The Exergen and Therasense effects.

• Author: Swanson, Robert D.
• Position: Inequitable conduct in patent law - Author abstract

INTRODUCTION I. BACKGROUND ON INEQUITABLE CONDUCT A. The Patent Prosecution Process B. Origins C. The "Plague" D. The "Cure" II. THE EXERGEN AND THERASENSE EFFECTS A. Proving Inequitable Conduct 1. Methodology 2. Results B. Pleading Inequitable Conduct 1. Methodology 2. Results C. Summary of Findings III. REFORMULATING INEQUITABLE CONDUCT DOCTRINE AMID COMPETING POLICY CONCERNS A. The Policy Behind Exergen and Therasense B. Questioning the Federal Circuit's Rationale for Therasense C. A Middle Path CONCLUSION INTRODUCTION

In patent law, a finding that inequitable conduct occurred during the prosecution of a patent application renders the whole patent unenforceable. Because the remedy for inequitable conduct is so drastic, an inequitable conduct charge--even one without merit--hangs like a specter over patentees in litigation. (1) According to the Federal Circuit, inequitable conduct claims force patentees to refuse settlement and defend themselves against accusations of bad faith. (2) Further, the reputational consequences for the patent attorney who prosecuted the patent application are disastrous. (3) In response to increased use of this defense, patent prosecutors began citing more prior art in patent applications, (4) burying examiners in references. (5)

To cure this "plague," (6) the Federal Circuit tightened the pleading standard in Exergen Corp. v. Wal-Mart Stores, Inc. (7) and raised the legal standard required to establish inequitable conduct in Therasense, Inc. v. Becton, Dickinson & Co. to require separate showings of but-for materiality and specific intent to deceive the U.S. Patent and Trademark Office (PTO). (8) But has the Federal Circuit gone too far? Many now believe that inequitable conduct is essentially a dead doctrine in patent law. (9)

This Comment argues that the Federal Circuit has gone too far. Although it was right to restrict access to the doctrine, it ultimately has made inequitable conduct too difficult to prove. To quantify the Exergen and Therasense effects, this Comment considers the prevalence of inequitable conduct charges over several time periods. The comprehensive data indicate that the Therasense decision was likely unnecessary to further suppress unmeritorious inequitable conduct claims. Moreover, this research reveals that the two studies on which the Federal Circuit relied to justify the major legal shift in Therasense are both deeply flawed, thus causing the Federal Circuit to exaggerate the overuse of inequitable conduct claims as a litigation tactic.

Once again, the Federal Circuit must realign inequitable conduct doctrine with its original purpose: to deter fraud before the PTO. Part I provides some background on the inequitable conduct doctrine, beginning with its origins and continuing through the "plague" years and the recent "cure." Next, in Part II, I present my empirical methodology to test the effects Exergen and Therasense have had on pleading and finding inequitable conduct, and I discuss my results. Part III surveys the policies underlying inequitable conduct and the Therasense decision, suggesting, based on my empirical and analytical findings, that the Federal Circuit should adopt the PTO's lower, Rule 56 materiality standard. (10)

1. BACKGROUND ON INEQUITABLE CONDUCT

   1. The Patent Prosecution Process

      Before outlining the origins of the inequitable conduct doctrine, a short introduction to patent prosecution is in order for those unfamiliar with the process. To obtain a patent, an applicant must submit a patent application to the PTO, and the application must successfully pass through the PTO's prosecution process. During this process, a patent examiner reviews the patent to ensure that the patent claims patent-eligible subject matter, (11) that the invention is novel (12) and non-obvious, (13) and that the patent contains a sufficient written description of the invention. (14) In the patent application, the applicant makes numerous representations, such as certifying that she is the true inventor of the claimed invention. The applicant also cites prior art--or previous inventions in the field--to aid the examiner in determining whether the patent is novel and nonobvious. Misrepresentations or omissions in the patent application or in statements to a patent examiner during prosecution can be the basis of an inequitable conduct claim when the patent is later the subject of litigation.

   2. Origins

      Inequitable conduct is a judge-made doctrine that derives from the equitable unclean hands doctrine, which generally requires that a party seeking equitable relief come to the court with clean hands. Patentees who defraud the PTO ask an equity court to enforce an unclean patent. Over a period of twelve years, the Supreme Court decided three cases involving unclean hands in patent law, forming the backbone for modern inequitable conduct doctrine: Keystone Driller Co. v. General Excavator Co., (15) Hazel-Atlas Glass Co. v. Hartford-Empire Co., (16) and Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co. (17) Briefly reviewing these cases will aid us in understanding the type of behavior that the Supreme Court originally intended the inequitable conduct doctrine to deter.

      In Keystone Driller, the patentee failed to disclose a potentially invalidating prior use to the PTO during the prosecution process. (18) The patentee later sued Byers Machine Co., obtaining an injunction. (19) Keystone Driller then proceeded to assert the patent against several other entities. However, this time, the defendants discovered that the patentee had attempted to cover up the prior use by paying the prior user to state that he had abandoned his use. (20) The district court, sitting in equity, found the unclean hands doctrine inapplicable. The circuit court, however, reversed, dismissing the case for lack of standing on grounds of unclean hands, and the Supreme Court affirmed the circuit court's dismissal. Because Keystone Driller asked the equity court for relief based upon the injunction obtained in the Byers Machine Co. case, which had resulted from its misconduct, it came to the court with unclean hands, and the action was dismissed for lack of standing. (21)

      The Hazel-Atlas Glass case also involved significant, affirmative misconduct. The patent applicants were "confronted with apparently insurmountable Patent Office opposition." (22) To overcome the opposition, the prosecuting attorneys decided to write an article on the device, describing it as "revolutionary." (23) They subsequently had this article signed by an expert in the field, who published it in a trade journal. When the attorneys provided the PTO with the article, the patent was allowed. (24) The Supreme Court held that this was a clear case of unclean hands, and it dismissed the lawsuit." (25)

      In the third case, Precision Instrument Manufacturing, the patentee plainly committed fraud before the PTO. Automotive Maintenance Machinery Co. and Precision Instrument Manufacturing Co. were engaged in an interference proceeding in the PTO. (26) During discovery, the parties learned that Larson, a Precision employee, was not the inventor as claimed, and that he had also submitted affidavits to the PTO with "false dates as to the conception, disclosure, drawing, description and reduction to practice of his claimed invention." (27) Larson testified in the interference proceedings to these false facts. (28) After Auto motive discovered these facts, it decided to cover them up--even though it was not a guilty party--by entering into a settlement with Larson and Precision through which it was given the application, along with the other advantages derived from Larson's false testimony." (29) The patent eventually issued. Later, someone at Automotive brilliantly decided to assert the obviously inequitably procured patent against Precision, the company that knew its true history. Of course, this strategy was not successful, and the Supreme Court concluded that "[s]uch inequitable conduct impregnated Automotive's entire cause of action and justified dismissal by resort to the unclean hands doctrine." (30)

      Inequitable conduct doctrine thus arose from three instances of egregious conduct by patentees. Because the conduct in those cases was so extreme, and because the Court was making equitable rulings, the Supreme Court did not articulate clear legal standards to guide lower courts. As the Supreme Court withdrew from intervening in inequitable conduct cases, the regional circuit courts were left to explore the limits of what initially seemed to be a narrow subset of unclean hands doctrine.

   3. The "Plague"

      Over the next four decades prior to the creation of the Federal Circuit, the inequitable conduct doctrine slowly evolved in the regional circuits, without any definitive standard emerging. (31) One important development was the change in remedy from dismissal of the suit for lack of standing to unenforceability of the entire patent. Given that the doctrine of unclean hands signified that no person could come before an equity court in bad faith, the proper remedy was dismissal for lack of standing. (32) However, in Hazel-Atlas Glass, the Supreme Court observed that the true remedy for such fraud on the PTO would be to vacate the patent (which has the same consequences as rendering a patent unenforceable). (33) But the Supreme Court did not have this power at the time, as this remedy was only available in direct proceedings brought by the United States government. (34) The enactment of the Patent Act of 1952, however, gave courts the power to render patents unenforceable in private infringement actions brought under 35 U.S.C. [section] 282. (35) Thereafter, courts gradually adopted unenforceability as the remedy for inequitable conduct.

      With the creation of the Federal Circuit came uniformity with respect to inequitable conduct doctrine. Unfortunately, despite such uniformity, the elements needed to...