a primer on sham litigation claims

1. A Primer On Sham Litigation Claims The Ins and Outs of Sham Litigation Claims American Bar Association, Section of Antitrust Law George Washington University School of Law, Competition Law Center Moderator: Philip B. Nelson, Economists Inc. Panel: George G. Gordon, Dechert LLP David F. Sorensen, Berger & Montague, P.C. Lore A. Unt, Federal Trade Commission Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.

3. Sham or Walker Process Fraud Strips Antitrust Immunity, But� Antitrust plaintiff still must prove remaining elements of a claim: Effect on competition in a relevant market Monopolization/dangerous probability of monopolization Harm to competition Antitrust injury Damages The gist of these laws is the prevention of unreasonable impediments to competition. The key questions at the heart of any antitrust case are [go to slide] Obviously, these questions spin off numerous sub-questions regarding how one defines a market, measures effect, etc. But when we are looking at an antitrust issue, this is ultimately what we are looking for: Is there a competitive effect in the sense that the conduct reduces competition that would otherwise exist? And, if so, is there a pro-competitive justification for it? In some areas, the answer is presumed by the court � such as price-fixing But that does not apply to most of the conduct that we will be discussing in the pharma industry The gist of these laws is the prevention of unreasonable impediments to competition. The key questions at the heart of any antitrust case are [go to slide] Obviously, these questions spin off numerous sub-questions regarding how one defines a market, measures effect, etc. But when we are looking at an antitrust issue, this is ultimately what we are looking for: Is there a competitive effect in the sense that the conduct reduces competition that would otherwise exist? And, if so, is there a pro-competitive justification for it? In some areas, the answer is presumed by the court � such as price-fixing But that does not apply to most of the conduct that we will be discussing in the pharma industry

4. Sham Patent Litigation Sham litigation test: Plaintiff must show, by clear and convincing evidence: �[N]o reasonable litigant could realistically expect success on the merits�; and Litigation was an �attempt to interfere directly with the business relationships of a competitor� through the use of the process, as opposed to the hoped-for outcome Open question: Does the same test apply to �serial� or �repetitive� petitioning? �Clear and Convincing� standard being challenged

5. �Walker Process Fraud� Distinguished To prove fraud, plaintiff must show by clear and convincing evidence that patent holder affirmatively misrepresented a material fact or failed to disclose a material fact relating to patentability with an intent to deceive the PTO Walker Process requires proof that the patent holder would not have obtained the patent �but for� the fraud Court may not �balance� materiality and intent Burden never lessens regardless of level of materiality

6. The Sham Paradigm Sham litigation allegations typically focus on: Nature of infringement claims Claim construction issues may be key Patent validity (role of �presumption of validity�) Enforceability (fraud v. inequitable conduct) Open issue: can sham claim be based on inequitable conduct short of �Walker Process� fraud? Sham allegations may be based on other types of petitioning, such as FDA citizen petitions Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.

7. Different Standard for a �Pattern� or �Series� of Sham Suits? Primetime 24 Joint Venture v. NBC, 219 F.3d 92 (2d Cir. 2000) (thousands of regulatory challenges made without regard to merit; plaintiff need not show each was a �sham�); see also USS-Posco Indus v. Contra Costa Cnty Bldg & Constr. Trades Council, 31 F.3d 800 (9th Cir. 1994) Kaiser Foundation Health Plan, Inc. v. Abbott Labs., 552 F.3d 1033 (9th Cir. 2009) (company filed 17 patent suits and lost 10, but obtained results in 7; �batting average� high enough to preserve Noerr immunity); Erbe Elektromedizin GMBH v. Canady Technology LLC, 2010 WL 5050544 (Fed. Cir. 2010) (Leaving open the question of whether there is a different test for �pattern� case based on facts)

8. Conditions Leading To Sham Litigation Cases In Pharmaceutical Industry Hatch-Waxman encourages challenges to patents First generic filing an �Abbreviated New Drug Application� (ANDA), asserting that its generic does not infringe the brand�s patent and/or that the patent is invalid, can get 180 days of marketing exclusivity Brand companies granted automatic 30-month stay on generic approval if brand sues for patent infringement May make it easier to show potential competitive effect

9. Conditions Leading To Sham Litigation Cases In Pharmaceutical Industry Pharmacists can substitute �AB-rated� generics automatically With multiple generic competitors, price can drop 80% or more Most brand sales (80% or more) quickly switch to generic

10. In re DDAVP Direct Purchaser Antitrust Litigation, 585 F.3d 677 (2d Cir. 2009) Drug patent held unenforceable for inequitable conduct; affirmed by Fed. Cir. (2-1 opinion) Antitrust case alleged WP fraud, sham litigation, sham citizen petition, fraud orange book listing Second Circuit held direct purchasers had standing � patent had already been �tarnished� Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.Go to slide In 1997, virtually no actions based on antitrust conduct. (1997 was year the settlement agreement in the Cardizem case was signed.) In the last 10 years, at least three dozen drugs have been hit.

11. Abbott Labs. v. Teva Pharms., 432 F. Supp.2d 408 (D. Del. 2006) Allegations of sham litigation, improper �product switching� and regulatory �gamesmanship� to forestall competition District Court: Inequitable conduct (lesser showing than fraud), can support allegation of sham suit Sham/fraud are alternative ways around immunity; inequitable conduct can render a patent suit objectively baseless and support subjective prong