable conduct come on the heels of a 2009 decision from the Federal Circuit which heightened the standard for alleging inequitable conduct. Together, these decisions should make alleged infringers more cautious about alleging inequitable conduct because those accused of inequitable conduct will now have more fodder for moving to dismiss or seeking summary judgment. In short, a major hurdle to the enforceability of hard-earned patent rights has been lowered.
Patent applicants also may wish to reevaluate current practices for citing references to the PTO. Many applicants have taken to filing Information Disclosure Statements citing numerous references, many of which are at best marginally relevant; Therasense, may allow for such policies to be revised. The defensive practice of flooding patent examiners with voluminous amounts of information to preempt charges of inequitable conduct strains PTO resources, slows the patent process, impedes the quality of patent examination, and generally has deleterious effects for innovation in biotechnology. While not likely to stop this over-inclusive approach to patent prosecution altogether, Therasense, should be a good first step to reigning it in. In fact, the PTO already has announced that it is studying the Therasense, decision to assess impacts on agency practice and procedures and that it expects to issue further guidance to patent applicants soon. Hopefully such guidance will include more clear-cut rules related to what must be disclosed to the PTO that will lessen the burden on applicants and practitioners.
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