The Ninth Circuit recently affirmed in part and reversed in part the entry of summary judgment for defendant Abbott Laboratories, Inc. ("Abbott") on claims brought under Section 2 of the Sherman Act.  The Ninth Circuit found that genuine issues of material fact existed as to whether Abbot committed Walker Process fraud, one possible "sham" exception to Noerr-Pennington immunity.  The Court, however, affirmed the absence of evidence of "sham" litigation with respect to the multiple patent infringement suits that Abbott filed against its would-be competitors.  The Court also affirmed judgment for Abbott and its co-defendant on the Section 1 restraint-of-trade claim.  Kaiser Foundation Health Plan, Inc. v. Abbott Laboratories, Inc., __ F.3d __, 2009 WL 69269 (9th Cir. Jan. 13, 2009) ("Kaiser").

Background.  This case involves a complicated factual history going back as far as 1975, when Abbott filed its first patent application for its new drug terazosin hydrochloride ("terazosin").  Soon thereafter, Abbott filed two more derivative patent applications and its New Drug Application ("NDA") with the Food and Drug Administration ("FDA").  Upon approval, Abbott began selling terazosin in 1987 under the brand name Hytrin.  As the manufacturer of a patented drug, Abbott was able to sell Hytrin at monopoly prices, free of would-be competitors.  Just as Abbott’s last two patents (the ‘097 and ‘532 patents) were set to expire, Abbott filed three more derivative patent applications in 1993 and 1994 (the ‘615, ‘095, and ‘207 patents), potentially extending its monopoly until 2013.

Pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as "Hatch-Waxman"), enacted to facilitate the entry of cheaper, generic drugs into the market, 21 U.S.C. § 355 et seq., seven generic manufacturers sought FDA approval to market generic versions of terazosin, each certifying that Abbott’s patents were either invalid or not infringed (commonly referred to as "Paragraph IV certifications").  Under Hatch-Waxman, Abbott then had 45 days from notice of each Paragraph IV certification to file patent infringement suits.  Abbott filed a total of seventeen timely suits in response which, in turn, triggered an automatic 30-month stay barring the FDA from approving the generic drug applicant for market entry. 

Abbott, however, failed to file a timely infringement suit with respect to Geneva Pharmaceutical’s ("Geneva") Paragraph IV certification.  As a result, Geneva was given FDA approval to market its generic terazosin on March 30, 1998.  Two days later, Abbott and Geneva entered into a contract whereby Geneva agreed to keep its generic off the market until the earlier of: (1) the sale of generic terazosin by another manufacturer; (2) the expiration of the ‘532 patent; or (3) a final unappealable judgment holding the ‘207 patent invalid.  In return, Abbott agreed to pay Geneva $4.5 million dollars per month during this period.

In 1999, the Federal Circuit affirmed the invalidity of the ‘207 patent.  Abbott Labs. v. Geneva Pharms., Inc., 182 F.3d 1315 (Fed. Cir. 1999).  Soon thereafter, Abbott terminated its contract with Geneva and Geneva entered the market.  With the advent of generic alternatives, Abbott’s prices fell dramatically from as much as 70 cents per Hytrin tablet to just 10 cents per tablet.

In 2002, Kaiser Foundation Health Plan filed suit against both Abbott and Geneva in the Central District of California, alleging claims under Sections 1 and 2 of the Sherman Act, as well as claims under analogous provisions of California’s Cartwright Act.  Kaiser alleged that: (1) the agreement between Abbott and Geneva unreasonably restrained trade, artificially inflated prices and eliminated competition, thereby constituting a per se violation of Section 1; and (2) Abbott both monopolized and attempted to monopolize the terazosin market by fraudulently obtaining an invalid patent for purposes of delaying generic entry and filing sham lawsuits in violation of Section 2. 

Kaiser’s suit was transferred and consolidated for pre-trial proceedings with similar litigation before the District Court for the Southern District of Florida (the "MDL court").  The MDL court granted partial summary judgment to Kaiser on its Section 1 claim.  In re Terazosin Hydrochloride Antitrust Litig., 164 F. Supp. 2d 1340 (S.D. Fla. 2000).  It also subsequently granted summary judgment to Abbott on the Section 2 claim, holding that the Noerr-Pennington doctrine immunized Abbott’s patent and litigation activity.  In re Terazosin Hydrochloride Antitrust Litig., 335 F. Supp. 2d 1336 (S.D. Fla. 2004).  The Eleventh Circuit reversed the MDL court’s Section 1 holding, remanding the case back to the MDL court for adjudication under a different analysis.  Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294 (11th Cir. 2003).  The MDL court again found a per se violation of Section 1, In re Terazosin Hydrochloride Antitrust Litig., 352 F. Supp. 2d 1279 (S.D. Fla. 2005), then transferred Kaiser’s case back to the Central District of California for trial on the issue of causation and damages.  The jury found that the agreement between Abbott and Geneva did not cause any delay in generic entry and that Kaiser had therefore suffered no injury.

Kaiser appealed to the Ninth Circuit both the MDL court’s adjudication of its Section 2 claim and the jury verdict on its Section 1 claim.[1]   

Section Two Monopolization Claim.  Kaiser argued on appeal that the MDL court had erroneously granted summary judgment to Abbott on the basis that the Noerr-Pennington doctrine immunized Abbott’s conduct from antitrust liability.  Kaiser argued that, contrary to the MDL court’s holding, both the Walker Process fraud and sham litigation exceptions to Noerr-Pennington immunity applied in this case.

Walker Process Fraud.  In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that an entity who fraudulently obtains a patent and then uses that patent to exclude a competitor from the market is not immune from antitrust liability under Noerr-Pennington.  Id. at 177.  To prove Walker Process fraud, an antitrust plaintiff must establish that the patentee obtained the patent by knowingly and willfully misrepresenting facts to the Patent & Trademark Office ("PTO"), that the patent would not have issued but for the misrepresentation or omission, and that the plaintiff in the infringement suit was aware of the fraud when bringing suit.  In reversing the lower court’s holding that Kaiser had not presented sufficient evidence of Walker Process fraud, the Ninth Circuit relied on the following pieces of evidence.

First, Kaiser presented sufficient evidence on whether Abbott intended to deceive the PTO by failing to submit, with its ‘207 patent application, a complete English translation of an earlier Japanese patent application which, if submitted, would have provided grounds for denying the ‘207 patent application.  The Japanese patent application, published more than a year before Kaiser submitted its ‘207 application, disclosed the form of terazosin described in the ‘207 application (Form IV), thus constituting a "’printed publication in…a foreign country…more than one year prior to the date of the application for patent in the United States,’" Kaiser at *15 (quoting 35 U.S.C. § 102(b)), which would have caused Abbott’s application to be denied.  Abbott’s attorney only submitted an English abstract.  The Ninth Circuit found that although it was of course possible that the attorney inadvertently omitted the full English translation, several pieces of evidence suggested the contrary.  First, the English translation was the only document in the initial ‘207 application that, if fully understood by the patent examiner, would have resulted in a denial of the application.  Second, the same attorney had submitted the full English translation, as well as a different English abstract, with the ‘095 patent for Form III terazosin.  Coincidentally, the English translation was not fatal to the patentability of Form III as it was to Form IV.  Finally, the English abstract submitted with the ‘097 patent was more detailed and revealed the potentially fatal impact of the Japanese patent application to Abbott’s ‘207 application.  The English abstract submitted with the ‘207 application, on the other hand, was much less detailed.  Finally, there was evidence that the same attorney may have intentionally omitted other material information, discussed below.

Second, Kaiser presented sufficient evidence that Abbott intentionally failed to mention a relevant, potentially adverse, Federal Circuit decision, J.A. LaPorte, Inc. v. Norfolk Dredging Co., 787 F.2d 1577 (Fed. Cir. 1986), in its application for the ‘207 patent.  The attorney who argued before the PTO that two prior public sales of Form IV terazosin should not constitute an "on-sale bar" to the patent application pursuant to 35 U.S.C. § 102(b) used substantially the same language as in a brief filed before the MDL court arguing the very same issue, with one exception.  While the MDL brief cited to the LaPorte decision and attempted to distinguish it, the attorney responsible for the ‘207 application omitted any reference to LaPorte.  The Ninth Circuit held that the attorney’s omission of LaPorte was unlikely to have been inadvertent and constituted sufficient evidence of genuine issues of material fact regarding Walker Process fraud.

Sham Litigation.  Kaiser argued that Abbott’s seventeen patent infringement suits against would-be generic manufacturers constituted sham litigation under the California Motor Transport test.  Under California Motor Transport, which governs when a defendant is accused of bringing a series of baseless lawsuits, the test is whether "’the legal filings [were] made, not out of a genuine interest in redressing grievances, but as part of a pattern or practice of successive filings undertaken essentially for purposes of harassment.’"  Kaiser at *12 (quoting USS-POSCO Indus. v. Contra Costa County Building & Construction Trades Council, 31 F.3d 800, 810-11 (9th Cir. 1994)).  Abbott, on the other hand, argued that the Professional Real Estate Investors test, which provides a more restrictive two-step analysis to assess whether a single action constitutes sham litigation, applied.[2]  Abbott argued that Kaiser waived its right to ask the Court to apply California Motor Transport as it had neglected to ask the lower court to apply this test.

The Ninth Circuit held that regardless of which sham litigation test applied, Kaiser failed to present sufficient evidence to allow a jury to determine whether Abbott’s infringement suits constituted sham litigation.  Abbott had won seven of the seventeen lawsuits it brought and with each of the ten that it lost, it had a plausible argument on which it could have prevailed.  Moreover, while Abbott did engage in a significant volume of litigation, its litigiousness was partly a product of Hatch-Waxman and of the number of generic companies attempting to market terazosin, matters over which Abbott had no control.

Authored by:

Helen Cho Eckert

(213) 617-4286

[1]           The lower court entered judgment after a jury trial on the issue of causation and damages concluded in a defense verdict.  Plaintiff appealed the lower court’s evidentiary rulings, all of which were affirmed on appeal. 

[2]           The first step inquires into whether or not the lawsuit is objectively baseless.  If so, the second step is a subjective inquiry to determine whether the baseless suit was brought with the purpose to interfere directly with a competitor’s business relationship through the use of the governmental process as an anticompetitive weapon.  Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61 (1993).