Portus’s suit against Kenyon & Kenyon Dodges Dismissal on Pleadings

Portus filed suit against the now defunct (I think) firm of Kenyon & Kenyon. The complaint has morphed but now alleges, basically, that the firm failed to timely seek PTA and at the time it did so, had a conflict of interest by representing another company in the same “domain.”  The amended complaint is here.  The denial of the motion for judgment on the pleadings is here, from June.

It is not clear to me what, if anything, the impact of the alleged conflict is.  The case looks, in some respects, similar to Vaxxion v. Foley & Lardner (which does not appear to be on line besides pay sites), where, basically, the plaintiff took the position that a firm could only have one client in any particular “space,” but never pointed to anything concrete besides that fact.

A 2012 Connecticut Informal Ethics Opinion that is a Doozy!

Here’s the fact pattern:

Company A and Company B each have its own lawyers. They form an agreement whereby Company A is in charge of prosecution, subject to input from Company B.  In a perfect world, the agreement says that Company A gets to pick the lawyers and they only represent Company A (or it says the lawyers represent both Company A and Company B, but it’s clear.  Clarity is good).

Assume it says Company A’s lawyers only represent it, but to further a common interest privilege communications between Company A’s lawyers and Company B to prosecute the applications are privileged. Great. Should be fine — if the agreement makes it clear that Company A’s lawyers do not represent Company B, then if a dispute arises Company A can rely on its lawyers against Company B.

But, when it’s not clear: I’ve written about this issue a few times, and there are six or so cases where lawyers have been sued, disqualified, or a privilege has been lost.  (Search for DePuy on patentlyo and you’ll find the last of these).

So, that brings me to Connecticut Informal Ethics Opinion 2012-02, here.  It says that even if the agreement says “Company A’s lawyers don’t represent Company B, or its employees” in-house lawyer for Company A has an attorney client relationship with Company B and its employee-inventors.  Company A’s lawyer can never be adverse to Company B in the same/related matter.

I see no reason why the logic of the opinion wouldn’t apply to outside counsel in the same position.

So, if you’re in Connecticut, be careful. It’s only an informal opinion but it’s wrong, in my humble opinion.

Texas Ethics Committee: Unethical to Consult with Potential Expert When Purpose is not to Hire but to Disqualify

The committee was asked if a lawyer could disclose confidential information to a person where there was no substantial purpose other than to preclude the other side from hiring the expert, and held “no.”  Tex. St. B. Prof. Eth. Comm. Op. 676 (Aug. 2018) (here).

I’ve had lawyers do this to me, or at least that’s how it seemed, and it’s an irritating but understandable tactic when there’s only a few people in a field who know what they’re doing.

But don’t do it!

 

Should Your Engagement Letters Require Indemnification for 285-Fee Shifting?

As I’ve written, district courts are beginning to hold that if a case is exceptional under 285, fees can be imposed on, not just the losing patentee or infringer, but its lawyers (and principals).  I’ve written before that I have grave doubts this is permitted by the statutory text, and some courts so hold, but others are interpreting 285 to allow for it. (If an opposing party seeks to shift fees onto you under 285 consider the conflicts that it creates, as discussed in my prior posts.)

The Utah Bar Association issued an opinion, Utah Ethics Advisory Opinion Committee No. 18-04 (Sept. 11, 2018) (here), that you should consider. It addresses an issue that only a few opinions have, which is whether a lawyer can include in an engagement letter a provision that requires the prospective client to indemnify the lawyer for claims that arise from the client’s behavior or negligence — not the lawyer’s behavior or negligence (without jumping through the hoops of Rule 1.8(h).  (It also states that a lawyer may require a prospective client, in the engagement letter, to state that if the client sues the lawyer for legal malpractice and loses, the client must then reimburse the lawyer for the deductible in the malpractice insurance, if the client is advised to obtain independent counsel.)

The opinion provides an interesting possible way to, perhaps, deal with the chilling effect that Octane Fitness creates on lawyer advocacy while reasonably allocating liability.  These clauses will be scrutinized closely, and I’m not certain they would be accepted in every jurisdiction.

(August 15 post, below, has links to earlier article.)

McKool Smith Prosecution Bar Saga Continues… a year later…

Almost exactly one year ago (here), I explained that McKool Smith had been accused of violating a prosecution bar based upon a disagreement, or misunderstanding, about when the bar-dated ended.  While we do not yet have, “the rest of the story,” (you old folks will get the Paul Harvey reference), in an order dated September 18, 2018, Judge Corley in Eolast Tech., Inc. v. Amazon.com, Inc. (here) shows the matter is still on-going. In it, apparently after McKool and its client produced documents in redacted form, the judge ordered them produced without the redactions.

Undisclosed Conflict of Interest Causes Unenforceable Arbitration Clause, Disgorgement of Some Fees

by David Hricik

Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co. __ P.3d __ (Cal. Aug. 30, 2018) has been on a lot of people’s radar for while.  Boiled down, the firm represented a J-M Mfg., in a qui tam action against a number of public entities while representing one of the public entities in an unrelated and small matter.  The firm billed 10,000 hours in the qui tam action and 12 to the public entity, South Tahoe.

South Tahoe moved to disqualify the firm, and that motion was granted over the firm’s argument that South Tahoe had agreed to a broad waiver of conflicts long before the matter for J-M had even existed.

Later, J-M refused to pay the final $1 million of the $3 million the firm had billed it.  The firm sought arbitration in accordance with its fee agreement  with J-M, which also contained a broad waiver clause. In response, opposed arbitration and J-M sought disgorgement of the $2 million it had paid, since the firm had earned it while having a conflict of interest.

J-M was forced to arbitrate and the arbitrators found in the firm’s favor, though stating the firm should have disclosed the conflict.  When the firm moved to confirm the award, J-M opposed it. J-M prevailed in the California high court.

The Court concluded that it could set aside an arbitral award based upon an illegal contract, and that the ethical rules provided a basis for so finding.  It rejected the idea that a broad blanket waiver permitted the firm to represent J-M while representing South Tahoe without informing both clients of the conflict.  Thus, the arbitral award was vacated.

The court held, however, that the firm would be entitled to pursue relief under a quantum meruit theory and not have to disgorge all of the $2 million it had received, nor lose any claim to the $1 million it was still owed.  In the regard, the court wrote:

When a law firm seeks compensation in quantum meruit for legal services performed under the cloud of an unwaived (or improperly waived) conflict, the firm may, in some circumstances, be able to show that the conduct was not willful, and its departure from ethical rules was not so severe or harmful as to render its legal services of little or no value to the client. Where some value remains, the attorney or law firm may attempt to show what that value is in light of the harm done to the client and to the relationship of trust between attorney and client. Apprised of these facts, the trial court must then exercise its discretion to fashion a remedy that awards the attorney as much, or as little, as equity warrants, while preserving incentives to scrupulously adhere to the Rules of Professional Conduct.

The difficult issues this creates for patent lawyers, and others, should be clear.  Spotting conflicts of interest is difficult enough, but this case substantially increases the price of not doing.

The opinion just issued, and I’m doing a webinar for the AIPLA on conflicts in patent practice on 9/11, and so will think on this more, and discuss it then.

Joinder of Inventor/Principal of Patentee to Assertion of Fees for Exceptional Case Liability

A while back, I suggested here that defendants start thinking, early on, about joining sole-shareholders (and the like) of asset-less patentees if 285 liability was an issue.  In a recent case, the district court allowed joinder of such a person, finding he was a necessary party under Rule 19. (I seriously doubt that is correct (what is the claim against the person being joined?), but Genentech managed to convince a judge to join such a person in Phigenix, Inc. v. Genentech, Inc., (N.D. Cal. Aug. 13, 2018) (here).  (I’ve also written about counsel’s liability under 285, and the conflicts it can create, here.)

It discusses another case where this motion was held to be untimely, and there are serious questions about subject matter jurisdiction the court side-steps.  Lawyers faced with 285 motions have a lot to think about: plan ahead.

Ex Parte Contact that Plaintiff Failed to do Adequate Pre-Suit Investigation Part of Failed Fee Shifting Motion

When I do CLE talks, I often tell people that if you’re going to raise ethical-related issues, be very honest and clear when you do.  In a recent case where Google sought to shift fees onto a patentee who lost his patent in an IPR, Google relied on the fact that a former employee of the patentee told Google’s counsel that the pre-suit investigation had been inadequate.  The judge wrote in part:

Defendants offer two reasons why the case should be considered exceptional, but neither is persuasive. First, they say that Fujinomaki himself didn’t do enough research before he filed his lawsuit pro se.  That is not at all supported by the record or by the law. Defendants concededly do not challenge the adequacy of Bumgardner’s testing and research once the case was brought to his attention. Dkt. No. 276 at 1. And defendants have virtually no evidence to back up their claim that Fujinomaki unreasonably filed suit. They rely only on the rather bizarre fact that Fujinomaki’s pre-suit patent consultant, Amani Bey, apparently contacted defendants after the lawsuit was filed to inform them about “Plaintiff’s failure to comply with Rule 11.”  How Bey did this without breaching a duty or at the very least a contractual obligation to Fujinomaki is not clear, but in any event, this purported incident is just a sideshow. Defendants present the incident mainly with hearsay evidence, and offer no documents to support Bey’s accusation. Other evidence strongly suggests that Bey was hardly an unbiased or trustworthy source. He reached out to defendants only after Fujinomaki sued him in Japan for failure to provide promised services. In addition, Bey’s allegations are contradicted by the declaration of Tatsuya Ichinomiya….

The opinion is Fujinomaki v. Google, LLC (Case No. 3:16-cv-03137-JD, N.D.Cal. July 31, 2018) (denying fee shifting).

 

On-going Suit About Conflicts During Prosecution

The case itself only affirmed the denial of a motion by lawyers sued for a conflict of interest to compel arbitration, but Adherent Labs., Inc. v. DiPietro, 2018 WL 3520843 (Ct. App. Minn. July 23, 2018) (here) has interesting underlying allegations.

Bunnelle was a part-owner of Adherent.  DiPietro, a patent lawyer, began to represent Adherent in 2009. In 2010, Bunnelle left Adherent after a dispute, and began working for IFS.  DiPietro continued to represent Adherent.

Bunnelle sued Adherent in 2012, but as a result of suing assigned certain IP rights to Adherent (apparently, this was part of a settlement).  DiPietro helped Adherent’s litigation counsel draft the assignment, though apparently DiPietro did not defend Adherent in that suit. However, he did continue to represent Adherent in other matters, it seems.

In 2014, Adherent learned that in March 2013 DiPietro had filed an application for IFS, naming Bunnelle as sole inventor (presumably because the application published).  Allegedly, the application was based upon subject matter that Bunnelle had assigned to Adherent in 2012.

Adherent sued Bunnelle and IFS, alleging Bunnelle had breached the assignment and IFS had tortiously interfered with it.  Adherent also sued DiPietro and his firm for breach of fiduciary duty, alleging that they had prosecuted applications for IFS based on Adherent’s intellectual property.  That’s the underlying part of the story that is interesting.  In that regard, the opinion explains that the district court had, earlier, denied the lawyer-defendants’ motion for summary judgment:

The district court determined that appellants knew that Adherent and Bunnelle had an adversarial relationship, and that appellants never sought Adherent’s written consent to represent IFS or Bunnelle. The district court also determined that appellants began representing IFS prior to DiPietro assisting in the drafting of the assignment, and that appellants had available to them, in the course of their representation, Adherent’s confidential information. The district court concluded that facts in the record showed that appellants improperly disclosed Adherent’s confidential information.

The district court determined that summary judgment was not appropriate on Adherent’s breach-of-fiduciary-duty claim because the record contained facts indicating that appellants breached their duty of loyalty, duty of confidentiality, and duty to disclose. The district court also determined that summary judgment was not appropriate on Adherent’s tortious-interference-with-contract claim because facts in the record supported Adherent’s claim that appellants used language from Adherent’s patent application in IFS’s application, which procured Bunnelle’s breach of the assignment.

As for the issues decided in this opinion itself, it turns out that Adherent settled its case against Bunnelle and IFS and that settlement agreement contained an arbitration clause. So, the defendant lawyers sought to compel arbitration of Adherent’s claims against them based on the arbitration clause in the settlement agreement between Adherent, on the one hand, and Bunnelle and IFS on the other. In short, that didn’t work. (I actually wrote an article about somewhat related issues in arbitration clauses a long time ago and it’s here.)

It is rare, of course, to see allegations which, if true, present this sort of conflict and serves as a reminder to be careful when representing former employees of clients.

Firm DQ’d Because it “Should Have Known” a TM Client Would Sue Another for Patent Infringement the Day the Patent Issued

This is an interesting case where the court granted a motion to disqualify based on a very odd assumption.  The case is Altova GMBH v. Syncro Soft SRL, No. 17-11642-PBS (D. Mass. July 26, 2018), here.

The facts of this case are a bit unclear, but it seems like Firm A represented Syncro Soft in three trademark-related matters.  The first involved responding to a C&D letter from a third party in 2004. The second involved representing Firm A in responding to a C&D letter alleging trade dress and copyright infringement from the party moving for disqualification in this case, Altova, in April 2009 and ending in June 2009.  Then in 2010 Firm filed a trademark registration for Syncro Soft and provided other assistance through 2014. The total number of hours on these matters:  less than 50.

In October 2011, Firm A had begun to represent Altova in trademark matters and in June 2012 filed suit for Altova against an alleged trademark infringer.  In other words, although Firm A had defended Syncro Soft from claims of trade dress and copyright infringement in 2009, from October 2011 through 2014, at least, Firm A was representing both Altova and Syncro Soft though not in matters where each was adverse to the other.   The opinion is unclear whether Firm A represented Syncro Soft after 2014.

In June, 2017, Altova asked Firm A to assert a patent that Altova had obtained against Syncro Soft.  In July, 2017, Firm A sent a letter to Syncro Soft “terminating” its attorney-client relationship with it (again, it’s not clear the firm was doing anything after 2014).  The firm did not explain why.  It then filed the patent infringement suit for Altova against Syncro Soft.

Syncro Soft moved to disqualify Firm A. The court held that at the time the conflict arose, Syncro Soft was a current client of the firm.  Thus, the rule governing current client conflicts, not former client conflicts, controlled.  Under that rule, it is unethical for a law firm to be adverse to a current client of the firm.  Thus, the firm was disqualified, the court noting that most courts do not permit lawyers to drop a client like a hot potato in order to have the former client conflict rule apply, which permits lawyers to be adverse to a former client, just not in a matter that is substantially related to the work the firm performed for its former client.

So, in many ways, the case is no news.  But — and this is a “wow” statement –the court stated that the firm should have known when Altova obtained its patent that Altova was reasonably likely to sue for patent infringement, and, again, there’s no indication the firm obtained the patent for Altova or knew of its existence until Altova approached Firm A in June, 2017.  The court nonetheless wrote:

A reasonable lawyer should have known that there was a significant risk that Altova’s interests would become adverse to Syncro Soft’s concerning their competing XML products no later than November 2016 when Altova’s patent issued, and then should have obtained written, informed consent from both clients or withdrawn from representing both parties on that matter. The companies were direct competitors who sold similar XML editor software products. Sunstein knew that Altova vigorously protected its intellectual property rights. In fact, Altova had previously sent Syncro Soft a cease and desist letter related to alleged copyright infringement involving this software. For these reasons, this patent dispute is not the type of unforeseeable development contemplated by Comment 5. See Mass. R. Prof. C. 1.7 cmt. 5.

Hopefully, the case won’t be read as standing for the proposition that you need to monitor every patent one client obtains, to make sure you don’t have a conflict!

 

Regeneron

Over on the main page, Dennis has mentioned the Regeneron cert petition. The CAFC found a patent unenforceable because of a sanction for litigation misconduct.

Maybe, but what I find troubling about the case is that the Federal Circuit’s opinion — which is literally in many respects a cut-and-paste job of the district court’s opinion — makes factual statements about specific lawyers and their intent.  But, as part of the sanction for litigation misconduct, the trial court precluded those lawyers from testifying about why they had not disclosed certain information to the USPTO.

Think about that.

There is a published opinion stating a lawyer had bad intent, knew certain things, etc., when the trial court denied them the right to testify because lawyers — who did not represent them — did bad things years after they had prosecuted the applications to issuance.

Regeneron is a horrible opinion. I don’t know if the result is correct, or not, but I do know that the opinion makes false statements of fact about real people that will have real consequences for their careers.

And the consequences for prosecution attorneys are enormous:  if you are deposed in a case, you may need your own lawyer. You may need to make clear that you do not agree with any claim interpretation put forward by either party. You may need to condemn the patentee’s trial lawyers if asked about misconduct or make it clear that you have no control over them.

Horrible decision with grave consequences if left unchecked.

Section 101’s Absurdities

Rant warning.

Over on the main page, Dennis has pointed out that a cert petition including citations to my posts here about why Section 101 is not a “defense” to infringement, and to the recent CAFC cases about why 101 includes factual inquiries.  This rant is about those issues.

Let me start there.  That 101 contains factual inquiries is the exact point Judges Rader and O’Malley made years ago, relying on Judge Lourie’s opinion from Alice five times:

[A]s is shown more fully below, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues. For example, while members of this court have used varying formulations for the precise test, there is no doubt the § 101 inquiry requires a search for limitations in the claims that narrow or tie the claims to specific applications of an otherwise abstract concept. CLS Bank, __ F.3d at __, 2013 WL 1920941,  at *27-30 (meaningful limitations); Id. at *10 (opinion of Lourie, J.). Further, factual issues may underlie determining whether the patent embraces a scientific principle or abstract idea. Id. (opinion of Lourie, J.) (“The underlying notion is that a scientific principle . . . reveals a relationship that has always existed.”) (quoting Parker v. Flook, 437 U.S. 584, 593 n.15 (1978)). If the question is whether “genuine human contribution” is required, and that requires “more than a trivial appendix to the underlying abstract idea,” and were not at the time of filing “routine, well-understood, or conventional,” factual inquiries likely abound. Id. at *11-12. Almost by definition, analyzing whether something was “conventional” or “routine” involves analyzing facts. Id. at *12. Ultramercial II, 2013 U.S. App LEXIS 12715, at *6-7(emphasis added).

Ultramercial III.

In other words, every judge in Alice agreed that 101 requires factual analysis.

Yet, at the USPTO, people are getting rejections from examiners who just say asserting a claim is “conventional” without any citation to facts (aka evidence).  And despite binding panel precedent that seems in conflict, the CAFC seems now to disagree on whether 101 has factual components, and won’t address en banc that question. Maybe that is because  the questions asked in the 101 “analysis” are precisely the same questions asked in any section 103 rejection and which are plainly factual.  Maybe it is because 101 is 103 (and 112) “light.”

Which leads me to the second point. We’re spending thousands of hours arguing about what is an “invention.”  Regulations are written with flow charts to figure this out.  (And despite this, the Federal Circuit has said Alice did not change 101 law — even though the USPTO has had to write multiple new regulations because of it, and thousands of patents issued properly (presumptively) before it are “invalid” after it.  But, conversely, some courts hold in legal malpractice cases that lawyers did not need to “predict” Alice, and so can’t be liable for failing to raise it, or getting a patent that was worthless after it.)

Folks, those who forget the past are doomed to repeat it.  Patent law and America’s capacity for innovation were saved from this nonsense in 1946.  I have read and written about what Congress did in 1946 to rid of “inventiveness” and “invention” as requirements for patentability, and my blog posts above are about how Congress did exactly this in 1946.  The answers are in the statutory text.  Congress did not want us to argue about “invention” and instead put the conditions for patentability in 102 and 103 (and 112).

Where the judicial activism of the Supreme Court has put our country is is in a dire place.  We are in a time when innovation is king.  China has more patents pending than the U.S.  Around the country, I have heard executives from all types of industry state that our system has made patenting of dubious value.  The data shows that the Supreme Court’s rampant activist approach — undertaken perhaps in a noble effort to get rid of some (too many) stupid patents (and combined with IPRs) — has made our patent system weak, eliminated key incentives to innovate, and, most fundamentally, ignored the changes Congress made back in 1946 to stop this nonsense.

Rant over.

 

Use of Experts at Mediations

I serve as an expert witness in patent suits and in legal malpractice cases/ethical issues relating to them (and general ethical matters).  Twice in the past year or so I’ve been asked to attend mediations as an expert, and sometimes to talk in the opening sessions and at another to simply talk to the mediator in the “closed” sessions.  I had thought it odd, but then read this article (hopefully here and not behind a paywall) which suggests that it’s good practice to have an expert at mediations.

To do so competently, the article explains that ahead of time the lawyers should agree on a process that avoids creating a cross-examination proceeding, but to also allow legitimate inquiry.  The goal, as the article put it:

First, to explore the possible weaknesses in the factual and technical underpinnings of the experts’ positions. And, second, to build a working knowledge of each expert’s strongest points in order to be able to best convey them to the other side.

Given that most cases settle, and given the importance of experts in patent suits generally, I thought this was an interesting observation and perhaps explains why I’ve been to mediations lately.  But I still hate being at them and the entire process!

Magistrate Disclosure of Daughter’s Summer Associate Employment

I thought this was interesting.  Magistrate’s daughter will be a summer associate at the patentee’s firm, and so she disclosed it to the parties and invited their views on whether they thought the case should be reassigned. It is Pacific Coast Building Products, Inc. v. Certainteed Gypsum, available here.

When I was clerking for the CAFC a few years ago, as clerks we avoided cases where we had any entanglement as an internal procedure, but I thought this was interesting because obviously the patentee’s firm knew it was going to hire the daughter, and the magistrate thought it wasn’t a conflict, but wanted the facts out there.

This is one of those instances, though, where if I were the patentee I’d be afraid the magistrate would try to be “too fair” to avoid even the appearance of favoritism, but it depends on the facts and relationships.  Interesting rare disclosure issue, though.

The Abolition of Form 18, Discovery Limits, and Lawyering

“Back when I was young,” all we had to do to file an infringement suit was use Form 18 and basically allege “Plaintiff owns a patent and you sell stuff that infringes it.”  (For one story about the process of repealing it (and almost all of the forms that used to be sufficient as a matter of law to state a claim), read here.)  Abolishing the form meant that the Iqbal/Twombly requirements of pleading factual material, not naked allegations or legal conclusions, which if true plausibly showed infringement.

That eliminated the ability to sue for infringing some patents — say a method claim practiced inside a factory.

At the same time Form 18 went away, the scope of discovery was narrowed.  While everyone focuses on the proportionality requirement, Rule 26 was also narrowed to eliminate the ability of a court, even for good cause, to permit discovery into the subject matter of a suit — only discovery into claims or defenses was permitted, and it had to be proportional and so on.

So, that again eliminated the ability to sue for some infringement, and it made it very important that pre-suit investigation identify every infringing product/use possible, or at least do so early and consistent with patent local rules.  This is because courts do not permit patentees to obtain discovery into products beyond those identified in a complaint, or early in infringement contentions, without showing reasons why the product was not identified through other means (e.g., Internet searches on the manufacturer’s web page).

A recent case shows this process.  In Aavid Thermalloy LLC v. Cooler Master Co., (Case No. 17-cv-05363-JSW (LB) (May 10, 2018), the court denied the patentee’s request for discovery beyond products accused in its PICs, stating that the exception to the general rule that such discovery was not allowed was only available if the patentee did not “know of” the allegedly infringing product when it served its infringement contentions “and could not have discovered the product absent discovery.”

So, be careful in your pre-suit investigation, and be thorough. On a larger scale issue, this is but one more way that the value of patents have been reduced.

Administrative Suspension

You have to pay bar dues for your state, meet CLE requirements, and so on, or you can be administratively suspended by your state.  If you are, you can’t practice trademark law before the USPTO.  There was another recent OED decision recognizing that basic point, here.

The USPTO once considered making practitioners take CLE, but that failed. But, you can be administratively suspended by the USPTO for various reasons, including failing to keep your contact, and other, information current under 37 CFR 11.11. The USPTO periodically sends surveys to practitioners and those who don’t respond get their names published, and if they fail to correct the problem, they get administratively suspended from patent practice, as shown here.

Either circumstance can create lots of problems for practitioners.  You may need to alert the USPTO of state administrative suspension, or you may need to alert your state of USPTO administrative suspension, and so administrative suspension can snowball into a reporting problem.  Further, complicated questions are created for your clients, such as (a) trust fund issues; (b) privilege issues; (c) perhaps unauthorized practice of law problems (e.g., a corporation has to be represented by a lawyer); and (d) substantive issues, such as whether something filed with the USPTO by an administratively suspended practitioner can be held ineffective or otherwise cause invalidity or unenforceability problems.  And, of course, communicating administrative suspension to a client once it is known is another one.

So, pay those bar dues, go to your CLE, and keep your contact info updated.

An Interesting Pending Appeal Involving Violation of an NDA to Prosecute an Application

Last month, the Federal Circuit held oral argument in an appeal, styled Gilead Sciences, Inc. v. Merck & Co., Inc. (Appeal Nos. 16-2302 & -2615) from a judge’s decision which held a patent unenforceable — for unclean hands — after a jury returned a verdict of $200 million.  A more detailed write up is here which includes a link to the oral argument.

Boiled down, in a bench trial after the verdict, the judge heard evidence that Gilead had agreed to share information with Merck regarding an antiviral agent against Hep C — provided Merck personnel working on Merck’s competing work be walled off rom the information. Gilead shared information on a call… and a Merck attorney who was on the call who was prosecuting a Merck competing application then amended claims to cover the Gilead product.

As a twist, the application that was amended supported the Gilead product, and the jury had found no derivation.  The reason was that the amended Merck application had support for a large genus of compounds, but the amendment narrowed to a subgenus which included Gilead’s leading agent.  In other words, Merck had invented the Gilead product, and so there was no but-for materiality (in any meaningful sense that I can see, at least).

In addition to this evidence, the district judge heard evidence of various litigation misconduct, testimony that seemed to change at trial, and other “smell test” issues.  Based on what it saw, the district judge  held the Merck patent unenforceable under the doctrine of unclean hands, setting aside the $200m verdict for Merck.  The judge wrote in part:

“In this case, numerous unconscionable acts lead the Court to conclude that the doctrine of unclean hands bars Merck’s recovery against Gilead for infringement of the ’499 and ’712 Patents. Merck’s misconduct includes lying to Pharmasset, misusing Pharmasset’s confidential information, breaching confidentiality and firewall agreements, and lying under oath at deposition and trial. Any one of these acts— lying, unethical business conduct, or litigation misconduct— would be sufficient to invoke the doctrine of unclean hands; but together, these acts unmistakably constitute egregious misconduct that equals or exceeds the misconduct previously found by other courts to constitute unclean hands. Merck’s acts are even more egregious because the main perpetuator of its misconduct was its attorney.”

Gilead Sciences v. Merck & Co., Case No. 5:13-cv-04057 (N.D. Cal. June 2016).

On appeal, the CAFC panel asked questions which seemed to suggest they were wondering whether there was, in fact, derivation — despite the jury’s finding.  From afar, that would seem to be a stretch, but the details may be there.  Stay tuned on both aspects of this case.

The lesson, of course, is that it is imperative that people abide by NDAs (and protective orders with prosecution bars, and the like).  I’ve been involved in cases involving alleged misuse of confidential information during prosecution, and the risks that arise when competitors exchange information — ranging from trade secret misuse, to sanctions, to things like Merck — abound.  Lawyers need to police both their side — to abide by any agreement, by watching for misuse by experts, inventors, business people, and lawyers — as well as ensuring that their own personnel abide by the agreement.  With parallel proceedings, continuing prosecution, and the circumstances where parties are focused on similar solutions to a problem, the need to do so is particularly critical.