DISCLAIMER

The views, positions and opinions expressed in this presentation are those of the author alone, and do not necessarily reflect the views of any of the other partners in Schiff Hardin, LLP, or the views of any of the firm’s clients.

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Therasense I

In Therasense, Inc. v. Becton Dickinson and Co., No. 2008-1511o (January 25, 2010), the CAFC affirmed a trial court judgment declaring unenforceable for inequitable conduct before the USPTO a patent issued to an Abbott Labs subsidiary relating to disposable diabetes glucose test strips.

These “single-use strips work in conjunction with glucose meters and employ electrochemical biosensors to measure the level of glucose in a sample of blood, usually a single drop.”

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Therasense IIOn April 26, the CAFC recently granted en banc review in Therasense, to consider the question “ Should the materiality-intent-balancing framework for inequitable conduct be modified or replaced?” and if so, how?

The Court will also consider whether the standards should “be tied directly to fraud or unclean hands,” the “proper standard for materiality,” and the circumstances under which it proper to infer intent from materiality.” Therasense will be argued en banc on November 10, 2010.

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Therasense III

• The district court held the ’551 patent, “unenforceable for inequitable conduct based on a failure to disclose statements made to the European Patent Office (“EPO”) during a revocation proceeding …”

• A prior art patent, U.S. 4,545,382 (the’382 patent), issued to the same inventors named in the ‘551 patent, disclosed strips as follows: “Optionally, but preferably when being used on live blood, a protective membrane surrounds both the enzyme and the mediator layers, permeable to water and glucose molecules.”

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Therasense IV

• During the thirteen years of patent prosecution, “Abbott pursued the patent through half-a-dozen continuation applications that were repeatedly rejected for anticipation and obviousness, including repeated rejections over the [prior art] ’382 patent.”

• At some point, “new claims were drafted including electrochemical sensors lacking a membrane.”

• During a PTO interview, Abbott presented new claims, arguing that they “were not anticipated or obvious because the claims taught a new glucose sensor that did not require a protective membrane when testing whole blood.”

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Therasense IV• Abbott argued that “optionally, but preferably” would not have

been read by a PHOSITA to confirm that “a membrane is not necessary when testing live blood in vivo or whole blood in vitro.”

• At trial and in the CAFC, Abbott contended that the “[o]ptionally, but preferably” sentence demonstrated that a membrane was required by the ‘382 patent, when testing whole blood, and that the ‘551 patent did not require such a membrane.

• Instead, Abbott argued, “The art continued to believe [following the disclosure of the ‘382 patent] that a barrier layer for whole blood sample was necessary for a considerable period. . . .” and that “One skilled in the art would not have read [the ‘382 patent] as teaching that the use of a protective membrane with whole blood samples was optional.”

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Therasense V

• Rejecting Abbott’s arguments, the CAFC found, based on its review of the district court’s findings, “no error with the district court’s conclusion that claims 1–4 of the ’551 patent would have been obvious in light of the prior art, including the ‘382 patent. The CAFC added that “the use of the term ‘preferably’ [in the ‘382 patent] implies that such a membrane is not necessary.”

• The CAFC affirmed the district court’s finding of inequitable conduct.

• The CAFC noted that in the EPO, Abbott was faced with the possible revocation of a European counterpart to Abbott’s ‘382 patent, EP 0 078 636 (the ’636 patent), a patent “with virtually identical specifications.” The ‘636 patent was revoked as obvious over a German reference.

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Therasense VI

• Abbott’s counsel argued that the ‘636 patent was distinguishable from the German reference because the “optionally, but preferably” language in the EU ‘636 patent, identical to the language in the US ‘382 patent, was “unequivocally clear” and that the “protective membrane [described in the EU ‘636 patent] is optional, however, it is preferred when used on live blood.”

• In the US, the district court found that Abbott’s EPO statements contradicted its representations to the PTO. By describing the “‘[o]ptionally, but preferably’ language as ‘unequivocally clear,’” the court said, “Abbott’s EPO representations contradicted Abbott’s representations to the PTO that a person having ordinary skill in the art would have understood the phrase as mere ‘patent phraseology’ that did not convey a clear meaning.”

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Therasense VII• The CAFC found these findings “are not clearly erroneous, and

indeed are manifestly correct.” It rejected Abbott’s contention “that lawyer argument about prior art is not information material to patentability” and that any inconsistency between the two statements could not be material. It stated:

None of [the] cases [cited by Abbott] involved a situation in which contradictory arguments made in another forum were withheld from the PTO. … Abbott made statements [to the EPO] that contradicted the representations Abbott made to the PTO regarding the ’382 patent. An applicant’s earlier statements about prior art, especially one’s own prior art, are material to the PTO when those statements directly contradict the applicant’s position regarding that prior art in the PTO. See 37 C.F.R. § 1.56(b)(2). In any event, the representations to the PTO were not merely lawyer argument; they were factual assertions as to the views of those skilled in the art, provided in affidavit form.

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Therasense VIII• “To deprive an examiner of the EPO statements … on the grounds

that they were not material would be to eviscerate the duty of disclosure.”

• In determining whether a failure to disclose material information was intentional, “the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive.”

• “Because direct evidence of deceptive intent is rarely available, such intent can be inferred from indirect and circumstantial evidence.”

• “[T]he district court’s findings that the EPO submissions were highly material … and that [the two Abbott declarants] intended to deceive the PTO by withholding [the EU] submissions were not clearly erroneous,’ and “the district court did not abuse its discretion in holding the ’551 patent unenforceable due to inequitable conduct.”

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Inequitable Conduct IThe “inequitable conduct” doctrine originated in three Supreme Court decisions

– Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933)(applicant engaged in bribery and fraud to “suppress the evidence” of another inventor’s disqualifying prior use of the invention)

– Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944)(case involving a “deliberately planned and carefully executed scheme to defraud not only the Patent Office but the Circuit Court of Appeals.”)

– Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806 (1945)(a case “steeped in perjury and undisclosed knowledge of perjury”)

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Inequitable Conduct II

In each of these cases, the Supreme Court “refused to enforce [the] patents” at issue because “the patentees had engaged in fraud in order to procure those patents.”

- Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1315 (Fed. Cir. 2006). See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 175, 176 (1965).

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Fraud: General Principles I

“The law does not define fraud; it needs no definition; it is as old as falsehood and as versable as human ingenuity”

- Weiss v. United States v. McGuire, 122 F.2d 675, 681 (5th Cir. 1941)

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Fraud: General Principles II

• A “scheme to defraud” includes any plan or course of action by which someone intends to deprive another of money or property by means of false or fraudulent pretenses, representations, or promises.

• The term “false or fraudulent pretenses, representations or promises” means any false statements or assertions that concern a material aspect of the matter in question, that were either known to be untrue when made or made with reckless indifference to their truth. They include actual, direct false statements as well as half-truths and the knowing concealment of material facts.

• - Sixth Circuit Pattern Jury Instructions, 10.01 (Mail Fraud, 18 USC § 1341)(2009). See also United States v. Daniel, 329 F.3d 480, 485-86 (6th Cir. 2003)(scheme to defraud); First Circuit Instruction 4.12 (Mail Fraud) and United States v. Stull, 743 F.2d 439, 446 (6th Cir. 1984) (false and fraudulent pretenses).

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Inequitable Conduct III

• The judicially created inequitable conduct doctrine was codified as part of the Patent Act of 1952, in 35 U.S.C. § 282, the same statutory section that creates a presumption of validity for issued patents and that requires invalidity to be proven by clear and convincing evidence.

• “[I]nequitable conduct includes affirmative misrepresentation of a material fact, failure to disclose material information, or submission of false material information, coupled with an intent to deceive.”

- Innogenetics, N.V. v. Abbott Labs., 512 F.3d 1363, 1378 (Fed. Cir. 2008); Pharmacia Corp. v. Par Pharm., Inc., 417 F.3d 1369, 1373 (Fed. Cir. 2005); Therasense, Inc., et al. v. Becton Dickinson, et al., No. 2008-1511 (Fed. Cir., January 25, 2010), slip op. at 17.

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Inequitable Conduct IVEach individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [PTO], which includes a duty to disclose to the [PTO] all information known to that individual to be material to patentability . . . .

(b) Under this section, information is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

. . .

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the [PTO], or

(ii) Asserting an argument of patentability.

- 37 C.F.R. § 1.56. See also Digital Control, supra, 437 F.3d at 1316 (“[I]f a misstatement or omission is material under the . . . Rule 56 standard, it is material [for purposes of inequitable conduct].”)

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Inequitable Conduct V

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• In Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008), the Federal Circuit “emphasized that ‘materiality does not presume intent, which is a separate and essential component of inequitable conduct.’”

• In essence, Star held that to prevail on the merits, the accused infringer must prove both materiality and intent by clear and convincing evidence.

• Since direct evidence of intent is almost never available, the question is what evidence is proper circumstantial evidence of intent, and how does a court weigh that evidence. Circumstantial evidence may be highly material.

• In contrast to Star, in Praxair, Inc v. ATMI, Inc., 543 F.3d 1306, 1315 (2008), the CAFC held that intent can be inferred if materiality is high, the applicant knew or should have known of the materiality, and the applicant failed to “come forward with any credible good faith explanation” for nondisclosure.

Inequitable Conduct VI

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C. E. Mammen, The Federal Circuit and Inequitable Conduct, Intellectual Property Litigation, 19:3 (Spring 2008).

Inequitable Conduct VI

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“The ‘bleed through’ from the materiality finding is responsible for most of the intent doctrine’s current ambiguity. The recent conflict at the Federal Circuit over the intent requirement is evidence of this ambiguity. A finding of high materiality—the information was very material to patentability—is used as conclusive circumstantial evidence that the applicant intended to deceive the patent examiner. This type of analysis reduces the inequitable conduct inquiry into nothing more than a determination of materiality. It also makes it difficult for applicants, and their attorneys, to be confident that they are free from liability if they actually believe something is not material or if they unintentionally overlook information in their possession. Even if these facts are true, and they did not intend to deceive the USPTO, inequitable conduct will likely be found because of bleed through.” - C.A. Cotropia, Modernizing Patent Law’s Inequitable Conduct Doctrine, Berkeley Tech. L. J. 24:773, 776 (2009)

Standards for Measuring Materiality and Intent Should be Uniform I

• When materiality is an element of a statute, it narrows the range of conduct subject to the statute’s reach.

• In United States v. Wells, 519 U.S. 482 (1997), a case under 18 USC §1014 (false statement to a bank), Justice Stevens noted in his dissent that “at least 100 federal false statement statutes may be found in the United States Code,” and that although“[a]bout 42 of them contain an express materiality requirement; approximately 54 do not.”

• The mail fraud statute, 18 USC §1341, for example, contains no explicit materiality requirement.

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Standards for Measuring Materiality and Intent Should be Uniform II

• In Neder v. United States, 527 U.S. 1, 22 n.5 (1999), a case brought under the mail, wire and bank fraud statutes, the Court noted that “It is a well-established rule of construction that ‘[w]here Congress uses terms that have accumulated settled meaning under the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.’''

• “[A]t the time of the mail fraud statute's original enactment in 1872, and later when Congress enacted the wire fraud and bank fraud statutes, actionable ‘fraud’ had a well-settled meaning at common law.”

• So, too, at the time Congress enacted the Patent Act of 1952, in 35 U.S.C. § 282, “actionable ‘fraud’ had a well-settled meaning at common law.”

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Standards for Measuring Materiality and Intent Should be Uniform III

• In Neder v. United States, 527 U.S. 1, 22 n.5 (1999), the Court referred to the definition of materiality as used in Restatement (2d) Torts, § 538 (1977), which provides that a matter is material if:

– “(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

– (b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.”

• There is no reason why the same standard should not apply to inequitable conduct cases, under 35 U.S.C. § 282.

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Standards for Measuring Materiality and Intent Should be Uniform IV

• Under the mail fraud statute, fraudulent intent may be inferred in certain circumstances, such as when there is a willful nondisclosure by a fiduciary of material information the fiduciary has a duty to disclose. United States v. Pennington, 168 F.3d 1060, 1065 (8th Cir. 1999); United States v. Lamoreaux, 422 F.3d 750 (8th Cir. 2005).

• Under the same statute, evidence of indifference to the truth of the statements can amount to evidence of fraudulent intent. United States v. Trammell, 133 F.3d 1343 (10th Cir. 1998) (schemer’s indifference to the truth of statements can amount to fraudulent intent); United States v. Reddeck, 22 F.3d 1504 (10th Cir. 1994); United States v. Titchell, 268 F.3d 348, 351 (3d Cir. 2001)(deliberate disregard for the truth; conscious purpose to avoid the truth).

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Intent: General Principles I

• “An act is “knowingly” done if done voluntarily and intentionally, and not because of mistake or some other innocent reason.”

• “A misrepresentation or concealment is “material” if it has a natural tendency to influence or is capable of influencing the decision of a person of ordinary prudence and comprehension.”

• “To act with “intent to defraud” means to act with an intent to deceive or cheat for the purpose of either causing a financial loss to another or bringing about a financial gain to oneself [to another person].”

• - Sixth Circuit Pattern Jury Instructions, 10.01 (Mail Fraud, 18 USC § 1341)(2009). See United States v. McGuire, 744 F.2d 1197, 1201 (6th Cir. 1984)(knowingly); Neder v. United States, 527 U.S.1 (1999)(materiality).

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Intent: General Principles II

• Ordinarily, there is no way that a defendant's state of mind can be proved directly, because no one can read another person's mind and tell what that person is thinking. 

• But a defendant's state of mind can be proved indirectly from the surrounding circumstances. This includes things like what the defendant said, what the defendant did, how the defendant acted, and any other facts or circumstances in evidence that show what was in the defendant's mind.

• You may also consider the natural and probable results of any acts that the defendant knowingly did [or did not do], and whether it is reasonable to conclude that the defendant intended those results.

• - Sixth Circuit Pattern Jury Instructions, 2.08 (inferring required mental state)(2009). See also Devitt and Blackmar, Criminal Instruction 14.13.

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Intent: General Principles III

• No one can avoid responsibility for a crime by deliberately ignoring the obvious. If you are convinced that the defendant deliberately ignored a high probability that _______, then you may find that he knew _______. 

• But to find this, you must be convinced beyond a reasonable doubt that the defendant was aware of a high probability that _______, and that the defendant deliberately closed his eyes to what was obvious. Carelessness, or negligence, or foolishness on his part is not the same as knowledge, and is not enough to convict.

- Sixth Circuit Pattern Jury Instructions, 2.09 (deliberate ignorance)(2009). See also

United States v. Lee, 991 F.2d 343, 349 (6th Cir. 1993); Mari v. United States, 47 F.3d 782 (6th Cir. 1995).

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Corporate Intent: General Principles I

As long ago as 1909, in New York Central & Hudson River Railroad Co. v United States, 212 US 481 (1909), the Supreme Court held that the criminal conduct of an agent, acting within the normal scope of his responsibility and intending to advance the interests of the corporation, may be imputed to his principal, the corporation:

‘We think that a corporation may be liable criminally for certain offenses of which a specific intent may be a necessary element. There is no more difficulty in imputing to a corporation a specific intent in criminal proceedings than in civil. A corporation cannot be arrested and imprisoned in either civil or criminal proceedings, but its property may be taken either as compensation for a private wrong or as punishment for a public wrong.’

- New York Central & Hudson River Railroad Co. v United States, 212 U.S. 481, 493, 29 S.Ct. 304, 306 (1909), quoting Telegram Newspaper Co. v. Comm., 172 Mass. 294, 52 N.E. 445, with approval.

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Corporate Intent: General Principles II

"Corporations compartmentalize knowledge, subdividing the elements of specific duties and operations into smaller components. The aggregate of those components constitutes the corporation’s knowledge of a particular operation. It is irrelevant whether employees administering one component of an operation know the specific activities of employees administering another aspect of the operation … Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly."

- United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987). See also United States v. T.I.M.E.-D.C, Inc., 381 F. Supp. 730,738 (W.D. Va. 1974).

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Corporate Intent: General Principles III

Knowing behavior requires only awareness. It does not require a desire or purpose to accomplish a specific result by engaging in specific conduct.

Deliberate indifference requires (1) an "awareness of facts from which the inference could be drawn that a substantial risk of serious harm exists" and (2) the actual "drawing of the inference." Elliott v. Jones, 2009 U.S. Dist. LEXIS 91125 (N.D. Fla. Sept. 1, 2009).

If a corporate sponsor or assignee of a patent application acts with deliberate indifference, its intention to defraud the USPTO may be derived from the compartmentalized deliberate indifference of one or more of a number of its employees, each of whom only knew a part of the whole set of relevant facts that comprise proof of deliberate indifference, but none of whom knew all.

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Therasese Transformation IIn its en banc brief on the merits, Abbott argued:

Consistent with Supreme Court precedent, this Court should require proof that the patent was issued as a result of extreme misconduct tantamount to fraud. This Court’s predecessor “evaluate[d] the evidence” of inequitable conduct “in light of the traditional elements of . . . fraud.” Norton, 433 F.2d at 793; see id. at 794 (“considering seriatim each one of the elements of . . . ‘fraud’”). ***

The “procured by fraud” standard reflected in Supreme Court precedent is followed in connection with other forms of intellectual property, including trademark, see In re Bose Corp., 580 F.3d 1240 (Fed. Cir. 2009), and copyright, see Eckes v. Card Prices Update, 736 F.2d 859, 861-62 (2d Cir. 1984). Patents should be treated no differently.

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Therasese Transformation II• The most recent drafts of the Patent Reform Act of 2009,

omit previously suggested provisions relating to inequitable conduct that were motivated by the perceived failure of the Federal Circuit “to establish one clear standard of materiality for inequitable conduct purposes.”

• The absence of clear standards has lead or may lead to confusing and inconsistent results. There is no valid reason for applying different standards for fraud in cases involving different portions of Patent Act than the standards that apply in other cases of fraud under federal law.

• Instead, the same standards should be applied in cases of “patent fraud” that apply in other fraud cases, especially in well-developed areas such as mail and wire fraud, securities fraud and bank fraud. See Exergen Corp. v. Wal-Mart Stores, Inc., 573 F.3d 1312 (2009)(applying FRCP Rule 9(b) in inequitable conduct case).

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The Consequences of Transformation I• In SEB., S.A. v. T-Fal Corporation, No. 2009-1009 (CAFC

February 5, 2010), cert. granted October 12, 2010, the Federal Circuit held that induced infringement may be proven by a showing of “deliberate indifference.” It said that “‘specific intent’ in the civil context is not so narrow as to allow an accused wrongdoer to actively disregard a known risk that an element of the offense exists,” and that proof of “deliberate indifference” satisfies “[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement.”

• The same principles of “specific intent” should apply to cases of inequitable conduct and other cases under the Patent Act.

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The Consequences of Transformation II

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• Liability for inequitable conduct, should not be limited, to “individuals” involved in the prosecution of a patent, but should extend to corporate “knowledge,” as in cases of fraud under other federal statutes.

• When the corporation has a collective "awareness of facts from which the inference could be drawn that a substantial risk of serious harm exists” if a fact material to a patent prosecution is not disclosed, and the corporation collectively draws that inference, the corporate applicant should be found to act with deliberate indifference, if it thereafter fails to disclose any such material fact in that prosecution of which any of its employees are aware. Any patent issued based such deliberate indifference should be declared invalid, under 35 U.S.C. § 282.