HCV Patent Case: With "Unclean Hands," Merck Can't Collect Jury Award From Gilead

Gilead scored a victory in its patent dispute with Merck, in which the latter company was accused by a federal judge of egregious misconduct and being guilty of "unclean hands," and therefore, could not collect the $200m jury award the company had earlier won.

With a federal judge saying it had engaged in "egregious misconduct," Merck & Co. Inc. came out badly bruised in the first round of its legal battle with Gilead Sciences Inc. over two hepatitis C virus patents, with the latter firm securing a win in the case in which it has been freed by the court of paying a $200m jury award against it.

But like most patent cases, there's bound to be plenty more rounds ahead, and both parties appear to be up for the fight, which could take a few more years to resolve.

While the case will be a prickly thorn in Gilead's side during the appeals process, analysts pointed out the larger question confronting the California biotech is how it plans to maintain its growth, given the level of high revenues and intense competition building against its big moneymakers Sovaldi (sofosbuvir) and Harvoni (ledipasvir-sofosbuvir), including from Merck, which won approval earlier this year of Zepatier (elbasvir and grazoprevir) .

Nonetheless, for now, the court's ruling is a victory for Gilead. A jury found earlier this year that Merck's HCV treatment patents are valid, meaning Gilead would have to pay Merck for sales from Sovaldi and Harvoni. Merck was seeking a 10% royalty on future US sales (Also see "Gilead Seeks To Limit Sovaldi/Harvoni Royalties In Wake Of Merck's Patent Victory" - Pink Sheet, 23 Mar, 2016.).

In a June 6 ruling, Judge Beth Labson Freeman of the US District Court for the Northern District of California said Merck was guilty of "unclean hands" – meaning it acted in bad faith or unethically in its legal complaint – and therefore, forfeited its right to prosecute its patent infringement action against Gilead.

Freeman declared that Merck's now-former patent attorney, Philippe Durette, who was responsible for prosecuting patent applications related to experimental HCV nucleoside analogues based on the company's collaboration with Isis Pharmaceuticals Inc., now known as Ionis Pharmaceuticals Inc., was "dishonest and duplicitous" when he engaged in a due diligence phone call he shouldn't have been on and then later repeatedly lied about it.

During the March 17, 2004 "firewalled" call with Pharmasset Inc., which Gilead later acquired in 2011 for $11bn, Durette became privy to the chemical structure of the Colorado company's investigational HCV compound PSI-6130, which was a predecessor to Sovaldi and Harvoni.

But Durette did not tell Pharmasset he was prosecuting patents in the same field of HCV nucleoside analogues, even though he'd been informed the call was firewalled – meaning no one from Merck involved in its HCV program should have been participating in the teleconference.

Durette had the knowledge of PSI-6130 in hand when he revised claims on Merck's HCV drug patent, known as '499, which he cancelled and resubmitted in February 2005 with two new narrower claims, Freeman pointed out.

The judge asserted that Durette had waited to amend the claims in the '499 patent until Pharmasset's application was published to give the appearance that he learned it from a public source.

"Durette would not have written new claims to cover PSI- 6130 in February 2005 but for his improper participation on the March 17, 2004 patent due diligence call and learning the structure of PSI-6130 ahead of the structure being published," Freeman insisted in her June 6 order.

She noted Durette also filed another HCV drug patent application, which resulted in Merck's '712 patent in February 2007.

But when Durette was asked about the March 2004 call at his deposition in the patent infringement case, he denied ever having been on the teleconference.

When confronted with evidence at the trial he'd been on the call, however, he said his memory had been "refreshed" months earlier after reviewing the deposition exhibits. He tried to blame a poor memory for his deposition testimony – something Freeman didn't buy.

"The court concludes that Dr. Durette's fabricated deposition testimony and his false trial testimony, both of which Merck sponsored, are unconscionable acts that warrant a finding of unclean hands," she said in her order.

Merck's misconduct, Freeman charged, included lying to Pharmasset, misusing its 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," she declared.

Freeman said Merck's acts were "even more egregious because the main perpetuator of its misconduct was its attorney."

"The evidence in this case fully supports a finding of intent to deceive," she asserted.

But Freeman also pointed out that Gilead's misconduct in infringing Merck's patents was "serious."

Nonetheless, she said Merck had engaged in a "pervasive pattern of misconduct" and the "repeated fabricated testimony and improper business conduct" outweighed its right to maintain its suit against Gilead.

A Merck spokeswoman said Freeman's ruling "does not reflect the facts of the case and we will be filing the appropriate motions to begin the appeals process."

"In its decision, the jury recognized that patent protections are essential to the development of new medical treatments," she said. "The compounds and methods at issue in this case facilitated significant advances in the treatment of patients with HCV infection, and achieving these advancements required many years of research and significant investment by Merck and its partners."

A Gilead spokeswoman said the company was "pleased" the court has ruled in its favor and determined that Merck's patents were unenforceable – declaring her firm felt "vindicated" by the court's decision.

She said the big biotech fully expected Merck to appeal – anticipating a number of motions to be filed by both parties over the next few weeks related to various issues in the case.

Analysts expected the back-and-forth in the legal dispute to take another couple of years.

"This case is ripe with appealable issues," Jefferies analyst Brian Abrahams commented.

He anticipated Merck having a slight advantage entering the appeals process, based on the fact that infringement has a lower bar and appeals courts give jury findings of fact about damages and invalidity more deference, although the big pharma "may have a hard time rebounding from the scathing view" the district court judge had of the company's attorney's conduct.

[Editor's note: This article also appears in Scrip. The Pink Sheet DAILY brings selected complementary coverage from affiliated publications to our subscribers.]