IP Law Daily Merck’s misconduct against Gilead made hepatitis drug patents unenforceable; $200M verdict tossed
Tuesday, June 7, 2016

Merck’s misconduct against Gilead made hepatitis drug patents unenforceable; $200M verdict tossed

By Thomas Long, J.D.

Although pharmaceutical company Merck & Co., Inc., did not waive its right to enforce two patents related to a drug used to treat chronic Hepatitis C infection in patients, a “pervasive” pattern of misconduct by Merck and its agents constituted unclean hands and rendered the patents unenforceable against competitor Gilead Sciences, Inc., the federal district court in San Jose, California, has decided (Gilead Sciences, Inc. v. Merck & Co., Inc., June 6, 2016, Freeman, B.). The court determined that Merck’s patent attorney, responsible for prosecuting the patents-in-suit, was dishonest and duplicitous in his actions with Gilead, Gilead’s predecessor-in-interest, and with the court with respect to Merck’s improperly obtaining the structure of a confidential compound from Gilead that was crucial to the development of Merck’s patented inventions. As a result of the unclean hands finding, the court tossed a jury’s verdict awarding $200 million in damages to Merck for Gilead’s sales of two brand-name drugs containing the active ingredient covered by the patents.

Patents-in-suit. Merck’s asserted patents—U.S. Patent Nos. 7,105,499 (“the ’499 patent”) and 8,481,712 (“the ’712 patent”)—cover sofosbuvir, the active ingredient in Gilead’s drug Sovaldi®, an orally administered prescription treatment for Hepatitis C (HCV). Sofosbuvir is a prodrug that is inactive and has little to no therapeutic effect until transformed by enzymes in the body into an active form. The ’712 patent was directed to compounds having a specific structural formula. The ’499 patent related to methods for treating HCV by administering a therapeutically effective amount of those compounds either alone or in combination with another HCV treatment. The Food and Drug Administration approved Sovaldi® for sale in December 2013. Merck asserted that that Gilead’s sales of Sovaldi® and Harvoni®—another drug containing sofosbuvir—induced and contributed to the infringement of the patents-in-suit.

Trial. On August 30, 2013, Gilead filed a complaint for declaratory judgment of non-infringement and invalidity of the ’499 and ’712 patents. Merck counterclaimed for infringement. Gilead moved for summary judgment on invalidity, conceding that if the patents were valid, it had infringed them. The court denied Gilead’s motion for summary judgment and granted Merck’s motion for summary judgment of infringement. A jury trial was held on damages, and the jury issued a verdict finding that the patents-in-suit were not invalid. The jury awarded Merck $200 million in damages for sales of Sovaldi® and Harvoni® through December 31, 2015. The court then held a bench trial on Gilead’s equitable defenses of waiver and unclean hands.

Waiver. Gilead asserted that Merck impliedly waived its patent rights by attempting to license or acquire from Pharmasset, Gilead’s predecessor-in-interest, its confidential compound, PSI-6130, from 2003 to 2011. Merck responded that it never explicitly or implicitly indicated that it would not enforce the ’499 and ’712 patents against Gilead. The court agreed that there was no evidence that Merck communicated to Pharmasset that Merck was waiving its patent rights during the relevant timeframe. Additionally, no one from Pharmasset ever communicated to Merck that it believed Merck waived its patent rights. Merck had no viable patent infringement claim until Pharmasset/Gilead’s product was on the market, the court noted. It would not be reasonable to conclude that Merck waived its patent rights before Gilead commercialized its product. Merck’s conduct was not inconsistent with an intent to enforce its rights; during licensing negotiations between the parties, Merck consistently acted as though it intended to retain its patent rights. Accordingly, the waiver defense was rejected.

Unclean hands. Gilead argued that unclean hands barred Merck’s enforcement of the patents against Gilead because Merck improperly obtained the structure of PSI-6130 from Pharmasset, drafted patent claims covering PSI-6130, and then lied about its conduct during the litigation.

In 2001, Pharmasset and Merck explored potential collaboration opportunities regarding the use of nucleoside derivatives as potential antiviral treatments, including treatments for HCV. Pharmasset and Merck entered into a nondisclosure agreement (NDA); its purpose was to permit disclosure of “certain confidential and proprietary information concerning discovery and development of antiviral agents against flaviviruses, in particular hepatitis C virus (HCV)” for the purpose of evaluating a possible business relationship between the companies. Merck agreed to hold the confidential information disclosed to it by Pharmasset in confidence, not to disclose any confidential information to any third party without the prior written authorization of Pharmasset, and not to use Pharmasset’s confidential information for any purpose other than for evaluating a potential collaboration with Pharmasset.

In September 2003, Pharmasset presented an overview of its HCV program, including details about its compound PSI-6130. At this time, Merck was made aware of the compound’s role in inhibiting certain enzymes—a necessary feature of an HCV treatment—but it did not have information regarding the compound’s structure. During due diligence calls between the companies, the court found, Merck violated its own company policies by allowing one of its in-house patent prosecutors—chemist and attorney Dr. Phillippe Durette, who was then involved in the prosecution of the patents-in-suit—to participate in “firewalled” conversations in which the structure of PSI-6130 was discussed. Merck did not disclose to Pharmasset that a non-firewalled individual had been involved in the conversations. Rather than withdrawing from the prosecutions, Durette continued to prosecute Merck’s HCV patent applications and, in fact, wrote new claims that targeted Pharmasset’s work. The court further found that, during prosecution, Durette later amended patent claims in an effort to make it appear that Merck had based its technology on information from public sources, rather than from improperly learning the structure of PSI-6130 from Pharmasset.

During litigation of Gilead’s declaratory judgment suit, Durette testified several times at deposition that he had not been involved in any discussions with Pharmasset in which the structure of PSI-6130 had been revealed and did not learn the structure of the compound until it was published at some later time. Durette acknowledged at his deposition that it was against Merck’s company policy to have a Merck patent prosecutor participate in licensing discussions in a related area. Durette also acknowledged at the deposition that learning the structure of PSI-6130 would have “tainted” his judgment as to what claims to pursue in Merck’s efforts to patent its HCV treatment. Documentary evidence showed that Durette had, in fact, been on the due diligence call with Pharmasset.

Durette contradicted his deposition testimony at trial and stated that his recollection had been refreshed as to his participation in the call. Durette also testified at trial that, prior to the call, he did not know that PSI-6130 had the enzyme-inhibition effect relevant to its use in the patented treatment. He stated, however, that when he went into the call, he did not expect that matters concerning his patent prosecution work would be discussed. In the court’s view, Durette’s testimony on this point was not credible. At trial, Durette for the first time said that he had had a pre-call meeting with his manager and they had determined that it was fine for him to learn the structure of PSI-6130 because Durette was prosecuting patents with a different mechanism of action. Contrary to that statement, the court said, Durette knew before the meeting that PSI-6130 had the same mechanism of action as the compounds for which he was seeking patent protection on Merck’s behalf.

The court ruled that Gilead had proven by clear and convincing evidence that Merck’s misconduct rose to the level of egregious misconduct sufficient to bar Merck from maintaining an infringement suit against Gilead. Merck’s misconduct included lying to Pharmasset, misusing Pharmasset’s confidential information, breaching confidentiality and firewall agreements, and lying under oath at deposition and trial. There was no doubt, in the court’s view, that Merck used Pharmasset’s highly confidential information to benefit the prosecution of its patents. The court concluded that Merck was guilty of unclean hands and forfeited its right to pursue the action against Gilead.

The case is No. 5:13-cv-04057-BLF.

Attorneys: Annamartina Tyreus Hufnal (Fish and Richardson PC) for Gilead Sciences, Inc. Bruce R. Genderson (Williams & Connolly, LLP) and James W. Dabney (Hughes Hubbard & Reed LLP) for Merck & Co., Inc., Merck Sharp and Dohme Corp., and Isis Pharmaceuticals, Inc.

Companies: Gilead Sciences, Inc.; Merck & Co., Inc.; Merck Sharp and Dohme Corp.; Isis Pharmaceuticals, Inc.

MainStory: TopStory Patent CaliforniaNews

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