by Dennis Crouch
Merck & Co., Inc. v. Gilead Sciences, Inc., Docket No. 18-378 (Supreme Court 2018)
In its newly filed petition for writ of certiorari, Merck asks one simple question:
Whether the equitable defense of unclean hands precludes legal relief in the form of damages.
Getting to the answer though is a bit tricky and will take us back to the principles of equity in existence in the 1790s, the merger of law-and-equity, and the creation of the Federal Circuit.
In this case, a Jury sided with Merck with a $200 million for Gilead’s infringement of U.S. Patent Nos. 7,105,499 and 8,481,712. However, the District Court judge rejected that verdict on grounds of unclean hands. In particular, the district court found that Merck had engaged in business and litigation misconduct sufficient to render the patents unenforceable.
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 affirmed in a decision that I originally noted had “a few substantial problems — most notably is the fact that unclean-hands traditionally only applies to block a party from seeking equitable relief (as opposed to legal relief).” In its new petition for writ of certiorari, the patentee here seeks to piggy-back on the recent laches decisions that limited laches to issues in equity.
The pharma giant’s basic argument is that its unclean hands cannot bar the company from asserting its legal rights. As Dan Dobbs explains in his book on remedies: “If judges had the power to deny damages and other legal remedies because a plaintiff came into court with unclean hands, citizens would not have rights, only privileges.”
The patentee summarizes its case:
In Manufacturers’ Finance Co. v. McKey, 294 U.S. 442 (1935), this Court rejected the unclean-hands defense as “inapplicable” in damages actions. The plaintiff ’s legal rights were not “subject to denial or curtailment in virtue of equitable principles applicable only against one who affirmatively has sought equitable relief.”
The Federal Circuit has gone the opposite direction. Citing the Federal Rules of Civil Procedure’s 1938 merger of procedures for law and equity and the 1952 Patent Act, the Federal Circuit allows the equitable defense of unclean hands to bar legal actions for patent infringement. Thus, in the decision below, the Federal Circuit held that unclean hands could nullify a jury’s $200 million damages award. That mistaken expansion of unclean hands beyond its equitable origins has profound impacts. And it reflects disarray on the issue throughout federal courts.
I want to highlight the fact that this case has potentially very broad impact — at its broadest, Merck is asking the court that the defense of unenforceability due to inequitable conduct only be applicable to claims in equity. In that case, a patent obtained through fraud would still be enforceable so long as the patentee was only seeking damages.