AAI Asks Second Circuit for Clear Thinking When Pharmaceutical Markets Are Monopolized by Patent Fraud (Regeneron v. Novartis)

AAI has submitted an amicus brief urging the Second Circuit Court of Appeals to overturn a district court order granting a patent owner’s motion to dismiss a Walker Process fraud claim for failure to adequately plead a relevant product market.  

In Regeneron v. Novartis, Novartis sued rival Regeneron alleging infringement of a patent on the use of pre-filled syringes containing a category of ophthalmic drugs used to treat conditions associated with degenerative eye disease and blindness.  Regeneron counterclaimed under Section 2 of the Sherman Act, alleging that Novartis committed knowing and deliberate fraud when it procured the patent and did so to monopolize the market for pre-filled syringes containing the drug (“PFS market”).  In Walker Process, the Supreme Court held that a plaintiff may maintain a Section 2 claim against a patentee who obtains an invalid patent by intentionally defrauding the Patent Office, provided the other basic elements of a Sherman Act claim are satisfied.

Prior to the launch of PFS products, doctors administered the ophthalmic drugs at issue using vials that were loaded into syringes manually. Regeneron alleged, among other things, that 80-90% of doctors have switched their patients from vials to pre-filled syringes, and that Novartis conceded in a sworn federal court filing that Regeneron’s launch of a PFS product caused the price of its own PFS product to “erode.”  The district court dismissed Regeneron’s counterclaim because it believed a relevant market limited to syringes was implausible.  The court held that a proposed relevant product market is suspect if the scope of the claimed market is identical to the scope of the patent rights on which a patent claim reads.  It held that Regeneron’s proposed market was implausible because Regeneron did not explain why patients would not switch back to vials in the event of an increase in the price of pre-filled syringes.  

The AAI brief argues that the district court fundamentally misunderstood and misapplied basic market definition principles and wrongly relied on a version of the “scope of the patent test” that the Supreme Court rejected in FTC v. Actavis.  The brief explains that the district court was wrong to view relevant markets that are coterminous with patent grants suspiciously.  Market definition focuses on the realities of actual demand substitution, not the functional interchangeability of products; whether customers would be willing to substitute to alternatives in place of a patented product is a fact-driven empirical question not amenable to resolution on a motion to dismiss.  Not only is the fact that a product may be differentiated by patented features not dispositive; it is not relevant.  Neither the fact of a patent grant, nor its scope, can shed any light on customer switching behavior for purposes of defining markets. 

The brief also explains that the district court’s special pleading rule would lead to absurd results because it would prevent plaintiffs from pleading a required element of a Walker Process claim.  Walker Process plaintiffs are required to plead and prove that the fraudulently procured patent is itself the source of the defendant’s monopoly power.  Whenever the scope of the claimed relevant market is coterminous with the scope of a patent grant, the district court’s rule would effectively require plaintiffs to allege a logical impossibility—that the defendant both derives its monopoly power from the patent and does not.

The brief was written by AAI Vice President of Legal Advocacy Randy Stutz.

AAI Advisory Board Member Jack Kirkwood, joined by numerous other AAI Advisory Board members, also submitted an amicus brief on behalf of 46 professors of law, economics, business, and medicine urging reversal of the district court.