A federal appeals court made it harder for defendants in patent infringement cases to use an "atomic bomb" defense tactic called inequitable conduct in a lawsuit between an Abbott (NYSE:ABT) subsidiary and Becton, Dickinson & Co. (NYSE:BDX).

The inequitable conduct defense, which one study estimated is used in 80 percent of patent infringement cases, is an accusation that, but for evidence concealed by a patent applicant, the U.S. Patent & Trademark Office would not have approved a patent. If a judge agrees, the defense gambit invalidates the patent and can even threaten the validity of entire patent portfolios.

In Therasense, Inc. v. Becton, Dickinson and Co., Nova Biomedical Corp. and Bayer Healthcare LLC, The U.S. Court of Appeals for the Federal Circuit tightened the standards by which inequitable conduct can be found. The case involves the intellectual property behind blood glucose test strips; Abbott subsidiary Therasense sued BD and the other defendants in a series of suits that were consolidated in the U.S. District Court for Northern California.

That court found one of the Abbott patents unenforceable due to inequitable conduct; Abbott appealed to the Federal Circuit, which upheld the lower court’s ruling. But Abbott asked that court for an en banc review of the case, which vacated its earlier judgment and the lower court decision last week.

BD moved to stay the judgment pending its appeal to have the U.S. Supreme Court hear the case. If the high court refuses to hear the case, as some legal eagles expect, it will have far-reaching consequences for patent infringement litigation.

Before Therasense, a sliding scale was used to prove inequitable conduct, according to David Dykeman, a shareholder and patent attorney at Greenberg Traurig LLP. The scale applied to whether the alleged conduct would have had a material effect on how the USPTO reviewed the patent in question — that is, whether a "reasonable examiner" would have rejected the patent if the hidden information had been available. A finding of inequitable conduct also depended on proving that the patent applicant intended to deceive the USPTO.

"The case raised the standard for proving inequitable conduct," Dykeman said "The inequitable conduct defense will be harder to prove, as the accuser must prove both intent and materiality by ‘clear and convincing’ evidence."

If Rader’s ruling stands, defendants alleging inequitable conduct will now have to prove that the patent holder deliberately pulled the wool over the patent reviewer’s eyes. Intent can still be inferred from indirect or circumstantial evidence, but only if it’s "the single most reasonable inference able to be drawn from the evidence." And, to prove materiality, defendants would have to meet a "but-for" standard — or demonstrate that, but for the hidden material, the patent office would have rejected the application.

Judge Randall Rader, chief of the Federal Circuit court, called the IC defense the "atomic bomb" of patent law:

"Unlike validity defenses, which are claim-specific, inequitable conduct regarding any single claim renders the entire patent unenforceable. Unlike other deficiencies, inequitable conduct cannot be cured by reissue or reexamination. Moreover, the taint of a finding of inequitable conduct can spread from a single patent to render unenforceable other related patents and applications in the same technology family. Thus, a finding of inequitable conduct may endanger a substantial portion of a company’s patent portfolio.

“While honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public."

Obama administration backs House patent reform bill

President Barack Obama’s administration is backing a bill in the U.S. House of Representatives that would change the way the USPTO is run — and give it the power to set its own fees.

Patent reform legislation has been bouncing around inside the Beltway for more than half a decade. The latest iteration would overturn centuries of patent practice, which recognized patents by the first inventors to file. The new system would allow reviewers to determine who was the first to produce the invention.

The bill would also create a one-year post-grant review window allowing for challenges to the patent.

That would "create a much easier and less-expensive vehicle to challenge an issued patent," Dykeman said.

A similar measure, with a nine-month challenge window and similar changes to the first-to-file system, passed the U.S. Senate in March.

American Medical Systems settles suits to let Endo merger go forward

American Medical Systems Holdings Inc. (NSDQ:AMMD) is looking to settle lawsuits filed to block its $2.9 billion merger with Endo Pharmaceuticals Holdings Inc. (NSDQ:ENDP).

The Minnetonka, Minn.-based urology device maker said it agreed to settle the suits "solely to avoid the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing."

AMMD also agreed to disclose additional information about the negotiations behind the merger and to pay the plaintiffs’ legal fees.
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Histogen declares (premature?) victory in patent spat with SkinMedica

San Diego-based Histogen Inc. is touting a ruling by the U.S. District Court for Southern California in its patent spat with competitor SkinMedica Inc., which sued in 2009 over a pair of patents covering skin cell cultures.

"With this result, Histogen has prevailed on the key claim interpretation relevant to the lawsuit filed by SkinMedica," according to the press release. "This important ruling should lead to the trial court’s dismissal of the patent infringement allegations against Histogen."
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