Opinion ID: 4190033
Heading Depth: 3
Heading Rank: 3

Heading: Documents on the privilege log relating to

Text: 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 34 REGENERON PHARMACEUTICALS v. MERUS N.V. 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 REGENERON PHARMACEUTICALS v. MERUS N.V. 35 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. 4 Regeneron contends that it was improper for the district court to apply an adverse inference here. According to Regeneron, under Second Circuit law, a district court may only apply an adverse inference when a particular piece of evidence is missing, destroyed, or untimely produced. Appellant’s Br. 57–58 (citing Residential Funding, 306 F.3d at 106). 6 Because the district court did not apply the adverse inference to any particular piece of evidence, Regeneron argues that the district court abused its discretion. We disagree. Although Regeneron relies on Residential Funding for its argument, that case does not support Regeneron’s position. There, the Second Circuit explained that a district court may properly draw an adverse inference when a party engages in discovery abuses even when no particular piece of evidence is missing, destroyed, or untimely produced. Residential Funding, 306 F.3d at 107. In fact, the Second Circuit goes on to clarify that when “the alleged breach of a discovery obligation is the 6 We apply the law of the relevant regional circuit with respect to privilege disputes that do not implicate substantive patent law. See GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1272 (Fed. Cir. 2001). 36 REGENERON PHARMACEUTICALS v. MERUS N.V. non-production of evidence, a district court has broad discretion in fashioning an appropriate sanction, including the discretion to . . . proceed with a trial and give an adverse inference instruction.” Id. (emphasis added). Residential Funding confirms the broad discretion of district courts in sanctioning parties for violating discovery obligations, and never limits the power of the district court to only apply adverse inferences against specific pieces of evidence that are missing, destroyed, or untimely produced. Regeneron also argues that the district court’s sanction was not an adverse inference but was, in fact, a dismissal which should have required a predicate finding of bad faith. Appellant’s Br. 57–63. As explained above, however, the district court’s sanction was not a dismissal but was a properly drawn adverse inference against Regeneron. Even Regeneron admits that bad faith is not required for such a sanction. See Reply Br. 27 (“That matters because, although an ordinary adverse inference does not require a finding of bad faith, more punitive sanctions do.”); accord Residential Funding, 306 F.3d at 101 (“[D]iscovery sanctions, including an adverse inference instruction, may be imposed where a party has breached a discovery obligation not only through bad faith or gross negligence, but also through ordinary negligence.”). 7 7 Although neither party addressed this issue, Residential Funding may have been superseded in part by the 2015 Amendment to the Federal Rule of Civil Procedure Rule 37(e). As the Advisory Committee Notes to the rule state, the new Rule 37(e) “rejects cases such as Residential Funding . . . that authorize the giving of adverse-inference instructions on a finding of negligence or gross negligence.” Rule 37(e), however, only applies to sanctions based on a party’s “failure to preserve electroniREGENERON PHARMACEUTICALS v. MERUS N.V. 37 The dissent relies heavily on Aptix Corp. v. Quickturn Design Systems, Inc., 269 F.3d 1369 (Fed. Cir. 2001), for the proposition that litigation misconduct cannot support a finding of unenforceability of a patent for inequitable conduct. Dissent at 3–6. Neither the parties nor the district court relied on Aptix, and for good reason. Aptix is inapposite. In Aptix, the district court declared a patent unenforceable as a “penalty” because Aptix engaged in litigation misconduct under the doctrine of unclean hands. 269 F.3d at 1378. We reversed that decision holding that “the doctrine of unclean hands [does not] provide a suitable basis for the district court’s judgment, as this equitable doctrine is not a source of power to punish.” Id. We did so because “the relief for unclean hands targets specifically the misconduct, without reference to the property right that is the subject of the litigation.” Id. at 1376. Essentially, we held that courts may not punish a party’s postprosecution misconduct by declaring the patent unenforceable. Here, Regeneron is accused not only of post- prosecution misconduct but also of engaging in inequitable conduct during prosecution. Cf. Dissent at 4 (“[I]n order to invalidate the patent, the inequitable conduct must have occurred in patent prosecution.”). Regeneron’s litigation misconduct, however, obfuscated its prosecution misconduct. In particular, Regeneron failed to disclose documents directly related to its prosecuting attorneys’ mental impressions of the Withheld References during prosecution of the ’018 patent. The district court drew an adverse inference to sanction this litigation misconduct. The district court did not punish Regeneron’s litigation cally stored information.” For sanctions based on other discovery misconduct, Residential Funding remains good law in the Second Circuit. 38 REGENERON PHARMACEUTICALS v. MERUS N.V. misconduct by holding the patent unenforceable. Only after Merus proved the remaining elements of inequitable conduct did the district court hold the patent unenforceable. In light of Appellant’s widespread litigation misconduct, including Appellant’s use of sword and shield tactics to protect Drs. Smeland and Murphy’s thoughts regarding disclosure of the Withheld References to the PTO during prosecution of the ’018 patent, we conclude that the district court did not abuse its discretion by drawing an adverse inference of specific intent to deceive the PTO.