April 25, 2018

Wash Your Hands Before Going to Court; Unclean Hands Wipe out Recovery for Valid and Infringed Patents

By Bryan K. Wheelock, Principal

In Gilead Sciences, Inc. v. Merck & Co., [2016-2302, 2016-2615] (April 25, 2018), the Federal Circuit affirmed the district court’s determination that the claims the jury found to be valid and infringed were unenforceable because of pre-litigation business misconduct and litigation misconduct attributable to Merck.

The Federal Circuit looked at the the Supreme Court’s decision in Keystone Driller Co. v. General Excavator Co. for an explanation of unclean hands. There the Court held that 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.”

The Federal Circuit noted that Merck argued that the connection between the misconduct and the litigation must be “material,” but failed to make clear to the Federal Circuit how that requirement affected the case.  The Federal Circuit noted that in the present case which involves clear misconduct in breaching commitments to a third party and clear misconduct in litigation, the “immediate and necessary relation” standard, in its natural meaning, is met if the conduct normally would enhance the claimant’s position regarding legal rights that are important to the litigation if the impropriety is not discovered and corrected.  The Federal Circuit found that considering the conduct as a whole the district court’s determination of unclean hands was adequately supported.

Specifically, the district court found that Merck violated the “firewall” understanding between Merck and Pharmasset, when at least one person involved in a conference call with Pharmasset was involved, and continued to be involved, in Merck related patent prosecution, which the Federal Circuit characterized as “serious misconduct, violating clear standards of probity in the circumstances.” The improperly acquired knowledge influenced Merck’s filing of narrowed claims, a filing that held the potential for expediting patent issuance and for lowering certain invalidity risks.

The district court also found litigation misconduct, first in giving knowingly false deposition testimony (presumably to hide the business misconduct) and false trial testimony. The Federal Circuit agreed with the district court that Merck’s litigation misconduct infects the entire lawsuit, including the enforceability of the other patents in the suit.

Because the district court did not abuse its discretion in applying the doctrine of unclean hands, the Federal Circuit affirmed.