By Andrew Williams --
Can filing a lawsuit under the Hatch-Waxman scheme of 35 U.S.C. § 271(e)(2)(A) ever give rise to antitrust liability? The Federal Circuit last week indicated in the affirmative. That statute provides that:
It shall be an act of infringement to submit—
(A) an application under section 505(j) of the Federal Food, Drug, and Cosmetic Act or described in section 505(b)(2) of such Act for a drug claimed in a patent or the use of which is claimed in a patent . . . .
The case law is well established that an infringement analysis in this context is prospective in nature. Therefore, it is necessary to look at the drug product that the ANDA applicant will likely market if it receives FDA approval. This analysis is not limited to the ANDA itself, though. Instead, a court needs to look to the ANDA, materials submitted by the ANDA applicant in support of the ANDA, "and any other relevant evidence submitted by the applicant or patent holder." Bayer AG v. Elan Pharmaceuticals Research Corp., 212 F.3d 1241, 1248-49 (Fed. Cir. 2000). With regard to antitrust liability, it is also well established that a patent holder is ordinarily exempt for bringing a patent infringement lawsuit. This principle is known as "Noerr-Pennington" immunity. There is an exception to this immunity for sham litigation, however, which is defined as a lawsuit that is both (1) objectively baseless, and (2) subjectively brought to interfere with a competitor's business relationships. The intersection of these two well-established principles was clarified in the Federal Circuit's Tyco Healthcare Group LP v. Mutual Pharmaceutical Co. case. Specifically, the Court found that it is possible for a patent holder to engage in sham litigation by filing a Hatch-Waxman lawsuit if the factual theory of infringement is objectively baseless. The Court also held that a citizen petition filed by a patent holder could give rise to antitrust liability if an ANDA filer suffers anticompetitive harm.
Judge Newman dissented, in part, because she believed that a lawsuit brought in accordance with § 271(e)(2)(A) cannot be a sham because "[t]he filing of . . . an Abbreviated New Drug Application (ANDA) in and of itself constitutes probable cause to initiate suit . . . for the Hatch-Waxman statute authorizes the filing of an infringement suit in response to a Paragraph IV filing." A review of the statute (reproduced above) would suggest that this is not necessarily correct. For example, there needs to be a patent that is infringed by the drug or the use of a drug to invoke § 271(e)(2)(A) (not to mention that there is also no reference in the statute to Paragraph IV certifications). Therefore, for example, as the Supreme Court explained in Caraco Pharm. Labs, Ltd. v. Novo Nordisk A/S, if an ANDA applicant "carves-out" a particular field of use in its application with a section viii statement, it can avoid infringement liability under § 271(e)(2)(A) for patents that claim that carved-out use. In such a case, the patent holder would likely not have probable cause to initiate suit. Nevertheless, the policy reasons espoused by Judge Newman are still valid. Unlike infringement suits brought under 35 U.S.C. § 271(a), in which a patent holder normally has ample time to carefully study the accused infringing activity, in the Hatch-Waxman context, an NDA holder receiving a Paragraph IV notification letter only has 45 days to initiate suit. Moreover, because the ANDA application is not publically available, the patent holder must rely on statements by the ANDA applicant in the Paragraph IV notice letter, which may or may not contain data sufficient to allow the patent holder to make an independent assessment of infringement. This is in addition to the fact that an ANDA applicant must represent to the FDA that its ANDA product is "bioequivalent" to the marketed drug. Of course, there is the possibility of obtaining "confidential access" to the ANDA, but negotiations of the terms of such access can consume most (if not all) of the 45-day window. Therefore, to impose antitrust liability for lawsuits that are found to have been "objectively baseless" seems like an unjustified shift of power in favor of ANDA applicants, and could encourage vague notice letters and protracted negotiations for ANDA confidential access. And, as Judge Newman put it, it will be the rare litigation that does not now contain an allegation of antitrust liability.
The drug at issue in this case was temazepam, which is used to treat insomnia. Tyco markets under the brand name Restoril, which it obtained from Sandoz Limited in 2001, along with several related patents. The patents all claimed formulations with specific surface areas between 0.65 and 1.1 square meters per gram (m2/g). In general, the smaller the particle size of the drug material in a formulation, the greater the specific surface area will be. Specific surface area is often measured using a gas-adsorption technique referred to as B.E.T. testing (for Bruanauer, Emmet, and Teller). This procedure measures the amount of an adsorbate gas bound to the surface of the particles. However, the sample must be prepared by removing all gas or vapor from the surface in a process referred to as outgassing. The temperature at which the outgassing is performed is important, because if the temperature is too high, it can physically alter the test material (by softening or melting it). Conversely, if the temperature is too low, it is possible that the test material will not be "cleaned" of all of the gas or vapor, resulting in less surface area available for the adsorbate gas.
Mutual filed an ANDA with the FDA to market a generic version of temazepam, in which Mutual represented that the ANDA product would have a specific surface area of not less than 2.2 m2/g, thereby taking it outside the scope of the claims. However, Mutual was using an outgassing temperature of 40°C, rather than the 105°C that Tyco used in all of its tests. Neither party disputed that the specific surface area of Mutual's ANDA product would fall within the infringing range using an outgassing temperature of 105°C. Instead, Mutual alleged that its material was physically altered by such temperatures, resulting in larger particles and decreased specific surface area. The District Court granted a judgment of non-infringement to Mutual on August 4, 2009. The next day, Tyco filed a citizen petition with the FDA, urging that the criteria for evaluating bioequivalence of generic temazepam products be heightened in view of Mutual's representation to the Court that its drug particles are different than those which had already been approved as safe and effective by agency. The FDA approved the ANDA, and subsequently denied the petition. On May 10, 2010, the District Court granted summary judgment that the claims at issue were invalid as obvious, which the Federal Circuit affirmed. Ultimately, the District Court turned to the antitrust counterclaims filed by Mutual, but granted summary judgment to Tyco. The present case is the appeal of this decision.
Mutual's first antitrust allegation was that Tyco's infringement suit was "objectively baseless" because the Federal Circuit had already held, in the Bayer case cited above, that if the specific surface area of an ANDA product fell outside the scope of the patented range, it could not infringe under § 271(e)(2)(A). However, in Bayer, neither party submitted evidence that the specific surface area of the commercial ANDA product would differ from that reported in the ANDA. As such, the statements contained in the ANDA were controlling. Instead, the Court in the present case reaffirmed that it is not unreasonable to allege infringement if the patent owner has independent evidence apart from the ANDA filing that the as-marketed product will infringe.
That did not end the "objectively baseless" inquiry for the majority, however. Mutual had presented expert evidence that its use of a lower outgassing temperature should have underestimated the specific surface temperature, not overestimated it. This was because the lower temperature, at worst, would result in an incomplete "cleaning" of the test particles, leaving less available surface for the test gas to adsorb to. The argument goes, therefore, that the 2.2 m2/g should be the low end of the specific surface area of the ANDA product, resulting in a finding of non-infringement at any temperature used. If this was the case, then the Court believed that Tyco's factual theory of infringement could have been objectively baseless. The Court remanded for this determination, as well as whether the subjective element had also been satisfied.
Mutual's second antitrust allegation was that Tyco lacked any reasonable prospect of successfully defending the validity of the patents. The Court did uphold the lower court's ruling that, in this case, such allegations were without merit. Nevertheless, the Court stopped short of stating that "the presumption of validity of a duly granted patent negates ruling that the routine defense of a patent's validity constitutes 'sham' litigation," as Judge Newman would have held. She had a problem with the majority's suggestion that antitrust liability could in situations where a patent holder has the "burden of production," such as with secondary considerations of non-obviousness. Her concern was that such a requirement could import a "chilling effect" of antitrust liability into routine patent debates. Judge Newman predicted that this decision will cause accused infringers to assert Sherman Act violations in almost all patent suits going forward.
The Citizen Petition
Mutual's next antitrust allegation was that Tyco's citizen petition to the FDA was a sham, and therefore Tyco did not have Noerr-Pennington immunity. The lower court held that the sham exception was limited to litigation, and therefore was not applicable to administrative petitions. The majority disagreed as a matter of law, and remanded for a determination whether the citizen petition was objectively baseless, and whether the filing of the petition caused antitrust injury to Mutual. Judge Newman pointed out in dissent that Tyco's petition communicated public information that Mutual's ANDA product was not the same as the FDA-approved product, a conclusion based on the fact that an outgassing temperature of 105°C impacted the two allegedly equivalent drug products differently. "An accurate communication," Judge Newman explained, "cannot be an antitrust violation, even if it relates to competitors, as firmly established by Noerr-Pennington."
The Walker-Process Allegation
Mutual's final allegation was that Tyco was aware that Sandoz fraudulently obtained the patents at issue, and therefore it was stripped of its immunity from antitrust liability based on the Supreme Court's Walker Process case. The Federal Circuit rejected this argument and affirmed the lower court because, even if Sandoz had committed fraud in obtaining the patent, there was insufficient evidence on the record to support the inference that Tyco was aware of it. First, a reasonable fact-finder could not conclude that Tyco had knowledge of the alleged fraud just because it had reviewed the prosecution record. In addition, just because Tyco might have been aware that there could be a strong validity challenge to the patents, this does not support an inference of knowledge of fraud. Finally, Mutual's Paragraph IV notice letter was insufficient to put Tyco on notice (pun in the original) of the alleged fraud, because Mutual had not sufficiently articulated these allegations at that time.
One important consideration of this case is that the Federal Circuit did not comment on the subjective component of the "sham litigation" exception to antitrust liability, other than to instruct the lower court to consider it on remand. Before declaring antitrust allegation to be the new plague on the patent system, as least as far as ANDA litigation is concerned, it will be necessary to see how lower court's apply this second prong. Hopefully Judge Newman's premonition of antitrust counterclaims in almost every case will not come to pass.
Tyco Healthcare Group LP v. Mutual Pharmaceutical Co. (Fed. Cir. 2014)
Panel: Circuit Judges Newman, Bryson, and Moore
Opinion by Circuit Judge Bryson; dissenting opinion by Circuit Judge Newman