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.

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.

2 thoughts on “An Interesting Pending Appeal Involving Violation of an NDA to Prosecute an Application

  1. 1

    Thanks, David. This is an interesting case on many levels.

    Unclean hands is an equitable defense. I have seen it used to prevent issuance of an equitable remedy like an injunction, but I have not seen it used to negate a jury’s award of monetary damages. In this case it seems as if unclean hands is being used as a substitute for unenforceability due to inequitable conduct.

    1. 1.1

      That’s an interesting point. The Patent Act states that “unenforceability” is a defense to infringement, and so I am guessing that through that word (and I think it’s clear unclean hands was intended to remain a defense) you could get to it applying to legal relief, not just equitable relief (like inequitable conduct is).

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