By Jeffrey H. Brochin, J.D.
The district court lacked subject matter jurisdiction in a False Claims Act (FCA) (31 U.S.C. §3729 et seq.) lawsuit where the complaint was based on public disclosures made through allegations of fraud in a prior patent infringement suit, the 9th Circuit Court of Appeals has affirmed. The relator, Amphastar Pharmaceuticals (Amphastar), failed to establish that it was the original source of the fraud information on which its allegations against Aventis Pharma S.A. (Aventis) were based, and the suit was properly dismissed. However, despite the lack of subject matter jurisdiction to hear the FCA claim, the district court did have an independent grant of jurisdiction to award attorney fees pursuant to the fee-shifting provision (Amphastar Pharmaceuticals, Inc. v. Aventis Pharma SA, May 11, 2017, O’Scannlain, D.).
Background: In the 1980s, Aventis patented the drug enoxaparin in Europe under patent EP144. In the 1990s, it developed a plan to sell enoxaparin in the United States as a supposedly new version of the drug dubbed "618 Product." However, the new patent was rejected until a French scientist provided a declaration that "clearly demonstrated" that the 618 Product had a longer half-life and was therefore novel. It was later determined that the scientist’s sworn declarations were incorrect, but this error went undetected for years. Meanwhile, Aventis listed the drug in the FDA’s Orange Book to obtain protections under the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) (P.L. 98-417), which requires a generic drug competitor to certify that the patent is either not infringed or invalid.
In March 2003, Amphastar Pharmaceuticals, Inc. submitted an Abbreviated New Drug Application (ANDA) to the FDA for a generic version of enoxaparin based on the EP144 information. Aventis responded with a patent infringement suit in the course of which Amphastar raised the affirmative defense alleging inequitable conduct by Aventis in obtaining the 618 Product patent. Amphastar prevailed in its patent infringement litigation with Aventis.
Amphastar subsequently filed a qui tam action against Aventis in January, 2009 alleging that by committing fraud against the United States Patent and Trademark Office (USPTO), Aventis obtained an illegal monopoly over enoxaparin and then knowingly overcharged the United States. The district court dismissed the FCA claim due to lack of subject matter jurisdiction, citing the public disclosure bar. Aventis’ motion for attorney fees was denied, and the companies appealed the district court’s rulings.
Public disclosure bar. A court only has jurisdiction over an FCA action if the allegations are based on information from an original source that has not been made public prior to the suit. To qualify as an "original source," the individual must have direct and independent knowledge of the information on which the allegations are based and have voluntarily provided the information to the government before filing the action. The issue then before the appellate court was whether the public disclosure bar was triggered.
Examining prior pleadings. The court noted that the transactions or allegations cited in the FCA are deemed disclosed if they can be found in pleadings or other public filings. "Allegations" refers to direct claims of fraud, while "transactions" refers to facts from which fraud can be inferred. Amphastar argued that the allegations of fraud were never publicly disclosed before it filed its qui tamaction. It conceded that general allegations of fraud were made in its responsive pleadings in the prior patent infringement case, but that those past allegations never mentioned any false claims submitted to or paid by the federal government or state governments. However, the court ruled that an allegation need not include an express reference to the FCA in order for the public disclosure bar to apply. Because Amphastar’s Amended Answer and Counterclaim in the 2003 patent infringement case made nearly identical allegations to those made in the instant FCA case, the court held that the public disclosure bar was triggered.
The original source exception. Because the public disclosure bar was applicable to the case, the appellate court next delved into the issue of whether Amphastar was the original source of the publicly disclosed information. In order to be the original source, Amphastar needed to show that it had knowledge that was both direct and independent. The district court had noted that it was deeply troubled by Amphastar’s inconsistent prior statements as to when it discovered the error which it pleaded in its affirmative defense in the prior case. Furthermore, the district court had concluded that no pre-litigation experimentation had provided Amphastar with the information which it disclosed in its pleadings. Accordingly, the appellate court found that the district court’s conclusion that Amphastar did not have direct and independent knowledge of the information disclosed was not clearly erroneous, and they held that Amphastar was not the original source of the information, and that the public disclosure bar in this case was not subject to the original source exception.
Award of attorney fees. Aventis contended that the district court erred in concluding that it had no power to award attorney fees. The appellate court looked to the fee-shifting provision of the FCA which states in part: "the court may award attorney fees and expenses if the defendant prevails in the action." The court examined whether the fee-shifting provision provided the district court with jurisdiction to grant an attorney fee award where subject matter jurisdiction was lacking. The court of appeals noted that Aventis spent eight years, quite a bit of money, and quite a bit of energy fighting the lawsuit, and that the lawsuit probably lasted longer than the vast majority of lawsuits that are resolved on the "merits." It concluded that Aventis had won a significant victory and permanently changed the legal relationship of the parties. Accordingly, Aventis’ prevailing in district court—albeit for non-meritorious reasons—made it the prevailing party within the meaning of the fee-shifting provision and that the district court had an independent grant of jurisdiction to the extent that it was able to award attorney fees.
The case is No. 15-56122.
Attorneys: Evan Christopher Borges (Greenberg Gross LLP) for Amphastar Pharmaceuticals Inc. Michael Sean Royall (Gibson, Dunn & Crutcher LLP) for Aventis Pharma SA, Aventis Pharmaceuticals Inc. and Sanofi-Aventis SA.
Companies: Amphastar Pharmaceuticals Inc.; Aventis Pharma SA; Aventis Pharmaceuticals Inc.; Sanofi-Aventis SA
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