In 2016, the pharmaceutical company Merck won a $200 million jury verdict against its competitor Gilead, based on Merck’s claim that Gilead infringed Merck’s drug patents. But three months later the judge completely barred Merck from enforcing its patents against Gilead, after concluding that Merck had “unclean hands” as a result of a “pervasive pattern of misconduct” that included “lying,” unethical business conduct,” and “litigation misconduct.” The $200 million verdict vanished in a puff of smoke.
That result was affirmed by a federal circuit court of appeals in April 2018, and in January 2019 the United States Supreme Court declined to review the circuit court’s decision, leaving Merck out in the cold with its unclean hands and without its money.
What are unclean hands? And how can they cost $200 million?
“Unclean hands” is a metaphor for the judicial standing of a party who asks for justice while carrying the stain of responsibility for a related injustice. Under the equitable doctrine of unclean hands, “A party ‘may be denied relief where his conduct has been unconscionable by reason of a bad motive, or where the result induced by his conduct will be unconscionable either in the benefit to himself or the injury to others.’” In certain circumstances the court has discretion to withhold its assistance (in the form of an order or judgment) from individuals who have acted badly. The court will not deign to lend its equitable aid to a wrongdoer who claims to have been wronged.
“Unclean hands” is a metaphor for the judicial standing of a party who asks for justice while carrying the stain of responsibility for a related injustice.
This rule makes intuitive playground sense. It also runs contrary to other principles that routinely play out in the law: if I make a contract and fail to fulfill it, I can’t argue to the court that the court shouldn’t enforce the contract because the other person on the contract has a bad motive, is vindictive, and wants to cause me harm. The law grants the other person the right to have the contract enforced, whatever his motives. So what makes “unclean hands” different?
The answer is complicated. American courts have two different categories of thinking about disputes, for reasons stretching into the dark recesses, formalistic language, and powdered wigs of England’s legal history. The categories are “law” and “equity.” There isn’t an easy way to describe the difference between them, and many of the differences have disappeared over time. In rough terms, the category of “law” is associated with formal rules, money damages, and juries, while the category of “equity” is associated with fairness, flexibility, and the discretion of the judge. A lawsuit for a breach of contract is an action at law. An injunction – an order of the court that a party do or refrain from doing something – is an important form of equitable remedy.
The answer, then, is that “unclean hands” is only a defense against a claim in equity. It will not protect a party against a claim at law. Except for in the Merck case, where unclean hands did protect against a claim at law.
Have we mentioned that the distinction between law and equity is messy?
Merck’s patent claim against Gilead was a claim for damages at law. And, according to Merck’s petition to the United States Supreme Court, “This case presents a fundamental question regarding the doctrine of unclean hands: Can that equitable defense be asserted to bar legal claims for damages? For centuries, the answer has been “no.” Unclean hands could preclude equitable relief, but provided no basis to refuse legal rights.”
These are fine points, but they were beside the point. The federal Patent Act, at 35 U.S.C. § 282(b), provides that “unenforceability” is a defense against patent infringement. Unclean hands is a form of unenforceability. Thus, through federal statute, in the context of patent litigation the unclean hands defense is available in an action at law, even though unclean hands ordinarily only applies against equitable claims.
In Minnesota, “ ‘Unclean hands’ requires more than ‘improper purpose’ or recklessness; it requires illegal or unconscionable conduct or a showing of bad faith.”
To bring things back to earth, there are some aspects of the unclean hands doctrine under Minnesota law which are (relatively speaking) less convoluted:
- Unclean hands is not easily demonstrated. “ ‘Unclean hands’ requires more than ‘improper purpose’ or recklessness; it requires illegal or unconscionable conduct or a showing of bad faith.”
- An unclean hands defense must be tied to the equitable relief claimed by the plaintiff; it is not enough to show that the plaintiff did some bad thing at some time, somewhere. The plaintiff’s wrongful conduct must relate to the plaintiff’s claim. It “does not apply where the relief sought by the plaintiff and the equitable right claimed by the defendant belong to or grow out of two entirely separate and distinct matters or transactions.”
- Unclean hands is a defense available to anyone – even a party with unclean hands. “The doctrine of ‘unclean hands’ bars a party who acted inequitably from obtaining equitable relief. . . . It does not bar a party with ‘unclean hands’ from opposing a request for equitable relief by the other side.”
- A party with unclean hands may “purge” herself of her “adverse equity” and thereby regain the ability to seek equitable relief from the court.
Keep those hands clean!
 “The most general distinction between law and equity in the early days was in the attitudes of the two systems toward formalism and discretion. Law was formal and rigid; equity was flexible, discretionary-a court of conscience.” Douglas Laycock, The Triumph of Equity, 56 Law & Contemp. Probs. 53, 71 (1993).
 Long ago, there were entirely different courts for claims at law and claims at equity. In most of the United States, the courts of law and equity were long ago consolidated, so that now the same court hears both types of claims.
 “The essence of equity jurisdiction has been the power of the Chancellor to do equity and to mould each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it.” State ex rel. Swan Lake Area Wildlife Ass’n v. Nicollet Cty. Bd. of Cty. Comm’rs, 799 N.W.2d 619, 626 (Minn. Ct. App. 2011).
 As explained by Merck’s attorneys in their petition to the United States Supreme Court, “The law-equity distinction traces to the 14th century, when English courts were divided into “common-law” courts and “chancery” courts. See T. Main, Traditional Equity and Contemporary Procedure, 78 Wash. L. Rev. 429, 440-443 (2003). While common-law courts could “award damages,” they could not “compel the performance of any duty.” E. Merwin, The Principles of Equity and Equity Pleading 17 (1895). The different courts also had different decision-makers—cases were tried to juries in courts of law, but to the chancellor in courts of equity. See P. Devlin, Jury Trial of Complex Cases: English Practice at the Time of the Seventh Amendment, 80 Colum. L. Rev. 43, 57-59 (1980). The “two utterly different systems” seldom interacted. Id. at 59.” (See page 5 of the petition.)
 For example, in a 2017 decision the Minnesota Court of Appeals rejected an unclean hands defense with the explanation, “The doctrine of unclean hands has no application here” because “Nothing in the record indicates that Nicolas Allard is requesting ‘equitable relief.’” In re Estate of Allard, No. A15-0296, sl. op. at 22-23 (Minn. Ct. App. Dec. 21, 2015).