A survey of recent case law relating to attorney's fees and consequence of bad behavior during dealmaking and prosecution reveal misdeeds and major ramifications for patent litigation.
In this recap of our June presentation, which includes video and an accompanying transcript, panelists Filko Prugo, chair of Ropes & Gray's life sciences intellectual property practice and Charlotte Jacobsen, life sciences IP litigation partner, address topics including:
- What types of litigation tactics are courts finding "exceptional" in the context of biopharmaceutical patent litigation?
- How can deal diligence upend a positive litigation outcome?
- How are companies evaluating and managing potentially inappropriate activities during patent prosecution?
- How can litigation behavior taint in-house counsel patent prosecution efforts?
This presentation is part of Life Sciences Quarterly, a quarterly seminar series that delivers insights from Ropes & Gray attorneys, speakers from government and industry and other professionals as they examine key developments, issues and trends affecting the life sciences sector.
Melissa Rones: I'm very happy to welcome you all today to this quarters, Life Sciences Quarterly, and to introduce my partners, Filko Prugo and Charlotte Jacobsen. Before you, you have two seasoned, experienced patent litigators with over 20 and over 15 years, respectively, in the business, both of whom have argued case before all of the major fora, the PTAB, district court, and the Federal Circuit. Extremely happy to have them here to talk about the Dos and Don'ts of Patent Litigation Transactions and Prosecution, formerly called Misdeeds, which I thought was a more salacious topic. They've toned the title down, made it a little more PG rated. So without any further ado, I'll turn it over to Charlotte and Filko.
Filko Prugo: Thank you for being with us this morning. By way of agenda, what we plan on doing today is talking about inequitable conduct, some of the basics there, the basic law, and then transitioning to fed circuit cases, all the fed circuit cases that have dealt with inequitable conduct in the life sciences space. And we'll tease out some of the lessons we can learn and discern from those cases. Then we'll transition to what is a mind-blowing concept, that inequitable conduct and intent, specifically, can be inferred from what a litigator does years after a patent has been prosecuted. And so that'll conclude our inequitable conduct section. Then we'll discuss unclean hands, which is a brand well, it's a very old defense that has now resurfaced. We'll conclude with motions for attorneys' fees in the life sciences space. And we'll talk about lessons we can learn from all of those cases that have been decided over the last two years. We have slides that outline all the cases, but we won't go through all those cases. We'll just summarize the lessons that we can learn from those particular decisions. Without further ado, Charlotte, you want to take us through inequitable conduct?
Charlotte Jacobsen: I think many of you in the room are patent practitioners and, like Filko and me, your practices are 100% biopharmaceutical patent-related, patent litigation. But I don't know that everybody is. Just so that we're all on the same page, just a couple of slides on background of inequitable conduct. We have here a summary of the standard that is from the Federal Circuit case in TheraSense from 2011. Inequitable conduct arises out of misconduct in front of the patent office during the prosecution of a patent. In order to rise to the level of actually being inequitable conduct and rendering a patent unenforceable, you have to meet two standards, the materiality standard and the intent standard. Materiality is a but for standard, usually. But for the misconduct in front of the patent office, the patent never would've issued. There's a secondary standard that comes up less often, which is affirmative egregious conduct. If you fabricated data, you've put in a false declaration, that kind of stuff, the patent office is going to say or the courts are going to say, "You know what? You don't get a patent. You don't get to enforce that in the courts. You've done something very bad and very naughty there." With respect to the intent standard, there's really three things to note. You need a specific intent to deceive. Now, very rarely in litigation do we have a smoking gun, a document that says, "Hey, you know what? Let's definitely keep this away from the patent office." It would make our lives much easier or harder, I guess, depending on what side you're on, if we did. Usually you're inferring the intent to deceive from a course of conduct or from certain actions. But if you're in that circumstance, the intent to deceive has to be the single most reasonable inference that can be drawn from the conduct. That's a pretty high standard. The second thing to note is that an intent to deceive the patent office can't simply be inferred from the materiality of the reference or the conduct. You have an absolutely killer piece of prior art. The fact that there's no way you would've gotten a patent if that was before the patent office and that's the thing you held back, the fact that that is absolutely deadly prior art in and of itself alone is not going to give you an inference of specific intent to deceive. There should be something more. Then the third thing to note is the court in TheraSense said that the absence of a good faith explanation does not constitute an intent to deceive. You don't have to come to the court with a reason why you didn't disclose it. You might want to. Filko and I will talk about cases where explanations have been put forward in cases where they haven't been and how the courts have handed that. There are different outcomes in different circumstances depending on the facts. That's really the issue that the courts have struggled with most. Is the absence of a good faith explanation because there really is now explanation other than an intent to deceive? The misconduct at the PTO usually arises because of a failure to comply with your duty of disclosure. For those of you that prosecute patents, you know that you have a duty in the patent office to disclose material relevant to patentability, and that includes not just prior art but things like experimental data that you have in your files that your inventors have generated. The important thing for people in this room is even if you're not the person prosecuting the patents, the duty of candor may extend to you. It extends to anybody substantively involved in the prosecution of the patent application. That can include the inventors, and it also can include other members of the legal department, even if they're not interacting with the patent office.
Filko Prugo: Let's just very briefly talk about TheraSense. In that case, the Federal Circuit heightened the standards for proving inequitable conduct. Those are the standards that Charlotte just walked us through. I think it's important to understand the context in which that decision was decided. Inequitable conduct's been with us for a really long time. In the 1950s, you have a sprinkling of those cases being decided. By the time we get to 2010 you see there's this explosion of inequitable conduct allegations. The Federal Circuit basically saw this happening and said, "Enough is enough." If we look at the facts of that case, it's a pretty interesting set of facts. Their Abbot had gone to the EPO and said, "Look, this particular reference means 'white.'" Towards the or to the USPTO they said that exact same passage in that exact same reference meant black. Unsurprising to most of us who were practicing in 2010, the court found inequitable conduct. Indeed, for those of you in the room who were litigating cases back in 2010, you knew every single case, essentially, had an inequitable conduct allegation. Courts were finding inequitable conduct all the time. The Federal Circuit said, "Enough is enough. This is too much. Heighten the standard." Charlotte's walked us through what those standards are. Sent the case back. Remanded the case. Why talk about TheraSense? Well, because there's three things in that case that, if you read it in 2011 when it came out, you probably, like me, didn't really pay much attention to. These three issues have become important today. The first is this notion that inequitable conduct is actually an offshoot of or developed from unclean hands. Charlotte will walk us through the latest developments in the law of unclean hands, but it's important to remember that the Federal Circuit has given us a history lesson in TheraSense and said, "inequitable conduct derived from unclean hands." Unclean hands, as Charlotte will walk us through in a moment, requires really egregious conduct. Similarly, what the court is saying is you have to have really egregious conduct in order for there to be inequitable conduct. Two other points: The first is back in 2011 the Federal Circuit in TheraSense actually told us unclean hands is alive as a doctrine. It hadn't been used in decades. In fact, it took almost a decade for it to actually be used. We know from TheraSense it's alive and well. Charlotte will walk us through a real-world example of how unclean hands has now reared its head in the biopharmaceutical world. Then last but not least, the Federal Circuit in TheraSense drew a distinction in terms of remedies available for unclean hands and inequitable conduct. The remedy for unclean hands applies to the actual suit. It's about dismissal of the lawsuit against you, whereas inequitable conduct with respect to any claim it can be just one claim in a patent means that patent is unenforceable. Full stop against anyone going forward. There's a very big difference in terms of the remedies available for unclean hands and the inequitable conduct. Now, post-TheraSense, as most of you know, there's been this precipitous drop in the number of cases dealing with inequitable conduct. Are they gone? Absolutely not. In fact, in 2018, last year, there were over or actually just about 150 decisions that dealt with inequitable conduct allegations. What we would like to do is break that down a little bit further and talk about the Federal Circuit decisions relating to inequitable conduct in the life sciences space. Charlotte will cover let's call them the bad actors.
Charlotte Jacobsen: I'm the bad cop.
Filko Prugo: I'll be the good cop. She'll cover cases where inequitable conduct was found. I'll cover cases where there was no inequitable conduct. What we'll do along the way is try to hone in on how do you discern the risks. You're in-house counsel. You're reporting to your senior management. How is it you are going to determine what the risks are in that litigation, or if you're a conducting a due diligence, or your investor looking at an asset that's involved in a litigation, and there's an inequitable conduct allegation in play. How do you discern the risks that are involved? Out of these cases, as Charlotte was alluding to before, most of the time materiality is not contested. Obviously, that's something you look at. It really boils down to do you have a good story on intent? We'll walk you through folks that had good stories and were okay and folks that either didn't have a story or had really bad stories. This seems to be the common thread out of these cases from the Federal Circuit. That's the number one place you should look to ascertain what the risks are.
Charlotte Jacobsen: Yeah. The first one.
Filko Prugo: You're going to be bad cop?
Charlotte Jacobsen: Yeah. It's Aventis Pharma v. Hospira. This was a case about a taxotere formulation. The API plus a surfactant. In that case, it was an inventor publication that had been withheld from the patent office during prosecution and was raised in the district court litigation and, in fact, knocked out of the patents, for obviousness, and also formed the basis of the inequitable conduct allegation. Not surprisingly, the materiality standard was really easily met, because the reference invalidated the patents for obviousness. If that had been before the patent office, the patent would not have issued. But for materiality done. Intent. Now, here an explanation was given, but it just simply wasn't credible. It wasn't credible because other documents and evidence in the case suggested the opposite of the explanation that was given. Because it was an inventor publication, the inventor's testimony that he said, "Oh, I just didn't review the final draft. I didn't realize that was in there." The court said, "No way." Part of the policy is you have to see the final draft. You have to sign off on the final draft. There's no evidence that you didn't comply with that policy. That was what you did all of the time. That was the course of conduct usually applied in these circumstances. If that was the case, you should've known about that reference and it should've been disclosed to the patent office. Here, really, the lesson learned is no explanation is better than one that lacks credibility. If you come in with an explanation that is contradicted by documents, it's contradicted by other evidence, you're not going to be able to an inequitable conduct allegation. Now, one thing that's interesting about this case is the materiality claim. Here, it was easily met because the prior art reference invalidated the patents. In the district court you're assessing validity under the Phillips standard, so a little narrower than what's in the patent office. The broadest reasonable interpretation. It's on a higher burden. You have to prove invalidity at the district court by clear and convincing evidence, whereas at the patent office you're dealing with a preponderance. If something invalidates the patent for obviousness under Phillips and clear and convincing evidence, then it certainly is going to invalidate the patent under BRI and preponderance standard. It's entirely possible then that a reference could fail to invalidate the patent at the district court because it doesn't meet the standard under Phillips and there isn't clear and convincing evidence but still support an inequitable conduct finding under BRI and a preponderance standard. That's something to bear in mind, that even if a reference doesn't knock out the patents for obviousness, you can still be vulnerable to an attack on inequitable conduct. Here we have Apotex and Cephalon. Here, what had been withheld was the involvement of a supplier of the API. The patents in this case covered Cephalon's Provigil product. They were specifically related to the particle size of the API. In fact, particles at that size had been supplied by a supplier prior to the patent being filed. In fact, more than a year before the patent had been filed. Again, materiality really easily satisfied. Again, the same prior art invalidated the patents, this time for anticipation and on sale bar. Now, intent, again, another interesting case completely turned on intent. There were representations made during prosecution about the role of the supplier. Those representations were false. No explanation was given for why those mistakes were made, why incorrect information was given to the patent office. The court found, well, those were deliberate, affirmative statements. There was no explanation for those errors but for an intent to deceive the patent office. This is a case where no explanation, even though TheraSense's no explanation in and of itself is not evidence of intent, given the circumstances in this case, the court said, "Look, there just is no other reason why you would've said these incorrect things unless you were planning to deceive the patent office." That was enough to find an intent. The final of the three cases on inequitable conduct in the biopharma space is the Apotex v. UCB case. Here, Apotex's patents relating to methods of manufacturing ACE inhibitors. The statements made during prosecution related to whether or not the prior art was made by a method that was claimed in the patents at issue. Again, materiality not really an issue. The examiner had rejected the patents over this prior art, and the patent had only been issued once the examiner had been convinced about the prior art by those misrepresentations about its conduct. Now, here the intent is interesting, because what Apotex's attorneys tried to argue was that they weren't representing facts. They weren't making misstatements of fact. They were just stating opinions about the prior art. The patent office disagreed with those opinions, but they shouldn't be held to have been deceiving the patent office when they were just advocating for their client and a particular construction of the prior art. The court said, "No, you were doing much more than offering your opinion about the prior art. You were stating facts about the prior art. "And those are facts that you knew or you strongly suspected were false." That, in conjunction with various other misconduct, gave rise to the intent to deceive. That other misconduct included fabricating data in the patent.
Filko Prugo: It's a no no.
Charlotte Jacobsen: That's a pretty big no no in patent prosecution. Then just wrapping up on the cases where there's inequitable conduct and trying to tease out some lessons. For prosecution, it's absolutely critical that if you're putting data in your patent, which most of you are, that you check that data is real, you check that that data is complete, and you check that that data is accurate. If you find yourself in prosecution defending false or incomplete data, then you're going to have a problem. If you also find yourself making assertions about what is it in the prior art, those can very well be found to be assertions of fact, not opinion, and they can give rise to inequitable conduct. Other litigation lessons: Conduct a pre-litigation investigation. I can't emphasize that strongly enough. For those of you that are in the Hatch Waxman space, you know when your litigation is coming. You have time to prepare for that litigation. As we'll talk about a little bit later, there are ways to cure inequitable conduct. There are things you can do. But you can only cure it if you know that there's an issue. And you can only know that there's an issue if you do a pre-suit investigation and you do it sufficiently in advance of your litigation that you have time to fix the problems, if they are there. You need to speak to your inventors. You need to test the completeness and the accuracy of the data that they give you. Filko will talk a little bit later about educating your inventors, the problems that we hear from our clients all of the time about working with inventors and people in R&D and getting them to really understand what the duty is on them to disclose data and how far that extends. Another issue is remember that the duty of candor extends right up until the issue date. If you put your patent into reissue, it extends all the way up to your reissue date. If you're going to put a patent into reissue that may be some years after you've prosecuted the patent, in the intervening time you might've had an EPO opposition. You might've had various other foreign challenges in patent offices. You might've had some foreign litigation relating to those patents. Goodness only knows what's come up in that intervening time. You need to vet those proceedings. You need to see what has come up in that time and work out what you're going to need to the USPTO during the reissue before you put your patent into reissue, because it may change the calculus or whether or not you really want to do that. We've got good cop.
Filko Prugo: Yes. Good cop now. It's interesting. What we're talking about is how does one ascertain the risks involved or how do you measure the risks involved in an inequitable conduct allegation, whether from a due diligence perspective or in-house counsel in trying to manage expectations? What you've heard Charlotte talk about is many of the cases where inequitable conduct was found turned on this idea of either not giving a good explanation as to what transpired or giving no explanation at all. In many respects, the cases I will talk about reflect the exact opposite scenario. Let's start with the Crestor compound patent case, obviously a very strong patent. Unfortunately, some references were withheld from the patent office. The patent is put into reissue. Let's just pause for one second. I think everyone in the room knows you cannot cure inequitable conduct through a reissue. The fact that they submitted the withheld references during the reissue does not cure inequitable conduct. In fact, what they did was submit those references during the reissue. What happens? The examiner makes a rejection. What does the applicant do? Gets around the rejection by narrowing the claims to the Crestor compound patent claims. Fast forward. There's a litigation on the reissued patent. As one might suspect, there's an inequitable conduct allegation. As one might also suspect, materiality really isn't the issue. But intent is. Here's a wonderful example of how if you have a credible, real-world story that you can tell at trial, you'll be able to avoid a finding of inequitable conduct. In fact, here the court found no inequitable conduct. What was the story? You had Japanese prosecutors sit before a judge and explain their work environment. They talked about how much stress was involved, how much work the company had put on them, how the company expected to do things that were beyond their skill levels. They sat there in court and gave the court a real-world feel with respect to their lives and what it was like and basically said, "Mia culpa." The court turned around and said, "I believe you," and found no intent to deceive. Importantly, just as a quick note on the legal side of things, gross negligence doesn't amount to intent. Even though they should've known the law, and they should be well-versed, and lack of experience is not really an excuse, gross negligence doesn't get you to intent. The simple litigation lesson or, frankly, due diligence lesson or internal management lesson is listen to the story. If you're on a call with you're doing a due diligence. You're looking at an asset. You're on a call with management. Ask them what the story is. They're involved in a litigation that has an inequitable conduct allegation, ask them what story they plan on telling at trial, because that's where all these cases that we're talking about turn. Here's an interesting case, the Santorus case. Here, the inventor had actually tested an uncoded PPI, or proton pump inhibitor, in patients. An application is filed. This testing in patients is not disclosed in the first application. The inventor goes to university counsel and says, "Oh, you know, maybe this is of interest to you. I actually did some tests before we filed the application." University counsel correctly ascertains that this is important and, in the continuation application, submits the information regarding prior testing. They get a patent. Fast forward. They asserted against par. Par turns around and says, "Well, this is inequitable conduct. You should have disclosed that experimentation in the very original application." Now, you sit back for a second. Is this really the type of egregious conduct that I was alluding to earlier that should result in inequitable conduct? No. They did disclose it during prosecution. It was considered. They got patent claims issued. In fact, that's where the court came out saying, "Look, on intent, it's a high burden."
As Charlotte described, it's clear and convincing evidence of intent to deceive. And said, "No, there is no intent here." But there are a couple of very important lessons that we can learn from this case. First, on the litigation side. Here you had a set of facts that weren't really that egregious. But they felt like they needed to give an explanation. The explanation got them in trouble. The district court actually said that the inventor's explanation strained credibility. So by giving an explanation, they almost ran into an inequitable conduct allegation. This is why we keep honing in on this issue. This is where all these cases turn. Whether you have a credible explanation or not is critical. Now, in terms of prosecution, this is every time we meet with clients we say the same thing. It's important to educate your clients, whether you're at a university, or a nonprofit research organization, or biotech, or big pharma, you have to have in place an education program so that people understand, inventors understand what it is they need to disclose to you. Here, there was no doubt university counsel was competent. She got this information. She immediately disclosed it. But it's important that the inventor know that from the very beginning. That way you disclose all relevant information from the start and you avoid getting into this type mess. Often, inventors don't understand if they're talking about their invention at conferences, that matters. You handed out an abstract or there was some handout at a conference. That matters. You had coffee with someone from a different institution than yours and you talked about what you were working on, that matters. These nuances of patent law are often unfamiliar to your clients. It is important. I understand, of course, resources are strained as it is, but it really is important and it is worth investing in educating your clients regarding what is important to disclose to the patent office. Now, this is the last case I wanted to touch on is the most recent pronouncement from the Federal Circuit. This is a 2019 case. It's Barry v. Medtronic. Interesting case. Dr. Barry had come up with basically a method for correcting certain spinal anomalies. He filed a patent application. The patent application had a figure. It was figure six, I think. It shows a before and after using his invention. He gets a patent. Unfortunately, that figure was totally wrong. It's a before and after using a completely different method. But that comes out during litigation, right? There's all this discovery. The other side figures out that the figure is totally wrong. Dr. Barry is like, "Oh my goodness. This is terrible," and submits a correction through a certificate of correction with the patent office. And that issues yes. I see the facial expressions. An odd set of circumstances. What does all this amount to at the end of the day? The Federal Circuit finding what? Well, they found no intent to deceive. This is important. I won't quote the language, but in terms of litigation lesson or lessons, the district court listened to Dr. Barry, listened to the testimony of the prosecuting attorney and said, "I believe you guys. I get it. You didn't realize it was a mistake. You found out you made a mistake during litigation. You did your best to correct it. I believe the story that you have to tell." Much like the Japanese prosecutors that I talked about earlier, if you have a good story to tell, it's worth telling. Cases turn on this very issue. Prosecution lessons.
Filko Prugo: This is I think a theme you annunciated just a minute ago.
Charlotte Jacobsen: Right. You have to check, and triple check, double check, triple check the patents. Because, really, you want to avoid getting in this situation in the first place. Look, mistakes happen. They can be fixed. That's what I'll talk about in a moment. But you really want to do everything you can to make sure you don't end up in a litigation with allegations of inequitable conduct. Because that increases your discovery costs and burden. It increases the depositions, expert reports and expert depositions, trial time. It escalates and it vastly increases the scope and the cost of the litigation.
Filko Prugo: Not to mention stress levels.
Charlotte Jacobsen: Oh, yeah. Because of the consequences. They're really serious consequences if you find your patent on a really important asset is unenforceable. It's one thing to have a patent that isn't infringed by one generic manufacturer, for example. It's another thing all together to have a patent that you cannot enforce against any generic competition, not to mention potential antitrust implications if you have been found to commit inequitable conduct with respect to a patent on a major product in the market. These are things that you want to avoid as best you can, but mistakes happen. As we've seen, honest mistakes happen. There is now a way to potentially fix them. With the AIA, we got the process of supplemental examination. This is a way to potentially cure inequitable conduct. What you do is you submit information to the patent office and you request them to consider, reconsider, or correct certain information. The patent office has three months to decide whether or not that information presents a substantial new question of patentability. If it doesn't, that's the end of the story. If it does, your patent goes into ex-parte reexamination. Importantly, at the end of the day, if there's no substantial new question of patentability or your patent gets a reexamination certificate at the end, the information that was the subject of the supplement examination cannot be used for an inequitable conduct challenge in the district court. Now, timing is important here, and that's because you can't use this to cure inequitable conduct if you've already sued somebody on the patent or if they've already filed a paragraph IV notice letter on the patent. The information doesn't need to be material to patentability. It doesn't need to raise to that level. It just has to be relevant to the patent. You also don't need to say that there is an error in your patent, like you do for reissue. There's three months for the patent office to decide whether or not there's a substantial new question of patentability. At the moment, the average time for supplemental examination is about 14 months. If you need to go through this process and you want to get it done before the litigation, you need to start it, really, at least 18 months before you're going to find yourself in litigation to make sure you have enough time to get through it, ideally, looking at this, about two years before litigation if you're in a Hatch Waxman kind of situation. It's been seven years since the AIA. Yeah. Time flies, right? It seems like yesterday. There have only been 250 it's 254 requests for supplemental examination. It's not really being used very much at the moment. Only about a quarter of those requests have been in the chemical, biotech space. About 30% of them are being dismissed at the request stage. The patent office has looked at it and said, "No, you're good. There's no substantial new question here. That's the end of the matter." Then about I can't remember. Two thirds. Did I say a third? Are going into supplemental examination. Of those, about 20% are coming out completely as issued, completely unscathed. About 50% of them are coming out with a new claim or an amended claim. Folks are having quite a lot of success with this procedure. I think it's probably underutilized at the moment. Maybe as folks get more comfortable with it we're going to see it happening more often. It has the potential to be a very powerful remedy and to cure inequitable conduct, which is obviously hugely important if you have something or you discover something in your pre-litigation that could cause you a problem at trial. Then you just get rid of that issue. Now, of course what you do during examination of the supplemental examination also can then be subject to inequitable conduct challenge. I know of at least one case where they put in a set of inventory declarations during the supplemental examination. Inventor declarations are always a little risky. You have to make sure you really are 100% accurate in them, because you don't want to cure one bit of inequitable conduct and then create a new piece.
Filko Prugo: We'll conclude the inequitable conduct section with talking about a relatively recent development. Again, it really is remarkable to think that the intent to deceive of a prosecutor can be inferred by conduct of litigation counsel years later. That's exactly what happened in the Regeneron case. There, Regeneron had withheld some references and they had also engaged in litigation misconduct. Let me just pause for a second. I'm not actually saying these are the facts as they occurred. Anyone who's been involved in litigation knows there's a lot of gray. Sometimes when you read the decision from the district court or the Federal Circuit you're scratching your head and you're like, "How'd they come up with these facts?" We're not accusing anyone of doing anything, we're simply listing the facts as listed and set forth by the Federal Circuit or the district court. In this case, we're told that there was litigation misconduct with respect to infringement contentions, with respect to claim construction. The court had apparently asked for some documents and never got those documents. Importantly, and this is where we'll focus our attention, there were improper privilege calls. This is a case that's taking place in the southern district of New York. The judge has this inequitable conduct allegation in front of her, and she says, "This is what I'm going to do, folks. I'm going to hold this trial on materiality. I'll look at that. Then I'll hold a separate trial on intent. If there's no materiality, let's not worry about the intent part of this case. We'll just move on. If there is, well, we'll go to the intent phase of the trial." She holds the trial on materiality and then comes out with a decision and says, "Yeah, this is definitely material. Oh, by the way, forget the intent part of this trial. We don't need that, because I'm going to infer the intent to deceive by the prosecutor based on litigation misconduct." Which is obviously very controversial. It goes up to the Federal Circuit. What happens? They affirm. They affirm the decision. Materiality is not really the issue. It's but for material. Intent is where this case gets super interesting. The court said, "Look, as an evidentiary matter, we can draw an adverse inference based on the improper litigation conduct." We're going to focus in on that in just one second and exactly what that means and how they came to that conclusion. What we want to know went up to the Supreme Court on cert. Cert is denied. No court has yet followed the Regeneron decision. However, for you folks involved in litigation, you may already know this, this case is being used all the time. Defendants are trying to expand the scope of inequitable conduct using the Regeneron decision. No one's yet been successful doing that. This is in play in litigation, to be sure. Now, what's the litigation lesson and what exactly happened here that was problematic? Well, the litigation lesson here is if you have an inventor or you have a prosecutor and you're at trial or, frankly, you're at your deposition, if those folks are going to testify about anything remotely close to the inequitable conduct allegation, so claim construction, the prior art, why they thought something wasn't material, anything that may touch on that inequitable conduct allegation, at that point in time you have waived privilege relating to documents that touch on that topic. That's the important lesson here. That's why Regeneron, at the end of the day, got in trouble. I think this passage from the Federal Circuit is the critical passage. Literally, this is straight from the Federal Circuit decision. The third category of documents was most troubling. Was most troubling. This, at the end of the day, was why they affirmed the district court decision. In the third category, the district court had concluded many documents on that log were relevant to topics to which privilege had been waived, i.e. based on the trial testimony of the witnesses. Fundamentally, what you can never do in a litigation, whether you're at the deposition stage or trial, is use privilege as both a sword and a shield. What does that mean? You can't have your witness say, "Oh, I didn't mean to do something" right, that's the sword part while at the same time hiding the most pertinent and relevant documents on your privilege log. Which is of course unfair to the other side because they would love to see those documents to be able to cross-examine and test the voracity of the testimony. Strategically, this is an incredibly difficult call for litigators.
Charlotte Jacobsen: Right. Often, you don't decide exactly which witnesses are going to testify at trial until you're pretty close to trial. You might prepare a witness for trial and then actually when you're there decide you don't need them and you pull the testimony, given the way that the trial is shaping up. But at that point when you're on the doorsteps of the court, if there is a chance that your witness is going to be testifying about a privilege topic, you need to have disclosed the documents before that. If you haven't done that, you're definitely too late. The question is then how much earlier do you have to do it? Is it going to be right with the other document production? Before depositions? Is it in the leadup to trial with enough time to take a supplemental deposition? That's going to depend on each case. Regeneron didn't answer it. None of the cases since Regeneron have answered that question. You're going to have to keep that in mind. If you are going to have a witness testify at deposition or at trial about privileged information, you better make sure that you disclose the documents, or you might find yourself in the same problem that Regeneron found themselves in.
Filko Prugo: A couple of quick prosecution lessons out of the Regeneron case. Every time Charlotte and I give a talk, any time we go to clients and we give a talk about prosecution from a litigator's perspective, we say the same thing. We really are broken records. "Look, broad claims are problematic." We see it time and time again. In the antibody space it's the 112 issues that kill you down the road. In this case, broad claims killed Regeneron because it led to an inequitable conduct finding. They got these broad claims, which is all fine. But what did they do at trial? At trial they tried to narrow the claims to reverse chimeric antibodies, right? In fact, that's all they needed to prove infringement, was the reverse chimeric antibodies. They used the very standard language of comprising, and the court said, "Whoa. You didn't limit this at all. It could be mouse antibodies, humanized antibodies, et cetera." So I know we say this a lot and I know this is hard, but sometimes it's important to push back on senior management and push back on your clients and say, "Look, do we really need these broad claims?" At the end of the day, where is our competition? Who do we want to stop? How broad do we really need to go? Reverse chimeric antibodies would've been enough to stop the competition here. And frankly, what is clear from the decisions is that had they gone with those narrow claims in the first place, there would've been no inequitable conduct because the withheld references had nothing to do with reverse chimeric antibodies. It really does serve as an illustration of how problematic broad claims can be. This is really super technical on the prosecution side of things. What had happened here was a third party had submitted these references in the parent application. Submitted the references in the parent application. The patent that went down obviously didn't have those references as part of the record and was about to issue literally days later. What happens, right? We get all very excited and full of emotion. "Oh, I'm going to get this patent issued. I want to get it issued. My client will be happy if I get it issued." And they get it issued. At the end of the day, that turned out to be a big mistake. Sometimes it's important to take the emotion out of it. Sometimes it's important to have a frank conversation with your clients and say, "Look, it's better that it doesn't issue. Let's do an RCE, a request for continued examination, and disclose these things." Yeah, it's risky, but at the end of the day, you're much better off because you avoid all the headaches associated with inequitable conduct that we've been talking about. With that, I think we'll transition to a really interesting development, unclean hands, which is back from the dead, I suppose.
Charlotte Jacobsen: Yeah. I hope everybody appreciates our unclean hand and a really grubby hand in the bottom of the slide. I was really pleased with that. Unclean hands is really something that's pretty new to all of us. It just was not being used in patent litigation up until a year or so ago. It arises from some old Supreme Court cases from the '30s and '40s. As you'll see in a moment when we talk about the standard, the language reflects that. It's pretty old and stuffy and not terribly clear. But really, it was a doctrine that existed. Then we had inequitable conduct that really took over. And we saw in the slides that Filko talked about that huge rise in inequitable conduct places. Then that has been curtailed to some extent by TheraSense. And perhaps that tightening of inequitable conduct in TheraSense means that now people are looking for other ways to attack the patent. That may now be why we see the rise of the unclean hands doctrine. Gilead v. Merck is the first appellate case in forever to apply the doctrine. But now it is very definitely back and it's being used, so let's talk about the standard. Here we go. I have to read this, because yeah.
Filko Prugo: Well, you'll see.
Charlotte Jacobsen: You'll see. So the legal standard for unclean hands. "When misconduct of a party seeking relief has immediate and necessary relation to the equity that he seeks in respect of the matter in litigation." That's what you had to prove. Really, what that boils down to is that the party seeking relief from the court if they have committed some misconduct that has materially advanced their position in the litigation and they wouldn't have had that advantage but for the misconduct, then they're liable for unclean hands. In the Merck case, as we'll see, the conduct or the misconduct related to both the creation and the enforcement of the patent rights at issue. That's what you're looking at. Misconduct on behalf of the party seeking to enforce their patent rights. That means that they shouldn't be able to take advantage of their improved position in the litigation. It just wouldn't be right. It wouldn't be equitable. There's really three big differences between unclean hands and inequitable conduct. Filko's spoken about those. Just summarize them quickly. The first is that the misconduct doesn't have to be before the patent office for unclean hands. It can be litigation misconduct. That litigation misconduct doesn't have to give an inference of intent to deceive the patent office. It can just be straight up litigation misconduct. It could be business misconduct, so misconduct during due diligence. The second thing distinction is there's no requirement for materiality. You don't have to prove that but for the misconduct you would never have gotten a patent. That's only in inequitable conduct. That's not in unclean hands. You just have to show that you're in a better position than you would've been but for your bad deeds. The third distinction is this dismissal visit enforceability point. With inequitable conduct, even if there's only inequitable conduct with respect to one claim, the whole patent is unenforceable against the world, and potentially related patents as well. With unclean hands there's only dismissal of the litigation. You still have a patent. And, depending on the misconduct that you're guilty of, you may be able to enforce that patent against others. That is definitely not an option with inequitable conduct. Let's take a little look at the facts. Merck is an extreme case. Again, like Filko with TheraSense, these are the facts as reported in the decisions. I'm not saying this is exactly what they did, but this is where Merck was found to have done. They were found to have lied to Pharmasset, which was Gilead's predecessor in title during due diligence and a joint venture collaboration. They had misused Pharmasset's confidential information that had been disclosed during the collaboration. They had breached confidentiality and firewall agreements. Just to top it all off, in case that wasn't enough, they had lied at deposition and trial. They were found to have deliberately done that. The Federal Circuit affirmed. They had a very serious consequence for Merck because it resulted in the eradication and wiping out a $200 million jury verdict on the infringement portion of the case and the award of fees against them, which were in excess of $14 million bucks. Very serious consequences for this kind of bad behavior. A little bit more detail on the facts. We can go to the next slide. Okay. Merck and Pharmasset were collaborating on an HVC drug. They had an NDA and a firewall agreement. Under the NDA, the confidential information from Pharmasset that Merck received couldn't be used for any purpose other than collaboration. Not surprising, totally standard NDA agreement. Also, a firewall agreement. Very standard in collaborations. The folks that got the Pharmasset confidential information weren't allowed to prosecute Merck's patents on the same technology, Because they had their own individual program in the same technical field going on. But at the same time as the collaboration was going on, this chap, Dr. Durette, whose name is all over the decisions he is now somewhat infamous in unclean hands doctrine. He was prosecuting patent applications on the HVC compounds for Merck and then, despite the firewall agreement and the NDA agreement, he participates in a due diligence call. Now, before that call took place, he knew what the subject of that call was going to be. He knew he was going to get information about Pharmasset's patents and he knew that information was going to be relevant to what he was doing at the patent office. During the call, they asked, "Hey, is everybody here clear under the NDA and the firewall agreement?" He didn't say boo to a ghost. And he then learned during the call the structure of Merck's compound. Thereafter, he continued to prosecute the patents. He in fact deleted all the pending claims in one of the applications, wrote claims onto Pharmasset's compound. Those patents went on to issue. They were assigned to Merck and they were asserted in the litigation against Gilead. The court foundnot surprisingly those facts, as laid out, in the judgment that there was business misconduct. Merck had directed Dr. Durette to participate in that due diligence call. They'd allowed him to continue prosecuting the patents afterwards. Dr. Durette admitted that what he learned on that call impacted what he did in the prosecution. That misconduct had a direct relation to the litigation. It had the necessary connection to the litigation because it enabled Dr. Durette to get specific claims on Pharmasset's compound to narrow the claims. If you have narrower claims, you're likely to get them issued quicker. If they're nice and narrow, then you'll have maybe a better, more valid claim and it'll be easier to enforce. It was both securing the patent and being able to enforce that patent that was the advantage that Merck got from its misconduct. As I said, just to top it all off, Dr. Durette also lied at his deposition about his involvement in the call, whether he was there, why he had amended the claims. The court said, "Yeah, you deliberately did that. You deliberately gave false testimony." Not surprisingly, the court admonished Merck. The Federal Circuit affirmed and said, "Yes, this is a doctrine that is alive and well. The bad acts that you have committed were misconduct and they had a necessary connection to the litigation. Your patents cannot be enforced against this party in this litigation. The case is dismissed." The take home from all of this is bad behavior in due diligence in a joint venture, in a collaboration, that materially advances your position in a later patent litigation can come back to haunt you. And it can give rise to an unclean hands finding. No case has yet followed Merck either, but it is out there. It is being used. It's being used at the moment we know of cases where it's being used to get discovery in another litigation that, before Merck, you would not have been able to get. Discovery into conduct that went on after the issue of the patent not just related to the patent but other business dealings. It's a real live doctrine and it's something to be wary of.
Filko Prugo: Yeah. And that case, by the way, is the Humira ADVI case. It's quite incredible that the judge turned around and said because there was this allegation of unclean hands that Boehringer Ingelheim was entitled to discovery relating to the quote unquote patent thicket surrounding the Humira product. As Charlotte noted, this is a powerful tool and is being currently utilized by litigants. I'm sure there will be more to come in the future. What we thought we would do is conclude today's discussion with an overview of attorney's fees. We have a slide deck here, as I mentioned I think at the beginning of our discussion, that sets forth the last couple years' worth of attorney's fees motions in the biopharmaceutical space. If you'd like the details, we're happy to give you these slides. You can walk through the details of those cases. What Charlotte will do, actually, is just walk us through the lessons learned, things that we should keep in mind when we litigate cases. I'll just start very quickly with some basics. Obviously, this comes out of 35 U.S.C. §285, which says, look, if this is an exceptional case, you may be entitled to attorney's fees. There was a time where the Federal Circuit had set forth a whole crazy set of standards as to how you get attorney's fees. The Supreme Court this is the seminal case in Octane Fitness said, "Wait a second. We don't need all these standards and framework that the Federal Circuit set out. It says exceptional. That's what it means." Exceptional cases fall into two buckets. 1) Your case is exceptionally weak. You should never have brought it. It's really weak. Or the case can be exceptional if it's been litigated in a way that is exceptional and inappropriate. Of course, it's a pretty good test, because district court judges who do this day in and day out are able to discern was it exceptional in terms of a case that isn't strong substantively or was litigated in a way that really stands out from other cases. And this is real. Much like the inequitable conduct cases that we talked about earlier, you still have a lot of them out there. In terms of attorney fee motion for attorney's fees, there's been over I think 450. You have over 100 granted, completely granted, on all grounds alleged. Then you have I think 30-odd granted in part. Bottom line: There's about a 30% success rate with respect to motions for attorney's fees. This is alive and well and something you absolutely must consider if you are involved in a litigation.
Charlotte Jacobsen: These are the key considerations that we see coming up in the cases time and time again. The court is looking for something out of the ordinary that justified the award of feeds. Simply bringing a case and losing a case in and of itself isn't enough, even if you lose at summary judgment. That's not enough for the award of feeds. There's got to be something more. So the court is looking, for example, for a substantive litigation position that is so weak that, really, the case should never have been brought. Unreasonable litigation tactics, so things like bringing the case to seek over broad discovery to get confidential information from a competitor about something else they're up to that isn't really the subject matter of the litigation, unnecessary delays. So if you have an adverse claim construction decision and you don't change your contentions, you don't update your contentions, and the first time the other side sees your new litigation positions are in expert reports, which means that they've been proceeding in their litigation, they've been proceeding in their expert reports on your old positions. Then suddenly they learn that you've got new ones. Or you've been proceeding in the litigation for two years with six patents and 20 claims at issue, and you turn up on day one in trial and you tell the other side, "Actually, we're just going to sue you on one claim and one patent," and they've had no notice of this. Those are the kinds of things that might give rise to an award of fees and the courts finding that's really unreasonable. That's not fair to the other side. That takes the case out of the ordinary. Other things the courts have considered are these meritless cases, nuisance cases. That's usually in the context of some sort of non-practicing entity. Have you done your due diligence before you brought the suit? If it's a case where the product is on the market and it's pretty simple for you to determine before you bring the suit, whether or not there's a good case of infringement, maybe a simple test you can run, even if a simple test is required to determine infringement, the court can find that you should've done that before you brought the litigation, not after the litigation, not after you've got discovery, not after people have expended a whole bunch of fees on the case. And then the deterrence. That is the really egregious conduct, like perjury, like fabricating evidence. That'll definitely justify an award of fees. A couple of other points to note: One is that a case can start ordinary and become extraordinary partway through based on the conduct or maybe not taking action in light of disclosure of a new prior art reference, or an adverse claim construction decision, or an order from the court to do something that you don't then do. It's usually a really good idea to do what the court tells you to do. The other thing to note is that the courts have recognized that in the biopharma space, and potentially in the Hatch Waxman space, that these are hard-fought battles. They are high stakes litigation. There's often disincentives to settle. The mere fact that you take your case all the way to trial, you don't settle, you ultimately lose, that's fair game in Hatch Waxman biopharmaceutical space. That is not alone going to make you liable for fees. You can fight your case. You can take your case all the way to trial. You have to do more to be out of the ordinary.
Filko Prugo: Let me just say thank you so much, again, for joining us. If you do have questions afterwards, feel free to send us an email or pick up the phone. We're happy to talk about issues, whatever type of issues in the biopharmaceutical patent space you'd like, and certainly on these issues. We'd be happy to answer questions.
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