A federal judge has reversed a jury's verdict that Gilead Sciences Inc. should pay $200 million to Merck & Co. in a drug-patent dispute, after the judge concluded Merck engaged in misconduct in its efforts to obtain patents for hepatitis C drugs.

U.S. District Judge Beth Labson Freeman castigated Merck in a 65-page order filed in federal court in San Jose, Calif., on Monday, concluding a former Merck in-house patent attorney involved in obtaining patents for hepatitis C drugs was "dishonest and duplicitous" and thus "crossing the line to egregious misconduct."

"Merck is guilty of unclean hands and forfeits its right to prosecute this action against Gilead," the judge wrote.

The ruling overturns the March decision by a federal jury ordering Gilead to pay Merck $200 million, after finding that two U.S. patents held by Merck and its partner, Ionis Pharmaceuticals Inc., were valid and infringed by Gilead's multibillion-dollar hepatitis C drugs, Sovaldi and Harvoni. The trial arose from Gilead's 2013 lawsuit seeking a judgment that the Merck patents were invalid.

The Merck-Ionis patents cover a range of compounds treating hepatitis C. Merck recently began selling its own hepatitis C drug, Zepatier. Gilead recorded $19.1 billion in combined 2015 sales for Harvoni and Sovaldi.

After the jury verdict and award in March, Judge Freeman presided over a bench trial in which Gilead argued it shouldn't have to pay Merck because Merck was dishonest in obtaining its patents.

Gilead said that in 2004, then-Merck patent attorney Philippe Durette had a conference call with employees of Pharmasset Inc., in which he learned the chemical structure of an experimental hepatitis C drug that Pharmasset was developing, code-named PSI-6130. Gilead later spent more than $11 billion to acquire Pharmasset and its hepatitis C drugs.

Gilead said Mr. Durette misused what he learned on the call to subsequently change claims in pending Merck patent applications in a way that would cover Pharmasset's technology.

Judge Freeman largely sided with Gilead in her ruling on Monday, finding that Mr. Durette lied to Pharmasset by saying he wasn't involved in Merck's internal hepatitis C research, and that he subsequently lied about the 2004 conference call in a deposition and court testimony in the patent lawsuit.

Mr. Durette couldn't be reached for comment. A call made to a phone number listed for him wasn't answered.

A Merck spokeswoman said Mr. Durette no longer works for the company. She said the judge's ruling "does not reflect the facts of the case," and it plans to appeal. She said the jury recognized that patent protections are essential to the development of new medical treatments.

A Gilead spokeswoman said the company was pleased with the ruling. "Gilead has always believed Merck's patents are invalid and unenforceable, and we feel vindicated by today's decision," she said.

Write to Peter Loftus at peter.loftus@wsj.com

(END) Dow Jones Newswires

June 07, 2016 16:45 ET (20:45 GMT)

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