Federal Circuit Requires Specific Intent to Deceive for Inequitable Conduct

In 1st Media, LLC v. Electronic Arts, Inc., the Federal Circuit reversed the district court’s finding that the patent at issue was unenforceable due to inequitable conduct, “[because the record contains no evidence of a deliberate decision to withhold [the] references from the PTO as required under Therasense.” This case may be welcomed by patent practitioners and applicants burdened by the specter of inequitable conduct charges, but reminds me that the USPTO still has not revised its Duty of Disclosure rule (36 CFR § 1.56) or guidance in view of the year-old Therasense decision.

A McKesson-Type Situation

The inequitable conduct charges stemmed from a McKesson-type situation: the applicant failed to disclose several references cited in co-pending applications direct to allegedly related subject matter. In particular, while the patent at issue (U.S. Patent 5,464,946) was pending, several other applications also were being prosecuted, including:

• PCT Application PCT/US93/10930, which was identical to the ’946 patent
• U.S. Patent Application 07/975,824 (granted as U.S. Patent 5,325,423), which had an overlapping disclosure
• U.S. Patent Application 08/265,391 (granted as U.S. Patent 5,564,001), which was a CIP of the ’824 application

The Bush Reference

After the ’946 patent was allowed, but before the issue fee was paid, WO 90/01243 (“Bush”) was cited as a “Y” reference in the copending PCT application (e.g., was cited as being “particularly relevant if combined” with another reference).

The Baji Reference

While the ’946 patent was undergoing prosecution, U.S. Patent 5,027,400 (“Baji”) was cited in the ’824 application for disclosing certain components covered by asserted claim 16 of the ’946 patent. In the ’824 application, the applicant cancelled the rejected claims.

The Hoarty Reference

After the ’946 patent was allowed, but before the issue fee was paid, the examiner of the ’391 application cited U.S. Patent 5,220,420 (“Hoarty”) as disclosing the same components covered by asserted claim 16 of the ’946 patent. In the ’391 application, the applicant amended the claims, but they still recited the components at issue.

The Explanations

As summarized by the Federal Circuit, “both [inventor] Lewis and [attorney] Sawyer testified that they did not appreciate the materiality” of the three references at issue.

With regard to the Bush reference, Lewis testified that nondisclosure was “an oversight that got lost in the cracks at that time and wasn’t a conscious decision not to report [it].” Sawyer testified that “he could not recall why he did not disclose the Bush reference,” but also had submitted a “declaration in which he claimed that ‘the Bush publication itself never sparked an awareness or belief in my mind that Bush should be disclosed.’”  Sawyer also testified that “he generally considered patentability issues in a case only during what he termed ‘active prosecution,’ or the time between the first office action and the notice of allowance,” and that “[d]uring the time period that Sawyer was prosecuting the ’946 Patent, he had newly set up a solo office out of his home and characterized his practice as being at times ‘very active.’”

With regard to the Baji and Hoarty references, both Lewis and Sawyer “testified that the technology in the co-pending … [a]pplications was so distinct from the ’946 [patent] that it did not occur to them to disclose [the references] during prosecution of the ’946 [p]atent.”

The District Court Decision

The district court found these explanations to be “not credible.” As characterized by the Federal Circuit, “[t]he district court found that Lewis and Sawyer knew the references were material and concluded that because they failed to provide a credible good faith explanation for non-disclosure of the references, it was appropriate to infer that they intended to deceive the PTO during prosecution of the ’946 [p]atent.”  Thus, the district court “granted . . . declaratory judgment of inequitable conduct,” and “held the ’946 [p]atent unenforceable.”

The Federal Circuit Decision

The Federal Circuit began its analysis with this summary of the law of inequitable conduct under Therasense:

This court’s recent opinion in Therasense changed the standard for proving inequitable conduct based on nondisclosure of a reference to the PTO. … Under the Therasense standard, absent affirmative egregious misconduct, a defendant must prove by clear and convincing evidence both of the “separate requirements” that: (1) “the patentee acted with the specific intent to deceive the PTO”; and (2) the non-disclosed reference was but-for material. … Therasense explained that in order to show that the patentee acted with the specific intent to deceive the PTO, a defendant must prove “that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it.” … “[T]o meet the clear and convincing evidence standard, the specific intent to deceive must be ‘the single most reasonable inference able to be drawn from the evidence.’” …

A court can no longer infer intent to deceive from non-disclosure of a reference solely because that reference was known and material. … Moreover, a patentee need not offer any good faith explanation for his conduct unless and until an accused infringer has met his burden to prove an intent to deceive by clear and convincing evidence.

The Federal Circuit noted that the district court decision was rendered before Therasense, but reached its own decision on appeal because the appellees agreed that the record was complete.

The Federal Circuit focused on this hole in the appellee’s case:

Appellees admit that they have no direct evidence that Lewis or Sawyer intended to deceive the PTO.

Indeed, the Federal Circuit stated:

That Lewis’s and Sawyer’s testimony was not credited by the district court does not overcome the short-comings in Appellees’ proof.

The Federal Circuit distinguished Aventis Pharma S.A. v. Hospira, Inc., where there was evidence of affirmative conduct indicative of an intent to deceive:

Ultimately, for all of the references, the evidence supports only that Lewis and Sawyer (1) knew of the references, (2) may have known they were material (which this court does not reach), and (3) did not inform the PTO of them. But that is not enough. As Therasense made clear, a defendant must prove that an applicant (1) “knew of the reference,” (2) “knew it was material,” and (3) “made a deliberate decision to withhold it.” … (emphasis added). It is the last requirement that is missing from the record developed in this case.

The Federal Circuit therefore reversed the district court decision.

The Impact of Therasense

The Federal Circuit left no room for doubt that Therasense was intended to stop “the plague of patent unenforceability based on the thinnest of speculation regarding the applicant’s putative mental state.” Another important holding of Therasense was that the “materiality” prong of inequitable conduct is satisfied only “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” (The “but-for” materiality test.) Although Therasense was decided over a year ago, the USPTO has yet to update its Duty of Disclosure rule (36 CFR § 1.56) or guidance, although it did issue proposed rule changes to conform to Therasense in July of 2011.  Now that the USPTO is well on its way to implementing the Leahy-Smith America Invents Act, it should return its attention to this important aspect of U.S. patent prosecution.