Patent SOS: Inequitable Conduct Reform ASAP

Not long ago the United States Court of Appeals for the Federal Circuit issued a decision in Abbott Laboratories v. Sandoz, Inc., a decision that just screams for Congress to codify Rule 56 and settle once and for all the duty of candor that is owed to the Patent Office during the patent application process. To be perfectly clear, it seems to me that Judge Newman got it exactly right when she ruled: “We conclude that the district court did not abuse its discretion in holding that the ‘718 and ‘616 patents were not likely to be held unenforceable based on inequitable conduct in obtaining the patents.”  When the standard is abuse of discretion the district court should get deference.  A tip of the hat to Judge Newman for this simple point, which seems lost on many of her colleagues.  What is troubling, however, is the dissent and how it describes the split among the judges in the Federal Circuit.  Knowing that this case could have come to a totally different result with a different panel also says a lot about how an issue like inequitable conduct is anything but clear, despite its fundamental importance to the entire patent system.

The first good news in this case for patent owners is the fact that the Federal Circuit upheld the issuance of a preliminary injunction, finding that there was no abuse of discretion in awarding the injunction to Abbott Laboratories. The fact that the Federal Circuit clearly set the record straight regarding the public interest factor associated with the injunction inquiry. Thank you Judge Newman for eloquently pointing out that the public interest associated with getting cheaper drugs to market must be weighed against the fact that allowing infringing durgs to enter the market would shift market benefits to the infringer while litigation is pending and thereby destroy incentive for discovery and development of new drugs. We need to do everything we can to make sure research on new drugs continues and there is appropriate incentive. Have you noticed how many athletes these days are coming down with staff infections after surgery? Now is not the time to tip the balance in favor of copy-cats. We need to provide true incentive to get more, better pharamaceuticals.

Now the not so good news.  There is a real disagreement between and among the judges on the Federal Circuit regarding what duty is owed by applicants and their representatives during the patent process.  How can the patent system operate when no one knows what the standard for disclosure is and how it will be applied by some unknown panel of judges at some unknown point in time in the future?  Despite the fact that Judge Newman got this case right this decision will only muddy the already thick brown waters surrounding the issue of what must be disclosed to the Patent Office to satisfy the duty of candor. 

Sandoz challenged the district court’s findings with respect to a certain declaration filed by the inventor, Dr. Linda Gustavson, comparing the products of the pending ‘718 application with the products in a prior art Abbott patent, U.S. Patent No. 4,808,411, directed to a pediatric clarithromycin suspension that is administered twice daily. Dr. Gustavson submitted data to the PTO comparing the ‘718 and the ‘411 formulations, and stated that “the ER [extended release] formulation as claimed, is supported by the above results, namely, Cmax of clarithromycin in plasma is statistically significantly lower than that for IR [immediate release] formulation given twice daily.” The declaration also stated that “AUC is maintained over 24 hours; and Cmin is substantially equivalent to that of the IR suspension”.3 However, in this litigation Dr. Gustavson testified that she had not analyzed statistical significance, and that “it could not definitively be concluded from the data that the difference between the ER Cmax and the Cmax for a twice-a-day dosed suspension would have been statistically significantly different.” Based on this admission, Sandoz argued that the Gustavson submission to the PTO was a material misrepresentation, that intent to deceive is presumed, and that inequitable conduct was thereby established.

It would seem that it is extremely hard to conclude that there was not inequitable conduct when the inventor filed a declaration claiming to have certain knowledge based on statistical comparison when there was no statistical comparison. Ooops! But this is not a typical case I suppose. The district court stated that it was “obviously troublesome that Gustavson made her assertion without having actually performed the statistical test.” The district court concluded that the Gustavson statement was not material to patentability, “despite the fact that it satisfies the definition of ‘material’ provided by 37 C.F.R. ‘1.56(b).” Ultimately the district court concluded that there was simply no proof of intent to deceive, despite the fact that Abbott’s patent attorney argued nonobviousness to the PTO based on the Gustavson declaration. It seems that the reason for this seeming disconnect is because the declaration did correctly state that the pharmacokinetic properties of the product in the ‘411 patent are markedly different from those of the product of the ‘718 patent, which means even if the examiner did have the information it would not have mattered in the decision to issue the patent. On top of that Judge Newman pointed out that Sandoz didn’t point out any evidence of deceptive intent on appeal, merely choosing to argue repeatedly that deceptive intent should be inferred from the misstatement, which everyone knows is a specioius argument without any legal support.

So where does this leave us? Good question, because this decision breaths new life into the search for the meaning of the phrase “material to patentability.” On this point Judge Newman stated: “Although the Federal Circuit has not always been consistent in defining “materiality” in accordance with the PTO Rules, the principles are consistently directed to deceptive actions by patent applicants.” What an understatement. Not always consistent? How about horribly inconsistent! Judge Newman must have been in a cheery mood and not wanting to take her colleagues on directly.  The law surrounding inequitable conduct and the duty owed to the Patent Office is a real mess.  Many on the Federal Circuit refuse to acknowledge that Rule 56 defines the duty and since it is about fraud on the Patent Office it should be the Patent Office that defines the duty.

Judge Gajarsa went right after this inequitable conduct “inconsistency” in his dissent saying:

[T]he district court abused its discretion because it created such a high bar for materiality that in essence no statement or withholding of information would be material if it would not change the ultimate outcome of allowing the patent. This is inconsistent with our precedent. See, e.g., Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d 1354, 1368 (Fed. Cir. 2003).

But isn’t that what materiality is suppose to mean? Isn’t this definition that Judge Gajarsa rails upon completely consistent with what Judge Rich held in Critikon Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997)?  To refresh your recollection, Critikon was the first case where the Federal Circuit had the opportunity to address the new duty of candor set forth in Rule 56. Prior to this the standard for materiality looked to what a reasonable examiner would want disclosed. There is no mention of the reasonable examiner standard in the Critikon decision, and rightfully so because that was the old Rule 56. Yet some of the Judges on the Federal Circuit have longed for the reasonable examiner standard, even ruling that despite the fact that the Patent Office changed the disclosure duty it is not up to them to decide when there is inequitable conduct. So despite a change to Rule 56 some on the Federal Circuit ignore Rule 56 as it is written and rather apply old law, imposing a duty that no longer exists any longer.

If Judge Gajarsa is going to complain about inconsistent decisions he really should get his facts straight. The inconsistent and completely illogical decisions are the ones that superimpose an ethical disclosure obligation where none exists. And by the way, the rules of the Federal Circuit state that the first panel sets the law for the entire Circuit, so that means Judge Newman got it right, regardless of the fact that the decision is inconsistent with more recent Federal Circuit activism. See e.g. Digital Control Inc. v. Charles Mach. Works.

Because many on the Federal Circuit will simply ignore the Courts own procedural rules and pick and choose what precedent they want to follow it is imperative that Congress step  in and codify Rule 56.  There is no way anyone can know what duty is required when competing federal bodies define the duty differently.  On top of that, when the Director of the Office of Enrollment and Discipline has stated publicly (about a year ago now) that he will investigate attorneys who disclose to much information for ethical violations Congress must step in and soon.  As the Federal Circuit ignores the Patent Office and the Patent Office says that if you follow the Federal Circuit law you might get investigated for an ethical violation, where does that leave applicants, patent attorneys and patent agents?

President Obama, if moving to open source software is so important an issue that you take the time during your first 48 hours in Office to commission a study, can’t you please look into this matter that is derailing our entire patent system?  Please!

About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)

B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law Center
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Gene is a US Patent Attorney, Law Professor and the founder of He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide


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