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Case Analysis: Regeneron Pharmaceuticals, Inc. v. Merus N.V.

David W. Crosland, August 28, 2017

On July 27, 2017, the Federal Circuit affirmed, in a split decision, a judgment by the Southern District of New York of the finding of inequitable conduct by Regeneron Pharmaceuticals (“Regeneron”) at least partially based on the conduct of Regeneron’s litigation attorneys during litigation.  Regeneron originally brought suit against Merus N.V. (“Merus”) claiming infringement of the 8,502,018 Patent (“the ’018 Patent”).  Merus counterclaimed alleging unenforceability of the ’018 Patent due to inequitable conduct by Regeneron for withholding four references from the United States Patent and Trademark Office (“PTO”) during prosecution of the ’018 Patent.  The ’018 Patent is directed to a genetically modified mouse that would be capable of developing antibodies that can be used in humans.

During litigation of the inequitable conduct issue, Regeneron’s litigation attorneys displayed a pattern of misconduct by, among other behaviors, failing to produce documents related to the patent prosecutors’ thoughts on disclosing the withheld references during prosecution of the ’018 Patent.  Regeneron attempted to use the shield of privilege to withhold the relevant documents from discovery.  Eventually, during a bench trial to determine the materiality of the withheld references, the District Court discovered that Regeneron had placed on its privilege log: 1) non-privileged documents; 2) previously privileged documents that Regeneron affirmatively waived the privilege of and that the District Court previously ordered to be produced; and, 3) documents relating to the mental impression of its patent prosecutors, which were waived by Regeneron when filing trial affidavits of the prosecutors.  In addition to determining that the withheld references were but-for material to the ’018 Patent, the District Court concluded that the behavior of Regeneron’s litigation attorneys warranted sanctioning and that it was appropriate to draw an adverse inference that Regeneron had specific intent to deceive the PTO.  Thus, without conducting a previously scheduled bench trial on the specific intent of Regeneron, the District Court ruled the ’018 Patent unenforceable by way of inequitable conduct.

The Federal Circuit, in a split decision, affirmed the District Court’s ruling.  The panel-majority found that the District Court did not abuse its discretion by drawing an adverse inference of specific intent to deceive the PTO because a District Court has broad discretion in fashioning an appropriate sanction for the litigation misconduct.  Furthermore, the panel-majority claimed that the District Court did not punish Regeneron’s litigation misconduct by holding the patent unenforceable because “[o]nly after Merus proved the remaining elements of inequitable conduct did the district court hold the patent unenforceable.”
Judge Newman issued a dissenting opinion in which she argued that the specific intent requirement of inequitable conduct should not be inferred from litigation misconduct that occurred several years after prosecution of the patent.  Judge Newman argued that intent to deceive should be established by evidence, not accusation and innuendo.  Judge Newman further argued that, according to precedent, equitable doctrines are not a source of power to punish.  She also argued that the withheld references were not but-for material, and thus, the premise of inequitable conduct have not been established by clear and convincing evidence.

This holding is troublesome for a few reasons.  First, the holding is troublesome for patent prosecutors, as their reputation should not be dependent on the conduct of litigators several years after the prosecution of a patent. Additionally troublesome is the ability of a court to affect a party’s property rights because of the misconduct of a litigator.  Essentially, the dispute that lead to the loss of patent rights in this case was the scope of a waiver of privilege.  The adverse inference that the District Court drew had a direct impact on the validity of Regeneron’s patent rights.  The District Court should have instead issued a sanction that had only a direct impact on the outcome of the trial, not both the trial and Regeneron’s property rights.

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