Vendor’s Economic Injury Is Insufficient to Establish DJ Jurisdiction, but Implicit Claim of Contributory Infringement Is Enough:

Patent / Declaratory Judgment Standing

The U.S. Court of Appeals for the Federal Circuit has now ruled that a supplier vendor has standing to commence a declaratory judgment action if a patent holder accuses the supplier’s customers of direct infringement and if the supplier’s product functions as a material component in the allegedly infringing system or the supplier’s product is used in the performance of the allegedly infringing method.   Arris Group v. British Telecommunications PLC, Case No. 10-1292 (Fed. Cir., May 19, 2011) (Dyk,  J.).

Arris makes and sells cable telephony and data products for use in networks with Voice over Internet Protocol (VoIP) telephone services.  British Telecommunications (BT) sent Arris’ customer, Cable One, a letter accusing Cable One’s network of infringing various system and method claims of the patents-in-suit.  Licensing discussions ensued.  BT sent Cable One a 118-page presentation comparing the patent claims to Cable One’s network, which included repeated identification of Arris’ products as meeting certain system claim elements and steps of the method claims.  BT’s presentation identified Cable One (not Arris) as a direct infringer.  Thereafter, at Cable One’s request, Arris became involved in the licensing discussions.  BT offered Cable One a license but declined to license Arris.  Arris filed a declaratory judgment action against BT; the district court dismissed the action, finding that Arris lacked standing because there was no case or controversy between Arris and BT.  Arris appealed.

The Federal Circuit rejected Arris’ argument that case or controversy exists because Arris has suffered an economic injury as a result of BT’s infringement threats.  The Court held that a mere adverse economic interest was insufficient to create declaratory judgment jurisdiction and that the Supreme Court’s MedImmune decision did not alter the prior law in this regard.  What is required to establish jurisdiction is an adverse legal interest of sufficient immediacy and reality.  However, the Federal Circuit found an adverse legal interest because BT implicitly asserted that Arris contributorily infringed the BT patents when it accused Cable One of direct infringement.  Arris’ products were “central” to the BT’s direct infringement allegations against Cable One and, for many of the asserted claims, BT identified Arris’ products as meeting virtually all of the claim elements.  The Court further found that, at a minimum, BT identified Arris’ products as satisfying at least one central element of every asserted claim.  BT allegations that Arris’ products complied with industry standards also suggested that Arris’ products were especially made or adapted for uses that infringe and are not staple articles of commerce.  Other relevant factors to the Court’s conclusion included Arris’ involvement in the prior licensing negotiations, as well as BT’s refusal to grant Arris a covenant not to sue.

Practice Note:   The “central” nature of Arris’ products in the infringement allegations entitled the Court to finding that standing existed.  However, the nature and quantity of contacts between the Arris and BT also strongly supported the Court’s conclusion.  Patent holders seeking to avoid declaratory judgment battles with indirect infringers should take care to minimize the nature of the allegations made about indirect infringers and should not rely on non-binding disclaimers that suppliers are not being accused of infringement.

One Year Post-Bilski : How the Decision is Being Interpreted by the BPAI, District Courts, and Federal Circuit -§101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011

One year ago, on June 28, 2010, the Supreme Court issued its decision in Bilski v. Kappos. The decision held that the machine-or-transformation test is not the exclusive test for patent eligibility, and that the three traditional exclusions of natural phenomena, abstract ideas, and laws of nature still apply. Since that time, 182 decisions involving statutory subject matter eligibility have been issued by the USPTO’s Board of Patent Appeals and Interferences (“the Board”). District Courts issued 6 decisions in the past year that substantively addressed statutory subject matter under § 101, while the Federal Circuit issued 3 decisions on the subject. The day after Bilski issued, the Supreme Court denied cert in In re Ferguson, and just recently picked up Mayo Collaborative Servs. v. Prometheus Labs for review.

Following is a summary of each decision that substantively discusses statutory subject matter under § 101 – from the Board and the Courts. Although the Board decisions are not precedential, they offer insight into what patent practitioners can expect in their own appeals. Similarly, both reported and unreported cases from the District Courts and Federal Circuit are provided to round out the statutory subject matter landscape. Section (I) outlines Board cases where the claims were found to be statutory. Section (II) outlines Board cases where the claims were found to be non-statutory. Section (III) provides a look at activity in the Courts.

Some trends from the Courts worth noting:

(1)  The District Courts appear to be very strict when reviewing statutory subject matter – out of the 6 District Court decisions that addressed § 101, only 2 found that the claims at issue were patent-eligible under § 101.

(2) The Federal Circuit has offered some relief for patent owners. Out of the 3 Federal Circuit decisions that addressed § 101, 2 found that the claims at issue were patenteligible.

(3) The Supreme Court is staying close to the patent-eligibility issue, having granted cert in the Prometheus case on appeal from the Federal Circuit.

Some trends from the Board worth noting:

(1) The number of decisions where the claims were held by the Board to be nonstatutory under §101 significantly outweighs the number of decisions where the Board found that the claims satisfied §101. There are about 2.5 non-statutory decisions for every 1 statutory decision.

(2) It is not unusual for the Board to raise a §101 rejection on its own, even if patent eligibility was not a subject on appeal, and was not briefed.

(3) The Board still relies heavily on the machine-or-transformation test, although it does look at other factors as well. For most claims that satisfied the machine-or-transformation test, the Board has found them to be patent-eligible without further analysis.

(4) Although it is not an official test, the “mental steps” doctrine rings true – if the claims can be performed purely in the human mind, then they will be non-statutory.

(5) Even if the specification is silent as to whether a computer readable medium can be read on a signal, the Board will likely read a signal into a claim reciting a computer readable medium, rendering it non-statutory.

(6) The panel of judges assigned to a particular appeal matters. As can be seen from the following, several of the Board judges rarely find a claim patent-eligible, and often raise previously non-existent §101 rejections.

(7) There are no guarantees. Similar claims have been treated differently by different panels, and some BPAI judges appear inconsistent in applying the law to seemingly similar claims.

For a full review of §101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011 and the full text of this artilce please click here:

Adding Only Dependent Claims Is Error Correctible By Reissue

The U.S. Court of Appeals for the Federal Circuit held that patent applicants can file a reissue application that retains all original claims and adds only dependent claims. In re Yasuhito Tanaka (Fed. Cir., Apr. 15, 2011) (Linn, J.) (Dyk, J., dissenting).

Yasuhito Tanaka (Tanaka) appealed from the precedential decision of the Board of Patent Appeals and Interferences (the Board), holding that a reissue application that adds only dependent claims does not present the type of error correctible by reissue under 35 U.S.C. §251.  Tanaka filed a reissue application seeking to broaden claim 1 of his patent and did so within two years of the patent issuance.  Over the course of prosecuting the reissue application, Tanaka gave up on broadening claim 1 and presented original claims with a new dependent claim.  The examiner rejected the claims, asserting that no error has been specified that broadens or narrows the scope of the claims.  The rejection was made final.  Tanaka appealed to the Board.

The Board held that §251 “disallow[s] reissue applications that simply add narrow claims to the reissue patent when no assertion of inoperativeness or invalidity for the reasons set forth in § 251 can be made by the patentee.”  Therefore, the Board affirmed the examiner’s decision, whereupon Tanaka appealed to the Federal Circuit.

On appeal, Tanaka argued that the Board’s holding is inconsistent with long standing Court of Customs and Patent Appeals (CCPA) precedent such as In re Handel and In re Muller, as well as with Federal Circuit precedent such as Hewlett-Packard v. Bausch & Lomb.  The Federal Circuit agreed, noting that § 251 provides “[w]henver any patent is … deemed wholly or partly inoperative or invalidby reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall…reissue the patent.”  Referring to its precedent, the Federal Circuit noted that the term less means claiming fewer claims than patentee could have properly claimed rather than referring to the scope of protection.  In In re Handel, it was stated that adding dependent claims as a hedge against possible invalidity of original claims is a proper reason for asking for a reissue to be granted.

Accordingly, the Federal Circuit concluded that patent applicants can file a reissue application for purposes of adding only additional dependent claims.

Judge Dyk, in dissent, cited an 1883 Supreme Court case, Gage v. Herring, that in his view prohibited a reissue applicant from returning his original claims without amendment.

Federal Circuit Changes Law for Post-Injunction Contempt Proceedings Against Modified Products

In TiVo, Inc. v. EchoStar Corp., et al., No. 2009-1374 (Fed. Cir. Apr. 20, 2011), a recent en banc decision, the Federal Circuit vacated an Eastern District of Texas court’s ruling that EchoStar was in contempt of the district court’s permanent injunction. Because the Federal Circuit considered the case en banc, the Federal Circuit was able to reconsider the two-step test it adopted in KSM Fastening Systems v. H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985), for determining whether a district court should hold a contempt proceeding. The Federal Circuit concluded that the KSM test was unsound and clarified the standards governing contempt proceedings in patent infringement cases.

The TiVo/EchoStar patent battle has been raging in the courts for the better part of 10 years. Following a win by TiVo in a jury trial in the Eastern District of Texas, Judge Folsom entered an injunction prohibiting EchoStar from undertaking certain activities in connection with its accused DVR products. The court subsequently found EchoStar in violation of the injunction and imposed contempt sanctions on top of the damages awarded by the jury. EchoStar appealed to the Federal Circuit and ultimately persuaded the Federal Circuit to consider the case en banc to clarify the standard for imposing contempt sanctions in a patent case.

In a unanimous portion of the opinion, the Federal Circuit held that there is no “good faith” defense to a charge of contempt. The court also overruled an often-misunderstood portion of the 1985 KSM case, which had set out a two-part test for deciding whether contempt proceedings were appropriate. The Federal Circuit changed the two-part KSM inquiry into a single statement: “What is required for a district court to hold a contempt proceeding is a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”

With respect to the substantive standard applied to a contempt proceeding, the Federal Circuit reiterated that “the party seeking to enforce the injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes.” For the first portion of this analysis—determining whether there are more than “colorable differences”—the court clarified the appropriate comparison: “[O]ne should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims. Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one, and the inquiry into whether the newly accused product actually infringes is irrelevant. Contempt is then inappropriate.”

On the final key question—whether EchoStar’s conduct constituted contempt under the newly devised proper standard—two factions of the en banc court were sharply divided. EchoStar argued that the language of the injunction was too ambiguous to clearly proscribe the challenged conduct. The seven judge majority, in an opinion written by Judge Lourie, held that such an argument was unavailable as a matter of law because EchoStar never directly challenged the language of the injunction. According to the majority, “where a party has bypassed opportunities to present its asserted vagueness claim on appeal or through a motion to clarify or modify the injunction, the party cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the party’s conduct.” The five-member minority, in an opinion written by Judge Dyk, disagreed strenuously, on the grounds that “contempt cannot be based on an order susceptible to two reasonable readings, one of which does not cover the accused conduct.” Thus, the dissenting judges would have reversed the finding of contempt because “TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software. It did not remotely satisfy this burden.”

One important message to take away from this case is that any defendant that is subject to an injunction in a patent case should immediately analyze the injunction to determine whether there is any potential ambiguity in its terms. If such ambiguity is present—or even potentially present—the defendant frequently may be well advised to raise any such issues immediately, through a motion to clarify/modify the injunction and/or an appeal to the Federal Circuit. Absent those protective measures, the ambiguity of an injunction will likely not provide the defendant with grounds to later oppose a contempt motion by the patentee.

A copy of the opinion can be found at http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1374.pdf.

The Federal Circuit Affirms the Delaware District Court’s Summary Judgment of Invalidity for Failure to Disclose the Best Mode

In Wellman, Inc. v. Eastman Chemical Co., No. 2010-1249 (Fed. Cir. Apr. 29, 2011), the Federal Circuit affirmed the U.S. District Court for the District of Delaware’s grant of summary judgment on invalidity of Wellman’s patent claims for failure to disclose the best mode.

Plaintiff-patentee Wellman filed an action against Eastman Chemical, claiming it infringed U.S. Patent Nos. 7,129,317 (the ’317 patent) and 7,094,863 (the ’863 patent), which claim polyethylene terephthalate (PET) resins for use in plastic beverage containers. More particularly, the Wellman patents disclose “slow crystallizing” PET resins that purportedly retain exceptional clarity and do not shrink or become hazy from crystallization when “hot-filled” with product at temperatures of 180° C to 205° C.

Eastman Chemical defended by moving for summary judgment of invalidity on the grounds of indefiniteness and failure to set forth the best mode of practicing the claimed invention under 35 U.S.C. § 112, ¶ 1. The district court found that the patents were invalid, and Wellman appealed.

In its opinion, the Federal Circuit reaffirmed the law of “best mode.” Determining compliance with the best-mode requirement requires a two-prong inquiry. First, it must be determined whether, at the time the application was filed, the inventor possessed a best mode for practicing the invention. This is a subjective inquiry that focuses on the inventor’s state of mind at the time of filing. Second, if the inventor has a subjective preference for one mode over others, the court must then determine whether the inventor “concealed” the preferred mode from the public. The second prong inquires into the inventor’s disclosure of the best mode and the adequacy of that disclosure to enable one of ordinary skill in the art to practice that part of the invention. This second inquiry is objective, depending on the scope of the claimed invention and the level of skill required in the relevant art.

With respect to the first inquiry, the Federal Circuit agreed with the district court’s finding that the inventors possessed a best mode for practicing the invention. In particular, the district court found, based on the testimony of the inventors, that one inventor believed a specific formula for a slow-crystallizing, hot-fill PET called Ti818 to be the best mode of carrying out the claimed invention. The parties agreed that all but five of the asserted claims encompassed Ti818. Additionally, the Federal Circuit agreed with the district court that another inventor believed the use of carbon black (N990), an ingredient in its Ti818 PET formula, to be the best mode at the time of filing the application.

With respect to the second inquiry, the Federal Circuit agreed with the district court’s finding that Wellman effectively concealed the best mode from the public. Specifically, the district court found, and the Federal Circuit agreed, that Wellman effectively concealed the recipe for Ti818 by identifying preferred concentration ranges for certain ingredients that excluded those used in Ti818 and by identifying preferred particle sizes for an additive other than that used in Ti818. Thus, Wellman did not disclose the specific recipe for Ti818 or any other specific PET resin recipes. “By masking what at least one inventor considered the best of these slow-crystallizing resins, Wellman effectively concealed its recipe for Ti818.”

The Federal Circuit agreed with the district court and further held that Wellman not only failed to disclose its use of carbon black N990 in its Ti818 PET formula, but also deliberately chose to protect that ingredient as a trade secret, and, therefore, “intentionally concealed” the best mode. The Federal  Circuit found that the Wellman patents “lead away” from the use of carbon black N990 in Ti818.

While affirming the district court’s decision on invalidity based on the best mode, however, the Federal Circuit reversed the district court’s grant of summary judgment on the issue of indefiniteness. Specifically, the Federal Circuit found that the district court erred when it concluded that the patents did not provide sufficient guidance to those skilled in the art for construing the temperature (TCH) at which the sample crystallized the fastest during heating in a differential scanning calorimetry machine. The specifications of the patents supported construing the TCH term to require testing of amorphous materials.

The Federal Circuit affirmed the district court’s summary judgment that all asserted claims of the ’317 and ’863 patents that covered the PET recipe Ti818 were invalid for failure to disclose the best mode of practicing the claimed invention. The Federal Circuit, however, reversed the district court’s judgment that the asserted claims were indefinite under 35 U.S.C. § 112, ¶ 2, and remanded the case for further proceedings.

A copy of the opinion can be found at http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1249.pdf.

Supreme Court Upholds Inventor’s Ownership of Patent Rights Under the Bayh-Dole Act

On Monday, June 6, 2011, the Supreme Court held that the Bayh-Dole Act does not disturb the long-standing rule of patent law that ownership of patent rights vest in the inventor. In Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,the Supreme Court affirmed the Federal Circuit’s ruling and held that the Bayh-Dole Act clarified “the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.” (Slip. Op. at 12). For the contractor to have rights in a patent, the inventor must have executed a valid assignment in favor of the contractor.

The Stanford case arose from a joint research program in which a Stanford researcher conducted HIV-related research at Cetus Corp. Roche is the successor of Cetus. The researcher had “agree[d] to assign” any inventions to Stanford, and later did execute an assignment to Stanford for the specific patents. However, in the interim, the researcher signed a confidentiality agreement that provided he “will assign and do[es] hereby assign” to Cetus inventions arising out of the use of Cetus’s facilities. Following its precedent, the Federal Circuit ruled that the language in Stanford’s agreement to assign did not actually effect an assignment whereas the language of the assignment to Cetus did. Accordingly, Roche was the owner of the invention unless the Bayh-Dole Act vested ownership in Stanford. The Federal Circuit held it did not. (See our previous alert for a more detailed history.)

In affirming, the Supreme Court characterized the concept that the inventor owns the patent rights as basic to our patent laws since the passage of the first Patent Act in 1790. It found that Congress has divested inventors of this right in the past only by unambiguous language. It cited two instances, inventions concerning nuclear material or atomic energy and inventions made pursuant to contracts with NASA, where Congress unambiguously specified that the title would vest in the government. The Court observed that the language that divested the inventor’s rights in those instances was notably absent from the Bayh-Dole Act. Further, the Supreme Court found other language in the Bayh-Dole Act supported its view.

Justice Sotomayor wrote a concurring opinion to make clear that she did not view the majority opinion as resolving whether the Federal Circuit’s precedent was correct in interpreting Stanford’s agreement to assign as not actually effecting an assignment, particularly where the Bayh-Dole Act is implicated. Since Stanford did not challenge the Federal Circuit’s decision on that ground, she nonetheless agreed affirmance was appropriate.

Justice Breyer, joined by Justice Ginsburg, dissented. The dissent would have vacated and remanded the case because in their view, the answer to the question presented turned on matters on which the parties had not had a full opportunity to argue. One such matter was the Federal Circuit’s precedent on the interpretation of assignment agreements. The dissent did not view the majority opinion as foreclosing argument on this point by similarly situated parties in the future. The second matter not fully addressed was whether the Bayh-Dole Act should be interpreted to create a presumption of assignment by federally funded employees. While the concurring and dissenting Justices made clear their view that the Federal Circuit’s case law regarding the proper construction of agreements to assign remains open to challenge, the Federal Circuit’s precedent will remain controlling unless overruled by that court en banc or by the Supreme Court. Both are unlikely.

Thus, the first and best line of protection for academic and research institutions as well as private recipients of federal research dollars is the same as for other employers: review with competent counsel your policies and practices regarding assignments of inventions and the forms and agreements used in connection with such assignments and with agreements to assign. These must be drafted with the understanding that ownership initially vests with the inventor or, where more than one person contributes to the conception of the invention, with the inventors jointly.

Supreme Court Upholds “Clear and Convincing” Standard of Proof for Patent Invalidity While Suggesting Juries Be Instructed on the Weight of the Evidence

On June 9, 2011, the Supreme Court in an 8-0 decision authored by Justice Sotomayor, affirmed the long-standing rule that a challenger must demonstrate invalidity of a patent by “clear and convincing evidence.” Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S.__, slip op. at 20 (June 9, 2011).  Microsoft had argued for a more relaxed “preponderance of the evidence” standard in a case where the prior art that formed the basis for the challenge had not been considered by the Patent Office.  While the holding puts to rest speculation over whether the Court would apply the lesser standard of proof, the Court endorsed the use of a jury instruction on the weight to be given prior art evidence that had not been considered by the Patent Office, stating that such an instruction, “when requested, most often should be given.”  Id.at 17.

Section 282 of the Patent Act of 1952 provides that “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”  35 U.S.C. § 282. While § 282 expressly places the burden of proof regarding validity of the patent upon an accused infringer, it does not expressly address the standard of proof.  Microsoft argued that the preponderance standard applied generally or, in the alternative, at least where the prior art asserted had not been considered by the Patent Office.  The Court rejected both contentions.

The Supreme Court rejected Microsoft’s first contention by finding that Congress had adopted the heightened standard from the common-law in 1952 when it enacted § 282.  The Court determined that by the time of the 1952 Act, the common law presumption of validity reflected the “universal understanding” that the preponderance standard was insufficient.  That understanding was reflected in the holding of Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U.S. 1 (1934). In that case, the Supreme Court held that an accused infringer must overcome the presumption of validity by “clear and cogent evidence.” Id.at 2.  Accordingly, the Court held that the codification of the presumption in § 282 brought with it its common-law meaning, including the heightened standard proof, and there was no reason to “drop” the heightened standard simply because §282 does not explicitly recite it.

In arguing for the lesser “preponderance of the evidence” standard of proof when the prior art was not considered by the Patent Office, Microsoft relied in part on the Supreme Court’s dicta in KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007), that at least in cases where the invalidating prior art was not before the Patent Office, the presumption of validity “seems much diminished.”

Notwithstanding its earlier observation, the Supreme Court rejected the notion of a variable standard of proof.  The Court acknowledged language found in “numerous courts of appeals” cases before the 1952 Act, that referred to the presumption of validity being “weakened” or “dissipated” when the evidence was not considered by the Patent Office.  However, it explained that such language could not be read as supporting a different standard.  “Instead, we understand these cases to reflect the same common sense principle that the Federal Circuit has recognized throughout its existence—namely, that new evidence supporting an invalidity defense may ‘carry more weight’ in an infringement action than evidence previously considered by the Patent Office.”   Slip op. at 17.  Accordingly, “new evidence” of invalidity may make it “easier” for a challenger to meet the “clear and convincing” standard.

The Court suggested that the weight to be given this new evidence be explained in an instruction to the jury:

[A] jury instruction on the effect of new evidence can, and when requested, most often should be given. When warranted, the jury may be instructed to consider that it has heard evidence that the PTO had no opportunity to evaluate before granting the patent. . .  [T]he jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence.

Id.at 17.  This language will undoubtedly increase the frequency of requests for a specific instruction on the weight of the new evidence and on the use of such instructions.

Justice Breyer, joined by Justices Scalia and Alito, wrote a concurring opinion which emphasizes the need to pay careful attention to the distinction between fact questions and legal questions, noting that the standard only applies to evidence of the facts.  The Court’s opinion, slip op. at 2, does note that the ultimate question of patent validity is a question of law and that the same factual questions underlying the Patent Office’s original examination will also be present in an infringement action.  Id.  While this language is suggestive, the Court’s opinion never expressly states that the standard of proof applies only to the factual questions.  The concurrence thus raises the question of whether a court should refrain from applying the clear and convincing standard to legal conclusions, such as whether given facts render an invention obvious.  Further, the observations of the concurrence may impact the specific questions put to the jury in the form of a special verdict and instructions regarding the standard of proof.

Thus, the development of the patent law may be more affected by dicta from Microsoft Corp. v. i4i Ltd. Partnership than by its holding, which affirms the long-standing “clear and convincing” standard.

Supreme Court Unanimously Maintains High Hurdle for Invalidity Defense

June 9th, the Supreme Court unanimously ruled1 that an accused infringer must prove its invalidity defense by clear and convincing evidence. Microsoft Corp. v. i4i Ltd. P’ship, — S. Ct. — 564 U.S. —, 2011 WL 2224428, slip op. at 1, 16 (June 9, 2011).2 In a case of first impression, the Court determined that this standard applies even when the United States Patent and Trademark Office (“Patent Office”) did not consider the evidence of invalidity currently before the jury in the patent examination process. Id. The hurdle for proving invalidity historically has been high and now remains high.

According to Justice Sotomayor (who wrote for the majority), “Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity.” Id. at 20. “Nothing . . . suggests that Congress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case.” This decision thus keeps in place decades of existing jurisprudence and will continue to allow patent owners to value their portfolios based on past practices. Although accused infringers can take certain steps to minimize negative effects of the clear-and-convincing standard, “[a]ny recalibration of the standard of proof” is now solely in the hands of Congress. Id.

Historical Basis of Proving Invalidity

To receive patent protection, a claimed invention must meet the statutory requirements of patentability. The claimed invention, for example, must fall within certain patentable subject matter (§ 101), be novel (§ 102), be nonobvious (§ 103), and be disclosed in the patent application in sufficient detail to meet the enablement, best mode, and written description requirements (§ 112). Thus, the Patent Office issues a patent for a claimed invention only if its examiners determine that the claimed invention meets all of the statutory requirements. Once issued, a patent holder has the exclusive right to exclude others from using the claimed invention for the term of the patent.

An accused infringer, however, can escape liability for infringement by proving that the patent is invalid (i.e., that the Patent Office should not have issued it in the first place). Under § 282, however, “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity of a patent . . . rest[s] on the party asserting such invalidity.” 35 U.S.C. § 282. For over thirty years, the Federal Circuit has interpreted that section to require “a defendant seeking to overcome this presumption [to] persuade the factfinder of its invalidity defense by clear and convincing evidence.” Microsoft Corp., 2011 WL 2224428, slip op. at 3. According to Judge Rich, a principal drafter of the 1952 Patent Act, “Section 282 creates a presumption that a patent is valid and imposes the burden of proving invalidity on the attacker” by clear and convincing evidence. Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.3d 1350, 1360 (Fed. Cir. 1984). “That burden is consistent and never changes.” Id.

Microsoft Unsuccessfully Challenged Federal Circuit’s Long-Standing Precedent

In 2007, i4i sued Microsoft claiming that Microsoft Word infringed its patent for an improved method for editing computer documents. Microsoft Corp., 2011 WL 2224428, slip op. at 4. In addition to denying infringement, Microsoft argued that § 102(b)’s on-sale bar rendered i4i’s patent invalid due to i4i’s sale of a software program, S4, prior to the filing of the i4i patent application. Id. The parties agreed that i4i had sold the S4 program prior to the filing of the patent at issue but looked to the jury to determine whether S4 embodied the claimed invention. Id. Relying on the undisputed fact that S4 was never presented to the Patent Office, Microsoft objected to i4i’s proposed instruction requiring the jury find proof of invalidity by clear and convincing evidence. Id. In its place, Microsoft requested a jury instruction limiting its burden of proof, “with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit” to a “preponderance of the evidence.” Id. at 6 (internal quotation marks and citation omitted).

The District Court rejected Microsoft’s proposed instruction and instructed the jury that “Microsoft has the burden of proving invalidity by clear and convincing evidence.” Id. (internal quotation marks and citation omitted). Based on this instruction, the jury found that Microsoft had willfully infringed i4i’s patent and that Microsoft had failed to prove its invalidity defense. The Court of Appeals for the Federal Circuit affirmed, concluding that “the jury instructions were correct in light of [the] court’s precedent, which requires the challenger to prove invalidity by clear and convincing evidence.” i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 848 (Fed. Cir. 2010).

Supreme Court Rejected Microsoft’s Arguments—Invalidity Must Be Proved by Clear and Convincing Evidence

Microsoft sought certiorari from the Supreme Court as to (1) whether “a defendant in an infringement action need only persuade the jury of an invalidity defense by a preponderance of the evidence” and (2) whether “a preponderance standard must apply at least when an invalidity defense rests on evidence that was never considered by the [Patent Office] in the examination process.” Id. at 5-6. The answer to both of Microsoft’s questions is a clear and unqualified no.

In reaching this decision, the Court started with a common axiom of statutory interpretation: “Where Congress has prescribed the governing standard of proof, its choice controls absent ‘countervailing constitutional constraints.'” Id. at 6 (citing Steadman v. SEC, 450 U.S. 91, 95 (1981)). It then asked the next logical question—”whether Congress made such a choice” when it enacted § 282. To answer this question, the Court first analyzed the plain language of statute. The Court noted that the statute “establishes a presumption of patent validity, and it provides that a challenger must overcome that presumption to prevail on an invalidity defense”; however, the Court recognized that “it includes no express articulation of the standard of proof.” Id. Nevertheless, the Court concluded that Congress used the term “presumed valid” according to its settled meaning in the common law—a term encompassing “not only an allocation of the burden of proof but also an imposition of a heightened standard of proof.” Id. at 7-8.3

“The common-law presumption, in other words, reflected the universal understanding that a preponderance standard of proof was too ‘dubious’ a basis to deem a patent invalid.” Microsoft Corp., 2011 WL 2224428, slip op. at 8. Accordingly, when Congress declared that a patent is “presumed valid,” “the presumption encompassed not only an allocation of the burden of proof but also an imposition of a heightened standard of proof.” Id. Based on this wide-spread understanding of the common law term, the Court refused to conclude “that Congress intended to drop the heightened standard of proof from the presumption simply because § 282 fails to reiterate it expressly.” Id. at 9 (internal quotation marks and citation omitted). Rather, the Court concluded that it “‘must presume that Congress intended to incorporate’ the heightened standard of proof, ‘unless the statute otherwise directs.'” Id. (quoting Neder v. United States, 527 U.S. 1, 23 (1999)). Simply put, “[t]he language Congress selected reveals its intent not only to specify that the defendant bears the burden of providing invalidity but also that the evidence in support of the defense must be clear and convincing.” Id. at 12 n.7.

Notably, the Court rejected Microsoft’s attempts to distinguish nearly century’s worth of otherwise clear case law: “Squint as we may, we fail to see the qualifications that Microsoft purports to identify in our cases.” Id. at 10. Likewise, the Court rejected Microsoft’s argument that the Federal Circuit’s interpretation of § 282 must fail, because applying that interpretation of the phrase “presumed valid” renders superfluous the statute’s additional phrase, “[t]he burden of establishing invalidity of a patent . . . shall rest on the party asserting such invalidity.” Id. at 12. Although Justice Sotomayor (writing for the majority) seems to agree with Microsoft that the Federal Circuit’s interpretation renders some of the statute superfluous, the Court reminded Microsoft that “the canon against superfluity assists only where a competing interpretation gives effect ‘to every clause and word of a statute.'” Id. (citing Duncan v. Walker, 533 U.S. 167, 174 (2001)). The Court thus found the rule inapplicable here, where “no interpretation of § 282—including the two alternatives advanced by Microsoft—avoids excess language.” Id. at 13.

In addressing Microsoft’s second, more limited argument, the Court rejected Microsoft’s request for a variable standard of proof:

Our pre-1952 cases never adopted or endorsed the kind of fluctuating standard of proof that Microsoft envisions. And they do not indicate, even in dicta, that anything less than a clear-and-convincing standard would ever apply to an invalidity defense raised in an infringement action. . . . Nothing in § 282’s text suggests that Congress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case.

Id. at 15-16.

Accused Infringers Have Options

The accused infringer, however, is not without options. Although the Court steadfastly affirmed the heightened standard of proof, it recognized that “new evidence supporting an invalidity defense may carry more weight in an infringement action than evidence previously considered by the [Patent Office].” Id. at 17. Indeed, the Patent Office’s judgment may lose significant force if it did not have all the material facts before it. Id. In turn, this may make it easier for the accused infringer to satisfy its burden (e.g., to use the new evidence to persuade the jury of a patent’s invalidity by clear and convincing evidence). Id. Accordingly, if faced with new evidence of invalidity, an accused infringer should consider taking the following actions:

  1. Request a jury instruction on the effect of new evidence not considered by the Patent Office. When requested, such an instruction “most often should be given.” Id. “When warranted, the jury may be instructed to consider that it has heard evidence that the [Patent Office] had no opportunity to evaluate before granting the patented.” Id.
  2. If the parties dispute whether the evidence presented to the jury differs from the evidence previously before the Patent Office, seek an instruction mandating that the jury consider that question. Id. at 18. “The jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence.” Id. (citing Mendenhall v. Cedarapids, Inc., 5 F.3d 1557, 1563-64 (Fed. Cir. 1993)).
  3. Remember that the clear and convincing standard of proof is an evidentiary standard that applies only to questions of fact to the trial court. Microsoft Corp. v. i4i Ltd. P’ship, — S. Ct. — 564 U.S. —, 2011 WL 2224428, at *12 (June 9, 2011) (Breyer, J., concurring). Accordingly, separate “factual and legal aspects of an invalidity claim . . . by using instructions based on case-specific circumstances that help the jury make the distinction.” Id. at *13. In addition, use interrogatories and special verdicts “to make clear which specific factual findings underlie the jury’s conclusions.” Id. “By preventing the ‘clear and convincing’ standard from roaming outside its fact-related reservation, courts can increase the likelihood that discoveries or inventions will not receive legal protection where none is due.” Id.

Conclusion

Despite Microsoft’s valiant challenge, yesterday’s unanimous opinion keeps the hurdle high for parties trying to show that a patent is invalid. Although accused infringers are not without their options, any modification of the clear and convincing standard itself now requires an Act of Congress.

___________________
1All eight participating Justices concurred in the judgment.  Justice Sotomayor delivered the opinion of the Court, in which Justices Scalia, Kennedy, Ginsburg, Breyer, Alito, and Kagan joined.  Justice Breyer filed a concurring opinion, in which Justices Scalia and Alito joined.  Although Justice Breyer joined the Justice Sotomayor opinion in full, he wrote separately to emphasize that the clear and convincing standard of proof applies only to questions of fact, not to questions of law.  Justice Thomas filed an opinion concurring only in the judgment.  According to Justice Thomas, the heightened standard of proof applies because § 292 is silent and therefore does not alter the common-law rule.  Chief Justice Roberts took no part in the consideration or decision of the case.
2This case marks the third patent-law case released by the Supreme Court during the past two weeks.  Earlier this week, the Court ruled that the Bayh-Dole Act does not eclipse inventors’ rights. See Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 563 U.S. —, 2011 WL 2175210 (June 5, 2011).  On May 31, 2011, the Supreme Court ruled that induced infringement of a patent required knowledge that the induced acts constituted patent infringement.  See Global-Tech Appliances, Inc. v. SEB S.A., — S. Ct. —, 2011 WL 2119109 (May 31, 2011).  Each of these cases affirmed the Federal Circuit.
3Indeed, the Court concluded that by the time Congress enacted the 1952 Patent Act, “a common core of thought” unified the decisions of courts across the country:

“[O]ne otherwise an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance.  If that is true where the assailant connects himself in some way with the title of the true inventor, it is so a fortiori where he is a stranger to the [claimed] invention, without claim of title of his own.  If it is true where the assailant launches his attack with evidence different, at least in form, from any theretofore produced in opposition to the patent, it is so a bit more clearly where the evidence is even verbally the same.”

Id. (citing Radio Corp. of Am. v. Radio Eng’r Labs, Inc., 293 U.S. 1, 8 (1934).  As Justice Cardozo put it, “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.”  Radio Corp. of Am., 293 U.S. at 2.

Common Sense Variation Is Unpatentable

Affirming the district court’s grant of summary judgment of invalidity, the U.S. Court of Appeals for the Federal Circuit held that a common-sense variation of known technology is unpatentable.   Odom v. Microsoft Corp., Case Nos. 11-1160 (Fed. Cir., May 4, 2011) (Lourie, J.).

In August 2008 James Odom brought suit against Microsoft, alleging infringement of its patent directed to both a method for manipulating groups of “tools” in “toolbars” commonly found in computer software applications, as well as to the ability to use the divider to hide or display selected tools, by Microsoft’s Office 2007, a suite of office productivity software.  During the litigation, Odom’s counsel withdrew from the case and, failing to retain new counsel, Odom moved to dismiss his claims without prejudice.  The district court granted Odom’s request to dismiss but declined to dismiss Microsoft’s declaratory judgment counterclaims.  Microsoft subsequently moved for summary judgment of non-infringement and invalidity.

The district court granted Microsoft’s motions for summary judgment, holding that the asserted claims of the patent were invalid for obviousness and not infringed by Office 2007.   In so finding, the court stated that the asserted claims presented “one of the clearest” cases of obviousness that had come before it because Odom had simply “cobbled together various pieces of what was already out there in a manner … that would have been obvious to anyone skilled in the art at the time of the invention.”  Odom appealed.

On appeal, Odom argues that the district court erred in its obviousness analysis by looking at separate pieces of the claimed invention rather than the invention as a whole, by impermissibly applying hindsight in determining obviousness, and argued that the manipulatable sections of the composite toolbar disclosed in the prior art are very different from the claimed tool groups.  The Federal Circuit disagreed.  The Court found that user-manipulatable toolbars (which can be customizing according to user preferences and which include groups of command buttons’ or toolbars) were known in prior art at the time the patent in suit was filed.  The Court found that the only difference between the prior art and the patent in suit was that the groups of tools claimed in the patent are on a single toolbar.  Citing KSR, the Court held that this difference “is an insignificant advance.”

Since it would have been a trivial change for a person of skill in the art designing such alterable tool groups to add an indicator that could indicate any altered condition of the tool group, the Federal Circuit concluded that the district court did not err in determining that the manner in which patent divides up toolbars into groups, and the claimed manipulation of tool groups, would have been a common sense variation for a person of skill in the art.

The Federal Circuit also rejected Odom’s arguments of secondary considerations and reiterated that weak secondary considerations generally do not overcome a strong prima facie case of obviousness.

Joint (Direct) Infringement Still Requires Control … But Stay Tuned

A sharply divided panel of the U.S. Court of Appeals for the Federal Circuit, addressing the requirements for direct infringement if more than one party performs the steps of the patented method, ruled that the doctor-patient relationship was insufficient to show that the patient was acting under the direction or control of the doctor.   McKesson Techs. Inc. v. Epic Sys. Corp., Case No. 10-1291 (Fed. Cir. Apr. 12, 2011) (Linn, J.) (Bryson, J. concurring) (Newman, J., dissenting).

McKesson’s patent is directed to a method of electronic communication between healthcare providers and patients involving personalized web pages for doctors and their patients.  Epic’s MyChart software allows healthcare providers to associate medical records with a personalized web page.  Epic did not directly use the software, but licensed MyChart to doctors  who provided the software as an option for their patients’ use.  McKesson sued Epic for inducement of infringement.  Both McKesson and Epic agreed that the first step of McKesson’s method claim (“initiating a communication”) was performed by the patient, while the remaining steps were performed by doctors.  McKesson alleged that this was sufficient to attribute the “initiating a communication” step to the doctors.  The district court disagreed and granted summary judgment in favor of Epic.  McKesson appealed.

The panel affirmed the district court’s ruling, stating that under BMC Resources v. Paymentech (see IP Update, Vol. 10, No. 10), Muniauction v. Thomson (see IP Update, Vol. 11, No. 7) and Akamai Techs. v. Limelight Networks (see IP Update Vol. 14, No. 1), which was vacated by an en banc order (see IP Update, this edition), there can only be joint infringement if there is an agency relationship between the parties who perform the method steps or when there is a contractual obligation on the part of one party to the other to perform the steps.   The patients were not agents of the doctors, nor did the doctors require their patients to use the software; therefore, the panel rejected McKesson’s argument that the doctor-patient relationship gave the doctor effective control over the “initiating a communication” step.

Judge Newman, in dissent, attacked the entire line of precedent beginning with BMC Resources, arguing that the limitations on the finding of joint infringement announced in that case contradicted both prior Federal Circuit and Supreme Court precedent and holding that previous cases had taken the position that direct infringement could be performed by two parties acting in concert, regardless of whether there was any sort of agency or other relationship between the parties.  Seemingly inviting a request for rehearing en banc, the dissent noted that these prior cases “never had an en banc reversal” and therefore should be considered the law of the circuit until an en banc panel found otherwise.

Judge Bryson’s concurrence also seemed to invite a request for rehearing en banc, noting that “the decision in this case is correct in light of this court’s decision in BMC Resources, Muniauction and Akamai Technologies.  Whether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.”

Practice Note:

As of the time of press, McKesson’s expedited consideration of a request for a rehearing en banc was granted and the Federal Circuit issued an en banc order identifying the following questions to be addressed:

1.      If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement?  See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).

2.      Does the nature of the relationship between the relevant actors—e.g., service provider/user; doc-tor/patient—affect the question of direct or indirect infringement liability?

On April 20, 2011, the Federal Circuit granted en banc review of its decision in Akamai (see IP Update, this edition) on essentially the same issue.

Perils of Reissue – Recapture Doctrine Has Teeth!

Patent owners beware! Over the past year, the Federal Circuit has issued two major rulings1 which stand as a warning to patent owners that when requesting reissue of an arguably defective patent, if you attempt to broaden aspects of the claims relating to subject matter surrendered during prosecution of the defective patent,2 courts (and now likely the U.S. Patent Office as well) will extensively examine the “entire” prosecution history of the defective patent and its family to determine if you are attempting to recapture the surrendered subject matter.3 This means that the review will not only include the prosecution history of the “defective” patent undergoing reissue, but also the prosecution history of any and all “ancestor patent applications.”4 The warning is out. Improper recapture of surrendered subject matter will not be tolerated.

The unfortunate result of the Federal Circuit’s zealous desire to prevent improper recapture, however, is that: pursuit of claims of a broader or mixed scope through the reissue process can be tantamount to walking through a mine field that grows with the number of patent applications added to the patent’s family. If patent owners and portfolio managers desire to enlarge the scope of the claims of an issued patent,5 the reissue application must be applied for within two years from the grant date of the issued patent. Due to these broaden reissue difficulties, it may be prudent to make a determination of whether broader claims are desired much earlier in an application process and prior to patent grant/issuance to avoid the broaden reissue route.

One of the better available routes or strategies, for example, appears to be to pursue such broadened or mixed-scope claims through use of one or more continuation or divisional applications at some point prior to issuance/grant of the patent, e.g., after issuance of a notice of allowance. This continuation or divisional strategy can help patent owners avoid the reissue process, which under certain circumstances, arguably now seems to be best reserved for neutral or narrowing claim amendments6 such as: to account for newly discovered prior art, changes in the legal landscape7 or other impetus which may cause there to be a question as to the validity of the patented claims, to correct an error in the patent disclosure,8 to correct a foreign or domestic priority claim, or to add an additional non-surrendered species, thereby leaving broaden reissue reserved only as a procedure of last resort.

Rule Against Recapture

Section 251 of Title 35 of the U.S. Code allows patent owners to “enlarge the scope of the claims of the original patent” if “through error without any deceptive intention…the patentee claim[ed]…less than he had a right to claim in the [original] patent.” Deliberate withdrawal or amendment of claims or specific arguments limiting the scope of terms used in a claim to obtain a patent, however, are not considered to involve the type of “error” contemplated by Section 251.9 As such, in accordance with the statute, the patentee may not utilize the reissue process to broaden the claims of a patent to recapture subject matter surrendered10 through deliberate amendments or through specific arguments made during prosecution to overcome prior art.

Two recent court rulings out of the Federal Circuit, In re Mostafazadeh11 and MBO Laboratories Inc.12 further highlight and explain this requirement.

In re Mostafazadeh (“Mostafazadeh”)

In April 1998, inventors Mostafazadeh and Smith filed a patent application directed to semiconductor packaging, which issued as a patent in March 2000. During prosecution, the inventors amended the independent claims to add a claim element describing a “circular attachment pad” and argued that “circular” attachment pads were novel—no assertions were made that non-circular attachment pads were novel.13 The application was allowed as a result of the amendment and the patent issued as U.S. Patent No. 6,034,423 (“the ‘423 patent”). The inventors did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing.

In December 2001, the inventors filed a reissue application, deleting the “circular” shape requirement and declaring that the original claims of the ‘423 patent were partially inoperative because the “circular” shape feature of the attachment pad limitation was unduly limiting. The examiner rejected the reissue claims as violating the recapture doctrine, noting that the circular attachment pad limitation was argued during prosecution of the ‘423 patent “to be both critical to the invention and distinguishing over the prior art.” The inventors appealed to the Board of Patent Appeals and Interferences (“Board”), which affirmed the examiner’s rejection. Having been rebuffed by the Board, the inventors appealed to the Federal Circuit, asserting, in essence, that the reissue claims were materially narrower than the pre-amended version of the patent claims because they retained the “attachment pad” limitation.14

The Federal Circuit, however, disagreed, finding that the inventors failed to demonstrate material narrowing because use of a non-circular attachment pad was “well known in the prior art.”15 The court also found that additional narrowing features unrelated to the surrendered subject matter were insufficient to avoid recapture.16 In other words, to avoid the effects of the recapture doctrine, the reissue claims must retain at least material portions of the surrendered subject matter, and the remaining portions must serve the purpose of the addition of the original surrendered subject matter – i.e., to differentiate the reissue claims from the prior art. Even substantial material narrowing to other elements of the reissue claims will not allow patent owners to avoid this requirement.

MBO Laboratories Inc. (“MBO”)

Beginning in November 1990, MBO’s inventors submitted a series of patent applications covering a hypodermic safety syringe designed to minimize needle-stick injuries through the use of a needle positioned within a guard sleeve. These patent applications included a continuation-in-part application (“the ‘013 application”) which issued as U.S. Patent No. 5,395,347 (“the ‘347 patent”), and a continuation application (“the ‘772 application”) claiming priority to the ‘013 application filed one day prior to issuance of the ‘347 patent. After receiving a notice of allowance for the ‘772 application, MBO subsequently abandoned it and filed a new continuation application (“the ‘803 application”) with additional claims, which issued as U.S. Patent No. 5,755,699 (“the ‘699 patent”) without objection. MBO did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing, and no other applications in the application chain or family were pending.17

Slightly more than one year after issuance of the ‘699 patent, MBO requested a broadening reissue of the ‘699 patent, apparently fearing that the claims could be interpreted to cover only a retractable needle that retracts into a fixed guard, and not the arguably equivalent feature of a fixed needle and slidable guard. Surprisingly, in spite of the fact that during prosecution of the ‘772 application, MBO distinguished its invention from cited prior art, in essence, by arguing that MBO’s invention included the retractable needle limitation, the USPTO allowed the reissue without objection, which resulted in U.S. Patent No. RE 36,885 (“the RE ‘885 patent”).18

In 2003, MBO filed suit against Becton, Dickinson & Co. (“Becton”) asserting infringement of various claims of the RE ‘885 patent, which included three original claims copied without amendment from the ‘699 patent and four claims added during the reissue process. During the course of the litigation, Becton challenged the four reissue claims as being invalid under the recapture rule—arguing that the reissue claims recaptured subject matter surrendered during patent prosecution. The District Court agreed, holding that the four added claims were invalid. The District Court, however, also held that all claims including the original claims were invalid.19  MBO in an appeal to the Federal Circuit requested clarification.20

In discussing whether the patentee surrendered any subject matter, which necessarily requires a review of prosecution history, the Federal Circuit clarified that the determination of the existence of surrender of a claim’s scope, includes surrendered subject matter made not only while prosecuting the original application directly resulting in the original patent (i.e., the ‘699 patent), but also subject matter surrendered in any precedent divisional, continuation, or continuation-in-part application (here both the ‘722 and ‘013 applications).21 The original claims, however, remain unaffected by the recapture rule.22

Moral of This Story

As shown by these recent Federal Circuit cases, violation of the recapture rule results in invalidity of the offending reissue claims, but does not result in invalidity of claims that are not subject to the rule (i.e., original and non-violating amended claims). Depending upon the outcome of a review of the file history of the patent application that would result in the original patent (if still pending), any pending child, ancestor, or sister applications, and issued patents, as well as a determination of whether or not either of the pending ancestor or sister patent applications have a written description that would adequately support claims having the desired scope,23 there often is a likelihood that a broaden reissue would not provide the ability to achieve the same claim scope as could be achieved through the filing of one or more continuation or divisional applications or by amending the claims of the respective pending application. As such, one can surmise that had there been a child, ancestor, or sister patent application pending at the time the respective patent owners in these cases determined that their respective issued patents had insufficient claim scope, the claims of any such pending patent application could have been amended; or additional claims could have been added, or an additional continuation or divisional application claiming priority to the respective patent application strategically could have been filed, to provide broader scope of coverage. Accordingly, these recent Federal Circuit cases highlight the perils of the reissue process, show that the Recapture Doctrine still has teeth, emphasize the importance and benefits of strategic use of continuation or divisional applications and other actions by applicants prior to patent grant/issuance, and of course, warn of the potential hazards lurking in patent prosecution file histories.

New Standards for Litigants in Patent Cases: Inequitable Conduct is No Longer a Boiler Plate Defense

In recent years, an all too common defensive strategy to patent infringement claims has been to cry foul on the patent-holder and allege misconduct during the patenting process. Inequitable conduct, a judicially created equitable doctrine, is a defense to patent infringement allegations, which if successfully proven, can bar enforcement of the patent. However, inequitable conduct allegations may not have the same legal luster they once held based on the recent Federal Circuit holding in Therasense, Inc. v. Becton, Dickinson & Co.

Years of fluctuating opinions on the issue of inequitable conduct and its remedies, coupled with the over-use of the defense, has “plagued not only on the courts but also the entire patent system.” Fearing the guillotine-like effects of inequitable conduct charges, those applying for patents have deluged the PTO (Patent and Trademark Office) with often hundreds of unnecessary documents in an attempt to comply with the disclosure requirements during the patenting process. Such document submissions have created a backlog at the PTO. Moreover, fearing their clients may lose a patent infringement claim, an estimated “80 percent of patent infringement cases included allegations of inequitable conduct” as a defense. However, those days may now be over as Therasense will likely be a dramatic game-changer in the strategic side of patent litigation.

The Federal Circuit’s en banc decision under Chief Judge Rader sets forth new standards for establishing a defense of inequitable conduct. First, the opinion clarified what is meant by the term intentionally deceive: “to prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” Rather than the amorphous criteria for intent that previously included negligence, gross negligence, and that the applicant “should have known,” now claims must be supported by clear and convincing evidence. Further, if nondisclosure of information regarding prior art is the foundation of an inequitable conduct claim, there must be clear and convincing evidence that the “applicant made a deliberate decision to withhold a known material reference.” Thus, a defendant can no longer just point to a general nondisclosure, but rather, must have sufficient evidence to show the applicant “knew of the reference, knew that it was material, and made a deliberate decision” to withhold it from the PTO.

Unlike cases that treat intent and materiality interchangeably, Judge Rader clarified that the two are “separate requirements” under an inequitable conduct defense. This distinction abolishes the use of a “sliding scale” by courts whereby a weak showing of intent could simply be supplemented with a strong showing of materiality and vice versa. Because these two elements are separate, neither can be inferred based on the existence of the other, forcing courts to now “weigh the evidence of intent to deceive independent of its analysis of materiality.”

The court also discussed the form of proof for intent, recognizing that “direct evidence of deceptive intent is rare,” therefore allowing judges to make inferences from “indirect and circumstantial evidence.” Because varying judicial inferences previously encouraged the proliferation of inequitable conduct claims, the court established that a clear and convincing evidence standard again must be met. However, the specific intent to deceive must be the “single most reasonable inference able to be drawn from the evidence.” Therefore, if “multiple reasonable inferences” as to the applicant’s intent can be drawn, then the defense will fail to meet this heightened standard.

Second, the ruling held that “but-for materiality” is required to prove inequitable conduct on the part of an applicant. The stringent standard of but-for materiality comes down to a simple question- had the PTO known of the prior art that an applicant failed to disclose, would the PTO have allowed their claim? If the PTO “would not have allowed a claim had it been aware of the undisclosed prior art,” the prior art is but-for material. However, like with most rules, the court carved out an exception– but-for proof is not necessary in cases of “affirmative egregious conduct”. Thus, if a company filed an “unmistakably false affidavit” then the misconduct is per se material. According to Judge Rader, this exception will help to restore a needed balance in patent law between encouraging “honesty before the PTO” and reducing “unfounded accusations of inequitable conduct.”

Finally, the remedy for inequitable conduct was dramatically changed. Previously, the remedy for inequitable conduct had earned itself the title of being the “‘atomic bomb’ of patent law” because of its far-reaching and potentially devastating financial, reputational and intellectual effects. A successful inequitable conduct defense could “render[] the entire patent unenforceable,” was unable to be “cured by reissue or reexamination” and could “spread from a single patent to render unenforceable other related patents and applications in the same technology.” Thus, once the trigger was pulled on an inequitable conduct defense, a company’s entire patent portfolio could face the firing squad. However, this majority holding recognized the concept of basic fairness undergirding the doctrine of inequitable conduct and held that courts should limit their application of the complete unenforceability remedy to “instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.”

The Therasense ruling will require patent attorneys to curb their inclination to over-use the defense of inequitable conduct and may alleviate the prior art research pressures of filing for a patent. Attorneys will also need to revise their trial strategies since those who do not update their playbook with the Federal Circuit’s new rules will likely fail on their inequitable conduct allegations. With stricter standards for proving intent and materiality and new limits on the application of inequitable conduct as a remedy, courts can predict more hesitation from alleged patent-infringers and the PTO can expect less prior art paperwork flooding their office.

Federal Circuit Attempts to Eradicate the Plague of Inequitable Conduct, Sets New Standards

The Federal Circuit issued its much anticipated en banc decision in Therasense, Inc. v. Becton, Dickinson & Co. on May 25, 2011 regarding inequitable conduct by patent applicants and attorneys during prosecution of patents. The Federal Circuit established a new standard for materiality and clarified its contradictory precedent on intent to deceive—the two factual predicates that must be established to prove inequitable conduct.  The Court thus recognized the problems created by the overuse of inequitable conduct claims by litigants and the differing standards applied by federal courts in evaluating issues of materiality and intent to deceive.

Inequitable conduct is an affirmative defense to a claim of patent infringement. At its most fundamental level, the battle cry of inequitable conduct is an assertion that the patent applicant or lawyer acted fraudulently before the United States Patent and Trademark Office. Therefore, notwithstanding any finding of infringement, the patent should be rendered unenforceable.

Because of the frequency with which it is plead, the potential devastating effects it has on the rights of the patent owner, the potential harm it may cause to the reputation of patent lawyers associated with the prosecution of the patent and the harm it has caused the examination process before the Patent and Trademark Office, the Federal Circuit has described inequitable conduct as both an “atomic bomb” and a “plague” on the patent system.

Court Creates “But-For” Test for Materiality

The Court laid out a new test for materiality that significantly raises the bar. With one exception, the Federal Circuit explained that information is material only when a claim would not have been allowed by the Patent and Trademark Office had the office been aware of the information. The one exception to this “but-for” test is in cases of affirmative egregious misconduct. For example, where the patent applicant “deliberately planned and carefully executed scheme[s]” to defraud the Patent and Trademark Office or courts, such information and misconduct is always material.

Court Adopts “Single Most Reasonable Inference” Test for Intent

Addressing the “intent” prong, the Federal Circuit clarified that a party must show, by clear and convincing evidence, that the patentee made a deliberate decision to withhold a known material reference. The Court was careful to note that the intent prong is independent of the materiality prong and that the sliding scale approach where a party could demonstrate a lower level of intent if the information was highly material is no longer acceptable. Instead, to meet the test, the evidence must be sufficient to require a finding of deceitful intent in light of all the circumstances. The specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence. Finally, the Court noted that a patentee need not offer any good faith explanation to counter a finding of intent until the accused infringer first proves a threshold level of intent to deceive by such clear and convincing evidence.

Overall, the Federal Circuit adopted a more stringent standard for proving inequitable conduct that is likely to reduce the high number of meritless inequitable conduct claims in litigation. Notwithstanding the high hurdles introduced by way of this landmark opinion, patent applicants still need to take care in managing the disclosure of information during prosecution and be ever mindful of material information including disclosures and arguments made in related foreign applications.

Making Therasense of the Inequitable Conduct Doctrine

In a split in its decision (6-1-4), the Federal Circuit’s May 25, 2011 en banc opinion in Therasense, Inc. v. Becton, Dickinson and Co. attempts to unify the patch work of opinions on inequitable conduct, which is a judicially-created doctrine rooted in the U.S. Supreme Court’s cases on the doctrine of “unclean hands” where egregious conduct had occurred.1 (Full decision(opens in a new window)). The Federal Circuit emphasized that the previous assertions of the inequitable conduct doctrine based on its precedent have “plagued not only the courts but also the entire patent system.”2

The majority opinion of the Federal Circuit in Therasense tries to balance the importance of patent applicants being honest in dealings with the United States Patent Office (“Patent Office”) with the appropriate standard of review in determining whether inequitable conduct has actually occurred. As the Federal Circuit explained, the “low standards for intent and materiality” created by its previous opinions “have inadvertently led to many unintended consequences” including “increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality[.]” Therefore, the Federal Circuit finally intervened to tighten the standard and redirect the application of the inequitable conduct doctrine to benefit the public and the patent system by protecting against “egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence.”3

The Decision

In Therasense, the Federal Circuit redefined the requirements for both the materiality and intent prongs, both of which are required to be proved by clear and convincing evidence, in making a determination of an inequitable conduct. The following charts illustrates the fractured nature of previous Federal Circuit opinions and how the en banc opinion unified the previous patch work of opinions:

Materiality

Before

At least 5 different standards, including:

  • refutes or is inconsistent with a position the applicant takes in … asserting an argument of patentability;
  • a “reasonable examiner” would have considered the information or prior art “important” in deciding whether to allow the application;
  • the misrepresentation was so material that the patent should not have issued;
  • the misrepresentation actually caused the examiner to approve the patent application when he would not otherwise have done so; and
  • the misrepresentation may have influenced the patent examiner in the course of prosecution.
After

But-For Test

  • the deception is only material if the USPTO would not have allowed the claim if it had been aware of the undisclosed information.

 

Intent

Before

General intent to deceive based on totality of circumstances.

After

Specific intent to deceive with evidence of knowing and deliberate decision to deceive.

Although actual evidence is not required, the Federal Circuit found that “to 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.'”4 The Federal Circuit further explained “[i]n making this patentability determination, the court should apply the preponderance of the evidence standard and give claims their broadest reasonable construction.”5

Finally, the Federal Circuit clarified that “a [district] court must weigh the evidence of intent to deceive independent of its analysis of materiality.”6 Consequently, the Federal Circuit has abolished the sliding scale of intent and materiality.

Sliding Scale

Before

A strong showing of intent may be allow a weak showing of materiality, and vice versa.

After

No sliding scale.

Response by Patent Office

In its ruling, the Federal Circuit expressly rejected the definition of materiality in 37 C.F.R §1.56 (“Rule 56”). The Court stated that it was not bound by Rule 56, and that Rule 56 “sets such a low bar for materiality, adopting this standard would inevitably result in patent prosecutors continuing the existing practice of disclosing too much prior art of marginal relevance and patent litigators continuing to charge inequitable conduct in nearly every case as a litigation strategy.”7

In reply to the Federal Circuit ruling, the Patent Office quickly issued a press release indicating that it is carefully studying the opinion and “expect to soon issue guidance to applicants regarding the materials they must submit to the Patent Office under their duty of disclosure.”8 It is unclear what actions the Patent Office may take, but if it amends Rule 56 to correspond with the en banc decision in Therasense, it could further strengthen the certainty of the standards required for equitable practice before the Patent Office.

What Does the Future Hold?

Going forward, the Therasense opinion may allow patent practitioners to reassess what documents they list in information disclosure statements and other filings with the Patent Office.  Moreover, future Patent Office guidance should clarify the issue of what needs to be disclosed to the examiner. Additionally, it is anticipated that the Therasense opinion will reduce the number inequitable conduct allegations, but it may also require more flexibility from various patent rules of district courts, which routinely require allegations of inequitable conduct to be made before the close of discovery.

Notably, it did not take long for a U.S. district court to rely on this new ruling in deciding to deny a motion for a finding of unenforceability due to inequitable conduct. In Ameranth, Inc. v Menusoft Systems Corp., et al.,9 the district court applied the new Therasense standard the day after it was issued, finding that although the “but-for” standard was met, the defendants failed to prove, by clear and convincing evidence, that there was specific intent to deceive the Patent Office.10

The Federal Circuit decision, however, did leave some potential new battlegrounds regarding the application of inequitable conduct. First, the Federal Circuit recognized the ability of district courts to infer intent from indirect evidence. Although the Court attempted to limit this loophole by stating “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found,”11 it remains to be seen how district courts will apply this standard. Additionally, the Federal Circuit provided that when a “patentee has engaged in affirmative acts of egregious conduct” the misconduct is deemed to be material. This level of intent may overcome the requirement of “but-for” materiality having to be proved. The Federal Circuit suggests that this analysis should incorporate elements of the unclean hands doctrine, but it does not provide clear guidance on how this should be interpreted and suggests that this egregious conduct exception will allow for “flexibility to capture extraordinary circumstances.”12

Although this is a way to curtail the allegations of inequitable conduct, it is not the end of the story, and it remains to be seen if the U.S. Supreme Court will weigh in on the application of inequitable conduct or attempt to harmonize the Federal Circuit’s “but-for” test with the standards applied by other administrative agencies like the Securities Exchange Commission. We will continue to monitor the case and provide updates as it proceeds.

Turning a Blind Eye to Critical Facts leads to Induced Infringement Under 35 U.S.C. § 271(b)

A person who actively induces another person to infringe a patent is liable as an infringer. 35 U.S.C. §271(b).  On Tuesday, May 31, 2011, the United States Supreme Court held that “willful blindness” to the existence of a patent can be sufficient evidence of knowledge of the patent to support a finding of induced infringement. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. ___ (2011). The Court rejected a more lenient standard adopted by the Federal Circuit — deliberate indifference to a known risk that a patent exists. Nonetheless, the Supreme Court affirmed the Federal Circuit’s judgment by applying its new standard. Justice Alito wrote the majority opinion from which Justice Kennedy dissented.

Summary of the Case

SEB S.A. (“SEB”) is a French manufacturer of home appliances. It owns a patent that relates to deep fryers. Sunbeam Products, Inc. (“Sunbeam”) is a competitor of SEB in the United States.  Pentalpha Enterprises, Ltd. is a Hong Kong manufacturer of home appliance and a wholly-owed subsidiary of Global-Tech Appliances, Inc. (collectively “Pentalpha”). Slip op. at 2–3.

Pentalpha developed a deep fryer for Sunbeam by copying all but the cosmetic features of a SEB deep fryer it purchased in Hong Kong. The SEB deep fryer had no U.S. patent markings because it was made for sale in a foreign market.  Before selling the deep fryers to Sunbeam, Pentalpha retained an attorney to conduct a right-to-use study of the deep fryer it had developed for Sunbeam. Pentalpha refrained, however, from telling its attorney that it had copied SEB’s deep fryer to develop its deep fryer. Slip op. at 2.

After conducting a search that failed to locate the SEB patent, the attorney issued his opinion that the deep fryer developed by Pentalpha did not infringe any of the patents that he had found.  Pentalpha immediately began selling its deep fryer. Slip op. at 2.

SEB sued Pentalpha for patent infringement alleging direct infringement under section 271(a) and induced infringement under section 271(b) by actively inducing Sunbeam and other retailers to sell Pentalpha’s deep fryer in violation of SEB’s patent rights. Slip op. at 3. After trial, the jury returned a verdict of direct infringement under section 271(a) and induced infringement under section 271(b) and found that Pentalpha’s infringement was willful. The district court entered judgment against Pentalpha. Slip op. at 3.

On appeal, Pentalpha argued the judgment of induced infringement had to be reversed because there was no direct evidence that Pentalpha knew of the SEB patent before it received notice of the Sunbeam lawsuit. The Federal Circuit held that section 271(b) requires that the patentee “’show that the accused infringer knew or should have known that his actions would induce actual infringement’ and that this showing requires proof that the accused infringer knew of the patent.”  Slip op. at 3. The Federal Circuit found, however, sufficient evidence to support a finding that “’Pentalpha deliberately disregarded a known risk that SEB had a . . . patent.’”  Id.  According to the Federal Circuit, such disregard “’is not different from actual knowledge, but is a form of actual knowledge.’”  Id.

Section 271(b) Requires Knowledge of the Patent that is Infringed

In 1952, Congress codified the principles of contributory infringement that had been part of the case law for about 80 years. See 35 U.S.C. § 271(b) & (c). Section 271(b) addresses conduct where a person actively induces infringement of a patent. 35 U.S.C. § 271(b). Section 271(c) addresses conduct where a person sells a component that is not itself patented, but may enable another party to make or use a patented machine. Neither the language of section 271(b) nor the pre-1952 cases provided an affirmative answer to the first question before the Court- is knowledge of the patent required to find induced infringement under section 271(b).

The Court found the answer in Aro Mfg. Co. v. Convertible Top Replacement Co. 377 U.S. 476 (1964). In Aro, the Supreme Court considered the issue of contributory infringement under section 271(c). A majority in Aro concluded that knowledge of the patent was needed to violate section 271(c).  Id. at 8–9 (citing Aro, 277 U.S. at 488 n.8; id. at 415 (White, J., concurring); id. at 524–27 (Black, J., dissenting)). Since section 271(b) and (c) both were aspects of contributory infringement, the Court unanimously concluded that knowledge of the patent was likewise needed to find inducement in violation of section 271(b). Id.; Dissenting op. at 1.

The Court Adopts the Doctrine of Willful Blindness From Criminal Law to Find Knowledge of the Patent Infringed Under Section 271(b)

Lacking direct evidence that Pentalpha knew of the patent, the Court had to address whether the evidence was nonetheless sufficient to support a finding of knowledge. The Court rejected the standard applied by the Federal Circuit for two reasons. “First, it permits a finding of knowledge when there is merely a ‘known risk’ that the induced acts are infringing.” Slip op. at 14. “Second, in demanding only ‘deliberate indifference’ to that risk, the Federal Circuit’s test does not require active efforts by an inducer to avoid knowing about the infringing nature of the activities.”  Id. Instead, the Court applied the doctrine of willful blindness, which had been widely adopted by federal courts in the area of criminal law, to support a finding of knowledge. Slip op. at 10–11.

The doctrine of willful blindness has two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.  The Court explained that these requirements “give willful blindness an appropriately limited scope that surpasses recklessness and negligence.” Id. Neither recklessness, i.e., merely knowing of a substantial and unjustified risk of such wrongdoing, nor negligence, i.e., should have know of a similar risk, but in fact did not, will suffice to prove that the accused infringer had knowledge of the patent. Accordingly, “a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.” Id.

Although the Court rejected the test applied by the Federal Circuit, it affirmed the judgment of the Federal Circuit “because the evidence in this case was plainly sufficient to support a finding of Pentalpha’s knowledge under the doctrine of willful blindness.” Slip op. at 10.

Conclusion

The affirmance in Global-Tech Appliance shows that in many cases, the result will be the same under the willful blindness test adopted by the Court as under the now rejected deliberate indifference test. Nonetheless, at the margin, proving inducement has been made more difficult where actual knowledge cannot be established.

Federal Circuit Significantly Restricts the Doctrine of Inequitable Conduct in Therasense v. Becton Dickenson

On May 25, 2011, the U.S. Court of Appeals for the Federal Circuit issued an en banc decision in Therasense v. Becton Dickenson, No. 2008-1511 (Fed. Cir., May 25, 2011), outlining a heightened standard for inequitable conduct in patent infringement cases, requiring a finding of both specific intent to deceive and a “but-for” materiality.

The doctrine of inequitable conduct is a defense to patent infringement that, if proved, bars enforcement of the patent. In making its decision, the Federal Circuit noted that the doctrine evolved from three early U.S. Supreme Court Cases, which involved particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence, to a broader scope of misconduct including the mere nondisclosure of information to the PTO. In addition, the doctrine evolved from a mere dismissal of the suit, to the unenforceability of the entire patent and its continuations and divisionals. In order to prove inequitable conduct, the accused infringer must prove intent and materiality by clear and convincing evidence. If the infringer meets this burden, the court must then weigh the equities to determine whether the applicant’s conduct before the PTO warrants rendering the entire patent unenforceable. The Federal Circuit noted that the standards for materiality have fluctuated over time, and the standard has been weakened by placing intent and materiality on a sliding scale, thus both conflating and diluting the standards at the same time. As a result, inequitable conduct has become a significant litigation strategy, increasing the complexity, duration, and cost of patent litigation. According to the Federal Circuit, one study estimated that eighty percent of patent infringement cases included allegations of inequitable conduct. This has plagued the courts and the whole patent system.

In this en banc decision, the Federal Circuit adopted a much more restrictive test for inequitable conduct. With regard to intent, an accused infringer must now prove that the patentee acted with specific intent to deceive the PTO. For example, the accused infringer must prove by clear and convincing evidence that:

(1) the applicant knew of the reference,

(2) knew that it was material to the prosecution of the application, and

(3) made a deliberate decision to withhold it.

With regard to materiality, the Federal Circuit adopted a “but-for” standard, e.g. but-for the non-disclosure of the reference, the patent would not have issued.This is a much more restrictive standard than the prior standard and even the patent office’s own standard under Rule 56. In fact, the Federal Circuit said specifically that they do not adopt the PTO’s definition of materiality under Rule 56.

The Therasense decision has strictly limited the usefulness of the inequitable conduct doctrine as a defense to patent infringement. It is likely that this decision will help to simplify patent infringement cases and may lead to more patents being upheld and infringed.

Therasense Inc. v. Becton, Dickinson and Company—The Federal Circuit tightens the standards necessary to establish the inequitable conduct defense by requiring a “but-for” showing of materiality

In Therasense Inc. v. Becton, Dickinson and Co., Appeal No. 2008-1511(May 25, 2011), an en banc Federal Circuit issued a significant ruling on the elements necessary to establish an inequitable conduct defense. The stakes for a patent owner facing a charge of inequitable conduct are high: inequitable conduct renders the affected patent unenforceable and could support a finding that the case was exceptional, entitling the alleged infringer to attorneys fees. A party alleging inequitable conduct had to show that the patentee misrepresented or failed to disclose material information with an intent to deceive the Patent Office. The courts were then to engage in an equitable “balancing” of materiality and intent to determine whether the conduct justified finding the patents unenforceable.

While recent scholarship suggests that the defense was not particularly successful in cases that made their way to the Federal Circuit and that the Federal Circuit applied stricter standards as to the elements of the defense, the incentives to assert the defense were so great that patent litigators were alleging inequitable conduct as a matter of course. In fact, the defense of inequitable conduct was said to have been asserted in as many as 60 to 80 percent of patent infringement cases. Also, many believed that the standards for finding inequitable conduct elements had not been sufficiently articulated by the Federal Circuit.

In Therasense, a six-judge majority addressed those concerns by significantly tightening the standards to be used in assessing the materiality and intent elements. Most importantly, the majority held that in most circumstances the party asserting an inequitable conduct defense must establish that “but-for” the misrepresentation or omission, the patent would not have issued. Further, materiality and intent were held to be separate requirements and were no longer part of a sliding scale where a showing of greater materiality permitted a showing of lesser intent. The Federal Circuit did, however, recognize that in instances of egregious misconduct, a “but-for” showing would not be required.

The decision brings to a close an almost 30-year effort by the Federal Circuit to tighten up the standards for proving inequitable conduct which the Court had earlier described as “a plague” on the patent system. As a result, it was contributing to the massive citation of prior art to the PTO, which in turn contributed significantly to the backlog of patent applications. The use of the inequitable conduct defense was also said to haveFederal Circuit tightens the standards necessary to establish the inequitable conduct defense by requiring a “but-for” showing of materiality  several other negative effects, such as the potential to destroy parts of patent portfolios/families, inhibit the possibility of settlement and cast a cloud over the reputations of inventors and patent prosecutors. Indeed, the Federal Circuit prefaced its holding by stating that it “now tightens the standards for finding both intent and materiality in order to redirect [the inequitable conduct] doctrine that has been overused to the detriment of the public.” Slip Op. at 24.

The Federal Circuit created an exception to the “but-for” materiality holding in the case of “affirmative egregious misconduct.” Id. at 29. One example of such egregious misconduct would be the filing of an unmistakably false affidavit. The Federal Circuit pointed out that the egregious misconduct exception provided a measure of flexibility to capture extraordinary circumstances.

In the Therasense case, the alleged misconduct had been the failure to disclose briefs that the patent applicant had submitted to the European Patent Office regarding the European counterpart of a related patent owned by the patent applicant. The District Court had found the patent unenforceable due to this failure to disclose. The Federal Circuit reversed and remanded and instructed the District Court to determine whether the PTO would not have granted the patent but for the failure to disclose the European Patent Office briefs. The Court also vacated the District Court finding of intent to deceive because it had decided this issue under the wrong standard. The District Court was instructed to determine whether there was clear and convincing evidence demonstrating that the patent applicant knew of the European Patent Office briefs, knew of their materiality and made the conscious decision not to disclose them in order to deceive the PTO.

The four judge dissent stressed that the “but-for” test of materiality departed from Federal Circuit precedent and was inconsistent with the PTO’s standard set forth in PTO Rule 56. The majority opinion’s response to the dissent was that the PTO’s Rule 56 standard was one of the major causes of the rampant use of the inequitable conduct defense.

The Patent and Trademark Office was quick to react to the decision. On May 26, 2011 it announced that it was “carefully studying the important en banc decision by the U.S. Court of Appeals for the Federal Circuit in the case of Therasense v. Becton, Dickinson to assess how it may impact agency practices and procedures.The agency also announced that it expects to soon issue guidance to applicants related to the prior art and information they must disclose to the Office in view of Therasense.” As the press release noted, the Therasense “decision resolves uncertainties in many aspects of how district courts must apply the inequitable conduct doctrine.”

IP Experience in the Due Diligence Process More Important than Ever

The Federal Circuit has recently denied Abraxis Bioscience, Inc.’s (“Abraxis”) bid for panel rehearing and rehearing en banc in its dispute with Navinta LLC (“Navinta”).1 The decision of the Court to deny rehearing in any form is important because the denial leaves unchanged the Court’s decision from November 2010 regarding patent assignments.

The Federal Circuit’s decision in Abraxis Bioscience, Inc. v. Navinta LLC in November 2010 dismissed Abraxis’ claim for lack of standing after Navinta appealed a district court’s judgment of direct and indirect infringement of Abraxis patents directed toward pain management drug products.2 On appeal, the Federal Circuit dismissed the case without prejudice and vacated the district court’s decision based on Abraxis’ lack of standing. The Federal Circuit held that, as a matter of federal law, Abraxis lacked standing because it did not have legal title to the patents at the time the suit was brought.

Abraxis acquired title to the patents through a multitiered trail of assignments that began with an Asset Purchase Agreement between Abraxis and AstraZeneca. The two parties ultimately assembled and executed the assignments properly to convey the rights in the asserted patents from the original inventor and assignee to Abraxis, but this did not occur, said the Federal Circuit, until after the patent infringement suit had been filed.

The Federal Circuit carefully analyzed the specific language of the assignment documents and stated that, despite state law allowing transactions to be given legally binding retroactive effect, the after-suit assignment did not give Abraxis the legal title required for standing to bring a patent infringement suit. The opinion stated, “[A]lthough state law governs the interpretation of contracts generally…the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases. We have accordingly treated it as a matter of federal law.”3

The Federal Court’s decision hinged on the language of the Asset Purchase Agreement, which stated that AstraZeneca “shall, or shall cause” the transfer of the patent rights to Abraxis. This language created only an expectancy interest and not an actual transfer until the subsequent assignment documents were executed. The Federal Circuit’s decision is reminiscent of parts of the chain-of-title dispute that is currently under review by the U.S. Supreme Court in Bd. of Trs. of Leland Standford Junior Univ. v. Roche Molecular Sys., Inc.4

The bottom line considering this and previous Federal Circuit holdings is that there are unique situations to the transfer of patents that are governed by the law of the Federal Circuit and not state law. For this reason, an experienced IP attorney should be intimately involved in transactions that involve the transfer of patent rights.