Antitrust Law Daily Reverse-settlement disputes not subject to Federal Circuit jurisdiction
Friday, April 14, 2017

Reverse-settlement disputes not subject to Federal Circuit jurisdiction

By Jody Coultas, J.D.

The U.S. Court of Appeals in Philadelphia had jurisdiction to decide consolidated appeals involving allegations that the companies holding the patents for Lipitor and Effexor XR delayed entry into the market of generic versions of those drugs. The court found that it, rather than the Federal Circuit had jurisdiction to hear the appeals because the cases did not arise under federal patent law. Patent law was not the basis of the plaintiffs’ cause of action, nor was patent law a necessary element to any of plaintiffs’ well-pleaded claims. Because it was unclear whether a New Jersey federal district court had jurisdiction at the time judgment was entered over one of the consolidated cases, the court ordered a limited remand in that case for the parties to clarify the record as to the diversity of the parties (In re: Lipitor Antitrust Litigation and In re: Effexor XR Antitrust Litigation, April 13, 2017, Fisher, D.).

Lipitor suit. Lipitor reduces the level of bad LDL cholesterol in the bloodstream, and is one of the best-selling pharmaceutical products of all time. In re Lipitor includes a putative class of direct-purchasers of branded Lipitor, a putative class of end-payors, and four individual-retailers asserting direct-purchaser claims. The defendants are Pfizer Inc., Ranbaxy Inc., and their respective corporate affiliates. There is also a fourth group of plaintiffs made up of several California-based pharmacists raising claims under California law (RP Healthcare plaintiffs). The Lipitor plaintiffs and RP Healthcare plaintiffs asserted that Pfizer committed fraud with regard to the procurement and enforcement of the U.S. Patent No. 5,273,995 (the ‘995 patent), which covers the specific salt form of the active atorvastatin molecule in Lipitor.

In June 2008, Pfizer and Ranbaxy reached a near-global litigation settlement in which Ranbaxy received a licensed entry date of November 30, 2011 for generic Lipitor. Any other generic manufacturer that wanted the 180-day period to begin earlier than November 2011 would need a court to hold that all of Pfizer’s Orange Book-listed patents were invalid or not infringed. The direct purchaser plaintiffs alleged that Pfizer and Ranbaxy entered into an unlawful agreement.

Effexor suit. In In re Effexor XR Antitrust Litigation, plaintiffs are a putative class of direct-purchasers of branded Effexor XR, a putative class of end-payors, two individual third-party payors, and four individual-retailers asserting direct-purchaser claims. Effexor is used to treat major depression. The Effexor plaintiffs contend that Wyeth obtained the Effexor XR patents through fraud on the USPTO, improperly listed those patents in the FDA’s Orange Book, and enforced those patents through serial sham litigation. Also, the patent holder, Wyeth LLC, and generic manufacturer Teva Pharmaceuticals USA, Inc. reached an agreed-upon entry date of July 1, 2010 for generic Effexor XR, nearly seven years before the expiration of Wyeth’s patents related to that drug. The direct purchasers alleged that Wyeth entered into an illegal horizontal market-allocation and price-fixing reverse settlement agreement with Teva Pharmaceuticals, and negotiated settlements with subsequent generic applicants for the sole purpose of preserving and protecting its alleged monopoly and market-division agreement with Teva.

Reverse-payment settlements in the Hatch-Waxman context are subject to antitrust scrutiny and may violate antitrust laws because "[a]n unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival," thus "suggest[ing] that the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market."

In September 2014, a New Jersey district court dismissed the Lipitor plaintiffs’ complaints to the extent they were based on anything other than the reverse-payment settlement, rejecting the Walker Process fraudulent procurement, sham litigation, and sham FDA citizen petition aspects of the Lipitor plaintiffs’ monopolization claims. In October 2014, the district court rejected the Effexor plaintiffs’ challenges to the Wyeth-Teva reverse-payment settlement and dismissed with prejudice the section 1 restraint of trade claims.

Jurisdiction. Appellate courts have general appellate jurisdiction over "appeals from all final decisions of the district courts of the United States. The Court of Appeals for the Federal Circuit has exclusive jurisdiction over an appeal from a final decision of a district court in any civil action arising under any Act of Congress relating to patents. Whether a claim "arises under" federal patent law is based on the complaint. For jurisdictional purposes, courts look to the complaint and its allegations as a whole to identify the plaintiff’s claims and any theories undergirding those claims. In the antitrust context, courts must determine the theories that explain why certain alleged conduct was anticompetitive. Lastly, after distinguishing between claims and theories, courts then must ascertain whether each theory supporting a claim necessarily requires the resolution of a substantial question of patent law. If one theory does not, the Federal Circuit lacks appellate jurisdiction.

The complaints filed by the Lipitor and Effexor plaintiffs did not arise under patent law, according to the court. Defendants argued that the section 2 Sherman Act monopolization claims arose under federal law because the plaintiffs claimed that Pfizer and Wyeth engaged in an overall scheme to monopolize the markets for their respective branded Lipitor and Effexor XR drugs through fraudulent procurement and enforcement of certain patents relating to the drugs. However, the court did not need to address the substantiality of the Walker Process, sham litigation, and false Orange Book listing theories because, even assuming that these theories presented substantial questions of patent law, plaintiffs’ right to relief on their section 2 monopolization claims do not depend upon them. Plaintiffs could obtain relief on the non-patent-law theory that Pfizer and Wyeth monopolized the market in their respective branded drugs by engaging in a reverse-payment settlement. Reverse-payment antitrust claims do not present a question of patent law. In Lipitor, the plaintiffs could also prevail on the additional non-patent law theory that Pfizer filed a sham citizen petition with the FDA. Therefore, jurisdiction was vested in the Court of Appeals rather than the Federal Circuit.

Defendants’ argument that the reverse-payment settlement allegations constituted monopolization claims distinct from the Walker Process fraud, sham litigation, and false Orange Book listing theories was rejected as counter to traditional antitrust principles, according to the court. A monopolist’s anticompetitive conduct must have an anticompetitive effect. Thus, courts look at the anticompetitive effect of a defendant’s exclusionary practices together, rather than considering each aspect in isolation. Also, the argument that certain statements made by the Effexor plaintiffs estopped them from arguing that the patent-law allegations constitute theories of relief was rejected because principles of estoppel cannot confer jurisdiction where it otherwise does not exist.

RP Healthcare plaintiffs. The RP Healthcare plaintiffs filed in a California state court alleging that the settlement between Pfizer and Ranbaxy constituted a per se unlawful market allocation agreement in violation of California’s Cartwright Act. Pfizer removed the case to federal court. The district court declined to remand the case based on the fact that "there may be patent issues raised as defenses in this case which would engender jurisdiction." Whether a claim arises under patent law is based on what appears in the plaintiff’s statement, regardless of anything alleged in anticipation or avoidance of defenses which it is thought the defendant may interpose.

To the extent the claim exists under California law, the RP Healthcare plaintiffs’ claim did not "arise under" federal patent law, according to the court. There were alternative non-patent-law theories on which the RP Healthcare plaintiffs could prevail on their state-law antitrust claim. An oblique mention of Walker Process fraud in their complaint did not make this into a federal case. Thus, the court rejected Pfizer’s and Ranbaxy’s argument that the RP Healthcare case belonged in federal court because it "arises under" patent law.

The record was insufficient to determine that the district court possessed diversity jurisdiction before final judgment entered as a result of the RP Healthcare plaintiffs’ voluntary dismissal of the only two non-diverse defendants, according to the court. The parties expressed uncertainty regarding the state of the record as it pertains to the citizenship two unincorporated entities and wholly owned subsidiaries of Pfizer. Pfizer and Ranbaxy had the burden of proving diversity of citizenship by a preponderance of the evidence, but made no effort at any point to demonstrate that complete diversity was present before final judgment. Because it premature to direct that the case be remanded to California state court, the court remand the matter to the district court to give the parties the opportunity to clarify the record with regard to diversity of citizenship. The court also directed the lower court to ensure that the amount in controversy exceeded $75,000.

The cases are Nos. 14-4202, 14-4203, 14-4204, 14-4205, 14-4206, 14-4602, 14-4632, 15-1184, 15-1185, 15-1186, 15-1187, 15-1274, 15-1323, and 15-1342.

Attorneys: Monica L. Kiley (Hangley Aronchick Segal Pudlin & Schiller) for Rite Aid Corp., Rite Aid Hdqtrs Corp. and Maxi Drug Inc. Dimitrios T. Drivas (White & Case LLP) for Pfizer Inc., Pfizer Ireland Pharmaceuticals and Warner Lambert Co. Deborah S. Corbishley (Kenny Nachwalter) for Walgreen Co., Kroger Co., Safeway Inc. and Supervalu Inc. Monica L. Kiley (Hangley Aronchick Segal Pudlin & Schiller) for Rite Aid Corp., Rite Aid Hdqtrs. Corp. and JCG [PJC] USA LLC. Moira E. Cain-Mannix (Marcus & Shapira LLP) for Giant Eagle Inc. John P. Bjork (Vanek, Vickers & Masini, PC) for Meijer Inc. and Meijer Distribution Inc. Gregory T. Arnold (Hagens Berman Sobol Shapiro LLP) for Professional Drug Co. Lori A. Fanning (Miller Law) for Painters District Council No 30 Health & Welfare Fund. Amy E. Boddorff (White & Case LLP) for Wyeth Inc. Jonathan D. Janow (Kirkland & Ellis LLP) for Teva Pharmaceuticals USA Inc.

Companies: Rite Aid Corp.; Rite Aid Hdqtrs Corp.; Maxi Drug Inc.; Pfizer Inc.; Pfizer Ireland Pharmaceuticals; Warner Lambert Co.; Walgreen Co.; Kroger Co.; Safeway Inc.; Supervalu Inc.; Rite Aid Corp.; Rite Aid Hdqtrs. Corp.; JCG [PJC] USA LLC; Giant Eagle Inc.; Meijer Inc.; Meijer Distribution Inc.; Professional Drug Co.; Painters District Council No 30 Health & Welfare Fund; Wyeth Inc.; Teva Pharmaceuticals USA Inc.

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