More Uncertainty: What s The Difference Between a Claim and a Theory?

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1 The AIPLA Antitrust News A Publication of the AIPLA Committee on Antitrust Law October 2010 More Uncertainty: What s The Difference By Steven R. Trybus and Sara Tonnies Horton 1 The United States Court of Appeals for the Second Circuit, in Meijer, Inc. v. Ferring B.V. (In re: DDAVP Direct Purchaser Antitrust Litig.), 585 F.3d 677 (2nd Cir. 2009), cert denied, 130 S. Ct (June 28, 2010) (No ), held that purchasers of a patented product have standing to assert a Walker Process antitrust claim at least when the patent at issue has already been found by a court to be unenforceable for inequitable conduct. Along with this novel holding on the merits of the issue, the Second Circuit s opinion is notable for the jurisdictional analysis that concluded the appeal should not be transferred to the Court of Appeals for the Federal Circuit. The Second Circuit based its decision to retain the appeal on the conclusion that there was a single claim based on multiple theories rather than multiple claims. The Second Circuit concluded it had jurisdiction of the appeal despite finding that plaintiffs themselves asserted that the patent is the linchpin of the alleged anticompetitive scheme. 585 F.3d at 687. Plaintiffs, purchasers of desmopressin acetate tablets (sold as DDAVP ), filed a class action in the Southern District of New York alleging that defendants, Ferring B.V., Ferring Pharmaceuticals, Inc. (collectively, Ferring ), and Aventis Pharmaceuticals, Inc. (hereinafter Aventis ), unlawfully maintained a monopoly over DDAVP. Plaintiffs alleged that Ferring and Aventis suppressed generic entry into the market for DDAVP and thus inflated the price of DDAVP in violation of antitrust laws. The district court dismissed the case for several reasons; but the Second Circuit, after finding it had jurisdiction over the appeal, vacated the dismissal and remanded for further proceedings. Background DDAVP is an antidiuretic prescription drug used, among other things, to manage a form of diabetes. 585 F.3d at 682. Ferring, the developer and manufacturer of DDAVP, owns U.S. Patent No. 5,047,398 ( the 398 patent ), which claims DDAVP in tablet form. Id. Aventis, Ferring s exclusive licensee, holds an approved New Drug Application ( NDA ) for DDAVP tablets, and markets and sells the drug. Id. In 2002, Ferring filed a patent infringement lawsuit against Barr Laboratories, Inc. ( Barr ) in the Southern District of New York after Barr filed an Abbreviated New Drug Application ( ANDA ) seeking to market and sell a generic version of DDAVP tablets prior to the expiration of the 398 patent. 2 Id. In the patent infringement suit, the district court granted summary judgment that the 398 patent was unenforceable due to inequitable 1. Steven R. Trybus is a partner in the Litigation Department of Jenner & Block, LLP. Sara Tonnies Horton is an associate, also in the Litigation Department. Both are in the Intellectual Property Group. This article reflects the views and opinions of the authors and not necessarily the views of the firm or its clients. Steven R. Trybus can be reached at strybus@jenner.com. Sara Horton Tonnies can be reached at shorton@jenner.com. 2. That patent infringement suit was presided over by the same district court judge who later handled the antitrust case at issue. 1

2 conduct. Id at 683; Ferring B.V. v. Barr Labs, Inc., No. 7:02-CV-9851, at *10 (S.D.N.Y. Feb. 7, 2005). The district court s finding of inequitable conduct stemmed from a failure to disclose the existence of a financial relationship between the applicant and four declarants whose declarations led to issuance of the 398 patent. 585 F.3d at 683. A divided Federal Circuit panel affirmed. Ferring B.V. v. Barr Labs, Inc., 437 F.3d 1181 (Fed. Cir. 2006). District Court Proceedings Shortly after the Federal Circuit s affirmance of the judgment of unenforceability, Plaintiffs filed their antitrust complaint. The plaintiffs sole count alleged that Ferring and Aventis had unlawfully monopolized the market for DDAVP and its generic equivalents by engaging in an exclusionary scheme. The actions that were allegedly part of the scheme included: (1) procuring the 398 patent through fraud and/or inequitable conduct before the PTO; (2) improperly listing the 398 patent in the FDA s Orange Book; (3) bringing sham patent infringement litigation to delay FDA approval and market entry for generic competitors; and (4) filing a sham citizen petition with the FDA to postpone final approval of the generic ANDA. 585 F.3d at 685. The district court dismissed the suit, finding that Plaintiffs lacked standing and that Plaintiffs complaint failed to state a claim upon which relief could be granted. The district court also granted Aventis s separate motion to dismiss the case against it on the ground that plaintiffs had not sufficiently pleaded a claim against Aventis as distinct from Ferring. Id. at 684. Specifically, the district court found that Plaintiffs lacked antitrust standing because the 398 Patent had not been enforced against them and they were not in competition with Defendants. Id. (citing In re DDAVP Direct Purchaser Antitrust Litig., No 05 CV 2237, at *11-12 (S.D.N.Y. Nov. 2, 2006) (citing In re Ciprofloxacin Hydrochlorirde Antitrust Litig., 363 F. Supp. 2d 514 (E.D.N.Y. 2005); Wallgreen Co. v. Organon, Inc. (In re Remeron Antitrust Litig.), 335 F. Supp. 2d 522 (D.N.J. 2004))). The district court also concluded that Plaintiffs had failed to state a claim because, although the 398 Patent had been rendered unenforceable by inequitable conduct before the PTO, the Plaintiffs had not pled fraud with the particularity required by Federal Rules. Id. at 684 (citing In re DDAVP Direct Purchaser Antitrust Litig., No 05 CV 2237, at *5-8 (S.D.N.Y. Nov. 2, 2006). The Second Circuit Opinion Plaintiffs appealed the district court s dismissal to the Second Circuit. Defendants moved to transfer the case to the Federal Circuit, arguing that the Federal Circuit had exclusive jurisdiction over the appeal. 585 F.3d at 684. The Second Circuit s Opinion addressed both the jurisdictional issues and the merits of the dismissal. Jurisdictional Issues The Second Circuit found that it, not the Federal Circuit, had jurisdiction over the appeal. The Second Circuit began its jurisdictional analysis by noting that: [t]he Federal Circuit has exclusive jurisdiction over appeals where the district court s jurisdiction is based, in whole or in part, on section 1338 of [title 28], 28 U.S.C. 1295(a)(1), which in turn gives district courts original jurisdiction of any civil action arising under any Act of Congress relating to patents, id. 1338(a). 585 F.3d at Citing the Supreme Court s decision in Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, (1988), the Second Circuit recited the rule that jurisdiction of an appeal lies in the Federal Circuit if a case arises under patent law. The arising under standard is met if a wellpleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff s right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims. Id. 2

3 The Second Circuit quickly concluded that the first part of the Christianson test for Federal Circuit jurisdiction did not apply given that the suit arose out of the antitrust laws, not the patent laws. So, the Second Circuit concentrated its jurisdictional analysis on the second part of the Christianson test. The Court indicated that the appropriate standard for its analysis was whether there is at least one alternative theory supporting the claim that does not rely on patent law, so that there would be no arising under jurisdiction. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d at (citing In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 199 (2d Cir. 2006)). Plaintiffs argued that the Second Circuit had appellate jurisdiction because their claim for relief could stand on any one of its four theories, one of which did not depend upon any patent law issues. 3 While there was agreement that the first three theories of Plaintiffs antitrust claim plainly depend on resolution of a substantial question of patent law, as they all turn on how the 398 patent was procured, the parties differed on the analysis of the fourth theory. 585 F.3d at 685 (citing Walker Process, 382 U.S. at 177 & n.5). The fourth theory alleged that Ferring violated antitrust laws when it filed a sham citizen petition with the FDA requesting that the FDA require Barr (a generic) to conduct extra testing, thereby delaying approval of Barr s ANDA. Id. Plaintiffs contended that the fourth theory did not implicate a substantial question of patent law, but the Defendants argued that since the citizen petition was filed over a year before the 398 patent was held unenforceable because of inequitable conduct; Plaintiffs could not prove the required intent to monopolize without showing that the patent was foreseeably unenforceable at the time the citizen petition was filed, an issue that raised questions of patent law. Id The Second Circuit sided with the Plaintiffs noting that because the patent was ruled unenforceable almost five months before the FDA rejected the citizen petition the Defendants could have withdrawn the petition during that time and [e]ven if defendants intent when filing the petition raises questions of patent law, their intent in maintaining the petition after they lost the infringement litigation does not. Id. Thus, the Second Circuit concluded that there are reasons completely unrelated to the provisions and purposes of federal patent law why petitioners may or may not be entitled to the relief they seek under their monopolization claim, and the Court found that the claim does not arise under federal patent law. Id. (quoting Christianson, 486 U.S. at 812). Defendants also argued that Federal Circuit jurisdiction was appropriate because the citizen petition theory was only a minor part of Plaintiffs overall allegations. On this point, the Second Circuit even noted that the plaintiffs themselves see the petition as only a single piece of a larger anticompetitive scheme of which the 398 patent is the linchpin. Id. at 686. The Second Circuit however found that the relief sought was not tied inextricably to this larger scheme. Id. The key to the Second Circuit s jurisdictional decision was its analysis of whether there was a single claim based upon multiple theories or whether there were multiple claims. This difference between a claim and a theory was the key point because [t]he question of whether the Federal Circuit has jurisdiction focuses on claims, not theories, and just because an element that is essential to a particular theory might be governed by federal patent law does not mean that the entire monopolization claim arises under patent law. Id. (citing Christianson, 486 U.S. at 811 (internal citations omitted)). 3. As discussed above, those four theories are that Ferring and Aventis had unlawfully monopolized the market by engaging in an exclusionary scheme that included: (1) procuring the 398 patent through fraud and/or inequitable conduct before the PTO; (2) improperly listing the 398 patent in the FDA s Orange Book; (3) bringing sham patent infringement litigation to delay FDA approval and market entry for generic competitors; and (4) filing a sham citizen petition with the FDA to postpone final approval of the generic ANDA. 3

4 The Second Circuit defined Plaintiffs request for judgment declaring Defendants conduct in violation of the Sherman Act as a single claim with the four bases for this claim being separate theories of that claim. Focusing on its conclusion that there was only a single claim, the Second Circuit found that it had jurisdiction so long as any one of the theories can support the claim without raising substantial questions of patent law. Id. Therefore, because the sham citizen petition theory did not raise an issue of patent law, 4 the Second Circuit had jurisdiction. Id. Merits of the Decision 1. On the merits of the appeal, the Second Circuit extended standing on Walker Process claims to purchasers being forced to pay supracompetitive prices at least in situations in which the cause of those prices was the procurement of a patent that had already been held unenforceable for inequitable conduct. In coming to this holding, the Court determined that the Plaintiffs had suffered antitrust injury and were an efficient enforcer of antitrust law. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d at Defendants argued that a party can only bring an antitrust suit based on Walker Process fraud if that party would also have standing to challenge the underlying patent s validity. The Court noted that patent validity can be challenged only by a party (1) producing or preparing to produce the patented product, and (2) being threatened or reasonably likely to be threatened with an infringement suit. Id. at 690 (citation omitted). Defendants argued that giving Walker Process standing to [P]laintiffs, who cannot directly challenge the 398 patent s validity, could result in an avalanche of patent challenges, because direct purchasers otherwise unable to challenge a patent s validity could do so simply by dressing their patent challenge with a Walker Process claim. Id. at 690. The Second Circuit found that the question of whether a purchaser had standing to bring a Walker Process antitrust claim where a patent had not yet been found by a court to be fraudulently procured, 5 was a matter of first impression. The Court indicated that it was reluctant to embrace the [D] efendants position because [it was] wary of creating the potential to leave significant antitrust violations undetected or unremedied. Id. at 691 (citation omitted). The Court reasoned that, using Defendants logic, direct purchasers would only be able to attempt to recover antitrust damages from a fraudulent patentee only after that patentee lost on a fraudulent procurement claim brought by another party with traditional standing (such as a generic competitor). See id. The Second Circuit also found that Plaintiffs were an efficient enforcer based in part on the different remedies that would be sought by competitors lost-profits as opposed to purchasers who would seek a return of overcharges. The Court also found that it was self-evident that, but for the 398 patent generic, manufacturers would have been competitors in the market. The effect of such competition was not speculative but could be sufficiently estimated and measured. 585 F.3d at 689. The Court recognized that its decision to grant Plaintiffs standing has the ability to disrupt incentives for innovation. So, the Court explicitly declined to decide whether purchaser plaintiffs per se have standing to raise Walker Process claims. Rather, the Court explicitly limited its holding to the case where [P]laintiffs are challenging an already tarnished patent. Id. at 691. So, the Court held pur- 4. Defendants also argued that the citizen petition theory covered a time period shorter than the overall allegations and so could not alone support Plaintiffs claim. The Second Circuit did not disagree but stated that this fact lacks jurisdictional significance. Id. 5. In the prior patent infringement suit, the patent had been found unenforceable for inequitable conduct. Ferring B.V. v. Barr Labs, Inc., 437 F.3d 1181, 1195 (Fed. Cir. 2006). But, there the district court did not find the patent was procured by fraud. In fact, denied Barr s motion for attorney s fees. See Ferring B.V. v. Barr Labs, Inc., No. 7:02-CV-9851, Docket Entry Denying Motion for Fees. (S.D.N.Y. Mar. 1, 2007). 4

5 chaser plaintiffs have standing to raise Walker Process claims for patents that are already unenforceable due to inequitable conduct. Id. at The Second Circuit also held that the District Court erred in granting Defendants motion to dismiss because Plaintiffs adequately stated and pled their antitrust claim under each of the four theories. The Second Circuit held that allegations of fraudulent intent could be sufficient even on fairly tenuous inferences. Id. at 693. The Court likewise found sufficient basis for the sham litigation theory based on the same facts alleged with regard to the fraudulent procurement theory. Id. at 694. Having determined that the fraudulent procurement and sham litigation theories were adequately pled, the Second Circuit held that Plaintiffs could proceed on their Orange Book theory as well. Id. at 694. The Court stated that the Orange Book listing s validity flows from the patent s validity. Id. The Second Circuit finally found that Plaintiffs citizen petition theory was also adequately pled. Id. at 694. The Court mentioned two allegations that, taken together, indicate that Plaintiffs could plausibly show the citizen petition could have been a sham. First, the FDA found that the petition had no convincing evidence and lacked any basis for its arguments. Id. (citing Plaintiff Complaint at 115). Second, the petition may have been a hardball litigation tactic, motivated by a desire to keep out competition for a s long as possible after the expiration of the patent and raise transactional costs for Barr. Id. (citing Ferring B.V. v.barr Labs., Inc., No. 7:02-CV-9851, *17 (S.D.N.Y. Feb. 7, 2005)). 3. Lastly, where the District Court granted Aventis s (the licensee) separate motion to dismiss, the Second Circuit held that a plausible claim had been stated against Aventis, rejecting Aventis s separate motion to dismiss. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d at 695. The Second Circuit reasoned that at the time Aventis filed its NDA and listed DDAVP in the Orange Book, the PTO had already rejected the application that became the 398 patent twice. Plaintiffs asserted that Aventis made no effort to investigate the validity of the patent. Id. The Second Circuit found that the Plaintiffs adequately stated circumstances that give rise to a plausible inference of knowledge and liability, especially considering the long-standing relationship between Aventis and Ferring. Id. Subsequent Appellate History Plaintiffs filed a Petition for a Writ of Certiorari on March 26, Brief of Petitioners-Appellant, No (Mar. 26, 2010). Plaintiffs /Petitioner s petition was supported by two amicus briefs filed on April 29, See Brief for The Intellectual Property Owners Association as Amici Curiae Supporting Petitioners, No (Mar. 26, 2010); see also Brief for The Biotechnology Industry Organization and The Pharmaceutical Research and Manufacturers of America as Amici Curiae Supporting Petitioners, No (Mar. 26, 2010). Both amicus briefs argued that the Second Circuit s jurisdictional decision was improper and the jurisdiction properly lied with the Federal Circuit. The Effect of Theory v. Claim on Appellate Jurisdiction The key element to the Second Circuit s jurisdictional analysis is its determination that Plaintiff s complaint set forth a single claim that had four possible theories supporting that claim. The Second Circuit s Opinion sets forth the same overall cannons of Federal Circuit jurisdiction as are included in other cases that have addressed that topic. First, if, in a well-pleaded complaint, any claim necessarily depends on resolution of a substantial question of patent law, then, the Federal Circuit has jurisdiction of the appeal. However, if multiple theories support a claim, that claim does not support Federal Circuit jurisdiction unless patent law is essential to each and every one of those theories. 5

6 In DDAVP, the Second Circuit viewed the complaint as raising just one claim with four underlying theories one not tied to patent law. Thus, the Second Circuit found that it had jurisdiction because Plaintiffs single claim did not necessarily depend on patent law but rather was based on at least one non-patent theory. On that analysis, it seems clear that if the Second Circuit had instead viewed Plaintiffs complaint as having four separate claims (not just four theories of one claim), the Court would have agreed that three of those claims did turn on patent law issues and would have transferred the appeal to the Federal Circuit. A case that recites the same basic jurisdictional propositions as in DDAVP, but contrasts with the Second Circuit s conclusion, is the Federal Circuit s decision in Davis v Brouse McDowell, LPA, 596 F.3d 1355 (Fed.Cir.2010). In Davis, the Federal Circuit found that the complaint for legal malpractice there involved two separate claims, one that related to US patent law and one that did not, rather than finding that there was a single claim with two alternate theories. 596 F.3d at Citing Black s Law Dictionary, the Federal Circuit in Davis held that A claim is broadly defined as the aggregate of operative facts giving rise to a right enforceable by a court. 569 F.3d at 1360 (citing Black s Law Dictionary 264 (8th ed. 2004). Using that definition, an argument can certainly be made that the Second Circuit erred in DDAVP when it found just a single claim based on multiple theories. The sham citizen petition allegations arose from facts that were not linked to the other allegations. Thus, the key jurisdictional issue is whether the allegations that provide the basis for potential recovery in a matter like the Walker Process antitrust complaint in DDAVP or the legal malpractice complaint in Davis involve multiple claims or just multiple theories. It is unclear whether the Second Circuit was correct in DDAVP or whether the Federal Circuit was right in Davis, or whether those two decisions are entirely reconcilable when viewed on their specific facts. The Second Circuit DDAVP decision seemingly gives plaintiffs the power to manipulate appellate jurisdiction based on careful complaint drafting. For plaintiffs that want to enhance the possibility that any appeal will be heard by a regional circuit Court of Appeals rather than the Federal Circuit, DDAVP clearly shows that such plaintiffs should try to cast their complaint as a single claim with multiple theories. It is unclear if the Second Circuit decision will lead to increased arguments regarding appellate jurisdiction over cases that have patent issues but are not patent infringement actions but the DDAVP decision opens the door for such arguments if plaintiffs draft their complaints with an eye toward appellate forum shopping. 6