In re HTC Corp. (Fed. Cir. 2018)

In 2017, 3G Licensing filed its infringement lawsuit in Delaware Federal Court — accusing both HTC Corp. (a Taiwan Corp.) and HTC America (its US Subsidiary based in Washington State) of infringement.  Following TC Heartland, the District Court found that venue was improper for HTC America, but allowed the action to proceed against the foreign company HTC Corp.

HTC Corp. then petitioned the Federal Circuit for a writ of mandamus on the issue – that writ has been denied.  Here, in particular, the decision indicates that a venue mandamus will no longer be granted simply “to avoid the inconvenience of litigation by having this issue decided at the outset of its case.”  Mandamus is seen by the courts as an extreme remedy and requires a showing that the petitioner has “no other adequate means to attain the relief desired.”  Here, the court notes denial of an improper venue motion can be appealed following a final judgment — and a successful appeal will render the judgment null.  The decision here contrasts with the court’s precedent regarding mandamus on convenience grounds (1404(a)) that really cannot be appealed post-final judgment.

In what appears to me as dicta, the Federal Circuit went on to explain its position that the Delaware court is a proper venue for the foreign corporation.  Rather, according to the court, TC Heartland did nothing to disturb the “long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.” Quoting Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706 (1972).  The difficulty for foreign corporations is that many times there will be no proper venue under 28 U.S.C. 1400(b).

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. 1400(b).

As a result of the possibility that a foreign company might not fit within the Venue statute, the Supreme Court in Brunette held that venue is proper for a foreign corporation in any judicial district where accused is subject to personal jurisdiction. In other words “the venue laws do not protect alien defendants.”

Alexsam, Inc. v. Wildcard Systems, Inc. (Supreme Court 2018)

In its new petition for certiorari, Alexsam argues that its breach-of-contract case should have never been removed to Federal Court. The petition relies heavily on Gunn v. Minton, 568 U.S. 251 (2013) and raises important issues of when licensing disputes issues should be heard in Federal Court.  [AlexsamPetition]

The State/Federal Balance: In Gunn, the Supreme Court held that a patent-attorney malpractice case did not “arise under” the patent laws.  Even though the case required consideration of patent law issues, those issues were not deemed “substantial” enough to “disturb[ the] congressionally approved balance of federal and state judicial responsibilities.” Grable & Sons Metal Products, Inc., 545 U.S. 308 (2005).

Disturbing the Balance: While Gunn narrowed the scope of federal jurisdiction, the “congressionally approved balance” is expansive enough to permit removal of state cases to federal court whenever “any party” raises a claim (including counterclaims) relating to patents or copyrights.  In addition, the law particularly preempts state court jurisdiction over “any claim for relief” arising under the patent laws. [NOTE: This Section was Updated to Eliminate an Error]

28 U.S.C. § 1454 A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights may be removed to the district court of the United States for the district and division embracing the place where the action is pending.

28 U.S.C § 1338 No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.

Back in 2004, Alexsam sued WildCard for infringing two of its payment systems patents. (U.S. Patent Nos. 6,000,608 and 6,189,787).  The parties settled the lawsuit in 2005 and entered into a “settlement and license agreement.” The agreement indicated it would end if “the claims of the Licensed Patents are held invalid or unenforceable by a court of competent jurisdiction. . . ”  Zoom up to 2015 – Alexsam sued WildCard (and its owners) in Florida state court for breach of the agreement and asking for the royalties owed under the contract.  Respondents filed a counterclaim of invalidity and unenforceability then removed the case to Federal Court (S.D.Fla.).  The Federal Court then heard the case and sided with WildCard – finding no breach of contract (holding it had been terminated in 2009) and then dismissed the patent claims as barred by preclusion (and as an alternative holding, that the claims no longer had an independent basis for existence).

Note here – this setup is odd and seemingly improper: The Federal Court agreed to hear the state-law contract claims because they were supplemental to the patent claims, but then turned around and found that there was no independent basis for the patent claims to be brought. In its briefing before the Federal Circuit, WildCard explained this result in its Federal Circuit briefing: “Whether or not a claim is barred by res judicata has nothing to do with whether it arises under federal law, and thus has no bearing on the trial court’s subject-matter jurisdiction.”  See Smalls v. U.S., 471 F.3d 186 (D.C. Cir. 2006) (“the defense of res judicata, or claim preclusion, while having a “somewhat jurisdictional character,” does not affect the subject matter jurisdiction of the district court.”)  I would suggest a counterclaim must still state a plausible claim — and one barred by res judicata is not plausible and should have been dismissed from the get-go.

Alexsam appealed to the 11th Circuit Court of Appeals. However, that court transferred its case to the Federal Circuit who affirmed without opinion (R.36).  Note here that the Federal Circuit only has appellate jurisdiction over district court patent cases where either (1) the civil action (i.e., well pled complaint) or (2) a compulsory counterclaim arises under the patent laws.

28 U.S. Code § 1295(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—(1) of an appeal from a final decision of a district court of the United States . . . in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents . . . ;

There is a clear dispute here as to whether the counterclaim filed here was “compulsory” — if not then the 11th Circuit was the proper court to hear the appeal.

Bringing these issues together, Alexsam has asked two questions in its petition for writ of certiorari:

1. Was there an independent basis for Respondents’ assertion of an invalidity counterclaim sufficient to invoke federal subject matter jurisdiction over petitioner’s state law claim for breach of the patent license agreement?
2. Under Gunn v. Minton, where is the line drawn for federal jurisdiction for a state law Breach of Contract claim for the breach of a patent license?

Interesting and very important case that raises the basic question of whether the AIA amendments were designed to open-the-door to patent license disputes that would otherwise be determined by state law.

by Dennis Crouch

In Energy Heating v. Heat On-The-Fly, the Federal Circuit affirmed the lower court’s holding that Heat On-The-Fly’s U.S. Patent No. 8,171,993 is unenforceable due to inequitable conduct.

The underlying invention involves a portable system for preparing a heated water and proppant (e.g. sand) mixture for use in hydraulic fracing.  Mr. Hefley, sole inventor and founder of Heat On-The-Fly, filed his priority provisional patent application back in September 2009 that eventually led to the ‘993 patent.

The problem:  By September 2008 (one year before filing), Heafly and his company had provided his services to dozens of “frac jobs” — collecting almost $2 million in revenue.

Mr. Hefley admitted at trial that he and his companies used water-heating systems containing all the elements of claim 1 on at least 61 frac jobs before the critical date. The court further found that invoices reflected that Mr. Hefley’s companies collected over $1.8 million for those pre-critical date heat-on-the-fly services.

Those pre-filing jobs were not disclosed to the USPTO while the ‘993’s application was pending – even though they appear quite material under 102(b) (Pre-AIA).

35 U.S.C. 102(b) (Pre-AIA) A person shall be entitled to a patent unless — (b) the invention was ... on sale in this country, more than one year prior to the date of the application for patent in the United States.

Under Pfaff, the “on sale” bar requires (1) a “commercial” sale or offer and (2) the invention be “ready for patenting.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).  One exception to this rule is for “bona fide experiments.”  In particular, the Federal Circuit has held that experiments to “(1) test the claimed features or (2) determine if the invention would work for its intended use . . . will not serve as a bar.” Citing Clock Spring, L.P. v. Wrapmaster, Inc., 560 F.3d 1317 (Fed. Cir. 2009).

Inequitable Conduct: In the failure-to-disclose context inequitable conduct requires clear and convincing evidence that “the applicant knew of … the prior commercial sale, knew that it was material, and made a deliberate decision to withhold it.” See Therasense.  These issues are determined by the district court judge and given deference on appeal.  Thus, an inequitable conduct finding should only be overturned when based upon a misapplication of law or based upon a clearly erroneous finding of fact.

Here, the patentee argued that the prior uses were “experimental” or at least he thought that they were.  That argument was rejected since the prior uses included all elements of claim 1; that there were no notebooks or other experiment-like-paraphernalia; and that the uses were done openly without any attempt to hide the system or require confidentiality. (Linking these factors to Allen Engineering Corp. v. Bartell Industries, Inc., 299 F.3d 1336 (Fed. Cir. 2002)).  Those elements were more than enough to overcome the experimental-use-defense.

On Attorney Advice: The court also affirmed that Hefley knew of the materiality. On this point, the interesting twist involve’s Hefley’s patent attorney Seth Nehrbass.  Nehrbass was not permitted to testify at trial — but would have apparently testified that the non-disclosure was on attorney advice:

HOTF asserts that Mr. Nehrbass would have testified that Mr. Hefley told him about the 61 frac jobs, but that Mr. Nehrbass decided they were all experimental uses that need not be disclosed.

This testimony might have saved the patent from the inequitable conduct finding.  However, it was properly excluded on prejudice grounds. In particular, up until just before trial Hefley had asserted attorney-client-privilege (including during the Nehrbass and Hefley depositions).  Then, just before trial, Hefley attempted to raise the attorney-advice defense.

We conclude that the district court did not abuse its discretion in excluding Mr. Nehrbass’s testimony. The attorney-client privilege cannot be used as both a sword and a shield. HOTF was the one who asserted the attorney-client privilege in the first instance and was also the one who failed to follow up later by deposing or otherwise making Mr. Nehrbass available for examination prior to trial. HOTF cannot have it both ways. Accordingly, we conclude that the district court did not abuse its discretion in excluding this evidence on HOTF’s advice of counsel defense.

Inequitable conduct affirmed.  Because inequitable conduct wiped-out all of the patented claims, the court did not reach the other patent questions of “obviousness, claim construction, and divided infringement. (more…)

by Dennis Crouch

National Institute of Standards and Technology (NIST) (a branch of the Department of Commerce) has announced a new initiative to “improve federal technology transfer” along with a Request for Information (RFI) published in the Federal Register.  The government is looking to “gather information about the current state of Federal technology transfer and the public’s ability to engage with Federal laboratories and access federally funded R&D through collaborations, licensing, and other mechanisms.”

The agency is broadly seeking for comments on topics including:

1. Best practices in federal technology transfer (what are we doing right . . . and wrong);
2. Improving efficiency and reducing regulatory burdens in order to attract private sector investment in later-stage R&D, commercialization, and advanced manufacturing;
3. Ideas for new partnership models with the private sector, academia, other Federal agencies.
4. Metrics and methods for evaluating the ROI outcomes and impacts arising from Federal R&D investment; and
5. Mechanisms for significantly increasing technology transfer outcomes from the Federal sector, universities, and research organizations.

Looming large in the background of current Federal Policy is the the Bayh-Dole Act that allows universities and companies to privately patent the results of federally funded research.  In two-years, Bayh-Dole will have its 40th Anniversary — thus the “quarantine” title.

Notes:

• Read the Federal Register Notice
• NIST Website with Further Information
• Public Meetings Coming Soon (Seating Limited)
• Comments due by 5:00 p.m. Eastern time on July 30, 2018 to roi@nist.gov.

by Dennis Crouch

Disc Disease Solutions v. VGH Solutions (Fed. Cir. 2018) [17-1483.Opinion.4-27-2018]

Disc Disease’s asserted patents relate to an inflatable air-brace for spinal support. U.S. Patent Nos. 8,012,113 and 7,618,509. The accused infringer sells three different inflatable spinal braces.  However, after considering the complaint filed by Disc Disease, the district court dismissed the case with prejudice for failure to state a claim upon which relief can be granted (R.12(b)(6)).  In the process, the district court rejected Disc Disease’s request to file a first amended complaint.

The timing of the complaint filing is somewhat important. It was filed on November 30, 2015 — the day before the rules of Civil Procedure were officially amended to eliminate the short-form patent complaint (Form 18).   Prior to that change, “Form 18 in the Appendix of Forms provided a form adequate to plead a direct infringement patent claim. See In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1334 (Fed. Cir. 2012).” Although the rules of Civil Procedure liberally allow plaintiffs to file a first-amended-complaint, the court here held that Disc Disease’s request to amend was not filed in a timely fashion and thus was appropriately rejected.

Under Iqbal and Twombly, a complaint must include allegations of fact sufficient to allow a “reasonable inference that the  defendant is liable for the alleged misconduct.”

Here, the complaint identified each of the alleged infringing products and then broadly alleged that the products meet “each and every element of at least one claim” of each asserted patent.  The claims did not include a claim chart, reference to any specific claim, or any specific element-by-element analysis.  Noting those failures, the district court ruled that the complaint lacked plausibility because it failed to “explain” the alleged infringement.

On appeal, the Federal Circuit has reversed — holding that the broad infringement allegation is sufficient under Iqbal/Twombly — at least for this relatively simple case. The court writes:

Disc Disease’s allegations are sufficient under the plausibility standard of Iqbal/Twombly. This case involves a simple technology.
The asserted patents, which were attached to the complaint, consist of only four independent claims. The complaint specifically identified the three accused products—by name and by attaching photos of the product packaging as exhibits—and alleged that the accused products meet “each and every element of at least one claim of the ’113 [or ’509] Patent, either literally or equivalently.” These disclosures and allegations are enough to provide VGH Solutions fair notice of infringement of the asserted patents. The district court, therefore, erred in dismissing Disc Disease’s complaint for failure to state a claim.

Judge Reyna’s decision here decides the case at hand, but does not provide substantial guide-posts beyond the general rule – Provide Fair Notice.  What we do know is that in a simple case it will be sufficient to simply identify (1) the patents being asserted and (2) the products being accused.

Until today, a host of patent cases have been pending before the Supreme Court — hanging onto the coattails of Oil States. Following full affirmance of the IPR regime, the Supreme Court has now denied certiorari in those cases.  The one additional case that was ripe-for-certiorari in the most recent Conference is PNC Bank National Association  v. Secure Axcess, LLC, No. 17-350.  The court issued no order in that case — suggesting that it may be up for further consideration.  In PNC, the substantive question is “whether . . . CBM review requires that the claims of the patent expressly include a ‘financial activity element?'”

CBM Review Keeps its Narrow Scope: Narrowly Surviving En Banc Challenge

As far as I know, all of the Oil States follow-on cases denied today involved a patent whose claims had been cancelled by the PTAB.  In those cases, all appeals have now seemingly been exhausted.

Cases where Certiorari was Denied:   (more…)

by Dennis Crouch

01 Communique Lab. v. Citrix Systems (Fed. Cir. 2018)

01Com’s U.S. Patent No. 6,928,479 is directed toward a software implemented private communication portal.  The patentee sued Citrix for infringement back in 2006.  Consider that — the lawsuit was filed before eBay limited injunctive relief, before KSR made it easier to invalidate a patent as obvious, before Nautilus raised the standard for indefiniteness, before Alice and Mayo opened the door to eligibility invalidation, and before Congress created the regime of AIA trials.  The long delay in this case should also be a thing-of-the-past.  Here, the district court stayed proceedings for seven years awaiting the outcome of an inter partes reexamination.  The reexam was finally concluded in 2014 with a judgment confirming patentability of the challenged claims.  Although unsuccessful before the PTAB, a 2016 jury sided with Citrix finding on infringement — finding none.  (Note here that Citrix also unsuccessfully argued invalidity to the court and the jury).

On appeal, the Federal Circuit has affirmed — holding that a new trial is not warranted.

01Com’s basic argument on appeal was that Citrix attorneys used their weak invalidity argument to sway the jury on non-infringement — basically by arguing that what Citrix is doing now in its GoToMyPC product is a close continuation to its prior-art BuddyHelp product.

Practicing the Prior Art: The Federal Circuit has repeatedly ruled that there is no “practicing the prior art” defense to literal infringement. Although that argument makes logical sense, the court has ruled that it improperly conflates invalidity and infringement in a way that may allow defendants to skirt the requirements of either doctrine.

In Tate . . . [w]e explained that “literal infringement is determined by construing the claims and comparing them to the accused device, not by comparing the accused device to the prior art.” We noted, moreover, that while the issue of whether asserted claims read on the prior art is relevant to the question of invalidity, “accused infringers are not free to flout the requirement of proving invalidity by clear and convincing evidence by asserting a ‘practicing [the] prior art’ defense to literal infringement under the less stringent preponderance of
the evidence standard.”

Here, unlike in Tate, the Federal Circuit ruled that the defendant had actually presented evidence of non-infringement (comparing the accused device with the patent claims) as well as invalidity (comparing the prior art with the patent claims).

Causing Prejudice or Improper Bias

The patentee here also argued that it was improper for a defendant to present testimony comparing the Citrix’s prior art version with its now-accused version because that evidence would cause undue prejudice in the eyes of the jury without actually helping prove any point of law or relevant fact.

On appeal, though, the Federal Circuit sided with the accused infringer by first holding that the full-triangle comparison may be useful to ensure that claim terms are treated in the same way across all aspects of the litigation.  For this point, the court cited to its Amazon.com restatement of Justice Bradley’s 1886 “nose of wax” quote:

“A patent may not, like a nose of wax, be twisted one way to avoid anticipation and another to find infringement.”

Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1351 (Fed. Cir. 2001) (citations and internal quotation marks omitted).  My interpretation of this is that the jury is better off hearing the case as a whole even if it must answer distinct questions of invalidity and infringement.   Here, in particular, the district court specifically advised the jury as to the law – noting that “[t]he determination of literal infringement depends on the presence of the claim elements in the accused product, not on similarities between the accused product and the prior art.”  On appeal, the Federal Circuit found these instructions easily enough to overcome any argument for a new trial.

The patentee also complained that the district court prohibited it from telling the jury that Citrix (the defendant here) had been the one who had requested the reexamination.  On appeal, the Federal Circuit sided with the trial court – finding no error and that the court’s judgment here likely aided in avoiding undue prejudice against the defendant.

= = = = =

I’ll note here as an aside that the nose of wax quote is apt once again in the context of inter partes review proceedings where the challenger asks for the broadest reasonable interpretation of claims during the IPR but then can substantially narrow its approach when back in-court discussing infringement.

by Dennis Crouch

Josh Malone, inventor of Bunch-O-Balloons, has provided a new patent-grant graphic below.  Malone’s most recent case is before the Federal Circuit after the PTAB issued a final written decision rejecting the claims.  Interesting changes though – Just before the Federal Circuit oral arguments in this case, the PTO Solicitor withdrew its support from the PTAB’s original decision and provided notice that the PTO is actively reconsidering its approach to claim construction and indefiniteness.

[B]ecause the PTAB’s approach to claim construction and indefiniteness during post-issuance proceedings under the America Invents Act is something the agency is actively considering, the Director has decided not to advocate for a particular approach in this appeal.

[RequestToWithdraw] The question here is whether the term “substantially filled” is indefinite.  The case has interesting features in that (1) the Federal Circuit has previously approved of this claim language (but not on BRI); and (2) there is an ongoing dispute as to the application of Packard and Nautilus in AIA Trials.

by Dennis Crouch

In a joint statement, Secretary of Commerce Wilbur Ross and Andrei Iancu, Undersecretary of Commerce and USPTO Director, have released a joint statement following upon President Trump’s statements yesterday that the Administration is “tak[ing] steps to strengthen our patent system.”  In particular, President Trump focused on increasing “reliability and enforceability of patents.”   Following today, Iancu and Ross have announced that “The Department of Commerce and the United States Patent and Trademark Office will be taking steps to further strengthen our patent system” and that our intellectual property rights must be “strong, reliable and predictable.” They write:

Born of our Constitution and steeped in our history, our patent system is the crown jewel that provides both the incentives and the protections necessary to power innovation and growth.

This particular announcement does delve further into specifics.  However, it is clear that Iancu will be pushing for patentee-favoring modifications in AIA trial procedure as well as eligibility jurisprudence.  The tie-in with the Commerce Secretary and President suggest that Iancu will have the political backing to implement changes within the USPTO, although legislative changes are still an uphill battle.

Statement by Donald J. Trump, April 26, 2018:

On World Intellectual Property Day, we not only celebrate invention and innovation, but also we recognize how integral intellectual property rights are to our Nation’s economic competitiveness. Intellectual property rights support the arts, sciences, and technology. They also create the framework for a competitive market that leads to higher wages and more jobs for everyone. The United States is committed to protecting the intellectual property rights of our companies and ensuring a level playing field in the world economy for our Nation’s creators, inventors, and entrepreneurs.

Our country will no longer turn a blind eye to the theft of American jobs, wealth, and intellectual property through the unfair and unscrupulous economic practices of some foreign actors. These practices are harmful not only to our Nation’s businesses and workers but to our national security as well. Intellectual property theft is estimated to cost our economy as much as $600 billion a year. To protect our economic and national security, I have directed Federal agencies to aggressively respond to the theft of American intellectual property. In combatting this intellectual property theft, and in enforcing fair and reciprocal trade policy, we will protect American jobs and promote global innovation. (more…)

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.