Why is Gilead on the hook for Kite's Patent Miscues?

Gaston Kroub

One of the biggest patent cases in memory — the long-running battle between Sloan Kettering/BMS (via Juno and then Celgene) and Gilead’s Kite Pharma — just got bigger. Which will inevitably lead to one of the most high-stakes Federal Circuit appeals of all time, especially in a case involving a single patent. In December 2019, a Los Angeles jury quickly returned an unanimous verdict finding that Kite’s YESCARTA® infringed Sloan’s ‘190 patent, while also awarding all of the requested damages to the tune of $750+mm in total damages, including a (huge by patent standards) 27.6% running royalty. Besides for being one of the largest patent verdicts of all time, the jury’s verdict set the stage for a full round of post-trial motions, headlined by the Court’s consideration of Sloan’s request for enhanced damages based on Kite’s willful infringement.

On April 2, 2020, the Court issued its decision on those motions. While that decision is full of interesting analysis, it is perhaps most interesting for the following reason: It holds Gilead — Kite’s acquirer — responsible for conduct that Kite engaged in while “rushing a product to market.” In particular, the Court found that Kite was reckless because it “attempted aggressively to license the '190 Patent, affirmatively attempted to invalidate the '190 Patent by filing an IPR, then when neither of those steps was successful, chose to accelerate YESCARTA® to market to its own advantage and to Plaintiffs' corresponding detriment, all while knowing that Plaintiffs' assertion of the '190 Patent in this litigation was, by Defendant's own admission, "inevitable." The Court finds this behavior rises to the level of wanton, malicious and bad-faith behavior required for willful infringement.” (Order at 10). As a result, enhanced damages were warranted, though those damages were discounted to only 50% of the jury’s award because of the life-saving nature of YESCARTA®. Which was a big win for Gilead, at least in the sense that treble damages for enhancement were on the table.

Still, Gilead was effectively faulted by the Court — and now faces a big bill pending appeal — because it agreed to acquire Kite and launch YESCARTA® despite knowing of the significant patent risk posed by the ‘190 patent. In short, the Court found that Gilead should pay a penalty for willful infringement because it endorsed and followed through on Kite’s improper “first-to-market” strategy as a way of securing financial benefit — patent infringement be damned. (Order at 19). Especially where Gilead’s current financial condition easily supports payment of that penalty.

While investors can draw their own conclusions as to whether Kite’s strategy paid off (for itself, or for Gilead) even with the negative patent litigation results to date, it is clear that the appeal of this case is one to watch for both Gilead and BMS investors. With so much money at stake, as well as the risk that BMS will benefit going forward from YESCARTA® sales, this case illustrates the importance of IP due diligence in biopharma acquisitions, as well as the outsized value patents continue to command for true scientific advances.