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Therasense: Federal Circuit Changes Materiality Standard in Attempt to Cure "Plague" of Inequitable Conduct Cases

05.31.11

To prove that an applicant for a patent committed inequitable conduct in obtaining its patent, a party making that charge must prove, by clear and convincing evidence, both: (1) the materiality of the withheld prior art reference, and (2) that the applicant withheld the prior art with an intent to deceive the PTO. Last week, in Therasense, Inc. v. Becton, Dickson and Company, the Federal Circuit announced a heightened standard for proving the “materiality” prong. Specifically, Chief Judge Rader, writing for the majority, held that, “as a general matter,” the materiality required for establishing inequitable conduct is “but-for materiality.” According to the Federal Circuit’s majority opinion, this new standard means that when an applicant for a patent fails to disclose prior art to the PTO, such prior art will be “material” only if the PTO would not have allowed one of the claims in the patent application if it had been aware of the undisclosed prior art. Under prior law, a showing of the requisite level of intent to deceive the PTO coupled with a showing of materiality may render unenforceable the entire patent in question; this remains the law although the Court’s new “but-for” test may have opened the door for litigants to argue that unenforceability should be determined on a claim by claim basis.

Simultaneously, the Federal Circuit also announced an exception to its new heightened “but-for” materiality standard in order to address cases of “affirmative egregious misconduct.” Regardless of the “but-for” nature of any withheld prior art reference, if a patent applicant “deliberately planned and carefully executed” a “scheme to defraud the PTO and the courts,” then such conduct will be material for purposes of inequitable conduct. The Federal Circuit gave as one example the filing of an “unmistakably false affidavit.” The Court reasoned that, by creating an exception to punish affirmative egregious acts without penalizing the failure to disclose information that would not have changed the PTO’s decision to issue the patent, it was striking a “necessary balance between encouraging honesty before the PTO and preventing unfounded accusations of inequitable conduct.”

In announcing this heightened standard of materiality, the majority opinion explicitly declined to adopt PTO Rule 56 (the duty to disclose material information) as its standard. The majority reasoned that PTO Rule 56 sets too low a bar for materiality because, among other things, Rule 56 would justify a finding of materiality based on a patent applicant’s failure to disclose information that a patent examiner would deem only marginally relevant to the prosecution. 

The Federal Circuit continues to apply the heightened standard for determining the second prong of inequitable conduct, “intent to deceive” the PTO, it had announced in Star Scientific Inc. v. R.J. Reynolds Tobacco Co., where intent to deceive must be “the single most reasonable inference able to be drawn from the evidence.”  Hence, when there are multiple reasonable inferences that may be drawn, “intent to deceive cannot be found.”

In announcing the new standard for materiality, the Federal Circuit stated it was doing so “in order to redirect a doctrine that has been overused to the detriment of the public.” According to the Federal Circuit, claims of inequitable conduct in litigation have “plagued not only the courts but also the entire patent system” because they “are routinely brought on ‘the slenderest grounds.’”

The Federal Circuit’s new materiality standard was itself created on the “slenderest” of margins: the majority opinion was a 6-5 opinion, with Judges Bryson, Garjarsa, Dyk and Prost dissenting from the en banc panel, and Judge O’Malley concurring-in-part and dissenting-in-part. The dissenting judges urged adoption of PTO Rule 56 as the standard for materiality, whereas Judge O’Malley urged a “flexible” standard that would permit trial courts to exercise their discretion in the face of inequitable conduct claims.

All three opinions claim the mantle of being most faithful to controlling Supreme Court precedent, no doubt in anticipation of the possible review by the Supreme Court of this case. Given the number and vigor of the competing views of the Federal Circuit judges themselves, the fact that inequitable conduct is a judicially-made doctrine not required by the Patent Act, and the majority’s rejection of the standard used by and advocated by the PTO itself, there is a fair chance that the Supreme Court may review this case on further appeal. 

The Therasense majority opinion raises many questions and, as Judge Bryson’s dissent points out, may produce results that are counter to what the majority intended. For example, the majority hopes that by raising the bar for proving materiality, fewer allegations of inequitable conduct will be made.  Arguably, however, one aspect of the standard has been weakened. The majority opinion states that the standard for showing whether a claim would have been allowed “but-for” the withheld information is a preponderance of the evidence standard (as opposed to the stricter clear and convincing evidence standard for proving inequitable conduct generally). 

Further, the decision may spawn more, not less, litigation by having materiality focus on a claim by claim analysis rather than as to the patent as a whole. This could result in additional briefing, arguments, and testimony as to why individual claims would not have been allowed. Moreover, as Judge Bryson states in his dissent, the “but-for” test might blend inequitable conduct and validity in such a way that applicants and their attorneys may have insufficient incentive to disclose material information to the PTO. If invalidity is the touchstone of materiality, then practitioners might not disclose any prior art reference that would not on its face render a claim invalid. Additionally, the Court’s newly created exception to the but-for standard, “egregious affirmative misconduct,” may likewise spawn collateral litigation as to the nature and scope of such misconduct.

Troutman Sanders LLP’s Intellectual Property Practice Group is experienced in these matters, and is helping its clients address this new development in the law of inequitable conduct.
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