IP Law Daily Rehearing denied for decision holding gene modification patent unenforceable for inequitable conduct
Wednesday, December 27, 2017

Rehearing denied for decision holding gene modification patent unenforceable for inequitable conduct

By Thomas Long, J.D.

The U.S. Court of Appeals for the Federal Circuit has declined to revisit a decision in which a two-to-one split panel decided that Regeneron Pharmaceuticals, Inc.—a biopharmaceutical company based in Tarrytown, New York—cannot enforce a patent covering methods of genetically modifying a mouse to make human antibodies because the patent was obtained through inequitable conduct before the USPTO. The court denied Regeneron’s petitions for panel rehearing and rehearing en banc. Circuit Judge Pauline Newman—who dissented from the court’s July 27, 2017, decision—dissented from the denial of the petition for rehearing en banc. Her dissent was joined by Circuit Judge Jimmie V. Reyna (Regeneron Pharmaceuticals, Inc. v. Merus B.V., December 26, 2017, per curiam).

Patent-in-suit and infringement allegations. On March 11, 2014, Regeneron filed two patent infringement suits—one against Netherlands-based Merus B.V. ("Merus") and one against Ablexis LLC ("Ablexis")—accusing both companies of infringing U.S. Patent No. 8,502,018 ("the ’018 patent"), entitled Methods of "Modifying Eukaryotic Cells." The patent describes a method for engineering and utilizing large DNA vectors to target and modify endogenous genes and chromosomal loci in eukaryotic cells. Regeneron allegedly commercialized the ’018 patent through its "Veloclmmune® humanized mouse," which produced hybrid antibodies useful in making human antibody therapeutics.

Inequitable conduct counterclaim. Merus answered Regeneron’s complaint and counterclaimed, asserting that the ’018 patent was unenforceable due to Regeneron’s inequitable conduct during patent prosecution. In December 2014, following claim construction, Regeneron stipulated that its infringement allegations against Merus failed based on the court’s construction, leaving only the inequitable conduct counterclaim for resolution. A bench trial was held on Merus’s counterclaim on June 9 to 15, 2015.

After examining a large amount of evidence presented at trial—and taking into account instances of litigation misconduct by Regeneron’s counsel—the district court concluded that "it is clear that this litigation should never have been commenced." The district court added that, throughout the proceedings, Regeneron "has had to contort science, the documentary record, and an alleged commercial embodiment to make them fit the framework of a specification that described a far broader, not as useful, and possibly altogether different invention; and it has demonstrated that the invention disclosed in the ‘018 Patent is not the same as that Regeneron described during prosecution to the U.S. Patent & Trademark Office."

In support of its inequitable conduct counterclaim, Merus pointed to several prior art references that Regeneron did not disclose during prosecution of the ’018 patent. The district court concluded that the cited prior art references met the "but-for" test for materiality; that is, the USPTO would not have allowed the relevant patent claims if it had been aware of the undisclosed prior art. The district court never held a second trial on the issue of specific intent. Instead the district court sanctioned Regeneron for its litigation misconduct by drawing an adverse inference of specific intent. Based on that inference, the district court ruled in favor of Merus on the counterclaim.

Federal Circuit decision. In its July 27, 2017, majority opinion, the Federal Circuit opined that it was not improper for the district court to apply an adverse inference of Regeneron’s intent to deceive. When a party breaches discovery obligations by failing to produce evidence, a district court has broad discretion in fashioning an appropriate sanction, including the discretion to proceed with a trial and give an adverse inference instruction, the court said. Regeneron’s litigation misconduct obfuscated its prosecution misconduct—particularly Regeneron’s failure to disclose documents directly related to its prosecuting attorneys’ mental impressions of the withheld references during prosecution of the ’018 patent. Because the district court acted within its discretion in drawing an adverse inference to sanction this litigation misconduct, the appellate court affirmed the district court’s conclusion that the ’018 patent was unenforceable.

Request for rehearing. Regeneron subsequently filed a combined petition for panel rehearing and rehearing en banc, to which Merus responded. Several briefs were filed by amici curiae. The petition for rehearing and amici curiae briefs were referred to the panel that heard the appeal; after that, the petition for rehearing, response, and amici curiae briefs were referred to all of the circuit’s judges in active service. A poll was requested, taken, and failed.

Judge Newman’s dissent. Judge Newman, joined by Judge Reyna, wrote that she dissented from the denial of the requested rehearing en banc because, in her view, the panel’s decision created conflicts in important areas of law and practice. In her earlier dissenting opinion, Judge Newman stating that the majority erred in determining that inequitable conduct in patent prosecution can be retrospectively imposed by "adverse inference" arising from later misconduct in litigation, without a showing of intent to deceive the USPTO. A determination of intent had to be based on factual findings, according to Judge Newman. Because there was no trial on the issue, there was no testimony and no opportunity for examination and cross-examination of witnesses, and no record for the appellate court to examine. Judge Newman opined that the majority engaged in "innuendo" by making careful selections from documents not admitted into evidence.

Federal Circuit precedent did not permit imposition of an adverse inference as a sanction for post-prosecution litigation misconduct in an infringement suit, Judge Newman said. "Of particular concern are the district court’s cancellation of its scheduled evidentiary hearing on the question of intent," she explained, "and its subsequent nullification of the patent as a litigation sanction, based not on evidence of specific intent, but on inference."

Citing Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290–91 (Fed. Cir. 2011) (en banc), Judge Newman wrote that both materiality and deceptive intent must be established by clear and convincing evidence. In addition, the district court is required to weigh the equities to determine whether the applicant’s conduct before the USPTO warranted rendering the entire patent unenforceable. Judge Newman also pointed out that neither the Supreme Court nor the Federal Circuit had previously declared a patent unenforceable due to litigation misbehavior because the property right itself was independent of the conduct of a litigant. In Aptix Corp. v. Quickturn Design Systems, Inc., 269 F.3d 1369, 1375 (Fed. Cir. 2001), Judge Newman noted, the court stated, "Litigation misconduct, while serving as a basis to dismiss the wrongful litigant, does not infect, or even affect, the original grant of the property right."

Several amici curiae had expressed concern about the majority’s holding, Judge Newman stated. The New York Intellectual Property Law Association, the Intellectual Property Association of Chicago, and the Washington Legal Foundation were among the amici filing briefs in favor of granting an en banc rehearing.

The case is No. 2016-1346.

Attorneys: Neal Kumar Katyal (Hogan Lovells US LLP) for Regeneron Pharmaceuticals, Inc. Patricia A. Carson (Kirkland & Ellis LLP) for Merus N.V.

Companies: Regeneron Pharmaceuticals, Inc.; Merus N.V.

MainStory: TopStory Patent FedCirNews

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