United States: Split Federal Circuit Decision Revives Antitrust Counterclaims In Patent Litigation

The U.S. Court of Appeals for the Federal Circuit has remanded for further consideration antitrust claims accusing a patent holder of filing a sham infringement suit and a sham citizen petition with the Federal Drug Administration. The case is Tyco Healthcare Group LP v. Mutual Pharmaceutical Co. (Fed. Cir., Aug. 6, 2014). This split decision has significant implications both for patent holders planning to assert infringement claims and for infringement defendants considering antitrust counterclaims.

Background

Sandoz Limited applied for several patents directed to formulations and features of, and methods of treatment with, temazepam, a drug used to treat insomnia. In 2001, Tyco Healthcare Group LP and Mallinckrodt, Inc. ("Tyco") acquired the patents from Sandoz, and currently markets temazepam under the brand name Restoril. The patents were listed in the FDA's Orange Book.

In 2006, Mutual Pharmaceutical Company, Inc. and United Research Laboratories, Inc. ("Mutual") filed an Abbreviated New Drug Application ("ANDA") with the FDA, seeking approval to manufacture and sell a generic version of temazepam. Mutual filed the certification under paragraph IV of U.S.C. § 355(j)(2)(A)(vii), asserting that its generic product would not infringe Tyco's patents.

Tyco then sued Mutual for patent infringement. Tyco subsequently filed a citizen petition with the FDA, proposing guidelines that would require generic temazepam manufacturers to demonstrate bioequivalence to Restoril. Mutual filed antitrust counterclaims, asserting: (1) Tyco's infringement claim constituted sham litigation, (2) Tyco's citizen petition was a sham, and (3) Tyco sought to enforce patents obtained by means of fraud on the Patent Office.

The district court found that Mutual did not infringe Tyco's patents and found the patents in question to be invalid. The FDA approved Mutual's ANDA without waiting to decide Tyco's citizen's petition and later formally denied Tyco's citizen's petition. Subsequently, the district court granted summary judgment to Tyco with respect to Mutual's antitrust counterclaims (D.N.J.,

Jan. 18, 2013).

Federal Circuit Opinion

The Federal Circuit affirmed the district court in part, vacated in part, and remanded for further consideration. The Federal Circuit affirmed with respect to Mutual's Walker Process fraud claim, agreeing with the district court that Mutual did not present any evidence that Tyco "knew that Sandoz had engaged in a deliberately planned and carefully executed scheme to defraud the Patent Office" at the time that Tyco filed its infringement action. The Federal Circuit also held that Tyco's defense of the validity of its patents, although ultimately unsuccessful, was not objectively baseless since Tyco presented evidence that the prior art taught away from the claimed invention.

However, the Federal Circuit vacated the district court's summary judgment that Tyco's infringement claims were not a sham. The court confirmed that determination of whether a claim is objectively baseless requires a factual inquiry and therefore remanded the case for further consideration. The court also concluded that the district court applied the wrong legal standard by failing to determine whether Tyco's citizen petition was a sham. On remand, the district court was instructed to determine whether the citizen petition caused any injury to Mutual in the form of delay in the approval of Mutual's ANDA.

Implications

This decision has significant implications for both patent owners and alleged infringers. First, the decision provides a reminder that Walker Process fraud claims require proof not only of fraud on the PTO, but also of exclusion, which only occurs with enforcement. Accordingly, the offense was not complete with Sandoz's alleged fraudulent actions before the PTO. Mutual also had to prove that Tyco knew of Sandoz's conduct at the time it enforced the patents. Since Mutual was unable to do so, the court rejected Mutual's claim of fraud on the PTO.

Second, the decision confirms that the presumption of validity for a patent holder creates a very high barrier to a party claiming sham litigation based on invalidity. However, this presumption can be overcome. The dissent's suggestion that a patent owner may, as a matter of law, rely on the presumption of validity to defeat any claim of sham litigation was not accepted by the majority.

Third, the decision confirms that a pharmaceutical patent owner may allege infringement "if the patent owner has evidence that the as-marketed commercial ANDA product will infringe, even though the hypothetical product specified in the ANDA could not infringe." (The court referred to various situations in which a generic manufacturer's ANDA application could describe a generic drug "with characteristics that take it outside the patent's claims," but the only product that realistically could be marketed is likely to infringe the patent.).

Fourth, the decision establishes that courts will engage in a factual analysis to determine whether a patent owner's infringement claim is a sham. The majority refused to accept the dissent's position that an ANDA certification is sufficient as a matter of law to make an infringement claim reasonable. It is noteworthy that Tyco's final remaining patent in the litigation was not a formulation patent; it is unclear whether the dissent's position might carry more weight in a case involving a formulation patent.

Finally, the decision confirms that the Federal Circuit will apply the sham litigation standard to FDA citizen petitions, citing favorably a Second Circuit decision reaching the same conclusion while also holding that administrative petitions are "less susceptible than lawsuits to the sham exception." The majority then held that disputed issues of fact precluded summary judgment on the objectively baseless prong of the sham standard. In particular, the majority focused on the FDA's response to the petition, which included approving Mutual's pending ANDA despite the pendency of the petition and the later denial of the petition "in terms indicating that, in the FDA's view, it was wholly without merit." According to the majority, the subjective prong of the sham standard could be satisfied from the fact that the citizen's petition was filed the day after the district court entered a determination of noninfringement.) On remand, however, the majority instructed the district court to consider whether Mutual could show antitrust injury in light of the fact that its ANDA had been approved despite the pendency of the petition. The dissent would have affirmed the district court's grant of summary judgment on the grounds that Tyco's petition was accurate.

The Federal Circuit's August 6, 2014 opinion.

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