Just When you Thought it Couldn’t Get Worse (for Patentees)

This post is nominally about the recent CAFC decision in Tyco Healthcare Group LP v. Mutual Pharmaceutical Co.   

In a broader sense it is about the demonization of patents, patentees, and infringement suits which involve assertion of patent rights.

The Tyco case revolves around submission of an Abbreviated New  

Drug Application (ANDA) by Mutual Pharmaceutical for 

Temazepam (RESTORIL). Tyco holds the patent rights for Restoril, 

following acquisition of related patents from Sandoz in 2001.

The infringement suit is brought under the Hatch-Waxman Act (35 U.S.C. §271(e)(2)(A)) which states that:

It shall be an act of infringement to submit-

(A)          An application under section 505(j) of the Federal Dood, Drug and Cosmetic Act or described in Section 505(b)(2) of such act for a drug claimed in a patent or the use of which is claimed in a patent…”

As one might expect, Mutual Pharmaceutical says they are not infringing because the drug which is the subject of the ANDA has certain physical properties (specific surface area) which render it non-infringing.

The unexpected additional aspect of this case is that Mutual Pharmaceutical filed counterclaims alleging several different types of antitrust violations. 

A patentee is generally exempt from antitrust allegations associated with infringement litigation under a principle known as “Noerr-Pennington” immunity. Noerr-Pennington immunity applies unless the litigation is a sham. 

Sham litigation is defined by a two prong test:

(a)    The suit must be objectively baseless; and

(b)    The suit must be subjectively brought to interfere with a competitor’s business relationships.

Both prongs (a) and (b) must be met to remove the immunity.

The district court for the district of New Jersey held that Tyco did not violate the antitrust laws by filing suit against Mutual Pharmaceutical or by filing a “citizen petition” with the Food and Drug Administration (“FDA”) seeking to bar Mutual from obtaining FDA permission to market its generic version of Temazepam. 

The CAFC affirmed in part, vacated in part, and remanded to the district court. The panel included Judges Newman, Bryson and Moore.

Relevant Technology:

The patents asserted by Tyco all claimed Temazepam formulations with specific surface areas (SSA) between 0.65 and 1.1 square meters per gram (m²/g).  SSA is measured using the Bruanauer, Emmet, and Teller  (B.E.T.) gas-adsorption technique. B.E.T. measures the amount of an adsorbate gas bound to the surface of the particles. Prior to measurement, the sample is by prepared by outgassing to remove any gas or vapor from the particle surface.  If the outgassing temperature  is too high, it physically alters the test material (e.g. by softening or melting it). If the outgassing temperature  is too too low, the test material may not be free of all of the gas or vapor, resulting in less surface area available for the adsorbate gas and a lower B.E.T. reading.

Infringement:

Mutual’s ANDA represented that the ANDA product would have a specific surface area of not less than 2.2 m²/g, thereby taking it outside the scope of the claims. 

Mutual uses an outgassing temperature of 40°C, rather than the 105°C that Tyco used in all of its tests. 

Neither party disputed that the specific surface area of Mutual's ANDA product would fall within the infringing range using an outgassing temperature of 105°C. 

Instead, Mutual alleged that its material was physically altered by such temperatures, resulting in larger particles and decreased specific surface area. 

District court decision:

The District Court found that Mutual’s ANDA product would not infringe Tyco’s claims on August 4, 2009.

The District Court granted summary judgment that the claims at issue were invalid as obvious on May 10, 2010.

As to the antitrust counterclaims, the district court ruled that there was no antitrust violation. It is this antitrust ruling that is appealed to the CAFC.

Citizen petition with the FDA

Tyco filed a citizen petition with the FDA asking that criteria for evaluating bioequivalence of generic temazepam products be heightened in view of Mutual's representation to the Court that its drug particles are different than those which had already been approved as safe and effective by agency.  The petition was denied and the ANDA was approved.

This citizen petition became grounds for an antitrust counterclaim by Mutual.

Antitrust Counterclaims

Mutual Pharmaceutical made the following antitrust counterclaims:

(a)   Tyco's infringement suit was sham litigation;

(b)   Tyco lacked any reasonable prospect of successfully defending the validity of the patents;

(c)  the citizen petition filed by Tyco with the FDA was a sham which negates Noerr-Pennington immunity; and

(d)   The patents in suit were obtained by fraud therefore subject to antitrust sanctions according to Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965)

The Majority opinion, authored by Judge Bryson

In the interest of brevity the detailed legal analyses for each of points (a)-(d) are omitted, although it is recommended that those who are more than casually interested read the full decision.

The CAFC affirmed the judgement of the district court with regard to points (b) and (d).

However, with regard to point (a), the CAFC “...vacate[d] the summary judgment that Tyco’s infringement claims were not a sham and remand[ed] for further proceedings on that issue, with particular attention to the effect of the differences in outgassing temperatures on the specific surface area of Mutual’s product. “

In regard to point  (c), the CAFC “...vacate[d] the summary judgment that Tyco’s citizen petition to the FDA was not a sham and remand[ed] for further proceedings, including a determination as to whether the citizen petition caused any injury to Mutual in the form of a delay in the approval of Mutual’s ANDA.”

The Newman dissent

Judge Newnan begins the dissenting opinion by stating that the Majority Opinion has created “several new grounds of antitrust Liability”.

The dissent’s preface states:

“My colleagues search for a Sherman Act violation in the evidence concerning how surface area measurement is affected by outgassing temperature.  Such an issue does not convert routine patent litigation into an antitrust cause.  And by remanding for determination of antitrust injury based on Tyco’s report to the FDA, this court holds that such communication can violate antitrust law.”

The dissent’s conclusion points out that :

“The intrusion of antitrust issues into routine patent cases has been controlled in precedent.  See FilmTec, 67 F.3d at 938 (“As noted, the Supreme Court has forbidden us to equate loss on the merits with objective unreasonableness.”). My colleagues now hold otherwise...”

Most interestingly, the dissent includes the following prophetic statement:

“The only thing that is clear is that it will be the rare patent suit that will not include assertions of Sherman Act violation patterned on the court’s theories today.”

Perhaps this statement is an allusion to Ambry Genetics recent  Sherman antitrust counterclaim against Myriad genetics in a case currently being heard in the District court in Utah.

Or perhaps the statement is an allusion to the pre-Therasense use of an inequitable conduct defense "...the routine invocation of inequitable conduct in patent litigation has had adverse ramifications  ..." (Therasense v Becton Dickinson CAFC en-banc 2011) which led to the adoption of the but-for standard of materiality. Ironically, one of the antitrust counterclaims put forward by Mutual in this case is based upon an inequitable conduct allegation.