By Winifred E. Campbell, Esq.
This month, a U.S. district judge for the Northern District of California determined that Merck & Company, Inc. (“Merck”) will have to pay the attorneys’ fees for Gilead Sciences, Inc. (“Gilead”) based on the doctrine of unclean hands related to Gilead’s defense of a messy patent infringement litigation. There’s no word yet as to the amount of fees Merck will have to pay, but Gilead has sought $15.5 million in “exceptional case” fees. So what makes this case so exceptional? It’s a long story.
In the underlying litigation, Merck argued that Gilead had infringed on two of its patents. Gilead had successfully created and sold two drugs, Sovaldi® and Harvoni®, which have been very effective in treating Hepatitis C (“HCV”). Merck contended that each of the drugs contains sofosbuvir, which is a nucleotide covered by Merck’s U.S. Patent numbers 7,105,499 and 8,481,712. Gilead defended itself by contending that the ‘499 and ‘712 patents were invalid. At trial, a jury determined that Merck’s patents were valid and that Gilead had indeed infringed the patents. The jury awarded Merck $200 million dollars.
However, Gilead’s equitable defenses were not considered by the jury; instead the issues of liability and defense were bifurcated, leaving a judge to determine whether or not Gilead was correct in arguing that Merck had waived its right to enforce the patents at issue, or at least, whether or not Merck should be barred from collecting its award.
Gilead’s Defense: Unclean Hands
The doctrine of unclean hands is an equitable doctrine asserted as an affirmative defense. The doctrine bars recovery where it is shown that a party comes into court with unclean hands; i.e., being guilty of egregious misconduct. Examples of conduct that rise to this level are the manufacture or suppression of evidence, perjury, and even unethical business conduct where the conduct affected the equitable relations between the parties. The standard calls for clear and convincing evidence. And this is where the story gets interesting.
The Facts
Between, 1998 and 2003, Merck worked with another company, Ionis Pharmaceuticals, Inc. (“Ionis”), to develop drugs that would more effectively treat HCV. One of Merck’s scientist-attorneys, Phillippe Durette(1), worked intimately on the project, and in fact, filed and prosecuted the two patents at issue in the underlying litigation.
During this same time, Merck entered into negotiations with Pharmasset, Inc. (“Pharmasset”), a research-based pharma company, which was later acquired by Gilead. As part of the negotiations, Merck and Pharmasset entered into a non-disclosure agreement (“NDA”) wherein both parties agreed to keep confidential proprietary information concerning development of antiviral agents against flaviviruses such as HCV.
Over many months, the NDA was revised as talks progressed. However, the obligation to maintain confidentiality never changed. Eventually, Merck convinced Pharmasset to share the confidential structural information about its lead compound(2). The NDA was revised to protect this structural information by creating a “firewall” so that the chemist receiving the proprietary information would not be involved on any level with the Merck-Ionis project.
This firewall was the basis of Merck’s egregious misconduct. Prior to a telephone conference where Pharmasset was going to reveal the structure of its lead compound (PSI-6130), Merck requested that Dr. Durette participate in the call. Dr. Durette was not the chemist identified to be firewalled; Dr. Durette was very much continuing with the Merck-Ionis project. Prior to the call, Dr. Durette himself knew that he did not qualify as a firewall participant.
During deposition and trial testimony, certain facts were established:
1. Pharmasset participants reminded everyone the call was a firewalled conversation.
2. Dr. Durette never revealed he was not a firewall participant nor did he reveal that he was prosecuting patents in the same field of HCV nucleoside analogs.
3. Pharmasset revealed the structure of PSI-6130 during the call.
4. Dr. Durette represented to Pharmasset that he was within the firewall.
5. Dr. Durette testified that according to Merck’s procedures, he should have turned over prosecution of Merck’s HCV patents to another attorney.
6. Dr. Durette did not do so. Rather, he continued to prosecute Merck’s HCV patents and actually wrote new claims targeting Pharmasset’s work with information learned on the call.
7. In an attempt to hide the use of Pharmasset information, Dr. Durette canceled his new pending claims with the USPTO.
8. Dr. Durette then amended pending claims in the patents to target Pharmasset’s work(3), but not until after Pharmasset published the structure of Pharmasset’s compound.
It also became clear to the court that Dr. Durette lied during his deposition and trial testimony—Dr. Durette, an attorney, lied under oath. Moreover, the facts as set forth supported Merck’s unethical business conduct in regard to the NDA and its use of the proprietary information.
Conclusion
Based on all of the above, the Court had no trouble concluding that in this case, Merck did indeed enter the court with unclean hands. Merck was stripped of its jury award and will now have to pay Gilead’s attorneys’ fees. The judge admonished Merck stating, “Candor and honesty define the contours of the legal system. When a company allows its own attorney to violate these principles, it shares the consequences of those actions.”
(1) Dr. Durette holds a Ph.D. and began his career at Merck as a medicinal organic chemist. After 25 years, Dr. Durette became a lawyer and a patent
attorney.
(2) The structural information is the “crown jewel” of a pharma company’s assets.
(3) In targeting Pharmasset’s work by amending Merck’s claims, Merck essentially blocked Pharmasset from obtaining its own patent