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Focus on Regulation

Federal Circuit Revives Certain Sham Petitioning Antitrust Counterclaims in Tyco-Mutual ANDA Litigation

In a split decision, the U.S. Court of Appeals for the Federal Circuit affirmed summary judgment on two antitrust counterclaims brought by Mutual Pharmaceutical Co. (“Mutual”) against Tyco Healthcare Group (“Tyco”), while vacating summary judgment on two others.  Although the ruling is just the latest in a long line of cases analyzing sham petitioning issues related to the pharmaceutical space, the approach taken by the court could result in many more of these cases advancing far into litigation, and in some cases to a full trial if adopted by other courts.

The counterclaims at issue in the ruling arose in the context of patent litigation filed by Tyco in response to Mutual’s 2006 filing of an ANDA for a generic version of Tyco’s Restoril (temazepam), a drug used to treat insomnia.  Tyco acquired Restoril and serveral related patents from Sandoz in 2001.  In 2009, the district court ruled that Mutual’s product would not infringe the Tyco patent because, assuming it was made to the specifications in the ANDA, Mutual’s product would have a specific product surface area that was different from that specifically claimed in the Tyco patent.  The day after that ruling, Tyco filed a citizen petition with the FDA that urging the FDA to adopt different, more extensive and complex criteria for evaluating the bioequivalence of proposed generic temazepam products.  While that citizen petition was still pending, the FDA approved Mutual’s ANDA.  Five months later the FDA denied Tyco’s petition in full.  In 2010 the district court granted summary judgment on Mutual’s invalidity counterclaim and later lifted the stay of Mutual’s antitrust counterclaims.

Mutual brought four antitrust counterclaims, including that:

  • Tyco’s infringement claim constituted sham litigation that subjected Tyco to antitrust liability for using illegitimate means to keep the Mutual product off the market;
  • No reasonable litigant could have expected Tyco’s patents to withstand a validity challenge;
  • Tyco’s citizen petition was a sham; and
  • Tyco’s infringement suit was the product of fraud within the meaning of Walker Process.

The district court rejected each of the four claims on summary judgment.  On appeal, the Federal Circuit upheld dismissal of the validity and Walker Process counterclaims, but reinstated and remanded the infringement and citizen petition counterclaims for further consideration by the district court.

With respect to the infringement counterclaim, the court began by noting that “it is not unreasonable for a patent owner to 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.”  However, the court held that in the circumstances presented Tyco’s theory of infringement could be deemed to be objectively baseless if it is demonstrated that it is “based on a theory contrary to what the underlying scientific principles dictate.” In particular, the court focused on evidence presented by Mutual indicating that if Tyco’s proposed method for measuring the surface area of the proposed generic product were adopted, it would likely take the product further outside the scope of the Tyco patent, rather than closer to the surface area claimed in the patent.

The court also concluded that there were disputed issues of fact regarding the citizen petition counterclaim.  The court identified two facts as being “[p]articularly probative” in terms of whether the citizen petition was objectively basis: (1) the FDA’s denial of the petition in which it described the petition as wholly without merit, and (2) expert testimony that Tyco did not have a scientific basis from which to suggest that Mutual’s product would not be bioequivalent.  The court also found that Mutual had presented evidence suggesting that Tyco’s intent in filing the citizen petition was to interfere with the ability of Mutual to enter the market.  In particular, the court pointed to the fact that the citizen petition was filed just one day after the district court granted Mutual summary judgment on non-infringement, which resulted in lifting the automatic 30-month stay of FDA ANDA approval. This combined with the court’s conclusion that Tyco had presented no persuasive justification for its delay in filing the citizen petition and internal Tyco documents suggested that Tyco knew the theory presented in its citizen petition lacked merit. Interestingly, the court was persuaded of this despite the fact that the FDA was under no obligation at the time to fully resolve all open citizen petitions prior to approving Mutual’s ANDA.

In upholding the grant of summary judgment on the invalidity claims, the court observed that because of the presumption of patent validity and the fact that the challenger bears the burden of establishing invalidity, “it will be a rare case in which a patentee’s assertion of its patent in the face of a claim of invalidity will be so unreasonable as to support a claim that the patentee has engaged in sham litigation.”  Although Mutual had presented evidence that Tyco was aware of prior art that related to its patent, Mutual had not rebutted the evidence and arguments presented by Tyco that the prior art “taught away” from the dosage claimed by the patent.

Finally, in upholding dismissal of the Walker Process counterclaim, the court concluded that the mere fact that Tyco may have had knowledge of certain information not disclosed to the patent examiner was not sufficient to put it on notice that the patents were obtained by fraud.

Judge Newman issued a strongly worded dissent criticizing the majority for “convert[ing] routine patent litigation into an antitrust cause.”  In particular, Judge Newman asserts that “Mutual’s representation that its product meets the ANDA requirements, accompanied by a Paragraph IV Certification challenging Tyco’s patent” by definition makes “a Hatch-Waxman infringement suit in accordance with §271(e)(2)(A)…not [a] ‘sham.’”  Judge Newman criticized the majority for ignoring this and instead focusing on issues that went beyond the reasonableness of the suit at the time it was filed.  Judge Newman also asserts that nothing about Tyco’s citizen petition violated the antitrust laws because it only “communicated to the FDA the public information that the Mutual generic product is not the same as the FDA-approved Tyco product” and “[a]n accurate communication cannot be an antitrust violation…”

The case has been remanded to the district court for further proceedings.

There are a number of takeaways from the ruling.  First, in certain circumstances a lawsuit may be deemed to have been objectively baseless if it is eventually determined that the theory underlying the claim is internally inconsistent.  Second, it may be possible in some cases to establish the requisite subjective intent to interfere with a competitor through government petitioning even where any alleged delay was limited and the agency that was the subject of the petitioning activity was not required to delay product approval due to the petitioning.  Third, it leaves the door open to arguments that even true and accurate agency communications are objectively baseless if there is no reasonable basis for believing that an agency can or will take the information into account in its decision making.