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Legal Affairs : Aug 1, 2009 (Vol. 29, No. 14)

Ninth Circuit Rules on IP and Antitrust Issues

Sham Litigation and Willful Deceit of USPTO Were among the Allegations
  • Christine Garrett Devlin
  • ,
  • William Diaz

In a closely watched pharmaceutical case, the U.S. Court of Appeals for the Ninth Circuit recently held that there was sufficient evidence for a plaintiff’s Walker Process claim to survive summary judgment, based on a pay-for-delay agreement between a patent holder and a generic manufacturer. However, the Court upheld dismissal of the plaintiff’s sham litigation claim in Kaiser Foundation Health Plan Inc. v. Abbott Laboratories, Inc.

Kaiser sued defendants Abbott and Geneva Pharmaceuticals, alleging a Sherman Act Section 1 restraint of trade claim against both defendants and Sherman Act Section 2 monopolization and attempt to monopolize claims against Abbott.

Under the Hatch-Waxman Act, a drug manufacturer seeking approval for a generic form of a patented brand-name drug may file an Abbreviated New Drug Application (ANDA). The ANDA applicant must inform the patent holder of its filing, which then may bring an action for patent infringement against the applicant.

Geneva and other generic manufacturers filed a series of ANDA applications for variations of Abbott’s terazosin hydrochloride, used for treating hypertension. Abbott then brought patent infringement claims against these generic manufacturers.

Abbott and Geneva subsequently entered into an agreement in which Geneva agreed to keep its generic product off the market until a final judgment on Abbott’s ‘207 patent. Kaiser claimed that this agreement was a per se unlawful restraint of trade under Section 1 of the Sherman Act. Kaiser based its Section 2 claim on Abbott’s allegedly fraudulent behavior before the USPTO in filing its ‘207 patent.

A jury found against Kaiser on the Section 1 claim due to lack of causation, and the district court entered summary judgment against Kaiser on the Section 2 claim based on a lack of evidence to proceed to the jury. Kaiser appealed.

The Ninth Circuit affirmed the jury’s verdict on the Section 1 claim, concluding that the lower court did not abuse its discretion in making several rulings that prevented certain evidence from reaching the jury.

On the Section 2 claim, the Ninth Circuit affirmed one part of the claim and reversed the other. Kaiser first argued that Abbott improperly attempted to extend its patent monopoly by engaging in a pattern of filing sham lawsuits. Under the Noerr-Pennington doctrine, a party is immune from antitrust liability for petitioning any branch of the government. An exception to this immunity, however, is a sham lawsuit, in which a plaintiff uses the judicial process itself, as opposed to the outcome of the process, to harm competition.

When dealing with a series of sham lawsuits, the Ninth Circuit uses a prospective inquiry to determine whether the series of lawsuits were based on a pattern of harassment, regardless of whether some of the individual lawsuits may have been proper. Kaiser claimed that Abbott’s 17 lawsuits against would-be generic manufacturers between 1993 and 1998 qualified as a pattern of sham litigation.

The Ninth Circuit, however, held that Abbott won seven of those seventeen lawsuits and had plausible arguments for prevailing on the remaining lawsuits. Further, the Ninth Circuit concluded that while Abbott was litigious, the high number of lawsuits Abbott filed were a product of the Hatch-Waxman Act, which required Abbott to file several lawsuits quickly to preserve its rights under the Act.

USPTO Deception

Kaiser also argued that Abbott committed Walker Process fraud by enforcing the ‘207 patent, which Abbott allegedly knew it had procured through fraud on the USPTO. In Walker Process Equipment v. Food Machinery & Chemical Corp., the Supreme Court held that enforcing a patent obtained by fraud on the USPTO is a form of exclusionary conduct and may violate Section 2 of the Sherman Act.

To prove Walker Process fraud, a plaintiff must first be able to prove that the patentee obtained the patent by knowingly and willfully misrepresenting facts to the USPTO. The plaintiff must produce independent and clear evidence of deceptive intent on that part of the patentee, together with a clear showing that the patent would not have issued but for the fraudulent misrepresentation or omission. Further, the plaintiff must prove the standard elements of a Section 2 claim (e.g., dangerous probability of obtaining monopoly power).

Kaiser made two separate claims in support of its allegation that Abbott willfully deceived the USPTO. First, Kaiser asserted that Abbott failed to provide an English translation of an earlier Japanese patent application involving a substantially similar crystal form as the one reported in the ‘207 patent. That translation, Kaiser argued, could cause Abbott’s ‘207 application to fail.

Kaiser noted that Abbott had submitted English translations in connection with earlier patent applications in an effort to infer that Abbott’s failure to do so with its ‘207 patent was willful misconduct rather than an innocent oversight.

Second, Kaiser claimed that Abbott’s in-house attorney failed to reference a key Federal Circuit decision that was harmful to Abbott’s position regarding an on-sale bar issue. In support of this assertion, Kaiser noted that Abbott’s attorney had included a citation to, and attempted to distinguish, the case in its brief for the related litigation. The same attorney, however, failed to include any reference to the decision in the documents submitted to the USPTO.

In its defense, Abbott argued that approximately one year before it submitted the application for the ‘207 patent, the same patent examiner reviewed a similar patent using an English translation provided by Abbott. In fact, the patent examiner testified that he had seen the English translation in connection with the earlier patent.

Therefore, during the period in which the examiner was evaluating the ‘207 patent, he had the English translation as part of Abbott’s earlier application. Further, Abbott argued that because the prior patent issued when the English translation was provided, the lack of a translation should not have affected the issuance of the ‘207 patent.

The Ninth Circuit held that Kaiser presented sufficient evidence to allow its Walker Process claim to survive summary judgment—and reversed the lower court’s ruling. In reaching its decision the Ninth Circuit, citing the Federal Circuit’s 2006 decision in Purdue Pharma L.P. v. Endo Pharms. Inc., applied the Federal Circuit jurisprudence that “direct evidence of intent to deceive or mislead the PTO is rarely available but may be inferred from clear and convincing evidence of the surrounding circumstances.”

This ruling raises several important issues. Settlement agreements between brand-name and generic pharmaceutical companies have received significant attention from the courts, the FTC, and Congress, which is considering legislation that would ban most pay-for-delay settlements. While most courts have upheld these settlements that are within the scope and term of the relevant patents, parties should proceed with caution when considering entering into such arrangements. Also, parties should take note of the fact that in this case the Walker Process fraud claim survived summary judgment despite a lack of direct evidence of an intent to deceive the USPTO.