Inequitable Conduct and Unclean Hands: Is There a Difference and Does It Matter?
April 3, 2019
Inequitable conduct remains the most powerful defense to patent infringement. In contrast to other defenses to patent infringement that require a claim-by-claim analysis, the defense of inequitable conduct is global. A finding of inequitable conduct renders the entire patent unenforceable. For this reason, the U.S. Court of Appeals for the Federal Circuit has referred to the defense of inequitable conduct as the “atom bomb of patent law” Aventis Pharma S.A. v. Amphastar Pharmaceutical, Inc., 525 F.3d 1334, 1349 (Fed.Cir.2008). Given the tremendous impact of the inequitable conduct defense, the Federal Circuit, in Therasense, Inc. v. Becton, Dickinson and Co., 649 F. 3d 1276 (Fed. Cir., 2011), has significantly increased the burden on patent infringers who assert this defense. Rather than needing to prove materiality in the context of 37 C.F.R. § 1.56 and intent to deceive, Therasense now requires an infringer prove “but for” materiality and a specific intent to deceive—a much higher burden than before.
Gilead Presents New Type of Equitable Defense
To the disappointment of those who believed that Therasense would spell the demise of inequitable conduct, this defense to patent infringement remains alive and well, although less prevalent than before. See Energy Heating, LLC v. Heat On-The-Fly LLC, 889. F.3d 1291 (Fed. Cir. 2018). Moreover, the Federal Circuit, in Gilead Sciences, Inc. v. Merck & Co. 888 F.3d 1231(Fed. Cir 2018), now seems to recognize an equitable defense (“business misconduct”) separate from inequitable conduct to penalize patentees for unethical behavior committed outside of the confines of patent prosecution before the United States Patent and Trademark Office (USPTO).
The Gilead decision arose from a declaratory judgment action initiated by Gilead seeking a declaration that Merck’s U.S. Patents. 7,105,499 and 8,481,712 were invalid and not infringed. Merck counterclaimed against Gilead for infringement. After a first trial, a jury ruled against Gilead and awarded Merck some 200 million dollars in damages.
The District Court then conducted a bench trial to address Gilead’s defense of unclean hands based on the misconduct of one of Merck’s patent attorneys while prosecuting the patents in suit. Beginning in 2001, that patent attorney began filing a series of patent applications related to Merck’s anti-viral agents for Hepatitis C. While prosecuting such patent applications, that same patent attorney participated in business discussions with Pharmasset (later acquired by Gilead) concerning a possible joint venture between Merck and Pharmasset to develop and market Hepatitis C anti-viral agents. Merck’s patent attorney participated in these business discussions in direct violation of Merck’s policy barring prosecuting attorneys from doing so to avoid exposure and inadvertent misuse of the proprietary information of others. Moreover, during such discussions, Merck’s patent attorney misrepresented to Pharmasset that he was within the firewall that separated him from Merck’s patent activities when in fact he was still prosecuting Merck’s patent applications related to Hepatitis C anti-viral agents.
When it became clear that Merck’s patent attorney now had a conflict as a result of his prosecution activities for Merck, the attorney stopped participating in business discussions with Pharmasset. However, the patent attorney continued to prosecute Merck’s patent applications in this field. Worse, while still prosecuting Merck’s patents for Hepatitis C anti-viral agents, the attorney used the information he learned from Pharmasset regarding their Hepatitis C anti-viral compound to narrow the claims of the patent applications he was prosecuting to cover Pharmasset’s compound.
Following the bench trial on Gilead’s unclean hands defense, the District Court held that, but for his exposure to Pharmasset’s Hepatitis C anti-viral compound, which was proprietary, Merck’s patent prosecution attorney never would have amended Merck’s patents to cover Pharmasset’s compound. By amending Merck’s Hepatitis C anti-viral patent applications, Merck’s patent attorney was guilty of business misconduct. Thus, Merck had unclean hands which precluded the company from enforcing its patents against Gilead. (It is also worth noting that the District Court also found Merck guilty of litigation misconduct because this same patent attorney was not truthful at trial.)
Federal Circuit Affirms
On appeal, the Federal Circuit affirmed (a decision the U.S. Supreme Court has now declined to review.) In affirming the District Court, the Federal Circuit agreed that the misconduct of Merck’s patent attorney was “immediately and necessarily” related to the equitable relief sought by Gilead. Here, the District Court did not abuse its discretion by refusing to reward Merck for its unclean hands. The misconduct of Merck’s patent attorney by misusing Pharmasset’s proprietary information was serious, as was the attorney’s untruthfulness at trial, and therefore infected the enforcement of the patents in suit.
The Gilead decision now appears to afford accused patent infringers another global defense to patent infringement, namely unclean hands resulting from business misconduct. In contrast to inequitable misconduct which, under Therasense, requires “but for” materiality and specific intent to deceive, proving unclean hands under Gilead only requires a showing of “business misconduct” that has an immediate and necessary relationship to the relief being sought.
Few cases going forward will likely present similar facts to those present in Gilead that would warrant a finding of unclean hands as a result of business misconduct. However, accused patent infringers should nonetheless be mindful of the availability of this possible defense and conduct their pre-trial discovery accordingly.