The "Inequitable Conduct" Defense In Patent Law

Tuesday, June 1, 2004 - 01:00

In the context of patent infringement suits, the phrase "inequitable conduct" describes a doctrine normally pled as an affirmative defense to allegations of infringement. This doctrine allows the federal courts to review the ex parte conduct of applicants for patents before the United States Patent and Trademark Office ("PTO"). The doctrine arose out of "the equitable maxim that 'he who comes into equity must come with clean hands,'" and a requirement that litigants "shall have acted fairly and without fraud or deceit as to the controversy in issue."1 The stakes in litigating that defense are high because a finding of inequitable conduct may result in a declaration that the patent is unenforceable.

Given those high stakes, litigants often assert inequitable conduct as a defense, even in cases where the courts have later found the defense to be meritless. In 1988, the United States Court of Appeals for the Federal Circuit, in an oft-quoted passage, described the assertion of this defense to be a "habit" that had "become an absolute plague."2

A litigant who wishes to pursue such a defense must understand that there are significant obstacles to success. First, the standard for establishing inequitable conduct is high. A party seeking to have a patent declared unenforceable has a "heavy burden"3 of showing by "clear and convincing" evidence both that the patent applicant failed to disclose "material" prior art and acted with "intent to deceive" the PTO.4 Information is material when "there is a substantial likelihood that a reasonable examiner would have considered the information important in deciding whether to allow the application to issue as a patent."5

The alleged infringer usually searches for an inventor's withholding of material facts, such as prior art, to the PTO, or for misrepresentations about the prior art. It obviously requires an analysis of the file history of a particular patent, and examination of the state of mind and motives of the attorney prosecuting the patent and the applicant.

Another hurdle in establishing inequitable conduct is the practical fact that the patent prosecution conduct at issue may have taken place years before the infringement litigation, especially in cases in which the suspected inequitable conduct occurred in a parent or other ancestor applications. The typical difficulty in establishing the requisite deceptive intent is magnified as memories fade and witnesses become unavailable.

If a litigant establishes that a patent is unenforceable due to inequitable conduct, the standard of appellate review for the findings of materiality and intent is the relatively deferential clear error standard.6 The district court's assessment of the equities is reviewed on an even more deferential abuse of discretion standard.7 We discuss below several recent illustrative cases in which the Federal Circuit reviewed inequitable conduct findings.

Promega

In Hoffman-La Roche, Inc. v. Promega Corp.,8 a district court held that a patent for an enzyme enhancing the use of a polymerase chain reaction process was unenforceable as a result of eight misrepresentations made by the inventors. Although the panel majority, in a 2-1 decision, partly reversed the district court, it sustained findings that the inventors, with deceptive intent, lied about a procedure in the patent's specification and about prior art. It affirmed that these misrepresentations were material and remanded for a determination of whether the incidents of inequitable conduct justified holding the patent unenforceable. The Federal Circuit noted that the inventors' good faith belief in the novelty of their invention was not incompatible with a finding that they acted with deceptive intent.

The dissent in Promega would have reversed all of the findings and entered judgment for the patentee on the ground that the evidence failed to satisfy the element of deceptive intent. The dissent declared that the majority's decision found "misrepresentation in correct science, infer[red] malevolence from verb tense, and ground[ed] intent to deceive on personal slurs by a hostile witness . . . ."9 The dissent echoed the view that strict criteria for establishing inequitable conduct are desirable to avoid imposing undue risk to those who make valuable advances in science and technology.

Bristol-Myers

In Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc.,10 the Federal Circuit reviewed a district court judgment that patents for the semi-synthesis of a substance, taxol, were unenforceable because inventors had failed to submit an article to the PTO. The article questioned whether taxol, under the process disclosed in the patents, could be synthesized in anything more than trace amounts. The panel upheld the district court's findings that the article was material to the issue of whether the enablement requirement for patents under 35 U.S.C. § 112 had been met, and that the article had been withheld with deceptive intent.

The panel recognized that intent to mislead "does not require direct evidence, and is typically inferred from the facts."11 The panel rejected what amounted to factual arguments by the patentee on the issue of intent, characterizing those arguments as requests "to substitute [its] view of the evidence and credibility of the witnesses for that of the district court's finding of intent to deceive."12

Ulead

In Ulead Systems, Inc. v. Lex Computer & Management Corp.,13 a patentee had filed an affidavit of small entity status and paid discounted patent maintenance fees.14 The patentee properly paid the first maintenance fee at the reduced rate, but after it granted non-exclusive licenses to larger entities it failed thereafter to qualify for reduced maintenance fees under applicable regulations. However, the patentee continued to file statements with the PTO claiming small entity status, and continued to pay the reduced fees. The district court held its patent unenforceable on the ground that the failure to pay the correct fees constituted inequitable conduct and granted summary judgment against the patentee in favor of an adversary.

The Federal Circuit, in a 2-1 decision, agreed that misstatements in the patentee's later petitions were material in light of the relevance of maintenance fees to the "survival of the patent."15 The panel vacated the summary judgment and remanded for a determination of whether the patentee intended to deceive and, if so, whether the deception amounted to sufficient inequitable conduct to render the patent unenforceable. The dissent argued that the panel's decision conflicted with agency regulations and unduly extended the inequitable conduct defense to encompass actions "after the patent has issued and unrelated to patentability."16 It stressed the availability of an alternative administrative remedy, and stated that "[a]t the time th[e] [small entity] fee concession was adopted the courts were experiencing the 'absolute plague' of charges of inequitable conduct . . . ."17

Monsanto

In Monsanto Co. v. Bayer Bioscience N.V.,18 the four patents in issue claimed a variety of methods and products relating to the insertion of bacterial DNA into plants to give the plants resistance to insects. During the prosecution of one of the patents, the applicant filed a declaration with the PTO by an entomologist who provided the results of certain tests and stated that he knew of no test results contrary to those expressed.19

In connection with a summary judgment motion, a party challenging the enforcement of the patent submitted evidence of test results that were allegedly inconsistent with those reported by the entomologist to the PTO. In response, the patentee filed an affidavit by the entomologist explaining the reasons that the entomologist had withheld the test results from the PTO.

The district court held, on summary judgment, that the four patents were unenforceable because the withholding of the test results from the PTO constituted inequitable conduct. On appeal, a unanimous three-judge panel vacated the award of summary judgment, holding that the entomologist's affidavit evidenced genuine factual issues which should not have been resolved on summary judgment. On remand, it directed the district court to "weigh all of the evidence, direct and circumstantial, to determine whether [the entomologist]'s declaration was false or misleading, and whether he intended to deceive the examiner."20

Conclusion

Prevailing on a defense of inequitable conduct presents significant challenges at the trial court level, given the burden of proof and likely difficulties in obtaining evidence establishing the requisite intent. Not surprisingly, it is often difficult to obtain a sustainable finding of inequitable conduct on summary judgment. However, given the nature of appellate review of inequitable conduct, a district court finding after trial that the patent is unenforceable due to inequitable conduct puts the alleged infringer in the proverbial catbird's seat, and that is why a defendant in a patent infringement case should diligently determine whether it can assert such a defense. 1 Precision Instrument Mfg'g Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814, 815 (1945)(citations omitted).
2 Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988).
3 Hoffman-LaRoche, Inc. v. Promega Corp., 323 F.3d 1354, 1359 (Fed. Cir. 2003).
4 Duro-Last, Inc. v. Custom Seal, Inc., 321 F.3d 1098, 1109 (Fed. Cir. 2003).
5 Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995).
6 Hoffman-La Roche, 323 F.3d at 1359.
7 Id.
8 323 F.3d 1354 (Fed. Cir. 2003).
9 Id. at 1373.
10 326 F.3d 1226 (Fed. Cir. 2003).
11 Id. at 1239.
12 Id. at 1240.
13 351 F.3d 1139 (Fed. Cir. 2003).
14 See 37 C.F.R. §§ 1.27, 1.28 (1983).
15 Id. at 1146.
16 Id. at 1152, 1155.
17 Id. at 1155.
18 2004 U.S. App. LEXIS 5831 (Fed. Cir. Mar. 30, 2004).
19 Id., 2004 U.S. App. LEXIS 5831 at *5.
20 Id. at *19.

Richard H. Brown and Charles Allen Yuen practice intellectual property litigation at Pitney Hardin LLP, where Mr. Brown is a partner and Mr. Yuen is counsel. This article represents only the authors' opinions and does not necessarily reflect the views of Pitney Hardin or any of its clients. Questions concerning the article or Pitney Hardin's practice may be directed to Mr. Brown or Mr. Yuen at (973) 966-6300.

Please email the authors at rbrown@daypitney.com or cyuen@daypitney.com with questions about this article.