Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Insufficient evidence provided to pierce attorney-client privilege, (Jan 10, 2014)

By Jody Coultas, J.D.

The federal district court in Philadelphia declined to override the attorney-client privilege in an action in which pharmaceutical drug purchasers claimed that drug manufacturer Cephalon, Inc. and generic manufacturers violated federal antitrust law in settling infringement litigation (King Drug Company of Florence, Inc. v. Cephalon, Inc., January 9, 2014, Goldberg, M.).

A group of companies that purchased the wakefulness drug Provigil directly from Cephalon for redistribution (the direct purchasers) alleged that Cephalon committed inequitable conduct in the prosecution of its patent for Provigil by concealing another company’s extensive involvement in the product.

In a consolidated antitrust case, the court concluded that Cephalon did not invent Provigil. Rather, a French company manufactured and shipped to Cephalon several modafinil (the active ingredient in Provigil) batches between 1989 and 1993 that fell within the patent claims. In prosecuting the patent, Cephalon did not disclose to the U.S. Patent and Trademark Office that another company was the inventor of the drug, or that it had done nothing to alter the modafinil it received. Cephalon falsely suggested that it had “manipulate[d] the particle size of the drug substance” to reach the levels described by the patent claims.

The direct purchasers argued that this finding was sufficient to establish the crime-fraud exception to the attorney-client privilege, and sought an order directing Cephalon to produce all attorney-client communications related to: (1) the prosecution, issuance, and reissuance of the RE '516 patent; (2) the listing of the patent in the FDA’s Orange Book; (3) the filing and maintaining of patent infringement litigation against the generics; and (4) the negotiation and making of reverse-payment settlement agreements with the generics.

Attorney-client privilege does not protect communications made between an attorney and a client in furtherance of a future crime or fraud. The privilege is destroyed where “there is a reasonable basis to suspect that the privilege holder was committing or intending to commit a crime or fraud and that the attorney-client communications or attorney work-product were used in furtherance of the alleged crime or fraud.”

The inequitable conduct finding could establish a prima facie case of fraud as to the patent prosecution, according to the court. The direct purchasers were required to show common law fraud. This requires (1) misrepresentation or omission of a material fact, (2) an intent to deceive, (3) justifiable reliance by the party deceived, and (4) injury to the party deceived. Previously, a finding of inequitable conduct was insufficient by itself to establish common law fraud. However, the Federal Circuit reassessed the standards for a finding of inequitable conduct, holding that the “accused infringer must prove [by clear and convincing evidence] that the patentee acted with the specific intent to deceive the PTO,” and that the patent would not have issued “but-for” the deception. The court found it unnecessary to decide the meaning and import of the Federal Circuit’s holding here because the direct purchasers had not met the second element required to pierce the attorney-client privilege.

The direct purchasers could not show a reasonable basis for the court to conclude that particular communications were made in furtherance of the fraud they allege. The “in furtherance” element requires the movant to show that a given communication was “meant to facilitate future wrongdoing by the client.” The direct purchasers identified four areas in which all the attorney-client communications were necessarily made “in furtherance” of fraud. The court declined to override the privilege based on the over-broad and general approach outlined by the direct purchasers. The direct purchasers were required to establish that Cephalon sought the advice of its attorneys intending that the resulting advice would be used to facilitate a future fraud. However, they were unable to establish that the communications at issue were in furtherance of future fraud. The categorical approach offered no way of distinguishing between communications made in furtherance of future fraud and those that legitimately relate to the patent prosecution.

In camera review would be inappropriate, according to the court. The direct purchasers requested that the court conduct an in camera review of documents that they claim related to the challenged conduct. While the evidence obtained, even if determined to be unprotected, might be useful in some respects, the breadth of the request reduces the likelihood that any given communication would fall within the exception and increased the harm to Cephalon.

The case is No. 2:06-cv-1797.

Attorneys: Andrew William Kelly (Odom & Des Roches LLP) for King Drug Company of Florence, Inc. Emily R. Whelan (Wilmer Hale) for Cephalon, Inc.

Companies: Cephalon, Inc.

Cases: Antitrust PennsylvaniaNews