Balancing Hatch Waxman and the Sham Litigation Exception
The Noerr-Pennington doctrine allows litigants to exercise their First Amendment right to petition the government for redress of grievances, including by litigating against a competitor without fear of antitrust liability and attendant treble damages. There is, however, an exception to this doctrine for “sham” litigation. The U.S. Supreme Court has created a two-part test for identifying “sham” suits, requiring that a plaintiff prove: (1) the challenged lawsuit was objectively baseless; and (2) the antitrust defendant was subjectively motivated by an improper purpose in bringing the challenged suit.3 Under the subjective prong, the plaintiff must establish the defendant’s subjective motivation for suing was “an attempt to interfere directly with the business relationships of a competitor” by using “the [litigation] process—as opposed to the outcome of that process—as an anticompetitive weapon.”4 A sham litigation is a suit undertaken with no expectation of achieving success but “simply in order to impose expense and delay.”5
Petitioners argue the Third Circuit’s decision vitiates the subjective element of the sham exception and shifts the burden to show subjective intent from the plaintiff to the defendant. The dispute between the Federal Trade Commission (FTC) and the petitioners dates back to 2014 when the FTC filed suit claiming the drugmakers filed a sham Hatch-Waxman litigation against Teva and Perrigo related to AbbVie’s AndroGel® patent to delay FDA approval of generic versions of the drug.6 In 2017, the district court7 found the lawsuits against Teva and Perrigo baseless and ordered plaintiffs to disgorge profits for the period when Perrigo would have entered the market had its drug approval not been delayed. On appeal, the Third Circuit reversed the disgorgement but found the suit against Perrigo8 objectively baseless and a sham litigation.9 In so holding, the Third Circuit found the two prongs of the Noerr-Pennington test are not distinct, but interrelated in that a litigant who files an objectively baseless lawsuit must have had a subjective motivation besides success on the merits.10 The Third Circuit noted that plaintiffs’ counsel were experienced lawyers who knew filing suit pursuant to the Hatch-Waxman Act would automatically stay FDA approval of Perrigo’s Abbreviated New Drug Application (ANDA) for 30 months, as supporting the district court’s inference of bad faith.11 The court stated that an antitrust defendant could overcome an inference of bad faith by introducing evidence that it “subjectively (though unreasonably) expected the lawsuit to succeed.”12 However, although AbbVie had cited business planning documents for such support, it was not willing to waive attorney-client privilege and produce the underlying documents.13
Petitioners argue this type of holding will have a chilling effect on biopharma companies which rely on the statutory framework of the Hatch-Waxman Act to enforce patent rights, including the statutory 30-month stay of ANDA approval by FDA to delay generic market entry.14 The Hatch-Waxman Act facilitates competition by permitting generic manufacturers to pursue abbreviated approval pathways through an ANDA pathway. To protect patent rights, the Hatch-Waxman Act requires a generic manufacturer seeking ANDA approval to file a Paragraph IV Certification, certifying that any applicable patent is invalid and/or will not be infringed by the manufacture, use or sale of the generic drug.15 The filing of a Paragraph IV Certification and subsequent notice letter to the patent owner (Notice Letter) “means provoking [a] litigation,” giving the brand an “immediate right to sue” without waiting for the generic drug’s manufacture or sale.16 Further, the Hatch-Waxman Act incentivizes brand manufacturers to file suits quickly, providing that if the patent owner sues for infringement within 45 days of receiving a Notice Letter, the FDA stays approval of the generic drug for 30 months or until the infringement suit ends, whichever occurs first.17
In view of the large number of patent infringement suits triggered by Paragraph IV Certifications, it will be of great interest to see if the U.S. Supreme Court grants Petitioners’ writ of certiorari and agrees to hear this case. Please contact the author with any questions and stay tuned for updates regarding this important topic.
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