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Abbott Wins Ruling to Narrow Patent-Misconduct Standard

Abbott Laboratories (ABT) won a U.S. appeals court ruling that will make it harder for companies to block inventors from enforcing their intellectual property rights because of potential misconduct in obtaining the patent.

The ruling tightens standards for “finding both intent and materiality” in determining inequitable conduct before the U.S. Patent and Trademark Office, Chief Judge Randall Rader wrote in an opinion today by the U.S. Court of Appeals for the Federal Circuit in Washington. Except in egregious cases, patents would be unenforceable only if information withheld would have affected whether the invention was approved, the court ruled.

An estimated 80 percent of patent lawsuits include allegations of unfair dealings with the patent office and have “plagued not only the courts but also the entire patent system,” the Federal Circuit said. Drugmakers in particular have accused generic-drug companies of overusing the defense.

“It’s a game-changer,” said Charles Shifley, a patent lawyer with Banner & Witcoff in Chicago who had submitted written arguments in the case on behalf of a group of lawyers. “The last place for a scoundrel who was found to infringe and couldn’t prove invalidity was to throw mud at the patent lawyer. This will rein that in.”

The case today was an appeal involving an Abbott dispute with Becton, Dickinson & Co. and Bayer AG (BAYN)’s health-care unit over a glucose-monitor design. An Abbott patent was deemed unenforceable as punishment for the company giving contradictory information to the U.S. and European patent offices on the same invention.

Old Standard

Courts under the old standard had to decide how important withheld information was, and how much evidence there was of intent to deceive, with each factor weighed against the other. If the information was key to obtaining the patent, then intent mattered less. If there was clear evidence of deception, the material nature of the information is less important.

The Federal Circuit said the old standard had “numerous and unforeseen and unintended consequences” that discouraged settlements and put more attention on the morality of the inventor rather than the merits of the patent, Rader wrote for the six-member majority of the 11 judges who ruled on the case.

“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,” Rader wrote.

‘Out of Control’

Abbott, based in Abbott Park, Illinois, had argued that companies were being penalized for mistakes that wouldn’t have affected whether the patent was issued. It said inequitable conduct should be found only if there had been fraud that was committed to obtain the patent.

It had partial support of the patent office, which said it is overwhelmed with inventors presenting too much data for fear they would later be found to have withheld information. Still, the agency said, patentees could engage in gamesmanship if it was too difficult to prove inequitable conduct.

Pharmaceutical Research and Manufacturers of America, which represents drugmakers including Pfizer Inc. (PFE) and Merck & Co., urged the court to clarify the standard, saying use of the inequitable conduct argument was “spiraling out of control.”

Abbott, Becton Responses

Colleen White, a spokeswoman for Franklin Lakes, New Jersey-based Becton Dickinson, said the decision “although disappointing, was little impact” for the underlying case, which Abbott lost. Becton Dickinson -- which has since sold its glucose-monitoring business -- and Bayer HealthCare won rulings that the aspects of the patent that were in the case were invalid and that issue wasn’t reconsidered.

Scott Stoffel, a spokesman for Abbott said the company was pleased by the appeals court ruling and “we agree with the court that the misuse of this doctrine had become a plague.”

John Thorne, deputy general counsel for Verizon Communications Inc. (VZ), said companies facing patent-infringement suits had been watching the case. Verizon had advocated keeping the old standard while giving judges the flexibility of imposing different remedies, such as shifting the burden on the patent owner to prove validity. Shifley said his group also supported that position.

‘Vulnerable Victory’

Thorne said the “but-for” test in today’s opinion is contrary to what was suggested by government lawyers, which increases the chances that the Supreme Court will look at the issue.

“If we can point to inequitable conduct and that would change the odds in the case, that seems like a balance that would help companies that get sued,” Thorne said. “This is a vulnerable victory and there’s a strong chance the high court will take it.”

The case is Therasense Inc. v. Becton, Dickinson & Co., 2008-1511, -1512, -1513, -1514, -1595, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Therasense Inc. v. Becton Dickinson & Co., 04-2123, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net.

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

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