Keywords: interstate commerce act, FAA, generic drugs, reverse-payment settlement agreements
Last Friday (December 7, 2012), the Supreme Court granted certiorari in three cases of interest to the business community:
- Motor Carriers- Interstate Commerce Act- Federal Preemption
- Federal Arbitration Act- Class Arbitration
- Patent-Infringement Suits- Generic Drugs- Reverse-Payment Settlement Agreements
Motor Carriers -Interstate Commerce Act -Federal Preemption
The Interstate Commerce Act preempts state laws "related to a price, route, or service of any motor carrier ... with respect to the transportation of property." 49 U.S.C. § 14501(c)(1). Last Friday, the Supreme Court granted certiorari in Dan's City Used Cars, Inc. v. Pelkey, No. 12-52, to decide whether section 14501(c)(1) preempts negligence and consumer-protection claims based on the manner in which a towing company disposed of a vehicle to collect a debt secured by a lien.
The plaintiffs alleged that the defendant towing company towed his car while he was incapacitated with a serious medical condition. He claimed that although his attorney contacted the towing company before the car was scheduled to be sold at public auction, in an attempt to arrange for the return of the vehicle, the towing company falsely stated that it had already sold the car. The towing company subsequently traded plaintiff's car to a third party, providing no compensation to the plaintiff.
The plaintiff asserted claims based on New Hampshire's Consumer Protection Act, a separate New Hampshire law that prescribes the requirements for collecting towing charges when selling a vehicle at auction, and the common-law duty of a bailee to exercise reasonable care while in possession of a bailor's property. The trial court granted summary judgment to the towing company, holding that section 14501(c)(1) preempted the plaintiff's claims.
The Supreme Court of New Hampshire reversed, holding that Congress did not intend to displace state-law claims challenging the manner in which custodians of towed vehicles dispose of them to collect towing and storage debts. Pelkey v. Dan's City Used Cars, Inc., 44 A.3d 480 (N.H. 2012). The court concluded that section 14501(c)(1) did not apply because the plaintiff's state-law claims did not involve "the transportation of property," but only the manner in which the towing company auctioned off the car to pay its debt. The court also held that section 14501(c)(1) did not apply because the state-law claims were not sufficiently related to a towing company's actual "service," explaining that section 14501(c)(1) is not so broad as to preempt all possible civil claims against motor carriers.
The Supreme Court's decision in this case will clarify the scope of section 14501(c)(1) and will be important not only to towing companies, but also to all motor carriers who rely on section 14501(c)(1) to preempt state-law claims.
Absent extensions, amicus briefs in support of the petitioner will be due on January 28, 2013, and amicus briefs in support of the respondent will be due on February 27, 2013.
Federal Arbitration Act - Class Arbitration
Two years ago, the Supreme Court held "that a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1775 (2010) (emphasis in original). But the Court expressly declined at the time "to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration." Last Friday, the Supreme Court granted review in Oxford Health Plans LLC v. Sutter, No. 12-135, to resolve a circuit split over what counts- consistent with the FAA- as an agreement to authorize class arbitration. This issue is important to businesses that seek to enforce arbitration agreements in the context of putative class actions when those agreements do not expressly address class arbitration.
Petitioner Oxford Health Plans LLC entered into a professional-services contract with respondent Sutter, a physician, in 1986. The contract contained an arbitration provision stating that "[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be subject to final and binding arbitration . . . ." (emphasis added). In 2002, Dr. Sutter filed a putative class action against Oxford concerning its practices in processing reimbursement claims. Oxford successfully moved to compel arbitration under the agreement. Before the arbitrator, the parties disputed whether their agreement permitted class arbitration. The arbitrator concluded, among other things, that the broad language in the agreement authorized class arbitration because the language "any civil action" would include class actions. The district court confirmed the arbitration award, and the Third Circuit affirmed, concluding: "We are satisfied that the arbitrator endeavored to interpret the parties' agreement within the bounds of the law, and we cannot say that his interpretation was totally irrational."
The Third Circuit's decision took an approach similar to the one followed by the Second Circuit in Jock v. Sterling Jewelers Inc., 646 F.3d 114 (2d Cir. 2011), cert. denied, 132 S. Ct. 1742 (2012). In Jock, the Second Circuit held that judicial review of the arbitrator's decision was limited to determining whether the parties properly presented to the arbitrator the question whether the agreement authorized class arbitration. On the other hand, the Fifth Circuit has reviewed and rejected an arbitrator's determination that the parties intended to permit class arbitration in an agreement that did not refer to the subject. Reed v. Florida Metro. Univ., Inc., 681 F.3d 630 (5th Cir. 2012). Specifically, the Fifth Circuit held that language in an arbitration clause covering "any dispute" and making available "any remedy" failed to evidence the parties' agreement to authorize class arbitration. The Fifth Circuit also pointed to the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), explaining that under Concepcion and Stolt-Nielsen, "[w]ithout a contractual or other legal basis for class arbitration, an arbitrator has no authority to order the parties to submit to class arbitration."
In tandem with American Express Co. v. Italian Colors Restaurant, No. 12-133, which was the subject of a previous Docket Report (available here), Oxford Health Plans will afford the Court the opportunity to continue providing guidance to the lower courts on the intersection of class actions and arbitration agreements. Absent extensions, amicus briefs in support of petitioner are due on January 28, 2013, and amicus briefs in support of respondent are due February 27, 2013.
Patent-Infringement Suits -Generic Drugs - Reverse-Payment Settlement Agreements
Last Friday, the Supreme Court granted certiorari in FTC v. Watson Pharmaceuticals, No. 12-416, to resolve a circuit split over whether an agreement to settle a Hatch-Waxman patent lawsuit is presumptively unlawful under the federal antitrust statutes if the branded-drug company that holds the patent agrees to pay a defendant generic-drug manufacturer to delay marketing a generic version of the drug.
Under the Drug Price Competition and Patent Term Restoration Act (the "Hatch-Waxman Act"), a drug manufacturer may obtain FDA approval to market and sell a generic version of a patent-protected drug through a simplified approval process by filing an Abbreviated New Drug Application. Abbreviated applications typically include a "paragraph IV certification," in which the generic-drug manufacturer certifies either that the generic drug will not infringe the applicable patent or that the patent is invalid or unenforceable. See 21 U.S.C. § 355(j)(2)(A)(vii)(IV). Paragraph IV certification allows for notice to the patent holder, who then has the right under the Hatch-Waxman Act to challenge FDA approval of the application by filing a patent-infringement suit against the generic-drug manufacturer. See 35 U.S.C. § 271(e)(2)(A).
Respondent, then known as Solvay Pharmaceuticals, owns the patent rights to certain formulations for a prescription medication used to treat low levels of testosterone, which it markets as AndroGel ®. In 2003, respondents Watson Pharmaceuticals and Paddock Laboratories each filed Abbreviated New Drug Applications with paragraph IV certifications, seeking approval to sell generic versions of AndroGel ®. Solvay responded by suing Watson and Paddock for patent infringement. After years of litigation, the three companies entered into an agreement to settle the case on terms that allowed entry of the generic drug five years before the expiration of the patents. The settlement also allegedly included joint ventures relating to the marketing and manufacture of AndroGel ®. The Federal Trade Commission reviewed the settlement, and brought suit alleging that the joint ventures included a hidden "reverse payment" that resulted in the generic companies delaying their entry longer than they otherwise would.
After the case was transferred to the Northern District of Georgia, the district court dismissed the FTC's complaint for failure to state a claim, and the Eleventh Circuit affirmed. Relying on its precedent that "absent sham litigation or fraud in obtaining the patent," reverse-payment settlement agreements are lawful as long as their "anticompetitive effects fall within the scope of the exclusionary potential of the patent," the Eleventh Circuit concluded that the FTC's allegation that Solvay would lose its patent-infringement suit was insufficient to state an antitrust claim. 677 F.3d 1298, 1312. The Eleventh Circuit's rule, which has also been adopted by the Second and Federal Circuits, conflicts with the Third Circuit's decision in In re K-Dur Antitrust Litigation, 686 F.3d 197, 218 (3d Cir. 2012) (holding that a reverse-payment agreement is "prima facie evidence of an unreasonable restraint of trade"). K-Dur is itself the subject of a pending cert. petition, which is docketed as No. 12-245.
This case will be of substantial interest to prescription-drug manufacturers (both branded and generic) because it will affect their ability to settle claims in Hatch-Waxman suits. The case may also have broader effects for patent holders and manufacturers in other industries, whose ability to settle patent-infringement claims could be similarly affected.
Absent extensions, amicus briefs in support of the petitioners will be due on January 28, 2013, and amicus briefs in support of the respondent will be due on February 27, 2013.
Previously published on December 20, 2012.
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