Lipitor Antitrust Litigation

This opinion addresses two sets of consolidated appeals concerning two pharmaceutical drugs: Lipitor and Effexor XR. In both sets of consolidated appeals, plaintiffs allege that the companies holding the patents related to Lipitor and Effexor XR fraudulently procured and enforced certain of those patents. Plaintiffs further allege that those companies holding the patents entered into unlawful, monopolistic settlement agreements with potential manufacturers of generic versions of Lipitor and Effexor XR. The same District Court Judge dismissed the complaints in the Lipitor litigation and dismissed certain allegations in the Effexor litigation. Those decisions relied on plausibility determinations that are now challenged on appeal.

We begin with a brief summary of the relevant regulatory scheme applicable to pharmaceutical drugs and then detail the factual and procedural backgrounds of these two sets of consolidated appeals. The remainder of the opinion broadly covers two issues. First, in F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013), the Supreme Court concluded that payments from patentees to infringers through “reverse payment settlement agreements” are subject to antitrust scrutiny. Id. at 2227. In both sets of consolidated appeals, plaintiffs allege that the companies holding the pharmaceutical patents and the generic manufacturers entered into such agreements. We are asked to decide whether those allegations are plausible. We conclude, as to both sets of appeals, that they are. Second, regarding only the Lipitor consolidated appeals, we address whether plaintiffs in those appeals pled plausible allegations of fraudulent patent procurement and enforcement, as well as other related misconduct. We again determine that those allegations are indeed plausible. Accordingly, we will reverse the District Court’s dismissal of the complaints in the Lipitor litigation, reverse its dismissal of the allegations in the Effexor litigation, and remand for further proceedings.

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Lipitor Antitrust Litigation

A pharmaceutical company holding the patent on a drug sues the manufacturer of a generic version of that drug for patent infringement. The patent-holder and the generic manufacturer later settle, with the former paying the latter not to produce a generic until the patents at issue expire. In FTC v. Actavis, Inc., 133 S. Ct. 2233 (2013), the Supreme Court recognized that such a settlement—commonly known as a “reverse payment”—where large and unjustified, can sometimes unreasonably diminish competition in violation of the antitrust laws. To answer the antitrust question, Actavis explained, “it is not normally necessary to litigate patent validity” because “the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness.” Id. at 2236-37.

These two sets of consolidated appeals involve allegations that the companies holding the patents for Lipitor and Effexor XR delayed entry into the market of generic versions of those drugs. The companies did so, plaintiffs say, by engaging in an overarching monopolistic scheme that involved fraudulently procuring and enforcing the underlying patents and then entering into a reverse-payment settlement agreement with a generic manufacturer. With a single exception, every complaint asserts one of these monopolization claims against the patent-holders. The cases were assigned to the same district judge, who ultimately dismissed the bulk of plaintiffs’ claims.

In this opinion, we address two questions of federal jurisdiction. First, do plaintiffs’ allegations of fraudulent procurement and enforcement of the patents require us to transfer these appeals to the Court of Appeals for the Federal Circuit? That court has exclusive jurisdiction over appeals from civil actions “arising under” patent law. 28 U.S.C. § 1295(a)(1). But not all cases presenting questions of patent law necessarily arise under patent law. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1986). Where, as here, patent law neither creates plaintiffs’ cause of action nor is a necessary element to any of plaintiffs’ well-pleaded claims, jurisdiction lies in this Court, not the Federal Circuit.

The second jurisdictional question we confront is confined to one of the Lipitor appeals, RP Healthcare, Inc. v. Pfizer, Inc., No. 14-4632. That case, brought by a group of California pharmacists, involves claims solely under California law and was filed in California state court. Following removal the District Court declined to remand the case to state court, citing potential patent defenses. That was error, as federal jurisdiction depends on the content of the plaintiff’s complaint, not a defendant’s possible defenses. Before final judgment, however, the remaining non-diverse defendants were voluntarily dismissed, thus raising the possibility that, notwithstanding the District Court’s failure to remand the case, it possessed diversity jurisdiction before the time it entered judgment. See Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996). But because the state of the record before us is unclear with regard to the citizenship of the parties, we cannot reach the merits of this appeal until that question is resolved. We will accordingly remand the RP Healthcare appeal to the District Court so it can conduct jurisdictional discovery and address the matter in the first instance.

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ACTOS End-Payor Antitrust Litigation

Plaintiffs allege that the defendants-appellees (collectively “Takeda”) prevented competitors from timely marketing a generic version of Takeda’s diabetes drug ACTOS by falsely describing two patents to the Food and Drug Administration. Plaintiffs claim that these false patent descriptions channeled Takeda’s competitors into a generic drug approval process that granted the first-filing applicants a 180-day exclusivity period, which in turn acted as a 180- day “bottleneck” to all later-filing applicants. Of the ten generic applicants, nine took that route. However, one generic manufacturer, Teva Pharmaceutical Industries, Ltd. and Teva Pharmaceuticals USA, Inc. (collectively “Teva”), sought approval via another regulatory mechanism, but was thwarted when the FDA announced that all generic manufacturers would be required to take the bottlenecked route. The FDA’s announcement was expressly based on Takeda’s representations that it had correctly described its patents. Thereafter, Takeda settled pending patent infringement suits with the three first-filing generic manufacturers and Teva on terms that kept them out of the market until August 2012 (though Teva, unlike the three firstfiling generics, could only enter the market as an authorized distributor at that time), and with the other six later-filing generic manufacturers on terms that kept them out of the market for another 180 days after that, i.e., until at least February 2013.

Plaintiffs and the class they seek to represent are drug purchasers who allege that they were wrongfully obliged to pay monopoly prices for ACTOS from January 2011, when Takeda’s patent on the active ingredient in ACTOS expired, to at least February 2013, when the mass of generic market entry occurred.

The district court dismissed plaintiffs’ antitrust claims for failing to plausibly allege that Takeda’s false patent descriptions caused any delay in generic market entry. The district court reasoned that, inter alia, plaintiffs failed to identify a viable regulatory route for generic drug approval that would have avoided the 180-day bottleneck, and that even if they had, they failed to plausibly allege how the generic manufacturers would have avoided Takeda’s infringement lawsuits, all of which were voluntarily settled. Plaintiffs appealed.

To the extent plaintiffs’ theory posits a delay in the marketing of generic alternatives to ACTOS by all the generic applicants other than Teva, we affirm, because plaintiffs’ theory presupposes that these applicants were aware of Takeda’s allegedly false patent descriptions when they filed their applications, which is not supported by well-pleaded allegations. However, because plaintiffs’ theory as to Teva does not require any knowledge of the false patent descriptions, we reach other issues as to Teva and find that plaintiffs plausibly alleged that Takeda delayed Teva’s market entry. We therefore vacate the judgment of the district court to that limited extent.

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Magnetar Techs. v. Intamin, Ltd.

The panel affirmed the district court’s summary judgment on claims of (1) malicious prosecution of a patent infringement action and (2) monopolization in violation of Section 2 of the Sherman Antitrust Act.

The panel held that under California law, the defendant did not maliciously prosecute the plaintiff for infringement of a magnetic braking system patent because a reasonable attorney could have concluded that the on-sale bar of 35 U.S.C. § 102 did not apply to invalidate the patent.

Affirming the district court’s grant of summary judgment on the plaintiff’s claim that the defendant, along with its European affiliate corporations, used the invalid patent to monopolize the market for magnetic braking systems, the panel held that the plaintiff failed to establish a causal antitrust injury stemming from the defendant’s actions.

On cross-appeal, the panel affirmed the district court’s denial of the defendant’s motion for sanctions under Fed. R. Civ. P. 37 against the plaintiff for bringing a frivolous antitrust action.

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Fed. Trade Comm'n v. Actavis, Inc.

The Eleventh Circuit erred in affirming the dismissal of theFTC’s complaint. Pp. 8–21. (a) Although the anticompetitive effects of the reverse settlement agreement might fall within the scope of the exclusionary potential ofSolvay’s patent, this does not immunize the agreement from antitrust attack. For one thing, to refer simply to what the holder of a validpatent could do does not by itself answer the antitrust question.Here, the paragraph IV litigation put the patent’s validity and preclusive scope at issue, and the parties’ settlement—in which, the FTC alleges, the plaintiff agreed to pay the defendants millions to stay outof its market, even though the defendants had no monetary claim against the plaintiff—ended that litigation. That form of settlement is unusual, and there is reason for concern that such settlements tend to have significant adverse effects on competition. It would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy, and not against procompetitive antitrust policies as well. Both are relevant in determining the scope of monopoly and antitrust immunityconferred by a patent, see, e.g., United States v. Line Material Co., 333 U. S. 287, 310, 311, and the antitrust question should be answered by considering traditional antitrust factors. For another thing, this Court’s precedents make clear that patent-related settlement agreements can sometimes violate the antitrust laws. See, e.g., United States v. Singer Mfg. Co., 374 U. S. 174; United States v. New Wrinkle, Inc., 342 U. S. 371; Standard Oil Co. (Indiana) v. United States, 283 U. S. 163. Finally, the Hatch-Waxman Act’s general procompetitive thrust—facilitating challenges to a patent’s validity andrequiring parties to a paragraph IV dispute to report settlement terms to federal antitrust regulators—suggests a view contrary to the Eleventh Circuit’s. Pp. 8–14. (b) While the Eleventh Circuit’s conclusion finds some support in ageneral legal policy favoring the settlement of disputes, its related underlying practical concern consists of its fear that antitrust scrutiny of a reverse payment agreement would require the parties to engage in time-consuming, complex, and expensive litigation to demonstrate what would have happened to competition absent the settlement. However, five sets of considerations lead to the conclusion that this concern should not determine the result here and that the FTC should have been given the opportunity to prove its antitrust claim. First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” FTC v. Indiana Federation of Dentists, 476 U. S. 447, 460–461. Payment for staying out of the market keeps prices at patentee-set levels and divides the benefit between the patentee and the challenger, while the consumer loses.And two Hatch-Waxman Act features—the 180-day exclusive-rightto-sell advantage given to the first paragraph IV challenger to win FDA approval, §355(j)(5)(B)(iv), and the roughly 30-month period that the subsequent manufacturers would be required to wait out before winning FDA approval, §355(j)(5)(B)(iii)—mean that a reverse settlement agreement with the first filer removes from considerationthe manufacturer most likely to introduce competition quickly. Second, these anticompetitive consequences will at least sometimesprove unjustified. There may be justifications for reverse paymentthat are not the result of having sought or brought about anticompetitive consequences, but that does not justify dismissing the FTC’scomplaint without examining the potential justifications. Third, where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely has the power to bring about thatharm in practice. The size of the payment from a branded drugmanufacturer to a generic challenger is a strong indicator of such power. Fourth, an antitrust action is likely to prove more feasibleadministratively than the Eleventh Circuit believed. It is normally not necessary to litigate patent validity to answer the antitrust question. A large, unexplained reverse payment can provide a workablesurrogate for a patent’s weakness, all without forcing a court to conduct a detailed exploration of the patent’s validity. Fifth, the fact that a large, unjustified reverse payment risks antitrust liability doesnot prevent litigating parties from settling their lawsuits. As in other industries, they may settle in other ways, e.g., by allowing the generic manufacturer to enter the patentee’s market before the patentexpires without the patentee’s paying the challenger to stay out prior to that point. Pp. 14–20. (c) This Court declines to hold that reverse payment settlementagreements are presumptively unlawful. Courts reviewing suchagreements should proceed by applying the “rule of reason,” rather than under a “quick look” approach. See California Dental Assn. v. FTC, 526 U. S. 756, 775, n. 12. Pp. 20–21. 677 F. 3d 1298, reversed and remanded.

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Ethypharm SA France v. Abbott Labs

Ethypharm S.A. France (“Ethypharm”) appeals the judgment of the United States District Court for the District of Delaware granting Abbott Laboratories (“Abbott”) summary judgment on Ethypharm‟s antitrust and state law claims. Although the District Court ruled in Abbott‟s favor, it had earlier denied Abbott‟s motion to dismiss, a motion premised on the assertion that Ethypharm lacked standing to bring antitrust claims under §§ 1 and 2 of the Sherman Antitrust Act. Abbott has pressed its standing argument on appeal, and we conclude that the District Court erred in holding there is antitrust standing in this case. Because Ethypharm‟s state law claims have not been argued on appeal, the District Court‟s judgment on those claims will remain undisturbed, but we will vacate the District Court‟s grant of summary judgment as to the federal claims and will remand with directions that they be dismissed for Ethypharm‟s lack of standing.

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Already, LLC v. Nike, Inc.

Nike filed this suit, alleging that two of Already’s athletic shoes violated Nike’s Air Force 1 trademark. Already denied the allegations and filed a counterclaim challenging the validity of Nike’s Air Force 1 trademark. While the suit was pending, Nike issued a “Covenant Not to Sue,” promising not to raise any trademark or unfair competition claims against Already or any affiliated entity based on Already’s existing footwear designs, or any future Already designs that constituted a “colorable imitation” of Already’s current products. Nike then moved to dismiss its claims with prejudice, and to dismiss Already’s counterclaim without prejudice on the ground that the covenant had extinguished the case or controversy. Already opposed dismissal of its counterclaim, contending that Nike had not established that its covenant had mooted the case. In support, Already presented an affidavit from its president, stating that Already planned to introduce new versions of its lines into the market; affidavits from three potential investors, asserting that they would not consider investing in Already until Nike’s trademark was invalidated; and an affidavit from an Already executive, stating that Nike had intimidated retailers into refusing to carry Already’s shoes. The District Court dismissed Already’s counterclaim, concluding that there was no longer a justiciable controversy. The Second Circuit affirmed. It explained that the covenant was broadly drafted; that the court could not conceive of a shoe that would infringe Nike’s trademark yet not fall within the covenant; and that Already had not asserted any intent to market such a shoe.

Held: This case is moot. 663 F. 3d 89, affirmed.

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IGT v. Alliance Gaming Corp.

type of casino gaming machine containing a secondary bonus game incorporating a spinning wheel. IGT sued Alliance Gaming Corp., Bally Gaming International, Inc., and Bally Gaming, Inc. (collectively, “Bally”) for infringement of these patents, and Bally counterclaimed under state and federal antitrust laws. The district court denied the motions for summary judgment on the antitrust issues, granted the motions that the patents were invalid and not infringed, and certified the patent issues for interlocutory appeal. This court affirmed. On remand, the district court granted summary judgment against Bally on its antitrust counterclaims. Because the undisputed facts are insufficient to establish the existence of a relevant antitrust market in wheel games, we affirm.

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Ritz Camera & Image, LLC v. Sandisk Corp.

This case comes to us on an interlocutory appeal from the United States District Court for the Northern District of California. The certified question concerns the limits on standing to bring so-called Walker Process antitrust claims. The Supreme Court in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), held that antitrust liability may attach when a party uses a patent to obtain or preserve a monopoly if the patent was procured through intentional fraud on the Patent and Trademark Office (“PTO”). The question in this case is whether an antitrust action against the owner of a patent, based on the Walker Process theory of liability, can be brought by a direct purchaser of goods that are protected by the patent, even if the purchaser faces no threat of an action for patent infringement and has no other basis to seek a declaratory judgment holding the patent invalid or unenforceable. We hold that the district court was correct to rule that a direct purchaser is not categorically precluded from bringing a Walker Process antitrust claim, even if it would not be entitled to seek declaratory relief against the patentee under the patent laws.

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