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Fresh From the Bench: Latest Federal Circuit Court Cases

April 30, 2018

Overview

PATENT CASE THIS WEEK  

In an appeal from a bench trial finding patents unenforceable, the Federal Circuit issued a rare decision on the doctrine of unclean hands.  The doctrine of unclean hands in patent law arises from two twentieth-century Supreme Court cases:  Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933) and Precision Inst. Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806 (1945).  That doctrine relies on the equitable maxim “he who comes into equity must come with clean hands,” and has become the basis of the inequitable conduct defense in patent law.  Thus, in recent years, the doctrine of unclean hands has almost entirely given way to the more fully developed doctrine of inequitable conduct, which concerns communications with the patent office during patent prosecution.

In Gilead, the Federal Circuit addressed conduct that may not have been subject to a claim of inequitable conduct, but still satisfied the Supreme Court’s standard for unclean hands, thus drawing a distinction between the two defenses.

It also addressed the rarely-invoked doctrine of “infectious unenforceability,” in which conduct related to one patent taints other patents in the family, rendering the family members unenforceable as well.

The case concerned patents drawn to Gilead’s breakthrough hepatitis C medication and flagship product, sofosbuvir.  In 2001, Merck filed a provisional patent application identifying a “very large” Markush group of possible medications to treat hepatitis C, and subsequently filed a number of applications derived from that provisional application.

Meanwhile, Pharmasset, which was later acquired by Gilead, was also researching medications.  By 2003, it had identified a potential chemical called PSI-6130.  Upon testing, Pharmasset discovered that it was successful in treating hepatitis C, and a variation of it became sofosbuvir.  PSI-6130 fit within Merck’s Markush group.  Pharmasset filed a patent application covering sofosbuvir in May 2003.  The application published in January 2005.

During that time, Pharmasset and Merck had agreements concerning possible business arrangements, and Merck was testing PSI-6130 for Pharmasset, but without knowing its chemical makeup.  In 2004, Merck asked for more information concerning PSI-6130, and the parties set up a conference call at which the chemical structure for PSI-6130 would be disclosed.  But the call was to be “firewalled,” such that nobody who worked on Merck’s patent prosecutions was to be present on the call.  However, at Merck’s behest, one of its patent attorneys working on its hepatitis C applications, Dr. Durette, joined the call.  On the call, Dr. Durette stated that he was within the firewall, and was thus cleared to participate.

Almost immediately after Pharmasset’s sofosbuvir patent application published, in January 2005, Dr. Durette filed a narrowing amendment to one of its pending applications, targeting the specific chemical structure of PSI-6130, culled from Merck’s provisional application Markush group.  During depositions, Dr. Durette lied about whether he was on the 2004 telephone call.

Dr. Durette’s patent application would later issue, as would a continuation application for which Dr. Durette had a more limited role.  Merck asserted them against Gilead’s sofosbuvir products.  After a bench trial, the district court found that Merck’s unclean hands barred its assertion of both patents against Gilead.

On appeal, the Federal Circuit first set out the legal standard from Keystone Driller and Precision Instruments:

a determination of unclean hands may be reached when “misconduct” of a party seeking relief has immediate and necessary relation to the equity that he seeks in respect of the matter in litigation, i.e., for such violations of conscience as in some measure affect the equitable relations between the parties in respect of something brought before the court.  . . . [t]he doctrine closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant, and requires that claimants have acted fairly and without fraud or deceit as to the controversy in issue.

(internal citations and quotations omitted).  The Court distinguished the doctrine of unclean hands from the doctrine of inequitable conduct, noting that inequitable conduct requires that the conduct be “material” to the issuance of the patent, whereas unclean hands may involve improper conduct as between the parties, or misconduct during the litigation.

On the facts, the Federal Circuit held that the district court did not err in finding unclean hands.  The Court held that the violation of the firewall was a clear act of “serious business misconduct,” as was Dr. Durette’s failure to remove himself from prosecution activities after the call.

The Court also found that there was a connection between the business misconduct and the litigation.  Notwithstanding that Dr. Durette did not file amended claims covering PSI-6130 until after Pharmasset’s patent application published, the district court found that Merck had waited to do so merely to provide an appearance of propriety, but that Dr. Durette’s advance knowledge of the PSI-6130 structure affected his decision-making and thus tainted the application.  The district court had also found that Dr. Durette would not have filed the February 2005 amendment had he not participated in the 2004 conference call.  The Federal Circuit held that there was no error in reaching these conclusions.

The Court also agreed with the district court that Dr. Durette’s intentionally false statement at his deposition regarding attending the call was also misconduct that could support a finding of unclean hands.  And Merck had also submitted testimony that it was Pharmasset’s January 2005 patent application that was the basis of Merck’s February 2005 amendments.  Because it was clear that it was in fact the 2004 conference call that provided the basis for the February 2005 amendments, the district court found this testimony to be “so incredible as to be intentionally false.”  The Federal Circuit affirmed that “intentional testimonial falsehoods qualify as the kind of misconduct that can, in these circumstances, support a determination of unclean hands.”  And because the false testimony “bore on the origin story of the February 2005 amendment,” it was relevant to Gilead’s written description and enablement invalidity defenses in the case, and thus was “immediately and necessarily related to the equity of the patent enforcement relief Merck” sought.

Importantly, the Federal Circuit also affirmed the unclean hands finding against the later patent, even though Dr. Durette had not drafted the claims in that patent.  Both the district court and the Federal Circuit agreed that the later patent was tainted by the earlier patent, both by means of the business misconduct and the litigation misconduct.

The Federal Circuit affirmed the district court’s balancing of the equities, finding no abuse of discretion.

Opinion can be found here.

ALSO THIS WEEK  

01 Communique Laboratory v. Citrix, Appeal No. 2017-1869 (Fed. Cir. 2018)

In an appeal from the denial of a motion for a new trial following a jury verdict of noninfringement, the Federal Circuit affirmed. The patentee argued that the defendant had improperly invoked a “practicing the prior art” defense, which is not allowed. Collecting and analyzing the cases, the Federal Circuit held that the defendant’s invocation of the prior art in this case was not improper. The Court also held that it was not improper for the district court to limit introduction into evidence the fact that the defendant had sought reexam of the patent. 

Opinion can be found here.

Supreme Court Decisions in Oil States and SAS

Last week, the US Supreme Court issued landmark decisions on IPR proceedings in the Oil States and SAS cases.  Find our write-up of those cases here.

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