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Sham-Wow! Antitrust Liability May Attach to Sham Administrative Petitions

Addressing whether the “sham” exception to Noerr-Pennington immunity is limited to sham litigation in courts, the U.S. Court of Appeals for the Federal Circuit vacated a lower court’s summary judgment of no antitrust liability, finding that antitrust liability can attach to sham administrative petitions and that the sham litigation exception is not limited to court litigation.  Tyco Healthcare Group LP v. Mutual Pharm. Co., Inc., Case No. 13-1386 (Fed. Cir., Aug. 6, 2014) (Bryson, J.) (Newman, J., dissenting).

Tyco Healthcare acquired patents relating to temazepam, an insomnia drug marketed as Restoril.  Seeking Food and Drug Administration (FDA) approval to manufacture and sell generic temazepam, Mutual Pharmaceutical filed an Abbreviated New Drug Application (ANDA), certifying that its generic product would not infringe any patents.  Tyco disagreed and sued Mutual for infringement under the Hatch-Waxman Act.  The district court rejected this claim, reasoning that products manufactured to the ANDA’s specification could not infringe.  Tyco then filed a citizen petition with the FDA, urging new guidelines to require generic temazepam manufacturers to more extensively demonstrate bioequivalence to Restoril.  The FDA denied Tyco’s citizen’s petition “indicating that, in the FDA’s view, it was wholly without merit.”

In response to Tyco’s infringement suit, Mutual brought antitrust counterclaims, including allegations that Tyco’s suit and citizen petition were shams.  In other words, Mutual argued that Tyco used illegitimate means to keep Mutual’s product off the market.  On summary judgment, the district court rejected these counterclaims, holding that it was reasonable for Tyco to proceed with its infringement action and that antitrust liability for sham claims cannot apply to filing administrative petitions because the exception “is expressly limited to litigation.” Mutual appealed.

The Federal Circuit vacated the rulings on antitrust issues and remanded for further consideration.  With regard to Tyco’s Hatch-Waxman claim, the Federal Circuit found that it was not unreasonable for a patent owner to allege infringement under Hatch-Waxman 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 concluded that further inquiry was necessary to determine if Tyco’s factual theory of infringement was objectively baseless.  With regard to the administrative proceeding, the Court found that the sham exception to Noerr-Pennington is not limited to court litigation, and that it has been applied to administrative petitions, including FDA citizen petitions.  Accordingly, it remanded this counterclaim for resolution of fact issues regarding whether the citizen petition was objectively baseless and motivated by a subjective desire to directly interfere with Mutual, as well as whether Mutual suffered any anticompetitive injury.

Judge Newman dissented from the court’s conversion of routine patent litigation into antitrust violations, arguing that “[e]nforcement of a presumptively valid patent against a product that infringes by statute [Hatch-Waxman] cannot be deemed objectively baseless” and patent holders have “the right to communicate with the FDA concerning public information on matters within the agency’s authority and responsibility without incurring antitrust liability.”

Extending K-Dur’s Reach? FTC Files Amicus Brief Arguing that Pharmaceutical Patent Litigation Settlements Containing “No-AG” Provisions are Anticompetitive

by Jeffrey W. Brennan

The Federal Trade Commission (FTC) filed an amicus brief on October 9 in U.S. District Court (D.N.J.).  In it, the FTC spells out its arguments why, as part of a pharmaceutical patent litigation settlement agreement, a branded company’s promise not to launch an authorized generic (AG) version of its product during the generic firm’s 180-day marketing exclusivity period is a "pay-for-delay" agreement in violation of the antitrust laws, if the agreement also contains the generic’s promise to defer its entry.  The FTC argues that so-called "no-AG" agreements fail under the antitrust analysis recently articulated by the Third Circuit in the K-Dur decision, which is the subject of pending petitions for certiorari in the U.S. Supreme Court. 

The complaint in the underlying case, Louisiana Wholesale Drug Co., Inc. v. GlaxoSmithKline (GSK) and Teva Pharmaceuticals, can be found here. The GSK drug at issue is Lamictal, which is used in the treatment of epilepsy, bipolar disorder and other medical conditions.  The FTC does not take a position on the ultimate merits of plaintiff’s allegations against GSK and Teva.

Under the Hatch-Waxman law, the first filer of an Abbreviated New Drug Application (ANDA) – i.e., an application to launch a generic version of a branded product – qualifies in certain circumstances for 180-day generic exclusivity. This means that the FDA cannot grant final approval to any other ANDAs for the same drug during that period.  Generic exclusivity is an incentive contained in Hatch-Waxman to spur generic companies to file qualified ANDAs as quickly as possible, to expedite competition to the brand from generics that do not infringe the brand’s patents.  Hatch-Waxman does not prohibit the branded company from launching a generic version of its own product – i.e., an AG – during that period.  

The launch of an AG creates substantial competition to the generic product and typically cuts deeply into the generic product’s revenues. The FTC contends that a branded company’s promise not to launch an AG is tantamount to a "payment" to the generic firm, because the absence of AG competition results in substantially greater revenues for the generic product during its 180-day exclusivity period.  Under the FTC’s pay-for-delay theory of patent litigation settlement agreements (which the Third Circuit adopted, albeit not in a no-AG case, in K-Dur), a branded company’s no-AG promise coupled with the generic company’s promise to defer its entry is anticompetitive. The FTC argues that, absent the no-AG promise, the generic firm would either (i) settle for sooner entry to obtain those revenues, (ii) launch at risk to obtain those revenues, or (iii) continue to litigate — all of which are probabilistically better results for consumers than the agreement.

According to the FTC:

Indeed, the economic realities of no-AG commitments require that such promises be analyzed like other forms of compensation paid to generics. Practically, a no-AG commitment has the same capacity to purchase delay as a monetary payment. When a brand competes through an AG, it siphons substantial revenues from the first-filer [...]

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