Article: Inequitable Conduct After Therasense: Calling a Knave a Knave

After years of calling the inequitable conduct defense to patent infringement a “scourge” and a “plague,” the Federal Circuit sought to put a stop to the overuse of the defense in Therasense. Ferring B.V. v. Barr Labs., Inc., 437 F.3d 1181, 1195 (Fed. Cir. 2006) (J. Newman, dissenting); Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) (“[T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague.”). The Therasense court was largely successful in its goal of eradicating the plague of weak and perfunctory inequitable conduct counterclaims, and with the Supreme Court’s recent decision not to review the heightened standard, Therasense is here to stay for the foreseeable future. See Sony Computer Entertainment America LLC v. 1st Media, LLC, No. 12-1086 (Mar. 4, 2012) (dismissed October 15, 2013). Although its opponents argue that the new intent framework is nearly impossible to meet, the recent case of Apotex makes clear that the defense survives in egregious cases.

Inequitable conduct is an equitable defense that evolved from unclean hands cases, and eventually became a doctrine of its own. Therasense, Inc. v, Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011). The doctrine required a showing, by clear and convincing evidence, that the applicant misrepresented or omitted material information with the specific intent to deceive the PTO. Id. at 1287. In the past, the intent requirement was met by mere negligence, and the court took a “sliding scale” approach so that a strong showing of materiality would reduce the showing of intent, and vice versa. Id. at 1287-88.

If successful on the inequitable conduct defense, the remedy is the “atomic bomb” of patent law, rendering the entire patent unenforceable. Id. at 1288. Because of the low standards to prove the defense, and the game-changing result, inequitable conduct was used as a defense in eighty percent of patent infringement cases. Id. at 1289.

The overuse of the defense led Judge Newman to remark that “the prevalence of accusations of inequitable conduct in patent cases led judges to suspect that all scientists are knaves and all patent attorneys jackals.” Hoffman-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1372 (Fed. Cir. 2003) (J. Newman, dissenting).

Thus came Therasense, in which the Federal Circuit heightened the standard of proof on inequitable conduct claims. First, it removed the sliding scale so that both intent and materiality must meet the standard independently. Therasense, 649 F.3d at 1290. In addition, the court must find that the specific intent to deceive was “the single most reasonable inference able to be drawn from the evidence.” Id. Finally, the court held that the materiality required to establish inequitable conduct is but-for materiality, that is, the PTO would not have allowed the claim but-for the omission or misrepresentation. Id. at 1291. The court left open an exception to the but-for requirement in cases of “affirmative egregious misconduct”. Id. at 1292.

After Therasense, courts remarked how difficult it was to prevail on inequitable conduct. See, e.g., Metris U.S.A., Inc. v. Faro Tech., Inc., 882 F. Supp. 2d 160, 170 (D. Mass. 2011); Wyeth Holdings Corp. v. Sandoz, Inc., 2012 WL 600715 (D. Del. Feb. 3, 2012) (“[The Defendant] faces a more difficult task of proving inequitable conduct in light of the Federal Circuit’s recent precedent . . . .”). Not surprisingly, following Therasense, many district courts granted summary judgment of no inequitable conduct, and the Federal Circuit reversed some findings of inequitable conduct that made it through the district courts. See e.g., Outside the Box Innovations, LLC v. Travel Caddy, Inc., 695 F.3d 1285, 1292 (Fed. Cir. 2012); Carl Zeiss Vision Int’l GMBH v. Signet Armorlite, Inc., 2011 WL 6372785 (S.D. Cal. Dec. 19, 2011); Birchwood Labs., Inc. v. Battenfeld Tech., Inc., 2012 WL 2045757 (D. Minn. May 21, 2012). Thus, after Therasense, it seemed that it would be a rare case indeed where an accused infringer prevailed on an inequitable conduct defense.

Enter Dr. Bernard Charles Sherman, an engineer, pharmaceutical formulator, and the founder and chairman of Apotex, Inc. Apotex, Inc. v. UCB, Inc., 2013 WL 4811231, at *3 (S.D. Fla. Sept. 9, 2013). Dr. Sherman sued the maker of a popular drug to treat high blood pressure for patent infringement. Id. at *1. But Dr. Sherman invented nothing—he divined the manufacturing process by studying the drug that was on the market, added water to the mix, obtained a patent, then filed suit nearly eight years later. Id. at *1, *34.

The court immediately noted that Dr. Sherman’s tactics were “illustrative of inventive litigation, as opposed to the scientific discovery that the patent laws were designed to promote.” Id. at *1. Dr. Sherman was no stranger to patent applications or litigation—he had personally written 100 patent applications, and directed all litigation for Apotex. Id. at *4. Indeed, it was Dr. Sherman’s close involvement in a prior litigation that inspired his tactics in the instant case. In 1999, summary judgment was entered against Apotex because the patent at issue there was held to be invalid. Id. On similar facts, the court noted that anyone with a fundamental knowledge of chemistry would have been able to figure out the manufacturing process if they knew the ingredients and knew to add water to the mix. Id.

In the instant case, Dr. Sherman again asserted that he invented a drug even though his “invention” consisted of merely adding water to the mix. Id. at *1. But this time, Dr. Sherman knew to be careful to conceal that the drug manufacturer had made its process public. He embarked on a scheme to misrepresent the nature of the prior art to the PTO. Although Dr. Sherman disclosed one prior patent, he did not disclose to the Examiner that if one simply added water to the mix, they would arrive at Dr. Sherman’s “invention.” Id. at *7. Finally, Dr. Sherman hired an expert witness to submit a declaration to the PTO, in which he repeated, under oath, Dr. Sherman’s arguments. Id. at *18-19. Dr. Sherman shielded the expert from the truth by directing the expert to confine his discussion to the documents provided by Apotex. Id. at *23. Additionally, neither party disclosed to the PTO that they had worked together on about 10 other matters, or that the expert was being paid for his work. Id. at *19. Finally, and perhaps most egregiously, Dr. Sherman represented to the PTO that he had conducted experiments that confirmed his arguments, and reported his results with an accuracy to the hundredth of a gram. Id. at *17. In fact, these experiments were never performed at all, but were instead simply made up entirely in Dr. Sherman’s head. Id.

In addition to lying to the PTO, Dr. Sherman was less than candid with the court, which admonished him for his “selective memory.” Id. at *20. It seems that Dr. Sherman was unable to recall crucial information about what he knew during the prosecution of the patent, but, rather conveniently, was able to remember things in meticulous detail when helpful to his case. Id.

Therefore, the court found that Dr. Sherman’s conduct met the new heightened standards for inequitable conduct. Id. at *27. The court found that the “single most reasonable inference” to be drawn was that Dr. Sherman intended to deceive the PTO. Id. at *22. The court also found that the Examiner would never have issued the patent had it known of the information withheld by Dr. Sherman. Id. at *25. The court further found that Dr. Sherman engaged in “affirmative egregious misconduct.” Id. at *26. The court stated “the misconduct in this case extended beyond misrepresentations to the patent Examiner and constitutes an abuse of the patent system itself. The practice of targeting a competitor’s existing and widely available product and seeking to obtain a patent for the purpose of suing that competitor through a pattern of lies and deception should not be rewarded.” Id. at *27.

The Federal Circuit had disapproved of less-than-meritorious inequitable conduct claims for years. When it reined in the defense in Therasense, many believed that it would be nearly impossible to ever win on this claim again. But as shown with Dr. Sherman in Apotex, we know that when the adversary is truly a “jackal” or a “knave,” courts will not enforce patents obtained through deceit.