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“Unclean Hands” Doctrine Erases Merck’s Damage Award

In my last post on the district court’s ruling in Gilead v. Merck, I implied that Gilead had convinced the Judge that Merck had employed inequitable conduct (“IC”) in conducting its negotiations with Pharmasset, the company Gilead later purchased to obtain the rights to the HCV drug, sofosuvir or Solvaldi®. However, I was reading and writing at an usually high speed and missed the fact that the judge’s finding was based on the pre-IC, unclean hands defense.

I skipped over the section on Therasense, a 2011 Fed. Cir. decision that redefined the IC doctrine, and missed the Judge’s comments distinguishing the two doctrines. In both opinions, it was noted that the unclean hands defense originated with three early S. Ct. decisions in which the “guilty parties” employed egregious misconduct to obtain their patents. The remedy in each case was to bar the wrongdoers ability to sue for infringement of the patents.

Gilead probably chose this defense because the IC doctrine has been applied in modern decisions to render patents or entire patent families unenforceable for failure of the patentee to submit relevant prior art to the PTO during prosecution. There is a specific intent requirement and a “hard but for” materiality requirement for unsubmitted art that is difficult for defendants to plead and to meet. Here is the district court’s analysis of the doctrines:

“Therasense addressed the separate defense of IC — a defense that Gilead does not assert in this case — but the Fed. Cir.’s discussions of the differences between IC and unclean hands confirmed that unclean hands remains a viable defense to patent infringement. [649 F.3d at 1285-89]. As the Fed. Cir. explained, the doctrine of IC grew from the older doctrine of unclean hands. Id. at 1287. Whereas unclean hands can involve improper conduct before either the Patent Office or the courts, IC relates solely to conduct before the Patent Office. Id. Additionally, where unclean hands can involve improper conduct before either the Patent Office or the courts, IC relates solely to conduct before the Patent Office.”

Well, not exactly. Therasense does not have a lot to say about the unclean hands doctrine, since the facts in Therasense involved a failure to disclose documentary evidence to the Patent Office, but it is clear that the Fed. Cir. did not intend to supplant the unclean hands defense promulgated by the S. Ct. to punish egregious misconduct. In fact, the Fed. Cir. added egregious misconduct to the current IC doctrine, to cover fact situations not involving withholding prior art. How this version of egregious conduct varies from the older unclean hands doctrine is not clear.

The district court judge seems to have erred when she wrote that IC is applicable only to patent prosecution. As set forth in Therasense:

“As the IC doctrine evolved from these unclean hands cases, it came to embrace a broader scope of misconduct, including not only egregious affirmative acts of misconduct intended to deceive both the PTO and the courts but also the mere nondisclosure of information to the PTO. IC also diverged from the doctrine of unclean hands by adopting a different and more potent remedy – unenforceability of the entire patent rather than mere dismissal of the instant suit.”[emphasis added]

As the dissenters wrote in Therasense: “[N]othing in this opinion rejects the application of the doctrine of IC (or “unclean hands”) as applied to other forms of misconduct, in litigation or otherwise.”[emphasis added]

So while Gilead’s “unclean hands” arguments prevailed, it appears that Gilead could have pled either doctrine and prevailed, especially since the Court found a specific intent to deceive.  It is my guess that since the Gilead decision did not involve the PTO, Gilead chose to go with unclean hands, but this decision may foreshadow a revival of this defense, particularly when most of the wrong-doing involves the litigation work and not the prosecution. Stay tuned.

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