by Dennis Crouch
This is an important decision here – applying the equitable defense of unclean hands in a unique way to overturn a $200 million jury verdict. Although the opinion rests on shaky ground (my view), it is now the law of the land.
Gilead Sciences v. Merck (Fed. Cir. 2018)
The district court rejected a $200 million jury verdict against Gilead’s infringing Hep-C sofosbufir drugs. Rather than enforcing the jury verdict, the district court held instead that the patents are unenforceable due to Merck’s “unclean hands” involving both business and litigation misconduct. The district court explained:
The record … reflects a pervasive pattern of misconduct by Merck and its agents constituting unclean hands, which renders Merck’s ‘499 and ‘712 Patents unenforceable against Gilead. . . .
Candor and honesty define the contours of the legal system. When a company allows and supports its own attorney to violate these principles, it shares the consequences of those actions. Here, Merck’s patent attorney, responsible for prosecuting the patents-in-suit, was dishonest and duplicitous in his actions with Pharmasset, with Gilead and with this Court, thus crossing the line to egregious misconduct. Merck is guilty of unclear hands and forfeits its right to prosecute this action against Gilead.
On appeal, the Federal Circuit has affirmed – seemingly rendering the two asserted U.S. Patent Nos. 7,105,499 and 8,481,712 effectively moot.
As I discuss below, the decision has a few substantial problems — most notably is the fact that the unclean-hands traditionally only applies to block a party from seeking equitable relief (as opposed to legal relief). In the end, it appears that Merck was only seeking compensatory money damages — something purely legal. I know that Merck originally requested declaratory judgment of infringement (prior to Giliad’s market release), but the actual claim before the jury was for infringement and compensatory damages. Further, declaratory judgment is now seen as a statutory right rather than an equitable doctrine. We should draw here a strong parallel with SCA Hygiene Prods. V. First Quality Baby Prods. (Supreme Court. 2017) (Equitable defense of laches cannot bar legal damages in patent cases). Further, it appears to me that Merck did not request injunctive relief in this case (based upon my reading of their counterclaim).
The facts as decided found by the district court:
- 2001: Merck filed patent applications that eventually led to the patents-in-suit here. Merck Chemist/Patent-Attorney Phillipe Durette helped with the prosecution.
- 2002: Jeremy Clark working for a predecessor to Gilead (Pharmasset) was begin reviewing Merck’s early published patent applications “looking for loopholes.” Clark hit upon a proposed compound that led to sofosbuvir – the active drug at issue in this case.
- 2003, Pharmasset (Clark) filed a patent application the sofosbuvir creation.
- 2004 Merck and Pharmasset began to collaborate on development, but setup (1) a non-disclosure agreement and (2) a FIREWALL blocking Merck patent prosecutors from seeing details of Pharmasset. However, in a PHONE CALL, Patent Attorney Durette was told about the secret Clark patent application. After the phone call, Durette stopped his participation in the collaboration, but continued to prosecute the Merck patents.
- 2005 the Pharmasset (Clark) patent application became public, and Durette then amended the claims in the Merck applications to specifically target on the same compound.
- Durette worked the first application until it issued in 2006.
- A separate attorney (Jeffrey Bergman) took over prosecution for Merck in 2010 and narrowed so that the claims targeted metabolites of the same sofosbuvir compound.
- Later at trial, Durette served as the corporate (R. 30(b)(6)) witness for Merck and the district court found that he gave false testimony in his deposition — denying that he had been part of the PHONE CALL.
Here, the real problem for Merck is that its agent Durette (1) joined the call against the FIREWALL; then (2) continued to prosecute the applications after improperly learning of the information; and (3) lied about it at trial. Collectively, those were enough for an unclean hands finding. Note here that unclean hands sits in the background of several legal defenses: (a) the defendant alleged failure of written description, but the jury found that the amended claims were fully supported by the original specification; (b) the defendant alleged an implied license; but the court found otherwise; (c) there might have been a violation of the non-disclosure agreement, but that defense did not apply since Merck’s application was filed after the Pharmasset (Clark) application became public; (d) the defendant could have sued for breach of contract or unfair competition, but it did not.
The doctrine of unclean hands has long been part of the U.S. law operating under the maxim: “those seeking equity must do equity.” In other words, a party asking for equitable relief must come with clean hands. In the 1933 case of Keystone Driller Co. v. General Excavator Co., the Supreme Court Court spelled out how the doctrine operates in patent cases. The court began with the traditional maxim that a “[c]omplainant, to be entitled to equitable relief, must not only show that he has good cause of action, but that he comes into court with clean hands.”
He must be frank and fair with the court, nothing about the case under consideration should be guarded, but everything that tends to a full and fair determination of the matters in controversy should be placed before the court.’ Story’s Equity Jurisprudence (14th Ed.) s 98. . . . This court has declared: ‘It is a principle in chancery, that he who asks relief must have acted in good faith. The equitable powers of this court can never be exerted in behalf of one who has acted fraudulently, or who by deceit or any unfair means has gained an advantage. To aid a party in such a case would make this court the abetter of iniquity.’ Bein v. Heath, 6 How. 228, 247, 12 L.Ed. 416.
Of course, the “clean hands” must be tied to the matter in litigation — courts look to see whether the bad-acts are connected to the cause of action at issue. In Therasense, the Federal Circuit reviewed Keystone:
Keystone involved the manufacture and suppression of evidence. The patentee knew of “a possible prior use” by a third party prior to filing a patent application but did not inform the PTO. After the issuance of the patent, the patentee paid the prior user to sign a false affidavit stating that his use was an abandoned experiment and bought his agreement to keep secret the details of the prior use and to suppress evidence. With these preparations in place, the patentee then asserted this patent, along with two other patents, against Byers Machine Co. (“Byers”). Unaware of the prior use and of the cover-up, the court held the patents valid and infringed and granted an injunction. The patentee then asserted the same patents against General Excavator Co. and sought a temporary injunction based on the decree in the previous Byers case. The district court denied the injunctions but made the defendants post bonds. The defendants discovered and introduced evidence of the corrupt transaction between the patentee and the prior user. The district court declined to dismiss these cases for unclean hands. On appeal, the Sixth Circuit reversed and remanded with instructions to dismiss the complaints. The Supreme Court affirmed.
The Supreme Court explained that if the corrupt transaction between the patentee and the prior user had been discovered in the previous Byers case, “the court undoubtedly would have been warranted in holding it sufficient to require dismissal of the cause of action.” Id. at 246, 54 S.Ct. 146. Because the patentee used the Byers decree to seek an injunction in the cases against General Excavator Co. and Osgood Co., it did not come to the court with clean hands, and dismissal of these cases was appropriate.
One thing that the Therasense court missed here in its discussion of Keystone is that the equitable defense was applied to the equitable remedies sought by the patentee. It was not a direct defense to the associated legal remedies.
In this case Merck ultimately asked the court for a purely legal remedy (compensatory damages) for Gilead’s admitted infringement — I am hard-pressed to understand how unclean hands now fits into the picture as a defense.
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I’ll note here that the thrust of Merck’s argument is that the bad-acts were not material since Merck did not take any advantage of the knowledge until after the Gilead patent published. And, at that point, it was standard patent practice to amend claims to parallel a competitor’s patent application. Thus, the bad acts (at least pre-litigation) might not be considered the but-for cause (materiality standard for inequitable conduct). Here, however, the court refused to extend the strict Therasense materiality standard to the unclean hands doctrine.