AAI Asks Third Circuit for Sensible Sham Litigation Standards in Hatch-Waxman Cases (FTC v. AbbVie)

The American Antitrust Institute (AAI), Public Knowledge, and Public Citizen have filed an amicus brief in the Third Circuit arguing that a robust application of the antitrust laws is necessary to protect the public from brand-drug manufacturers’ incentives to file baseless litigation designed to delay generic entry.

Under the Hatch-Waxman Act, a brand drug manufacturer can automatically block Food and Drug Administration (FDA) approval of a generic drug application for a period of 30 months if the brand manufacturer files a patent infringement lawsuit against the generic manufacturer.  When brand manufacturers AbbVie and Besins did so and prevented rivals from coming to market with a generic version of AbbVie’s blockbuster drug, Androgel, the Federal Trade Commission (FTC) challenged the infringement lawsuits as sham litigation under the Supreme Court’s holding in Prof. Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc. (PRE).  The FTC also challenged subsequent settlements of the suits as illegal pay-for-delay agreements.

The district court dismissed the pay-for-delay claim but agreed with the FTC that the infringement lawsuits were a sham. The court held that, objectively, the lawsuits were baseless, and subjectively, they were filed only “to impose expense and delay” on the generic manufacturers to block their entry into the market.  It found that the drug companies had engaged in monopolization and ordered $448 million in disgorgement of unlawful profits earned through delayed generic entry.  The parties filed cross appeals in the Third Circuit.

Although AAI, Public Knowledge, and Public Citizen believe the district court reached the correct result on the sham question, the brief argues that the court erred by adopting an overly restrictive standard for proving the subjective intent required under PRE.  Once the district court established that the infringement lawsuits were objectively baseless, the court should not have required that the FTC prove by clear and convincing evidence that the defendants had actual knowledge of baselessness in order to satisfy the subjective intent element of PRE.

The brief argues that the subjective test focuses on a sham litigant’s economic motivations in using the litigation process to thwart competition. It does not exculpate a monopolist that seeks to use the litigation process as an anticompetitive weapon just because the monopolist subjectively—but unreasonably—did not know the suit was baseless.  Moreover, if direct evidence of the patentee’s state of mind were required, the sham-litigation doctrine would be rendered a nullity in the Hatch-Waxman context, because patent lawyers are invariably involved in the decision to sue and their mental processes are shielded by privileges.

Finally, a heightened burden of proof is not necessary to protect the First Amendment petitioning rights of defendants because the objective baselessness requirement already does so. Imposing such a burden in proving the subjective intent element is insufficiently protective of the free market system embodied by our antitrust laws.

The brief was written by Hilliard & Shadowen Partner Rick Brunell, with assistance from AAI Vice President of Legal Advocacy Randy Stutz, AAI Research Fellow Taryn Smith, and Public Citizen Attorney Scott Nelson.