Antitrust Law Daily Wrap Up, ANTITRUST—Fed. Cir.: Generic drug maker’s sham patent litigation, FDA citizen petition counterclaims revived, (Aug 6, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a medical supply company against a generic drug manufacturer for patent infringement of its brand name drug, the federal district court’s dismissal of the generic manufacturer’s antitrust counterclaims that the supplier’s patent validity claim was a sham and it sought to enforce a patent procured by fraud was upheld by the U.S. Court of Appeals for the Federal Circuit. However, the court’s dismissal of the counterclaims that the supplier’s infringement and citizen petition to the FDA were shams was reversed and remanded (Tyco Healthcare Group LP v. Mutual Pharmaceutical Company, Inc., August 6, 2014, Bryson, W.).

Tyco Healthcare, a manufacturer of medical devices and supplies, marketed temazepam, a drug used to treat insomnia, under the brand name Restoril. In 2001,Tyco acquired Restoril and several related patents directed at formulations or methods of treatment with temazepam from Sandoz Limited. In 2006, Mutual Pharmaceutical Company filed an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA), seeking approval to manufacture and sell a generic version of temazepam. Mutual’s ANDA represented that the generic drug was not protected by a U.S. patent.

Tyco filed an action, alleging that Mutual’s ANDA infringed its patents, and Mutual responded with antitrust counterclaims. After the district court entered a judgment of noninfringement in favor of Mutual, Tyco filed a citizen petition with the FDA. The petition urged the FDA to change the criteria for evaluating the bioequivalence of proposed generic temazepam products. The FDA approved Mutual’s ANDA, which allowed Mutual its generic temazepam to market, and denied Tyco’s petition in its entirety. Subsequently, the district court granted summary judgment to Tyco on Mutual’s antitrust counterclaims and Mutual appealed.

Infringement claims. The dispute over infringement turned on the patent’s specific surface area limitation. Mutual contended that Tyco’s infringement suit was objectively baseless as to fall within the sham litigation exception to the Noerr-Pennington doctrine. In rejecting Mutual’s argument, the court noted that a patentee could have a reasonable expectation of a favorable outcome when the ANDA describes a generic drug’s characteristics that fall outside the relevant patent if the generic manufacturer’s ANDA was based on faulty testing or screening procedures. Tyco presented evidence that Mutual’s testing of the proposed generic product used a different outgassing temperature than Tyco in tests of its product and the lower temperatures resulted in underestimates of the actual surface area of the tested product. Thus, it was not unreasonable for Tyco to allege infringement if it had evidence that the marketed commercial ANDA product would infringe even though the hypothetical product specified in the ANDA could not infringe.

Additionally, it was undisputed that the specific surface area of Mutual’s temazepam fell within the infringing range when the outgassing temperature was set the same as Tyco’s. However, Mutual presented evidence that the higher temperature physically altered the temazespam itself, resulting in a decreased specific surface area. Based on evidence and analysis in the record, further inquiry was needed into the effect of the outgassing temperature on the specific surface area of Mutual’s generic product and whether Tyco’s factual theory of infringement was objectively baseless, the court determined.

Validity of patent. The district court did not err in granting summary judgment to Tyco with respect to Mutual’s sham litigation claim, since Tyco had a reasonable prospect of success in defending the validity of its patents. The burden of proof remained with Mutual to show invalidity by clear and convincing evidence. The court rejected Mutual’s contention that the only difference between the prior-art Restoril brand temazepam capsules and the generic capsules was the dosage, both of which were disclosed in the industry reference for recommended dosages. Tyco produced sufficient rebuttal evidence that several prior-art references taught away from the lower dose in the generic products because such a low dose was considered to be ineffective. Thus, Tyco’s teaching away arguments were not objectively baseless.

Citizen petition. The district court erred in granting summary judgment to Tyco regarding Mutual’s claim that Tyco’s citizen’s petition was a sham, since disputed issues of material fact remained. The court noted that the FDA’s denial of Tyco’s petition as wholly without merit was particularly probative of whether the petition was reasonable. Moreover, Mutual presented expert evidence that Tyco did not have a scientific basis to conclude that Mutual’s product would be bioequivalent to Restoril. However, further inquiry was needed as to whether Mutual suffered an antitrust injury in the form of a delay in FDA approval of its generic product due to the filing of Tyco’s citizen petition.

Fraud. Finally, the district court properly determined that there was insufficient evidence that Tyco was seeking to enforce patents which has been procured by fraud, according to the court. Mutual claimed that Sandoz fraudulently obtained the temazepam patents from the U.S. Patent and Trademark Office (USPTO) by submitting redacted versions of its FDA Approvable letter and Tyco had at least constructive knowledge when it conducted due diligence in purchasing the patents. The redacted FDA letter was offered for the limited purpose of overcoming an obviousness rejection and was insufficient to show Tyco presumably had knowledge of any alleged fraud by Sandoz, the court concluded.

Dissent. In a dissenting opinion, Circuit Judge Newman maintained that, although Tyco lost on the merits, its infringement suit was not a sham. The filing of the ANDA in and of itself constituted probable cause to initiate suit. Additionally, Tyco had a constitutional right to petition government as well as the patent right to exclude which did not dissipate between competitors. It was also plain that Tyco had the right to communicate with the FDA concerning public information on matters within the agency’s authority without incurring antitrust liability.

The case is No. 2013-1386.

Attorneys: Peter E. Strand (Shook, Hardy & Bacon, L.L.P.) for Tyco Healthcare Group LP and Mallinckrodt Inc. Steffen N. Johnson (Winston & Strawn LLP) for Mutual Pharmaceutical Company, Inc. and United Research Laboratories, Inc.

Companies: Tyco Healthcare Group LP; Mallinckrodt Inc.; Mutual Pharmaceutical Company, Inc.; United Research Laboratories, Inc.

Cases: Antitrust