United States: Can the Third Circuit's Decision In In Re Lipitor Antitrust Litigation Be Used As An Appellate Forum-Shopping Tool In Antitrust Cases?

On April 13, 2017, the Third Circuit issued an eagerly awaited precedential opinion in In re Lipitor Antitrust Litigation, No. 14-4202. The case represented several consolidated appeals involving two different classes of plaintiffs and three different jurisdictional questions. One of those jurisdictional questions turned on a peculiar nuance in the structure of the complaint, which resulted in a question of patent law (typically the exclusive province of the Federal Circuit) falling within the appellate jurisdiction of the regional circuit.

Among the issues presented were the plaintiffs' allegations that the branded drug companies holding the patents for Lipitor and Effexor XR engaged in an overarching monopolistic scheme to delay generic entry into the market. The scheme allegedly included fraudulently procuring and enforcing the underlying patents, and entering into a reverse-payment settlement agreement with a generic manufacturer.

The district judge dismissed most of the plaintiffs' claims. Plaintiffs appealed to the Third Circuit, but defendants argued that the appeal should be transferred to the Court of Appeals for the Federal Circuit. The Federal Circuit has exclusive jurisdiction over appeals from civil actions "arising under" patent law, per 28 U.S.C. 1295(a)(1). Not all cases presenting questions of patent law, however, necessarily arise under patent law. The Third Circuit found that this was one of those cases.

In its 2013 decision FTC v. Actavis, the Supreme Court held that the terms common to many reverse payment settlements violate antitrust laws. Importantly for the present case, the Court there also found that it is normally not necessary to litigate patent validity in order to resolve the antitrust issue. Because the antitrust issue is separable from any underlying patent issues, a claim that is limited to the antitrust issue will not invoke Federal Circuit jurisdiction.

In In re Lipitor Antitrust Litigation, the plaintiffs' monopolization claims encompassed the totality of the patent holder's allegedly anticompetitive conduct, of which patent enforcement was only one component. Other components included fraudulent procurement of a patent and entering into a reverse-payment settlement agreement. Because infringement and validity of the underlying patent spoke only to one theory underlying the claim (whether the behavior should be considered anticompetitive where the defendant's patent was valid and infringed)—rather than the claim itself—the monopolization claim did not "arise under" patent law.

One could easily envision, however, the plaintiffs here making a different choice and structuring their complaint so that it had alleged at least one claim directly implicating the validity or infringement of the subject patents, thus ensuring that the Federal Circuit, and not the regional circuit, would have exclusive jurisdiction over the entire appeal.

The Third Circuit's holding thus raises the possibility that a plaintiff could intentionally structure an antitrust claim to invoke or avoid Federal Circuit jurisdiction in a case like this. The universe of cases where such a strategy could be employed is significant for two reasons:

First, substantive patent litigation is likely only one part of any large company's overall competitive strategy. Strategic patent procurement and enforcement, trade secret policies, marketing, erecting barriers to competitor entry through pricing, supply-side economics, and entering exclusive licenses and contracts, are among the weapons in a large company's market domination arsenal. By structuring an antitrust, monopolization, or unfair competition claim to encompass all of a company's allegedly anticompetitive activity, of which a substantive patent argument is only one underlying theory, a plaintiff might secure regional circuit appellate jurisdiction.

Second, such strategic claiming would be particularly relevant where the underlying patent claim arose in the Hatch-Waxman context, because reverse-payment settlements are often inevitable in such cases. Understanding why such settlement structures are often unavoidable requires understanding one of the main arguments against the FTC's position in Actavis: The Hatch-Waxman Act creates a reverse leverage situation between a plaintiff and defendant that is not often found in any other area of law.

Under normal circumstances, a patent infringement action is filed after a defendant has made, used, or sold a patented product and profited from that act. The amount of money that the defendant should have paid for a license, or the lost sales implicated by the defendant's actions define the scope of the defendant's damages exposure. A settlement between the parties typically reflects the defendant paying to the plaintiff a portion of that damages exposure in order to escape liability, perhaps mitigated by the parties' perception of the likely outcome. Where the defendant has a seemingly persuasive case that the asserted patent is invalid, one might expect the settlement payment to be smaller, reflecting the plaintiff patent holder's increased eagerness to settle the case and avoid losing its patent protection.

Because the Hatch-Waxman Act creates a statutory cause of action for infringement where no actual infringement or damages has taken place, the typical settlement calculus does not apply. There is no damages exposure, and thus no amount that the defendant would be willing to pay to the plaintiff to escape liability. It is this unique shift in the balance of leverage between the plaintiff and the defendant that created the reverse-payment settlement in the first place. Where the damages exposure is set at zero, a wary plaintiff's typical offer to discount the damages amount thus results in a negative number, i.e., plaintiff ends up paying the defendant to respect the patent.

The Supreme Court in Actavis was not convinced that reverse-payment settlements are simply the innocent reflection of the unique and artificial environment in which Hatch-Waxman litigants must negotiate settlement agreements. The Actavis Court observed that large "unexplained" reverse-payment settlement agreements indicated that branded drug companies were habitually paying off generics in order to continue enforcing invalid patents. Even without determining the validity of the underlying patent, the Court concluded that the terms of many reverse-payment settlements were anticompetitive in nature.

By concluding that reverse-payment settlement agreements can be found to be anticompetitive without determining the merits of the underlying patent infringement and invalidity claims, the Supreme Court confirmed that entering (or attempting to enter) a reverse payment settlement creates a cause of action out of a patent litigation that does not "arise under" patent laws for jurisdictional purposes.

Thus, after Actavis and In re Lipitor, anytime a reverse settlement shows up in the history of a litigated patent, a savvy plaintiff may be able to use that historical fact to support an antitrust claim that incidentally resolves the validity of the patent without being appealable to the Federal Circuit.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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