Changes in the Law of Inequitable Conduct: New Pleading and Proof Standards

Prepared by Steve Carlson

Munich Seminar May 10, 2012

1. Harder to plead inequitable conduct 2. Harder to prove inequitable conduct3. New mechanism for patentees to avoid 

inequitable conduct

Inequitable conduct has always been a hard defense; it is harder now

Overview of Inequitable Conduct Changes

Three Fundamental Changes Limiting Inequitable Conduct Defenses

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Inequitable Conduct Defense: Source and “Plague”

• Source:   duty of candor to the Patent Office• Premise:  applicants for a patent knowingly withheld material 

information from the Patent Office• Proof:  

1) withheld information is material2) intent to deceive

• Remedy:  entire patent unenforceable• Cost shifting:  prospect of recovering attorney fees

This “atomic bomb” was pled  in ~80% of cases

Inequitable Conduct: Background

Judge-made law, specific to the United States

• Materiality was based on substantial likelihood that a “reasonable examiner” would consider it important in deciding whether to allow the application to issue as a patent • Also, PTO’s Rule 56 standard

• Intent may be proven inferentially (“sufficient culpability to require a finding of intent to deceive”)

• Sliding scale of materiality and intent:• Lesser showing of intent needed if reference highly material, and vice versa

• Fraud pleading required compliance with Federal Rule of Civil Procedure 9(b), so some specificity required

Pled routinely, tried frequently, and occasionally won

Inequitable Conduct: Prior Standards

Old Standard

• Deluge on the Patent Office• Cautious prosecutors submit marginal references• Reduced patent quality

• Increase cost, complexity of litigation• Salacious aspect of patent law 

• Fraud accusations are personal• Reputations at risk

Inequitable Conduct: Collateral Effects

Downsides of Inequitable Conduct Defenses

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Heightened Pleading Standards

Exergen: Pleading Standard

Exergen Corporation v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2011)

• Defendant sought to amend pleading to add inequitable conduct• Allegations:

• knowingly withheld prior art references, including known through co‐pending application

• misrepresentations and omissions of material information in arguments to the examiner

• Moderate level of specificity given in allegations• Amendment was sought late in the case, and the district court 

denied leave to amend

Exergen: Pleading Standard

On appeal• Deferential standard of review, could have been disposed of easily• Instead, court ratcheted up pleading standard:

Id. at 1328‐29• Pleading found insufficient for lack of specificity on:

• “who” committed inequitable conduct, • “what” and “where” the withheld information was found (at pin‐cite level)• “how” and “why” the art was material (including non‐cumulativeness)• facts to show reasonable inference of knowledge and intent to deceive

“In sum, to plead the “circumstances” of inequitable conduct with the requisite “particularity” under Rule 9(b), the pleading must identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO. 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.”

• Review of cases applying Exergen• The volume of motion practice is high• In most cases, the inequitable conduct pleading is stricken:

• Challengers improved in 2012 in meeting standard

Impact of Exergen

District court application of Exergen

District court rulings on the pleadingsJune‐Dec 2011

Pleading allowed: 2Pleading dismissed: 172012 (thru May 8)Pleading allowed:  8

Pleading dismissed:  10

• Expect a motion to strike• Battle‐harden your pleading

• Motion practice is limited to facts pled• Early motion practice will set tone with the court

• Pre‐Exergen, striking party was taking the risk• Post‐Exergen, party pleading inequitable conduct likely to lose• This may be your first motion before the court – tread carefully

• Weigh the timing of the pleading• Early in the case, prior to depositions?• Later in the case, after depositions?• Scheduling order may set deadline for amending pleadings – do you want to set early 

depositions to bolster proof?• Weigh benefit of successful pleading, versus odds on summary judgment 

and at trial• Consider whether your court will allow inequitable conduct evidence before 

the jury, or in separate bench trial

Pleading: Strategic Considerations

Considerations for pleading inequitable conduct:

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Heightened Proof Standards

En banc appeals court criticized inequitable conduct litigation• Traced evolution of law from egregious cases of perjury and 

fabrication• Chronicled easing of proof requirements over the years• Criticized “sliding scale” for diluting standards of proof• Decried “focus on moral turpitude of the patentee with ruinous 

consequences for the reputation of his patent attorney”• Called out increased cost and complexity in litigation• Blamed inequitable conduct doctrine for causing patent attorneys 

to deluge Patent Office with unnecessary references

Proof Standard for Inequitable Conduct

Therasense, Inc. v. Becton, Dickinson & Co.(649 F.3d 1276, 1291 (Fed. Cir. May 25, 2011) (en banc)

Therasense elevates the standard for proving inequitable conduct• Abolishes the “sliding scale” of materiality and intent• Reaffirms that the specific intent to deceive must be “the single most 

reasonable inference able to be drawn from the evidence”• Heightens the standard for finding a withheld reference material

• New standard:  “but‐for materiality”

Proof Standard for Inequitable Conduct

Therasense, Inc. v. Becton, Dickinson & Co.(649 F.3d 1276, 1291 (Fed. Cir. May 25, 2011) (en banc)

“This court holds that, as a general matter, the materiality required to establish inequitable conduct is but-for materiality. 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. Hence, in assessing the materiality of a withheld reference, the court must determine whether the PTO would have allowed the claim if it had been aware of the undisclosed reference.

Materality exception:  “affirmative egregious misconduct”   • Exception to “but‐for” materiality requirement• “deliberately planned and carefully executed schemes” still 

subject to inequitable conduct• Example:  unmistakeably false affidavit • Equitable nature of inequitable conduct (and unclean hands) 

allows further exceptions

Proof Standard for Inequitable Conduct

Therasense, Inc. v. Becton, Dickinson & Co.(649 F.3d 1276, 1291 (Fed. Cir. May 25, 2011) (en banc)

• First Federal Circuit case post‐Therasense to affirm inequitable conduct• District court held bench trial • District court found that withheld art invalidated claims

• Therefore, “but‐for” materiality

• District court made intent findings based on in‐court testimony of inventor• Court rejected stated reasons for withholding reference• Court found inventor not credible• Court found inventor “knew that the Vidal reference and the other etoposide

prior art were relevant to the patentability of his alleged invention, but nonetheless chose not to disclose it to the patent office”

• Federal Circuit found intent findings supported, declined to reverse

Inequitable Conduct: Post-Therasense

Inequitable Conduct Still Alive:Aventis Pharma S.A. v. Hospira, Inc., 2012 WL 1155716 (Fed. Cir. April 9, 2012)

• Borderline cases are being flushed, either on summary judgment or post‐trial

• Egregious cases still prevail• District court activity since June 2011:

Inequitable conduct on the merits:

District Court Activity Post-Therasense

Motions for summary judgment Opinions granting SJ of no inequitable conduct:  11Opinions denying SJ of no inequitable conduct:  3

(denials may be unpublished)Post‐trial rulings

Opinions finding inequitable conduct: 3Opinions finding no inequitable conduct:  13

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Supplemental Examination

Patent Reform

Supplemental Examination

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• Provision of America Invents Act• Takes effect on September 16, 2012• For the patentee’s benefit• Inoculates patent against potential inequitable conduct• Patentee may submit any information• If substantial new question of patentability, PTO reexamines patent• A patent shall not be held unenforceable based on information 

considered in supplemental examination• Exceptions:

• Inapplicable to cure existing allegations• “Fraud” still referable to Attorney General

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Strategic Considerations in Patent Prosecution

Strategic Considerations

During Patent Prosecution

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• Do you change practices?• Defendants are still winning under inequitable conduct

• Fear factor may be reduced in some situations• Marginal art• Office actions in co‐pending applications• Foreign office actions• Maintenance fees

• Consider “clean‐up” disclosures in supplemental examination• Avoids need to withdraw allowed claims from issuance• Information surfacing during post‐allowance period can be addressed in 

supplemental examination

Thank You! Questions?

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Steve CarlsonPrincipal650‐839‐5197steven.carlson@fr.com