Whether a willful infringer is liable for enhanced damages must be determined according to the discretion of the district court. In Halo Electronics, Inc. v. Pulse Electronics, the US Supreme Court abrogated the prevailing Federal Circuit bright line test for determining enhanced damages finding the test to be overly rigid and inconsistent with the language of 35 U.S.C. § 284. It objected to the test’s threshold requirement that there be a finding of objective recklessness before enhanced damages could be awarded. Halo at p. 9. In the Court’s words, this requirement excluded “from discretionary punishment many of the most culpable offenders, such as the “wanton and malicious pirate” …” Id.
Section 284 simply states that upon finding for the claimant in a patent infringement case, “the court may increase the damages up to three times the amount found or assessed.” In Halo, the Court observed that the word ‘may’ clearly connoted discretion and that enhanced damages are generally reserved for egregious cases of culpable behavior. Id at p. 8-9
Idenix Pharmaceuticals LLC v. Gilead Pharmaceuticals, Inc., C.A. No. 14-846-LPS (Delaware Dist. Court, Sept 22, 2017) (“Idenix v. Gilead”), is a good example of the exercise of such discretion by a district court. Rich in facts, the case is suitable for the application of the flexible contextual standards the Supreme Court showed preference for in Halo. Also, the case involves balancing the public good of promoting innovation by deterring willful infringement against the public good of facilitating imitation and refinement through imitation. It is apparent from the Court’s reasoning that it was being very mindful that without the particular “refinement through imitation,” involved in the case, a life-saving cure for hepatitis C would not have been discovered. Enhanced damages were not awarded. Relevant facts and analysis follow.
In December, 2013 Idenix filed a suit against Gilead for infringement of U.S. Patent Nos. 6,914,054 (the “’054 patent”) and U.S. Patent No. 7,608,597 (the “’597patent”). Both patents claim methods of treating HCV by administering an effective amount of a 2?-methyl “up” ribonucleoside. To narrow issues, Idenix granted Gilead a covenant not to sue as to the ’054 patent. As such, only the ’597 patent remained in the case. Claim 1 of the ’597 is illustrative and reads:
A method for the treatment of a hepatitis C virus infection, comprising administering an effective amount of a purine or pyrimidine ?-D-2?-methyl-ribofuranosyl nucleoside or a phosphate thereof, or a pharmaceutically acceptable salt or ester thereof.
Gilead markets the drugs Sovaldi® and Harvoni® for treating hepatitis C virus infection. The active ingredient of each drug is sofosbuvir. Sofosbuvir is a ribofuranosyl nucleoside phosphate derivative in which the 2′ position of the sugar contains a fluorine atom oriented down and a methyl group oriented up (2′-methyl-up-2′- fluoro-down).
According to Idenix, Gilead’s sofosbuvir containing products infringe the ’597 patent since the patent covers sofosbuvir. The ’597 patent claims priority to a provisional application filed on May 2000, which is much earlier than the priority date of the Gilead patent covering sofosbuvir. Following a trial held in December, 2016, a jury returned a verdict for Idenix on all issues, finding also that Gilead willfully violated the patent. Idenix v. Gilead at 1. The jury awarded Idenix 10% royalty for past damages amounting to $2.54 billion (making it the largest patent infringement award in history). Id. Idenix then requested the Court to exercise its discretion to enhance damages based on the jury’s finding of willful infringement and to require Gilead to pay its attorney fees. The Court did neither. Only the issue of enhanced damages is the subject of this post.
At the outset, the Court referred to Halo, reminding that even when the conduct warranting enhanced damages is “willful, wanton, malicious, …indeed – characteristic of a pirate,” there is no requirement that enhanced damages must follow a finding of egregious misconduct. Id. at 2. As with any exercise of discretion, it is important, however, that the particular circumstances of the case be taken into account. Id. at 3.
Idenix’s request for enhancement was based on three main grounds: (1) a properly instructed jury had found that Gilead’s infringement was willful; (2) Gilead and its predecessor, Pharmasset, engaged in a pattern of egregious misconduct; and (3) the “Read factors” supported its request. The court undertook a full analysis of each of these grounds. Id. at 4.
As to the finding of willful infringement, the Court said that, although necessary, it was not a sufficient basis for enhancing damages and that it merely opened the door for the Court to exercise its discretion. Id. at 5.
Regarding egregious misconduct, it took as true the violation by Pharmasset’s founder, Dr. Schinazi, of his confidentiality obligations to Idenix and his sharing with Pharmasset scientists Idenix’s proprietary discoveries relating to the treatment of HCV – specifically, the use of 2′-methyl up modified nucleosides. Id. at 6. The Court took note of several other facts: upon receiving information about Idenix’s discoveries, Pharmasset scientists expressed hopelessness that there would be nothing left for them to patent from their concurrent development efforts; internal Pharmasset documents referred to the Pharmasset 2′-methyl-up-2′- fluoro-down compound as an “Idenix derivative” and there was an effort to replace similar references to the “Idenix compound” with references to the chemical name of the compound; when a Pharmasset scientist was describing his breakthrough – the synthesis of the 2′-methyl up 2′-fluoro down compound – to his boss, he had Idenix’s patent application in hand. Id. It noted also that the jury had implicitly found that the concerned Pharmasset scientists had copied (and were assisted by) Idenix’s work. Id. Nevertheless, the Court determined that the conduct favored enhancement of damages only when viewed alone, not in the context of the whole case. Id.
Turning to the Read factors, the Court disagreed that they supported Idenix’s request for enhanced damages. Read factors are a non-exhaustive list of guideposts described in Read Corp. v. Portec, Inc., 970 F.2d 816 (Fed. Cir. 1992) for deciding whether an infringer acted in such bad faith as to merit an increase in damages. The factors are: (1) whether the infringer deliberately copied the ideas or design of another; (2) whether the infringer, based on investigation, had a good faith belief of invalidity or non-infringement; (3) the infringer’s behavior as party to the litigation; (4) the infringer’s size and financial condition; (5) closeness of the case; (6) duration of the misconduct; (7) whether the infringer took any remedial action; (8) any motivation for harm on the part of the infringer; and (9) whether the infringer attempted to conceal the misconduct.
The Court found that only two factors, deliberate copying by Gilead and its attempts to conceal misconduct, favored enhancement. All of the other factors, except Gilead’s size and financial condition (which was neutral), disfavored enhancement. The Court’s analysis of the Read factors is described below.
Deliberate copying, the first Read factor, was found to favor enhancement. However, the court observed that there was substantial evidence on both sides. Id. at 7. For example, it noted that in response to the copying charge, Gilead stated that Pharmasset had affirmatively reviewed Idenix’s patent application, determined that its compound of interest was not among the closed list of potential compounds described in the patent application, and made and tested the compound – noting also that Idenix had been unable to make and test the compound until after it reviewed Pharmasset’s application. Id.
Next, the court found that Gilead, based on investigation, did have a good faith belief of invalidity or non-infringement of the ‘597 patent (second Read factor). Id. at 8. It noted that after becoming aware of Idenix’s patent application, Pharmasset’s Dr. Otto’s had instructed Pharmasset chemists to look for holes/areas that likely were not being worked on by others, and which Pharmasset might work on and still get an invention. Id. It noted also that both Dr. Otto and Pharmasset’s Jeremy Clark, who had conceived of the idea of a 2′-methyl up 2′-fluoro down nucleoside, believed that the fluorine compound was novel and not described in Idenix’s patent application. Id.
Regarding Gilead’s behavior as party to the litigation (third Read factor), the Court disagreed with Idenix that Gilead took unreasonable steps, e.g., waiting unreasonably until just before the trial to concede infringement. Id. at 9-10. It pointed out that Gilead did not concede infringement; Gilead only decided that it could not prevail on an infringement dispute that was based on a claim construction it disagreed with. Id.
Gilead’s size and financial condition, while being large and healthy, respectively, and capable of supporting enhancement, did not, according to the Court, merit any weight under the circumstances. Id. at 10. It implied that, typically, this factor weighed against enhancement, e.g., in situations when the other Read factors strongly favored enhancement but the infringer’s financial condition was such that it would have gone out of business if enhanced damages were levied. Id. Also, the Court gave weight to Gilead’s explanation that while it undoubtedly profited from sofosbuvir, it also took a major risk in acquiring Pharmasset for $11 billion when it did not know whether sofosbuvir would succeed in clinical trials or that Idenix’s lead compound would fail. Id. at 10-11.
The fifth Read factor – closeness of the case – was found to strongly disfavor enhancement. Every aspect of the case, the Court stated, was close and could have gone the other way. Id. at 11. Claim construction, in particular, presented difficulty since Idenix’s patent failed to expressly disclose fluorine at the 2′ down position. Id.
The duration of Gilead’s misconduct and whether it took any remedial action, the next two Read factors, were also found to disfavor enhancement. According to the Court, even granting that Gilead’s misconduct began in 2001 with Dr. Schinazi violating his confidentiality agreement with Idenix, one could not reasonably conclude that what took place was an “uninterrupted 16-year saga of unremediated wrongs.” Id. at 12. In this regard, the Court noted that Dr. Schinazi was made to leave Pharmasset in 2005; Idenix’s patent did not issue until October 2009; Gilead did not launch an accused product until December 2013; and only in December 2015, when the Court issued its claim construction order, did Gilead find out that Idenix’s claims covered 2′-methyl up 2′- fluoro down compounds. Id..
As to any motivation for harm on the part of the Gilead, the court found there was none. Other than a healthy motive for profits, shared also by Idenix, Gilead, the Court sated, was motivated to “develop a cure to a devastating, life-threatening disease.” Id. at 12-13.
Finally, as to whether Gilead attempted to conceal the misconduct, the Court noted that even though the jury had heard that internal Pharmasset documents were modified to remove references to Idenix (changing “Idenix compound” to read “2′-C-methyl-Cytidine”), Pharmasset had not entirely concealed its work. Id. at 13. It pointed out, for example, that Pharmasset had sought a patent on the compound the application for which was published. Id. Hence, this factor was found to only weakly favor enhancement.
There were two additional considerations. First, the Court felt that weight had to be given to the fact that Gilead’s misconduct resulted in a cure for a potentially fatal disease afflicting millions of people, and that the damages awarded by the jury was already the largest ever seen in a patent trial. Id. at 14-15.
Second, going a step further, the Court observed that it could not firmly state that the conduct the jury implicitly found Gilead to have committed (i.e. underhanded corporate piracy) should be deterred. It noted that even if Idenix’s view of evidence regarding Dr.Schinazi and Pharmasset scientists was accepted, the fact remained that Idenix had not synthesized or at least had not recognized that it had synthesized the key 2′-methyl up 2′-fluoro down compound until well after its synthesis by Pharmasset. Id. at 15. It also pointed to the fact that throughout trial, Idenix had stressed that the 2′-methyl up 2′-fluoro down compound was an improvement by Pharmasset and Gilead on Idenix’s invention. Id. As such, the jury may have found that the discovery of the cure for HCV was due only to the combination of Idenix’s results that 2′-methyl up nucleoside compounds were potent against HCV and the refinement by Gilead through introduction of fluorine at the 2′-down position. Id. at 15-16.
To summarize, the Court noted that the goal of the patent system is to encourage, not deter, innovation on existing ideas that may reasonably appear to be outside the scope of another’s patent. Id. at 16. It pointed again to Halo in which the Supreme Court reiterated that “patent law reflects a careful balance between the need to promote innovation through patent protection, and the importance of facilitating the imitation and refinement through imitation that are necessary to invention itself and the very lifeblood of a competitive economy.” Id. This sums up quite well the basis for the Court’s exercise of discretion in denying enhanced damages to Idenix regardless of Gilead’s culpable behavior. No doubt, there would be strong views favoring the opposite outcome based on the belief that facts overwhelmingly showed that this was no garden-variety infringement and that Gilead’s success was based on years of gross misconduct.