Merck Hepatitis C Virus Treatment Patents Unenforceable due to Unclean Hands

On Wednesday, April 25th, the Court of Appeals for the Federal Circuit issued a precedential decision in Gilead Sciences v. Merck & Co. et. al., which affirmed a lower court’s ruling that Merck could not assert claims from two patents against Gilead because Merck had unclean hands regarding the patents. The case, coming out of the Northern District of California, involves patents covering methods for effectively treating the hepatitis C virus (HCV). The appellate case was decided by a panel consisting of Circuit Judges Richard Taranto, Raymond Clevenger and Raymond Chen.

This case began in August 2013 when Gilead filed a complaint seeking declaratory judgment of non-infringement and invalidity of two Merck patents:

  • U.S. Patent No. 7105499, titled Nucleoside Derivatives as Inhibitors of RNA-Dependent RNA Viral Polymerase. Issued in September 2006, it claims a method of treating HCV by administering a therapeutically effective amount of a compound which is particularly effective at inhibiting HCV replication.
  • U.S. Patent No. 8481712, same title as the ‘499 patent. Issued in July 2013, it covers a nucleoside compound that can be administered alone or in combination with other active agents to inhibit viral infections, in particular HCV.

Gilead’s original complaint notes that it had developed an orally-administered prescription drug for HCV treatment which shortens HCV therapy to a period of 12 to 16 weeks. The treatment, originally developed by the pharmaceutical company Pharmasset, was acquired by Gilead in November 2011 when Gilead agreed to purchase Pharmasset in a transaction valued at around $11 billion. In April 2013, Gilead filed a new drug application (NDA) with the U.S. Food and Drug Administration (FDA) for approval of sofosbuvir, a polymerase inhibitor suppressing the replication of viral RNA, as a once-daily oral therapy for treating chronic HCV.

In August 2013, Merck’s director of licensing contacted Gilead’s senior director of corporate development requesting that Gilead take a license to the ‘499 and the ‘712 patents based on the Gilead’s NDA regarding its sofosbuvir treatment. In Gilead’s complaint, it argued that Merck’s request for a 10 percent royalty on net sales of sofosbuvir products, including Gilead’s Sovaldi treatment, was a prohibitive demand “meant to threaten Gilead.” That same month, Gilead filed its complaint seeking judgements of non-infringement and invalidity of Merck’s patents.

In February 2016, U.S. District Judge Beth Labson Freeman issued an order that denied Gilead’s motion for summary judgment of invalidity while granting a motion made by Merck for summary judgement of direct, induced and contributory infringement. In denying Gilead’s motion, Judge Freeman sided with Merck’s expert witness evidence that a skilled artisan would understand the alleged utility of Merck’s patents despite Gilead’s argument that there was a lack of available information on compounds having anti-HCV activity in 2002, the year that the patent application which became Merck’s ‘499 patent was filed. Merck’s motion for summary judgment was granted as Gilead provided no other defense than invalidity of the asserted patents. A jury verdict issued in March 2016 also found that all patent claims challenged by Gilead were not invalid.

However, the infringement findings regarding Merck’s patents were rendered moot by an order entered by Judge Freeman in June 2016 finding Merck’s patents were unenforceable because of unclean hands created by a pervasive pattern of misconduct. Gilead contended that Merck waived its rights to assert the ‘499 and ‘712 patents by attempting to license or acquire Pharmasset’s confidential compound from 2003 up until Gilead’s acquisition of that firm in 2011. Pharmasset and Merck entered into a non-disclosure agreement back in 2001 to evaluate a potential business relationship between the two entities, permitting disclosure of confidential information regarding the development of antiviral agents to treat HCV. Under the terms of that agreement and a material transfer agreement entered into in 2003, Pharmasset agreed to offer information on compounds related to its HCV treatments only to Merck employees which were firewalled from Merck’s internal HCV program. Pharmasset provided structural information about an HCV treatment compound to a firewalled chemist but then Merck instructed an in-house attorney, the same attorney responsible for prosecuting the patent application which became the ‘499 patent, to participate in a due diligence call with Pharmasset where he learned the structure of Pharmasset’s leading HCV compound. Merck’s own corporate policy prohibited the company’s patent prosecutors from engaging in licensing discussions in areas related to their own work. The phone call occurred in March 2014, about one month after Merck’s in-house patent prosecutor on the call received notice of acceptance for examination of the ‘499 application.

On the March 2014 call, Merck’s non-firewalled counsel learned that the lead compound developed by Pharmasset for HCV treatment, known as PSI-1630, was believed to be valued in excess of $100 million. Pharmasset was not informed that Merck’s counsel was not within the firewall or that the individual was prosecuting Merck’s patents in the same field. That lawyer then amended claims of the ‘499 patent to cover Pharmasset’s invention after Pharmasset’s patent application covering the PSI-1630 compound was published. Because of this, the Court found that the lawyer waited to amend the claims to the ‘499 patent “to give the appearance that he learned it from a public source.”

The Fedeal Circuit’s recent decision denied Merck’s appeal of the district court’s unenforceability judgment, affirming the finding of unclean hands. To determine whether there was clear error in the lower court’s judgment, the Federal Circuit panel applied the standard set by the U.S. Supreme Court in the 1933 case Keystone Driller v. General Excavator, in which the Court held that a determination of unclean hands may be reached when the misconduct of a party seeking relief is related to the equity sought by that party in litigation. In 1945’s Precision Instrument Mfg. Co. v. Automotive Co., SCOTUS further held that, however improper the defendant’s actions may have been, a plaintiff must not commit any fraud or deceit regarding the controversy in issue.

“Significantly, this is not a case in which it is clear that the identified misconduct could not reasonably have enhanced the claimant’s legal position as to either the creation or the enforcement of the legal rights at issue. Nor is this a case involving alleged deficiencies in communications with the PTO during patent prosecution, for which this court’s inequitable-conduct decisions… set important limits on conclusions of unenforceability through that doctrine. In the circumstances present in this case, we see no genuine issue about the governing legal standard, but only its application.”

Reviewing the facts of the case, the Federal Circuit panel found sufficient evidence supporting the district court’s findings of serious business misconduct by Merck, that Merck’s misconduct was related to the litigation and that litigation misconduct had occurred based on false testimony provided by Merck’s non-firewalled patent lawyer, who had originally testified that he was not a party to the March 2004 phone call with Pharmasset.

This isn’t the only lawsuit involving Merck and Gilead that has been related to the sales of Gilead’s HCV treatment Sovaldi. In December 2016, Merck’s subsidiary Idenix was awarded $2.54 billion in royalty damages, the largest verdict for patent infringement damages ever awarded by U.S. district court. This February, that damages award was rescinded after the district judge in the case determined that Merck’s patent was invalid because it didn’t disclose “how to make and use the treatment it covered without undue experimentation,” according to Reuters.


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