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.
Funny how the CAFC is selective in it’s application of the law of equity. IMHO, it’s always cutting against the patent owner. For example, ‘unjust enrichment’ is the equity theory of recovery against a person whom is profiting from the continued use of another’s property. In other words, a denial of a permanent injunction, has the equitable remedy of “sure, you can continue to use the property (infringe) but you can’t profit from your continued use because that is ‘unjust enrichment’ so disgorge YOUR profits (this is not ‘lost profits’) but copyright like – YOUR profits. Meh, just saying, because it’s the same legal logic that an equity defense can reach back into legal rights, i.e., legal damages determined under the 7th Amendment.
In trademark law, unclean hands and other equitable defenses clearly can preclude a damages award. But that is because the Lanham Act expressly states that all monetary relief is “subject to the principles of equity.” 15 USC 1117(a).
Another terrible opinion by the Federal Circuit, and if this case is the right vehicle for the Supreme Court, they should be overturned once again.
Did the Federal Circuit not read SCA Hygiene? It was LAST SUMMER, for heaven’s sake. Maybe it wasn’t written clearly enough
The merger of law and equity is procedural, not substantive. I’m frustrated that the Federal Circuit doesn’t get this. There are some smart people there, why can’t they figure this out?
I feel like I’m the crazy one, what am I missing?
Another terrible opinion by the Federal Circuit, and if this case is the right vehicle for the Supreme Court, they should be overturned once again.
Did the Federal Circuit not read SCA Hygiene? It was LAST SUMMER, for heaven’s sake. Mayb
It isn’t hard: the merger of law and equity is procedural, not substantive. I’m frustrated that the Federal Circuit doesn’t get this. There are some smart people there, why can’t they figure this out?
I feel like I’m the crazy one, what am I missing?
Dennis, I think you’re reading too much into Merck’s question. It doesn’t say anything about fraud, only about unclean hands.
I can’t envision any court enforcing a “right” that was shown to the court to have been obtained by fraud – in such a case, there’s no right to begin with. In the patent context, whether we say that a patent procured by fraud is unenforceable or is invalid is, at the end of the day, a matter of semantics. The end result is the same either way: there’s no relief of any kind for the patentee, equitable or legal.
In case at hand, however, the issue was unclean hands – not fraud – and it occurred in the context of the litigation itself, not in the procurement of the patent. That seems to me to be two significant differences.
Same thoughts here AM (with possible nitpicking in the sense of the Means to the same Ends does matter and those Means simply are different for the different avenues of (post) unclean hands and (pre) fraud).
Atari – Read the following quote from the petition:
Dennis, would you consider the possible relevance to your discussion of the (tie-in) case, Morton Salt Co. v. G.S. Suppiger Co., in which the Supreme Court held that patent misuse made the patent unenforceable for recovery of monetary relief. And isn’t conduct of this type considered non-purgeable misuse?
In this context, Merck might argue that “fraud” is irrelevant — the question of law to be addressed is whether the claims asserted are valid and infringed.
Does it matter if fraud is not only inequitable but also illegal?
A big problem with the Merck argument is that we’re not just talking about traditions of equity, but also statutory analysis. Section 282 makes it clear that “unenforceability” is a defense to charges of patent infringement.
That may be an interesting point, but it is a different point and does not address my post.
That is a pretty big problem! Does Merck address this?
I agree, 282(b) is the hook to unenforceability. Merck attorney should have not participated in the due diligence while involved with the prosecution or participating in claim strategy of the Merck application.
Seems like a disingenuous argument and a reach at first, but if you read the full history of how this developed and that information was obtained through a confidential phone call for a compound that was already disclosed but not claimed Merck’s argument becomes a lot stronger.
The claim of litigation misconduct seems really overblown here. It wasn’t clear from the district court if the patent attorney was on the due diligence phone call or not.
I’d have to go an read the D. Ct. proceedings and findings of fact but it seems like Merck might have a pretty good argument for this case, but only really because of the highly unusual fact pattern.
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