On Thursday, July 27th, the U.S. Court of Appeals for the Federal Circuit issued a decision in Regeneron Pharmaceuticals, Inc. v. Merus N.V. in which the Court (Chief Justice Prost with Judge Wallach joining) upheld the determination that the patent owned by Tarrytown, NY-based biotech firm Regeneron (NASDAQ:REGN) was unenforceable. The decision affirmed a lower court’s finding based on Regeneron’s inequitable conduct during prosecution of the patent at the U.S. Patent and Trademark Office (USPTO), which was the result of the withholding of references from the USPTO that had but-for materiality.
The patent, which the Federal Circuit deemed unenforceable, is U.S. Patent No. 8502018, titled Methods of Modifying Eukaryotic Cells. Issued in August 2013, the patent discloses a genetically modified mouse comprising, in its germline, human unrearranged variable region gene segments inserted at an endogenous mouse immunoglobulin locus. The invention was designed to overcome problems in engineering precise modifications into very large genomic fragments by providing a rapid, efficient method for creating and screening eukaryotic cells containing modified endogenous genes or chromosomal loci.
In March 2014, Regeneron filed a patent infringement suit in the Southern District of New York against Dutch biotech firm Merus (NASDAQ:MRUS) to remedy Merus’ infringement of the ‘018 patent. Regeneron alleged that Merus’ sole business purpose “appear[ed] to be directed to a genetically modified mouse that infringes Regeneron’s intellectual property;” Regeneron practices the technology itself with its VelocImmune mice designed to efficiently generate antibodies for rapid reformation into therapeutics. “Earlier generations of genetically modified animals used to produce antibodies suffered from serious health and functionality issues,” Regeneron’s complaint reads. “The VelocImmune® mouse makes part-human and part-mouse antibodies, which allows the VelocImmune® mouse to mount a healthy, functional and diverse immune response to produce antibodies that can be used in making human therapeutics.” Regeneron alleged that Merus has been funded by venture capitalists and some of the world’s largest pharma companies, including Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE), to infringe on the ‘018 patent.
In August 2014, Merus filed its first amended counterclaim, which raised issues with the prosecution history of the patent application for the ‘018 patent. Merus alleged that the ‘018 was unenforceable because prior art references that were material to patentability, and which were known to two attorneys involved with the prosecution of that patent application, were not presented to the USPTO despite the duty those attorneys had in disclosing the information pursuant to 37 CFR 1.56.
The attorneys “repeatedly sought to distinguish the prior art before the Examiner on the basis that it did not teach insertion or integration of human variable region gene segments into the mouse immunoglobulin loci,” Merus’ counterclaim reads. Merus cited a series of publications dating back as early as 1993 which discussed strategies for expressing human antibody repertoires in transgenic mice as well as the targeted insertion of a variable region gene into the immunoglobulin heavy chain locus. In November 2015, Judge Katherine B. Forrest entered a final judgment in the case, which granted Merus’ counterclaim that the ‘018 patent was unenforceable in light of Merus’ allegations of the ‘018 patent being procured through inequitable conduct.
In its appeal to the Federal Circuit, Regeneron appealed the findings of unenforceability as well as the district court’s construction of various claims and its determination of indefiniteness. Regeneron had argued that, although they admitted that the withheld documents were known to the prosecuting attorneys, the documents themselves were not but-for material and therefore there was no obligation to disclose those documents. In Regeneron’s view, the withheld documents were cumulative of other references the USPTO relied on during prosecution and Regeneron had no specific intent to deceive the USPTO.
In determining that Regeneron had engaged in inequitable conduct, which rendered the ‘018 patent unenforceable, the Federal Circuit applied a standard stemming from that Court’s May 2011 decision in Therasense, Inc. v. Becton, Dickinson and Company. “Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent,” the Therasense decision reads. Whereas validity defenses are claim specific, an entire patent is unenforceable if inequitable conduct regarding even a single claim has been committed.
Under the standard set by Therasense, Merus was required to prove not only the materiality of the withheld references but also that the patent owner acted with specific intent to deceive the USPTO. “Direct evidence of intent is not, however, required,” the Federal Circuit’s decision reads. “A court may infer intent from circumstantial evidence.” In the first step of the inequitable conduct test applied by the Federal Circuit judicial panel, the panel applied the broadest reasonable construction to the patent claims and determined that the district court did not err in finding that the withheld references were but-for material in light of the court’s claim construction.
As to determining that Regeneron had engaged in the patent prosecution process with the intent to deceive the USPTO, the Federal Circuit noted that “Regeneron’s behavior in district court was beset with troubling misconduct.” While the litigation misconduct identified by Regeneron went beyond the scope of an inequitable conduct determination (as later noted by Judge Newman in dissent), the majority was deeply concerned and seemed clearly influenced by the repeated litigation misconduct when making its determination on inequitable conduct. Having said that, some of the misconduct did indirectly relate to inequitable conduct and what seemed to be an attempt by Regeneron to withhold relevant. The Federal Circuit majority noted the existence of a memo drafted by an outside patent attorney during the prosecution of the ‘018 patent which discussed whether certain prior art references presented to the European Patent Office by a third party should be presented to the USPTO; Regeneron originally claimed this as privileged information but then disclosed the memo just before the memo’s writer was deposed in the case.
Perhaps noteworthy, Judge Pauline Newman dissented, believing that evidence of inequitable conduct had not been established. She concluded in her 19 page dissent:
The premises of the law of inequitable conduct have not been established by clear and convincing evidence. Intent to withhold material references in order to deceive the examiner was not found by the district court, and cannot be inferred. These four additional references were not but-for material to patentability, and specific intent to deceive was not shown. From my colleagues’ contrary ruling, I respectfully dissent.
Judge Newman was troubled that the majority made so much of the litigation misconduct relating to the privilege log and discover of infringement, which bear no relevance in a determination on inequitable conduct. “Intent to deceive the examiner cannot be inferred from purported litigation misconduct several years later,” Newman wrote. She is, of course correct. To the extent that the majority allowed litigation misconduct to at all influence their determination that inequitable conduct occurred the decision on inequitable conduct is hopelessly compromised.