It's not often that one misguided phone call—and a subsequent cover-up—costs a company hundreds of millions, but that's exactly what happened in a hepatitis C patent dispute between Merck & Co. and Gilead Sciences.
And this week, an appeals court confirmed that decision, agreeing with a lower court judge that Merck isn't entitled to a hefty $200 million jury award—precisely because its lawyer's misbehavior "infects the entire lawsuit."
The U.S. Court of Appeals for the Federal Circuit, which handles patent appeals, upheld a lower court's ruling that Merck had "unclean hands" in the hep C patent fight. Though a federal jury in California had awarded $200 million to Merck, the judge in the case, Beth Labson Freeman, struck down that verdict because she found a "pervasive pattern of misconduct" by Merck.
In an opinion this week, the appeals court outlined those misdeeds. A former Merck scientist and patent attorney, Phillipe Durette, learned of a Pharmasset hep C drug structure during a 2003 conference call between the companies, which were discussing potential partnership arrangements. Durette then altered a Merck patent application, the court found.
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Dr. Durette's participation in that conference call violated a "firewall" the companies had set up to ensure that participants weren't involved in patent applications.
Later, Gilead bought Pharmasset, and Merck eventually sued Gilead for infringement. During the court proceedings, Dr. Durette denied participating in the phone conference. He later backtracked and admitted he did. The scientist downplayed the knowledge he gained during the teleconference and its influence on the patent application, but the district court didn't buy the argument.
In preparation for a deposition by Gilead, Merck's outside counsel met with Dr. Durette for "six to seven hours on each of two days," according to the court. Dr. Durette also "spent eight to ten additional hours on his own" to prepare.
Gilead profited mightily from its Pharmasset buy in 2011. The California biotech made billions on the hep C meds it acquired, Sovaldi and Harvoni, both based on the compound discussed on the fateful call.
A Merck spokesperson said the company disagrees with the ruling "as it does not reflect the facts of the case." She said Merck is "reviewing our next steps."
RELATED: Gilead wins reversal of $2.54B hepatitis C patent verdict, but Merck says fight not over yet
In a separate case between the drugmakers, Gilead was able to overturn a much larger verdict—$2.54 billion—by arguing another Merck hep C drug patent was invalid. Gilead "met its burden to prove nonenablement by clear and convincing evidence," the judge wrote in that case.
Patents meet the enablement requirement when they "teach those skilled in the art how to make and use the full scope of the claimed invention without undue experimentation," the judge wrote. Merck said it would appeal.