[Ip-health] Judge nukes Merck's HCV patent suit against Gilead
james.love at keionline.org
Wed Jun 8 13:28:36 PDT 2016
I suggest skipping down to "What did Merck do that so Incensed the Federal
Gilead Slam Dunks Merck In Federal Court Ruling
Jun. 8, 2016
Merck's patent claims against Gilead were thrown out of Court in a
blistering order issued Monday by the Federal Judge in the lawsuit.
The Court barred Merck from asserting its claims for Hep C patents based on
misconduct by Merck and its employees.
The effect of the ruling is to overturn the $200 million jury verdict from
March, 2016 and relieve Gilead of any continuing royalty payments.
On Monday, Federal District Judge Beth Labson Freeman issued a decisive
victory to Gilead (NASDAQ:GILD) and stunning defeat for Merck (NYSE:MRK) in
the huge fight over Hepatitis C drug patent rights. This is not some sort
of interim or preliminary ruling; it is a TKO-the fight is over. The Court
"Candor and honesty define the contours of the legal system. When a company
allows and supports its own attorney to violate these principles, it shares
the consequences of those actions. Here, Merck's patent attorney,
responsible for prosecuting the patents-in-suit, was dishonest and
duplicitous in his actions with Pharmasset, with Gilead and with this
Court, thus crossing the line to egregious misconduct. Merck is guilty of
unclean hands and forfeits its right to prosecute this action against
The Court's Order is definitive:
"For the foregoing reasons, IT IS HEREBY ORDERED that Merck is barred from
asserting the '499 and '712 Patents against Gilead and Merck shall take
nothing by this suit."
Let's face it, federal judges have lifetime tenure and, once appointed,
need not placate anyone. For this reason, their opinions can and do tend to
be pointed and sometimes even dramatic. Although I've practiced before the
federal courts for 35 years, I have rarely encountered a more passionate
and persuasive opinion than that issued yesterday by Judge Freeman.
Effect of Ruling
After an eight-day trial, the jury rendered its verdict on March 20, 2016.
It determined that Merck's patents were valid and that Gilead had infringed
on the patents. It awarded Merck $200 million from Gilead for patent
royalties through 2015 and set the stage for phase 2 of the proceeding, in
which the Court was to award future royalties starting with 2016. Had the
judge subscribed to the 4% royalty that the jury awarded, that could have
been almost a billion dollars each year based on the mammoth sales that
Gilead has achieved with its Hepatitis C miracle drugs, Solvaldi and
Harvoni. Had the judge subscribed to Merck's demand for a 12% royalty, the
royalty payments could have been 3 times higher.
The Court did not submit equitable defenses to the jury, but instead held
its own bench trial on March 30, 2016. The order issued Monday resolves the
two equitable defenses raised by Gilead: waiver and unclean hands. The
Court's 65-page decision dissects the evidence and arguments and concludes
that there was not a showing of waiver, but there was a "clear and
convincing" showing of unclean hands by Merck. The result of this ruling is
to overturn the jury's verdict of $200 million and to moot phase 2 of the
proceeding, meaning that the Court will not consider granting future
royalties to Merck in any percentage.
What did Merck do that so Incensed the Federal Judge?
In 2004, Merck was having discussions with Pharmasset about a possible
collaboration on Hepatitis C drugs. According to a Non-Disclosure
Agreement, Merck was to "firewall" any individual who participated in
Merck's existing Hepatitis C program. Merck expressed great interest in
Pharmasset's leading compound, a nucleoside designated PSI-6130. Merck
pressed for information regarding the exact structure. Pharmasset was
willing to convey this information if Merck respected the firewall. Enter
the lead protagonist in the ensuing tragedy for Merck: Philippe Durette.
Dr. Durrette was a scientist who had worked on Merck's Hepatitis C program
for years; he was also a patent lawyer who was the lead prosecutor for
Merck's Hepatitis C patent portfolio. In short, he was the last person to
whom Pharmasset wanted to reveal the structure of its "crown jewel"
compound. Yet, in violation of the firewall, Dr. Durette was exactly the
person Merck sent to hear Pharmasset reveal the structure of its compound.
Disturbingly, Dr. Durette then used the information he had obtained to
prosecute Merck's HCV patent applications and to write new claims targeting
Pharmasset's work. All this was, of course, unknown to Gilead when it spent
$11 billion to acquire Pharmasset in 2011.
Having pirated Pharmasset's work, Dr. Durette's next assignment was to
effectuate a cover-up. Merck appointed him as its designated representative
to answer deposition questions about Merck's patent prosecution. He
testified that (NYSE:A) he had never been on the call with Pharmasset and
(NYSE:B) he had not learned about the structure of PSI-6130.
At trial, Dr. Durette recanted his testimony and suddenly remembered vivid
details about the call with Pharmasset, while denying that he had learned
about the structure or used it to Merck's advantage. But the judge pointed
out that Durette's patent amendments covered Pharmasset discoveries that
Merck had never researched or tested. Repeatedly, Judge Freeman states that
Dr. Durette's testimony at trial was not credible. Concluding that the
doctrine of unclean hands invalidated Merck's HCV patents, the Opinion
"In this case, numerous unconscionable acts lead the Court to conclude that
the doctrine of unclean hands bars Merck's recovery against Gilead for
infringement of the '499 and '712 Patents. Merck's misconduct includes
lying to Pharmasset, misusing Pharmasset's confidential information,
breaching confidentiality and firewall agreements, and lying under oath at
deposition and trial. Any one of these acts-lying, unethical business
conduct, or litigation misconduct-would be sufficient to invoke the
doctrine of unclean hands; but together, these acts unmistakably constitute
egregious misconduct that equals or exceeds the misconduct previously found
by other courts to constitute unclean hands. Merck's acts are even more
egregious because the main perpetuator of its misconduct was its attorney."
Dim Prospects for an Appeal
Merck has indicated that it will appeal the ruling. This is apparently to
save face. Any appeal would be considered de novo on legal issues, but
deference would be shown to Judge Freeman on factual determinations. Since
the law cited seems unobjectionable and the facts are delineated with
exquisite detail, this opinion would seem pretty much unassailable.
Certainly this judge has sent a shot across the bow to Merck and other
pharmaceutical companies (e.g., Abbvie) who file patent claims for products
they have not worked on for the purpose of blocking or claiming royalties
from the true inventors.
It has been said that comedy is when something bad happens to someone else;
tragedy is when it happens to you. Merck's comedy has indeed turned tragic.
It is time for Merck to re-examine its corporate ethics.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with any
company whose stock is mentioned in this article.
James Love. Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
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