Unclean Hands Applied to Cancel Legal Damages Award

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.

= = = = =

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.

24 thoughts on “Unclean Hands Applied to Cancel Legal Damages Award

  1. 7

    Call it what you like, anon. New matter if you will. Or a failure to comply with a strict “written description” requirement. Any way you look at it though, what public policy objective is achieved, by allowing patent applicants to improve their positions after filing at the Patent Office?

    If you think of one, specially in a First to File environment, do say. Many many applicants at the EPO want to improve their positions during prosecution but the EPO steadfastly refuses to countence it.

    1. 7.2

      What Merck did definitely would not count as “new matter” here, although I expect that it would under EPO standards. You guys are much tougher about written description questions. My instinct is to say that the EPO has the better rule. The proof the pudding, however, is in the eating. The actual lived practice of U.S. written description law has not produced notably worse (or better) outcomes than the actual lived practice of EPO written description law, which tells me that probably the differences between the two do not really matter overmuch.

      1. 7.2.1

        Greg, those of us who had to deal with Lemelson’s many claim changes in his serial continuations, in which examiners did not always not go back to see if they were fully supported by the original specification, would not have agreed with your conclusion that it does not matter much.
        Wait till you see some of the Hyatt applications since pending since ancient times with thousands of new claims finally issue.


          Perhaps you are right, Paul. As I said, my instinct is to believe that the EP’s stricter written description standard is the better public policy choice.


            I think you will all find out, in the fullness of time in America, that a First to File law inevitably brings in its train an ultra-strict written description requirement. The courts gradually come round to the Realisation that it’s the only feasible and fair way to adjudicate priority contests between rival First to Filers. After all, it’s not just the EPO that is strict. Who isn’t, in the First to File portion of Planet Earth?

            Put it another way: Lemelson and his Ilk are an artefact of a First to Invent system.


              That is a good point, Max. I have already noticed written description rejections getting progressively more strict and detailed in the last few years. I guess that your observation is already underway.

    2. 7.3

      Call it what you like, anon.


      This is NOT a “you decide” type of thing and YES – it matters very much the means to whatever Ends that you think that you are getting to.

      This is YOUR position, MaxDrei. It is not too much is it for you to explicate and defend, now is it?

      (heck, you could even defend with positions in the alternatives)

    3. 7.4

      In this case, though, the trial court specifically examined whether the amended claims were fully supported in the original specification, and found that they were.

      Supported/enabled to US standards, at least.

      But the compound claimed in the amended US claim appears to be clearly set forth in the original specification as one among several for treatment of Hep C.

      So I’m wondering how, precisely, such a claim it would have failed to meet EPO standards for “written description” requirement.

      Let’s say instead of an amendment, Merck had filed a divisional at EPO claiming this version of their invention – would you have seen that as attempting to “improve their position after filing”?

      Are you against voluntary divisionals in general?

      1. 7.4.1

        P.S. Turns out Merck has filed several divisionals at EPO and this claim among them. Although they’ve got novelty and inventive step issues, I didn’t find that it was argued by the E.D. that the claim went beyond the scope of the original disclosure.

  2. 6

    Two wrongs don’t make a right. The decision was wrong, for the reasons Dennis expounds.

    But the wrong started when Merck was given the latitude to make the claim amendments that were to close the “loophole” that Gilead’s Clark admirably spotted.

    There is a reason why the EPO is so strict about prosecution amendments. I suspect that this case helps to reveal why.

    1. 6.1

      That’s an interesting point, MaxDrei.

      Are you saying though that the amendments introduced new matter? Is that why they should not have been permitted?

  3. 5

    Warning: non-lawyer non-patent-professional pontificating absurdly from a position of ignorance.

    Or else trying to think aloud and reason things out.

    One who comes to a court of equity with unclean hands should not obtain equitable relief.

    But in such a case can the other party disadvantaged as a result of the unclean hands obtain equitable relief to prevent the first party from benefiting from a legal remedy.

    Suppose that a trustee is holding an estate in trust for a beneficiary. If my understanding is correct the trust is invisible to the common law. The trustee might act unfairly towards the beneficiary, perhaps making a legal claim against the beneficiary. To the common law court (assuming separate courts of law and equity), the rights of the beneficiary would be invisible, and the trustee would hold legal title to the estate. The rights of the beneficiary would only be recognized and enforced by the court of equity. Surely a law of trusts based purely in equity would be inadequate for its intended purpose if the the court of equity were powerless to prevent the trustee from seeking and enforcing legal claims against the trustee. Or so it seems to me.

  4. 4

    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.

    Presumably more pain to come for this character.

  5. 3

    As to the point in the post: “… — 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. … 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.”

    I have some doubts that unclean hands should not bar compensatory damages merely because it is an equitable defense. Patent misuse is an equitable defense that bars damages during the period of misuse. United States Gypsum Co. v. National Gypsum Co., 352 U.S. 457, 465 (1957) (“[C]ourts will not aid a patent owner who has misused his patents to recover any of their emoluments accruing during the period of misuse or thereafter until the effect of such misuse have been dissipated, or ‘purged’ as the conventional saying goes.”) Further, “the patent misuse doctrine is an extension of the equitable doctrine of unclean hands, whereby a court of equity will not lend its support to enforcement of a patent that has been misused.” Braun Medical, Inc. v. Abbott Labs., 124 F.3d 1419, 1427 (Fed Cir. 1997).

    Equitable estoppel is an equitable defense that, when applicable, bars all damages and injunctive relief. A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1041 (Fed. Cir. 1992) (en banc) (“Where equitable estoppel is established, all relief on a claim may be barred.”).

    Inequitable conduct is an equitable defense, which by rendering the patent unenforceable, bars damages for infringement, as well as injunctive relief, since the patent cannot be enforced. Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 250-51 (1944) (In response to finding that patent counsel fraudulently submitted an article he wrote and passed off as being written by a disinterested person of skill in the art to obtain issuance of the patent the Court stated: “The total effect of all this fraud, practiced both on the Patent Office and the courts, calls for nothing less than a complete denial of relief to [the patentee] for the claimed infringement of the patent thereby by procured and enforced.”)

    Unclean hands merely provides that as to this accused infringer, the patent may not be enforced by the courts due to the patentee’s bad acts. Thus, any relief that a court could award, whether compensatory damages or equitable relief, is withheld from the patentee as punishment for the bad conduct.

    It seems odd to me to conclude that a patentee’s conduct that is sufficiently bad to justify denying equitable relief would not also justify denying monetary damages. Note the SCT’s conclusion in Hazel-Atlas, that the patentee’s bad act required “nothing less than a complete denial of relief.” Limiting the scope of an equitable defense to only deny injunctive relief, but permit recovery of damages since they are sought “at law”, would not be a “complete denial of relief.”

    From a practical view point, it appears that the relevant distinction between legal versus equitable defense is who will be the fact-finder. If legal, the jury most likely will be the fact-finder. If equitable, the court must be the fact-finder.

    1. 3.1

      Thanks Bob. I appreciate your comment here. The oddity of the Federal Circuit decision is that it restates the maxim that unclean-hands is a defense to equitable actions (such as requests for injunctive relief), but then applies it to block a legal action without comment on the distinction.

      1. 3.1.1

        Ah, I can see that phraseology being odd. Guess this point is a lesson in dicta. Look at what the court does, not what it says.

  6. 2


    Viewing how the Court acts, one has to wonder if any of these distinctions actually matter anymore.

    The rule of man versus the rule of law (especially when the rule of man is celebrated as if it were the rule of law).

  7. 1

    Before I read the decision, a guess: Judge Newman was not on this CAFC panel.

    Confusing equitable with legal remedies/defenses is the kind of thing you learn not to do as an L1.

    And without intending to, Dennis pointed to yet another way in which the US is soooo screwed up when it comes to patents: a jury gets to decide whether or not the claims of Merck’s patent are supported by the description. Like anyone on the jury, let alone all of the members of the jury, could actually read the patent and understand what it says.

    1. 1.1

      [A] jury gets to decide whether or not the claims of Merck’s patent are supported by the description. Like anyone on the jury, let alone all of the members of the jury, could actually read the patent and understand what it says.

      Too true.

    2. 1.2

      Confusing equitable with legal remedies/defenses is the kind of thing you learn not to do as an L1.

      I will just confess my appalling ignorance here, but I am less clear than the rest of you that the CAFC has confused anything here. Granting that “unclean hands” is an equitable defense, while compensatory damages are a legal remedy, if they had found this patent unenforceable for inequitable conduct (also an equitable defense) would anyone have blinked when that conclusion lead to the damages award being reversed? In other words, it is not super clear to me that it is particularly untoward for an equitable defense to defeat a legal remedy. Maybe it should be, but evidently that ship has sailed, because we are all already accustomed to inequitable conduct as a bar not only to equitable injunctions, but also to legal damages.

      1. 1.2.1

        The unique situation here is that of these that you mention, it is only “unclean hands” that is traditionally limited to being a defense to claims-in-equity. (This is similar to Laches)


            …minor correction: other courts must follow the rules (of equity or otherwise).

            The Supreme Court will continue to do what they want, when they want, how they want – and as along as no one says “boo,” they will continue to do so.

            It really does not matter (to them) that they contradict themselves, and quite in fact, they seem to delight in making patent law even more murky, as they seem to have a “strange” distaste for clarity and bright lines in an area of law that the “scrviners” that would deign to appear before them would run circles around them and their decisions IF bright lines and clarity were to be provided.

            It’s more than a bit of the “I know it when I see it” standard – it’s a “I know it when I – and only I – see it” standard.

            By keeping things murky, the Court keeps their fingers in those noses of wax.

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