Inequitable Conduct and Regeneron Pharmaceuticals, Inc. v. Merus N.V.: Trouble Waiting to Happen

Dennis wrote up the facts of this case on the main page, here.  Boiled down, a district court held a bench trial and held that people substantively involved in prosecution of the ‘018 Patent knew of but-for material references, which were not disclosed.  Although the district court had intended to hold a separate trial on intent to deceive, instead it held that the patentee’s discovery abuses (and other apparent misconduct) warranted an adverse inference of intent to deceive.  The discovery abuses were related to the inequitable conduct issue.  Accordingly, it held the patent unenforceable for inequitable conduct.

The panel split (Judge Newman dissenting), but affirmed 2-1, holding that the withheld art was in fact but-for material and that the district court had not abused its discretion by, under regional circuit law, imposing an adverse inference (more on that, the key and troublesome issue, below).

Before getting into the repercussions too much, one thing jumped out at me:  a few days before receiving a notice of allowance for the ‘018 Patent, a third-party submitted the later-withheld references in the parent application of the ‘018 Patent.  Rather than submit those references to the examiner (either by way of an RCE or otherwise), the patentee let the ‘018 Patent go to allowance, but then submitted those references in related applications that remained pending.  That fact jumped out at me because this is a recurring problem — learning of art at the last minute. I know there are ways to at least submit the art, but it won’t be considered (not sure if that procedure was available when the ‘018 was prosecuted).  Anyhow, the fact that the art was later disclosed in related cases obviously makes it harder to argue it was cumulative of art in the ‘018 prosecution, but also obviously, not disclosing the art later, in the other cases, would have created its own difficulties.

Let’s be clear what was decided:  the panel majority held that the district court had not abused its discretion under regional circuit law by imposing an adverse inference of specific intent to deceive because of litigation misconduct during efforts to enforce the ‘018 patent.  That inference is what allowed the district court to hold the ‘018 Patent unenforceable.

This case creates some complexities and lessons for trial counsel.

First off, according to the panel-majority, mere negligence by litigation counsel is enough to justify an adverse inference under the law of this regional circuit.  Here, much of the discovery fight seems to have been over the scope of what is the “same subject” when privilege has been waived by disclosure of some documents on a subject.  Determining the breadth of waiver — what is the “same subject — is not always a simple issue, and reasonable people can disagree about scope of waiver. From the panel-majority’s opinion, the patentee’s positions did not seem tenable, but the lesson for trial counsel is to be very careful because aggressively arguing for narrow scope can be found to be “negligent” and that can result in loss of a patent right.

Second, it seems to me odd that the Federal Circuit would rely on regional circuit law where, as here, the adverse inference goes to an issue of patent law — intent to deceive under Therasense, which interprets “unenforceability” as a defense listed specifically in the Patent Act.

Third, and related to that, an adverse inference instruction where the issue is intent to deceive is, effectively, even more draconian than terminating sanctions (e.g., striking a complaint or an answer).  The impact of the adverse inference here went far beyond making one party the winner in a specific case: it took away a presumptively valid property right, and, of course, will result potentially at least in fee-shifting under Section 285.

Finally, two broader points.

First, the approach of the panel-majority of relying upon an inference is going to lead to satellite litigation and erosion of Therasense.  Why bother trying to show clear and convincing evidence that the single most reasonable inference is is deceptive intent when you can try the trial lawyers?

Second, when the OED becomes aware of a judicial finding of inequitable conduct by an practitioner, it investigates.  I’m not sure the OED would here — where the adverse inference instruction is what led to the holding of inequitable conduct — but if the OED does do so, will prosecution counsel have a claim against litigation counsel for “negligently” litigating so that this inference arose?  What about the patentee suing the litigators?

Don’t misunderstand me:  I have no idea if the lawyers “deserved” this adverse inference instruction.  The panel-majority’s conclusion that the district court did not abuse its discretion is not a holding that they did deserve it.  But this one, well, she’s a doozy.

About David

Professor of Law, Mercer University School of Law. Formerly Of Counsel, Taylor English Duma, LLP and in 2012-13, judicial clerk to Chief Judge Rader.