The public doesn’t have a very high opinion of drug manufacturers for various reasons, and now federal Judge Beth Labson Freeman of San Jose has provided another one. Finding that Merck & Co. lied to a business partner and to the court itself, Freeman this week threw out a patent infringement judgment Merck had won against Gilead Sciences, and overturned a $200-million jury award in the case.

This is a big deal, involving one of the most profitable drugs on the market today — Gilead’s blockbuster Sovaldi treatment for the hepatitis C virus — and the world’s fourth-largest drug company Merck..

“This is a jaw-dropping reversal of fortune for Gilead and Merck,” concludes Randy Lilleston of BioPharmaDive. It’s also a window into the intricate dances drug companies do with each other when trying to make deals for potentially lucrative new drugs — and the perils of allowing a promising formula to fall into the wrong hands. It also places a different cast on a jury award that Merck had crowed over. In its announcement of its victory in March, the company spoke sanctimoniously about how the jury verdict “upholds patent protections that are essential to the development of new medical treatments.” Merck says it will appeal Freeman’s ruling.

Merck won the $200-million jury award in March, after accusing Gilead of infringing its patents for Sovaldi. Gilead claimed in response that the patents were invalid, but it really drew blood when it accused Merck of misconduct and the patent defense of “unclean hands.”  The judge, plainly aghast at what she learned, spared no invective in lowering the boom on Merck, finding the company guilty of “numerous unconscionable acts.”

Most stemmed from Merck’s underhanded interactions with Sovaldi’s inventor, Pharmasset, which was acquired by Gilead for $11 billion. That deal proved to be a bargain, as Sovaldi and its related treatment Harvoni have brought Gilead more than $20 billion in sales since 2013. The drugs are so effective that Gilead’s stratospheric pricing for them has become Exhibit A in the national controversy over the cost of drugs.

“Merck’s misconduct includes lying to Pharmasset, misusing Pharmasset’s confidential information, breaching confidentiality and firewall agreements, and lying under oath at deposition and trial,” Freeman ruled.

Much of the judge’s ire was directed at retired Merck patent attorney Phillippe Durette, who was working on patents for antiviral drugs during a period when Merck was trying to do a deal with Pharmasset, which was developing the formulation that was then known as PSI-6130 and would eventually be marketed as Sovaldi.

As is often the case, Merck signed a nondisclosure agreement, or NDA, with Pharmasset, pledging not to use the latter’s secret information for any purpose other than to decide whether to pursue the relationship. Pharmasset turned over information including the structure of PSI-6130 to a single Merck scientist who was to be “firewalled” — that is, he couldn’t discuss it with anyone in Merck’s own drug development loop.

That worked until a March 2014 conference call between Merck and Pharmaasset officials regarding a possible business deal. Pharmasset was willing to reveal the structure of PSI-6130 on the call, because it was led to believe everyone on the call would be subject to the confidentiality agreement or firewalled. But it included Durette, who wasn’t firewalled and was in a position to turn what he heard into a potential goldmine for Merck.

According to Freeman, that’s what happened. Durette shouldn’t have been allowed on the call, she found, but afterward he should have been excluded from Merck’s other related patent program. Instead, he subsequently rewrote Merck’s earlier patent claims so that they would appear to apply to Pharmasset’s upcoming release of PSI-6130.  In 2011, Merck even threatened Pharmasset with a patent lawsuit over the drug.

What irked the judge even more, she ruled, is that Durette lied about attending the conference call. In a deposition, he repeatedly denied having been on the call. He recanted from the witness stand at trial only after he was confronted with notes taken by a Pharmasset employee during the call, showing that he had participated. At that point, he pleaded a faulty memory.

Freeman didn’t buy it. “It is overwhelmingly clear…,” she ruled, “that Dr. Durette sought at every turn to create the false impression that Merck’s conduct was aboveboard.” She blamed Merck, which she said “sponsored and encouraged” his conduct, then sought to minimize its importance by attributing the fiasco to “the failed memory of a retired employee.”

But it was central to Merck’s case. Adding to the temerity of the big drugmaker, it originally sued Gilead for $2 billion before having to settle for $200 million. Now, pending appeal, it won’t get even that much for its patent claims, and its reputation for integrity will carry a value of less than zero.