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Attorney Argument Regarding What Inferences to Draw and Not Disclosing Details of a Process for a Defense Under 35 U.S.C. § 102(g) When the Patent Covered a Process Broadly Did Not Amount to Fraud

November 16, 2007

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Last Month at the Federal Circuit - December 2007

Judges: Newman (author), Rader, Prost

[Appealed from: N.D. Ill., Judge Kennelly]

In Apotex Corp. v. Merck & Co., No. 06-1405 (Fed. Cir. Nov. 16, 2007), the Federal Circuit affirmed the district court’s denial of Apotex Corp.’s (“Apotex”) motion to set aside a judgment on charges of fraud and its refusal to compel discovery sought by Apotex.

In 1996, Apotex filed suit against Merck & Co., Inc. (“Merck”), alleging that Merck’s process for formulating and producing tablets of the pharmaceutical enalapril (brand name VASOTEC® and used to treat high blood pressure) infringed Apotex’s U.S. Patent Nos. 5,573,780 and 5,690,962. In January 2000, the district court ruled that the Apotex patents were invalid under 35 U.S.C. § 102(g) because the claimed process had been invented and used by Merck before Apotex. Apotex Corp. v. Merck & Co., No. 96 C 7375, 2000 WL 97582 (N.D. Ill. Jan. 25, 2000) (“Apotex I”). The Federal Circuit affirmed. Apotex USA, Inc. v. Merck & Co., 254 F.3d 1031 (Fed. Cir. 2001) (“Apotex II”).

More than one year later, Apotex initiated the current action seeking to set aside the judgment in the earlier action on charges of fraud, pursuant to Fed. R. Civ. P. 60(b)(3). Apotex also asserted state law claims against Merck for common law fraud and tortious interference with prospective economic advantage, and sought to compel discovery pursuant to the crime fraud exception to the attorney-client privilege. Apotex alleged that Merck had falsely stated, in response to a discovery request in the earlier action, that the entire process was publicly disclosed, and that the process had not been abandoned, suppressed, or concealed. Apotex also claimed that Merck misrepresented facts in its SJ and appellate briefs in Apotex I and Apotex II, respectively. The district court did not agree, finding that the aspects that Apotex stated established Merck’s fraud concerned details of Merck’s process for manufacturing enalapril, and not information claimed in or disclosed by the Apotex patents. The district court also observed that various allegedly fraudulent statements were not testimony or evidence, but attorney argument. As to Apotex’s request to compel discovery of privileged communications between Merck and its attorneys, the court ruled that Apotex had made no showing sufficient to invoke the crime fraud exception to the attorney-client privilege. The district court also dismissed Apotex’s state law claims. Apotex appealed the district court’s ruling that fraud had not been established.

On appeal, the Federal Circuit observed that Rule 60(b)(3) provides that a judgment can be set aside for fraud or misrepresentation only when the motion is made within a year after the judgment, unless there was “fraud upon the court” or other egregious act not previously uncovered. Slip op. at 6. The Court noted that fraud upon the court requires that “there was a material subversion of the legal process such as could not have been exposed within the one-year window; it requires rigorous proof, as do other challenges to final judgment, lest the finality established by Rule 60(b) be overwhelmed by continuing attacks on the judgment.” Id. The Court explained that fraud upon the court is typically limited to egregious events, such as bribery of a judge or juror, or improper influence exerted on the court, affecting the integrity of the court and its ability to function impartially. Such issues, noted the Court, are not subject to a one-year limitation, but must be raised within a reasonable time of discovery of the fraud.

In view of these principles, the Federal Circuit determined that no error had been shown in the district court’s analysis and conclusions. It agreed that Merck’s processing details, which were not asserted to be invented by Apotex, did not warrant detailed disclosure, and that the presentation of the Merck process did not establish fraud on the court. The Federal Circuit added that the various other aspects raised by Apotex related to issues that were tried in 2000 and decided in Apotex I, and appealed and decided in 2001 in Apotex II. The Court concluded that the district court correctly ruled that “evidence that was adduced and argument presented at trial [did] not establish corruption of the judicial process.” Id. at 9. Accordingly, it affirmed the district court’s denial of Apotex’s motion to set aside the judgment in Apotex I for fraud.

The Federal Circuit also affirmed the district court’s refusal to compel discovery of material that was subject to the attorney-client privilege. Apotex argued that discovery of privileged material was available under the crime-fraud exception, and that since fraud was committed, the privilege did not apply and, therefore, that Apotex was entitled to the requested discovery. Specifically, Apotex argued that Merck’s counsel made fraudulent statements during the earlier litigation. The district court found that the accused statements were simply attorney argument as to the inferences to be drawn from the evidence, and that falsity had not been shown. Agreeing with the district court, the Federal Circuit explained that to obtain the crime fraud exception to the privilege, Apotex must make a prima facie showing of some foundation for the asserted fraud and that Apotex had not done so. Accordingly, it held that the district court did not abuse its discretion in refusing to compel discovery.