After being sued for patent infringement by Regeneron, Merus asserted a counterclaim of unenforceability due to inequitable conduct. Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent. Inequitable conduct has two separate requirements: materiality and intent.
There was no question that Regeneron knew about several prior art references and did not disclose them to the Patent Office. Regeneron, however, took the position that there was no inequitable content because there was no specific intent to withhold the prior art references and that the prior art references were not material.
During litigation, Regeneron failed to disclose to Merus documents that were relevant to the issue of intent. “The district court concluded that many documents on the log were directly relevant to the topics as to which privilege has been waived. In particular, these documents were directly relevant to Drs. Smeland and Murphy’s mental impressions of the Withheld References during prosecution of the ’018 patent. The documents would have been relevant to determining if Regeneron specifically intended to deceive the PTO by failing to disclose the Withheld References during prosecution of the ’018 patent.”
The Federal Circuit affirmed the district court’s decision that “it was appropriate to draw an adverse inference against Regeneron from the undisclosed documents. In particular, the district court concluded that Regeneron failed to disclose the Withheld References to the PTO during prosecution of the ’018 patent with the specific intent to deceive the PTO.”
The district court also found (the Federal Circuit did not address this issue) that Regeneron had engaged in affirmative egregious misconduct—an alternative to but-for materiality—based on certain misleading statements Regeneron made to the PTO during prosecution.
Below is the relevant portion of the Federal Circuit’s decision:
The district court provided a lengthy list of Dr. Smeland’s problematic assertions to emphasize the seriousness of the issue. In particular, Dr. Smeland stated that:
• “I firmly believed—and still believe today— that Brüggemann, Taki, Zou and Wood were not material to patentability because they were substantially different from the mice claimed in the ’176 application . . . and were cumulative of other information before the Patent Examiner.”
• Dr. Smeland’s description of his understanding of what a materiality analysis for inequitable conduct involves: “Regardless of whether I satisfied the minimum requirements of being an ordinary skilled artisan, I felt comfortable evaluating the art from that perspective during the prosecution of the ’176 application. When I did have questions, however, I did not hesitate to reach out to those with more experience and knowledge.”
• “I routinely made Regeneron inventors aware of the foregoing obligations when providing them with invention declarations.”
• With regards to Brüggemann and Zou, “I was generally familiar with the subject matter of those two references . . . [a]t no time did I consider these references to be material to patentability to the claims pending in the ’176 application.”
• “Because of this experience [prosecuting the ’176 application as well as the ’287 Patent], I was readily familiar with both prior art that was before the Examiner in the ’176 application and the pending claims of the ’176 application.”
• “I viewed the analysis [relating to the Withheld References] as straightforward.”
• “I concluded that [the Withheld References], alone or combined with other prior art of which I was aware, were cumulative of information already before the Examiner. Furthermore, it was my view that the skilled artisan would not have viewed them as teaching the reverse chimeric inventions that the Examiner had allowed in the ’176 application.” Id. at 590–93.
These statements and others implicated Dr. Smeland’s knowledge and state of mind regarding the Withheld References directly—both during prosecution and continuing through to trial. During litigation, Regeneron made a choice to maintain the attorney-client privilege as to Dr. Smeland’s knowledge and thoughts about the Withheld References during prosecution of the ’176 application. In maintaining its assertion of privilege, Regeneron shielded Dr. Smeland’s documents relating to his knowledge and thoughts about the Withheld References during prosecution from disclosure. As with any affirmative disclosure of information otherwise protected by the attorney-client privilege, however, once the disclosure of the trial affidavit was made, as it was not inadvertent, the waiver was complete. See In re von Bulow, 828 F.2d 94, 102–03 (2d Cir. 1987) (“‘[S]ubject matter waiver’ . . . allows the attacking party to reach all privileged conversations regarding a particular subject once one privileged conversation on that topic has been disclosed.”); see also Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1349 (Fed. Cir. 2005) (“The widely applied standard for determining the scope of a waiver of attorney-client privilege is that the waiver applies to all other communications relating to the same subject matter.”).
Thus, on the day that Regeneron disclosed Dr. Smeland’s trial affidavit, it waived the privilege as to the subject matter of each of the topics the affidavit addressed. In particular, Regeneron waived privilege as to Dr. Smeland’s views on the broadest reasonable construction of the claim language, understanding of the technology, and materiality (including cumulativeness) of each of the Withheld References.
Regeneron argued that it had fully complied with its disclosure requirements throughout litigation. Merus, on the other hand, pointed to entries on Regeneron’s privilege log that seemed inconsistent with Regeneron’s representations. To resolve this dispute, the district court conducted an in camera review of a subset of the “many thousands” of documents on Regeneron’s log. Regeneron I, 144 F. Supp. 3d at 594. According to the district court, the log turned out to be a “Pandora’s Box.” Id. The district court’s in camera review revealed that there were dozens of “Smeland documents” that were not disclosed during litigation but as to which privilege had now been waived. The district court’s in camera review revealed additional serious discovery issues including a number of relevant non privileged documents that had been withheld on the basis of privilege and documents that should have been produced pursuant to the Order regarding the Jones Memo issue that had not been disclosed.
In all, the district court concluded that there were three categories of documents that presented serious concerns of discovery misconduct:
1. Non-privileged documents that were not produced and instead resided throughout litigation
on the privilege log (e.g., numerous Excel spreadsheets with scientific test results, third party filings to the PTO, and fact statements by non-lawyers not seeking legal advice).
2. Previously privileged documents as to which Regeneron affirmatively waived the privilege by disclosing the “Jones Memo” and that the district court ordered be produced pursuant to its Order.
3. Documents on the privilege log relating to precisely those topics waived by Regeneron when Regeneron filed trial declarations of Drs. Smeland and Jones.
The district court determined that Regeneron’s failure to make full and adequate production of documents in the first two categories during the period of fact discovery independently of the trial misconduct warranted serious sanction. But the third category was the most egregious. According to the district court, the production failure was undoubtedly larger than the few exemplars revealed by the court’s in camera review. Given the thousands of documents on Regeneron’s privilege log, the district court concluded that it could not possibly learn the full extent of the problem.
As to the first category, there were spreadsheets related to scientific tests, published articles, correspondence with third parties—all of which were relevant to issues in the case and should have been disclosed. Although the ultimate value of the documents in this category was unclear, it was clear that Merus should have received them well before trial.
In the second category, the district court concluded that there were a number of documents on the log involving Dr. Jones discussing his communication with the PTO during prosecution of the ’018 patent. These should have been produced as part of the “Jones Memo” waiver issue.
The third category was most troubling. In the third category, the district court concluded that many documents on the log were directly relevant to the topics as to which privilege has been waived. In particular, these documents were directly relevant to Drs. Smeland and Murphy’s mental impressions of the Withheld References during prosecution of the ’018 patent. The documents would therefore have been relevant to determining if Regeneron specifically intended to deceive the PTO by failing to disclose the Withheld References during prosecution of the ’018 patent.
Based on its review of the privilege log and its in camera review of some of the documents on the log, the district court concluded that Regeneron’s behavior warranted sanctioning. Before imposing its sanction, the district court considered several alternate options including allowing the trial declarations into evidence. To do so, however, the district court would have had to wholesale reopen discovery requiring “a top-to-bottom re-review of the Regeneron privilege log,” “additional document production, fact depositions, and revised expert reports and
depositions.” Regeneron I, 144 F. Supp. 3d at 594–95. Additionally, the district court noted that given its “concerns with Regeneron’s process to date, the [c]ourt would require that any such process only occur with the direct oversight of a special master.” Id. This would have significantly increased the time and cost for both Merus and the district court. As the district court noted, “[a]t this point in the litigation, this is not a fair burden for Merus or this [c]ourt.” Id.
The district court also considered whether striking the trial affidavits and precluding Drs. Smeland and Murphy from testifying at trial would be a sufficient remedy. The court concluded that it would not because doing so would not address the problems caused by the first two categories of undisclosed documents and would not address the delay and disruptions caused by Regeneron’s behavior throughout litigation.
The district court ultimately concluded that it would be unfair to Merus to reopen discovery on the eve of trial and inject further delay in the case entirely due to Regeneron’s behavior. The court also concluded that doing so would impose an unfair burden on the court and require expending substantial additional judicial resources. Further, because Regeneron’s behavior suggested “a pattern” of misconduct, simply reopening discovery, striking the problematic affidavits, and/or shifting costs would not ensure fairness. Id. at 595–96. Accordingly, the district court sought an alternative remedy and concluded that it was appropriate to draw an adverse inference against Regeneron from the undisclosed documents. In particular, the district court concluded that Regeneron failed to disclose the Withheld References to the PTO during prosecution of the ’018 patent with the specific intent to deceive the PTO.