Wednesday, October 28, 2009

Buyers' Monopolization Claims over Patented Drug Resurrected

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Purchasers of a patented antidiuretic drug could maintain federal antitrust claims against the drug's manufacturer and exclusive licensed marketer for allegedly abusing the patent system to unlawfully maintain a monopoly over the drug, the U.S. Court of Appeals in New York City has decided.

Dismissal of the suit for lack of standing and failure to state a claim (2007-1 Trade Cases ¶75,726) was therefore vacated, and the matter was remanded.

As an initial matter, the appellate court rejected an argument by the defendants that the appeal properly belonged in the Federal Circuit. The Federal Circuit had exclusive jurisdiction over appeals when the district court's jurisdiction was based on patent law, the court noted. However, patent law had not created the cause of action in the case, and the purchasers' right to relief did not necessarily depend on resolution of a substantial question of federal patent law.

While their Walker Process-based legal theories (antitrust claims stemming from fraudulent procurement of a patent) did depend on patent law, an additional theory they maintained—that the marketer violated the antitrust laws when it filed a sham citizen petition asking the Food and Drug Administration (FDA) to require additional testing of a generic equivalent—did not.

Antitrust Standing

The purchasers had standing to recover overcharge damages resulting from the defendants' alleged conduct, the court said. Such an injury plainly was of the type the antitrust laws were intended to prevent.

Although the conduct at issue targeted the manufacturer's and marketer's competitors, the purchasers' claimed injury of higher prices was inextricably intertwined with the conduct's anticompetitive effects and thus flowed from that which made the acts unlawful.

The purchasers were proper plaintiffs, even though their injuries were derivative of the direct harm experienced by the defendants' competitors. While competing drug makers might have been the parties most motivated to enforce the laws, the purchasers too were significantly motivated due to their natural economic interest in paying the lowest price possible.

The overcharge damages they sought differed from the lost profits of which the competitors could complain and would have been left unremedied were they denied standing, the court added. This difference signified a lack of potential for duplicative damages, even assuming some overlap. Moreover, the claims did not rest on tenuous assumptions about the beneficial effects of generic competition.

Walker Process Claims

The appellate court declined to decide whether the purchasers had standing per se to raise their Walker Process claims. As they were challenging an already tarnished patent, the purchasers were entitled to antitrust standing without altering the limits on who can start a challenge to a patent's validity. Therefore, they had standing to raise Walker Process claims for patents that were already unenforceable due to inequitable conduct, and the lower court erred by concluding to the contrary, in the appellate court's view.

The direct purchasers adequately pled an antitrust claim under each of their legal theories, the court held. Given that the alleged fraudulent omissions made to the Patent and Trademark Office occurred over a number of years, the defendants' intent to deceive was sufficient to plausibly support a finding of Walker Process fraud. The fact of non-disclosure sufficed to properly allege materiality, the court added.

The purchasers' allegations also adequately made out a sham litigation claim, a claim based on improper FDA Orange Book listing, and the claim based on a citizen petition theory, the court concluded.

The October 16 decision is In re: DDAVP Direct Purchaser Antitrust Litigation, 2009-2 Trade Cases ¶76,770.

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