In a recent decision, the Ninth Circuit addressed the antitrust implications of so-called "reverse payments" between brand name and generic pharmaceutical companies. A health care provider brought suit against the two companies, alleging their agreement to delay the introduction of a generic pharmaceutical (which involved payment to the generic manufacturer of $4.5 million per month) was a violation of antitrust laws that caused the provider to have to pay substantially more to obtain the pharmaceutical. The provider also alleged the brand name pharmaceutical company filed for and obtained patents it knew were invalid and engaged in sham litigation to unlawfully extend its patent monopoly over the pharmaceutical. The provider lost on both counts at the district court. A jury found the agreement between the two providers had not caused a delay in the introduction of the generic, and the district court granted summary judgment on the attempted monopolization claim based on fraudulent filings.
The Ninth Circuit affirmed and reversed in part. The court affirmed the jury's verdict on the unlawful restraint of trade (§ 1 of the Sherman Act) claim, holding the district court's evidentiary decisions were not an abuse of discretion. As to the summary judgment on the monopolization claim under § 2, the court agreed there was insufficient evidence that the brand-name manufacturer's litigation to prevent the introduction of the generic was a sham. But, the Ninth Circuit held there was sufficient evidence to overcome summary judgment that one of the patents asserted in those cases was obtained by fraud, and remanded the case for further consideration of the § 2 claim under Walker Process.
More on Kaiser Found. Health Plan, Inc. v. Abbot Labs., Inc. after the jump.
Kaiser Foundation ("Kaiser") is a health care provider and large purchaser of pharmaceutical products. The dispute arose between the parties when Geneva Pharmaceuticals ("Geneva") filed abbreviated new drug applications (ANDAs) in attempt to bring a generic pharmaceutical, trazosin hydrochloride (brand name Hytrin) for treating hypertension and enlarged prostate to market. Abbott Laboratories ("Abbott"), the brand name pharmaceutical company, originally filed a new drug application (NDA) with the Food and Drug Administration (FDA). Abbott originally submitted three patents to the Orange Book (a publication by the FDA listing approved drugs and patents applying thereto). As the listed patents for Hytrin were about to expire, Abbott filed three additional patents to cover various forms of Hytrin.
After years of the brand-name product operating in the market with monopoly power, Geneva filed an ANDA to bring a generic version of the drug to market. Geneva challenged Abbott in its ANDA by making a Paragraph IV certification, asserting the patents are invalid or would not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted. Abbott then filed five lawsuits in response to Geneva's six Paragraph IV certifications. However, for some reason Abbott neglected to file a response or lawsuit to the sixth Paragraph IV certification. Accordingly, the FDA approved Geneva's application for the generic capsule trazosin hydrochloride.
As a result of Abbott's failure to file a lawsuit against Geneva's sixth and final Paragraph IV certification, the two parties entered into an agreement whereby Geneva would keep its generic approved trazosin hydrochloride capsule off the market in exchange for payments of $4.5 million per month until the first of the following three events occurred: expiration of Abbott's patents; a final judgment finding Abbott's patents to be invalid or unenforceable; or when another generic manufacturer brings a generic product to market.
In a separate litigation brought by Abbott against Geneva and other generic manufacturers related to a Paragraph IV certification (based on the tablet formulation rather than the capsule), the Federal Circuit determined that one of Abbott's patents was invalid under the on-sale bar under 35 U.S.C. § 102(b). After a determination of invalidity of Abbott's patent, Geneva, pursuant to its contract with Abbott, was able to bring a generic formulation to market. At that time Kaiser terminated its purchasing of Hytrin from Abbott and began purchasing the generic capsules of trazosin hydrochloride from Geneva. Notably, switching to the generic formulation saved between $0.57-$0.60 per dosage.
Subsequently Kaiser filed this case alleging violations of §§ 1 and 2 of the Sherman Act. Specifically Kaiser alleged the contract between Abbott and Geneva to keep the generic pharmaceutical off the market constituted an unlawful restraint of trade in violation of § 1, and Abbott's pattern of litigation and improper filing of patents to extend its monopoly for the brand name pharmaceutical was an unlawful monopolization in violation of § 2. The district court granted summary judgment on the § 2 claim, holding there was no evidence that Abbott's efforts to enforce its patents amounted to sham litigation. The court also held there was also no evidence that the patent invalidated under the on-sale bar was obtained via fraud, and thus no claim under § 2 could be supported under Walker Process. The district court held on summary judgment that the agreement between Abbott and Geneva was a per se violation of § 1, but a jury held Kaiser failed to prove the agreement caused a delay in the introduction of the generic pharmaceutical, and thus that Kaiser failed to prove the agreement caused any damages. Kaiser appealed.
The Ninth Circuit first addressed Kaiser's challenge to the jury's finding of no causation on the § 1 claim. Specifically, Kaiser challenged various evidentiary decisions of the district court that it contended prevented it from proving causation. The Ninth Circuit held the district court did not abuse its discretion, and thus affirmed the jury's finding on the § 1 claim.
Turning to the § 2 monopolization claim, the court reversed the district court's grant of summary judgment. In order to show improper monopolization, Kaiser had to prove "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." Kaiser's argument and evidence centered on its allegation that Abbott improperly extended its patent monopoly by filing sham lawsuits to delay generic competition and improperly obtained the patent invalidated under the on-sale bar by fraud.
On appeal, the Ninth Circuit agreed with the district court that Abbott's lawsuits brought against generic manufacturers did not constitute sham litigation. However, the court held there was sufficient evidence that Abbott obtained the invalidated patent through fraud, making it potentially actionable under § 2 under Walker Process.
The Walker Process fraud contention originated from the U.S. Supreme Court decision of the same name that held "enforcement of a patent procured by fraud on the Patent Office may be violative of Section 2 of the Sherman Act." Such a finding requires demonstration that the patentee obtained a patent through knowingly and willfully misrepresenting facts to the PTO.
At issue during the prosecution of Abbott's patents was the failure to disclose full English translations of a Japanese patent application published more than a year before the filing date of the application that disclosed the form of trazosin hydrochloride claimed in the patent. Only an English translation of the abstract was submitted by the patent attorney, whereas a full translation was submitted in another Abbott patent application. Similarly, Abbott failed to reference a decision of the Federal Circuit that would have been material to the Patent Office's interpretation of arguments presented before it. Kaiser demonstrated that Abbott had included the decision in a litigation briefing, providing evidence the patent attorney again knowingly withheld this information from the Patent Office. After reviewing all the evidence brought by Kaiser, the Ninth Circuit reversed the decision of the district court finding that Kaiser had produced sufficient evidence to avoid summary judgment on the § 2 claim based on Walker Process fraud. Accordingly, the court remanded the case for further consideration of that claim.
To read the full decision in Kaiser Found. Health Plan, Inc. v. Abbot Labs., Inc., click here.