Court Upholds Narrow Interpretation Of “Sham Suit” Exception To Noerr-Pennington Doctrine
08/03/2021On July 26, 2021, Chief Judge Freda L. Wolfson of the United States District Court for the District of New Jersey dismissed “sham litigation” monopolization counterclaims against a pharmaceutical patent holder, finding that the patent holder conducted a reasonable investigation before filing the underlying infringement suit and did not unreasonably delay the proceedings before determining that the counterclaim plaintiff’s generic substitute for the patent holder’s drug did not infringe its patent and voluntarily dismissing its infringement claims. Takeda Pharmaceutical Co. Ltd., et al. v. Zydus Pharmaceuticals (USA) Inc., et al., No. CV 18-1994 (FLW), 2021 WL 3144897 (D.N.J. July 26, 2021). Because the generic manufacturer could not establish that the patent holder’s infringement lawsuit was either objectively or subjectively baseless, the Court granted summary judgment for the patent holder.
The counterclaim defendant in this action held a patent for “Prevacid SoluTab,” an orally disintegrating tablet used to treat gastroesophageal reflux disease. The counterclaim plaintiff generic drug manufacturer had long sought to compete with Prevacid with a generic substitute. In 2010, the patent holder filed its first patent infringement against the generic supplier based on its initial efforts to bring a substitute to market. After a trial, a finding of infringement, and a reversal by the Federal Circuit, the patent holder’s original 2010 infringement lawsuit was ultimately resolved in 2014 with a finding that the generic manufacturer’s product as then formulated did not infringe. Despite prevailing on the original patent lawsuit, the generic manufacturer encountered safety issues with the FDA, was forced to reformulate its product, and did not receive FDA approval to bring its product to market until 2018, at which point the patent holder filed another patent infringement lawsuit based on the reformulated product. The alleged infringer responded with state and federal counterclaims, alleging that the lawsuit constituted “sham litigation” designed to illegally maintain the patent holder’s alleged monopoly by improperly delaying the entry of a generic competitor.
After preliminary discovery, including testing of the reformulated product, the patent holder concluded that the reformulated product did not infringe on its patent and voluntarily dismissed its patent claims. The generic supplier, however, continued to pursue its counterclaims, arguing that the patent holder’s lawsuit fell under the “sham litigation” exception to the Noerr-Pennington doctrine. Under Noerr-Pennington, filing a lawsuit, even one that is designed to restrict competition and is ultimately unsuccessful, is protected petitioning under the First Amendment to the Constitution and is ordinarily immune from antitrust scrutiny. The exception to this principle is a lawsuit that is a “mere sham,” that is, litigation that is “objectively and subjectively baseless” and designed to prevent competition. Courts apply a two-part test for “sham suits”: (1) the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits; and (2) the lawsuit must “conceal an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.” Pro. Real Est. Invs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993).
In resolving this issue on summary judgment, the Court undertook a long and detailed analysis of the history of the earlier litigation, the reformulation of the product, the parties’ conduct and interactions in the pre-lawsuit Hatch-Waxman Act process, and the patent holder’s internal deliberations before filing suit, including advice of counsel (as to which it waived privilege), and concluded that the patent holder had an adequate basis to file the lawsuit, emphasizing that all that is needed is “a reasonable belief that there is a chance that a claim may be held valid.” (emphasis in original). Adopting the counterclaimant’s argument, the Court found, would require it to “string together contested inferences” from three years of patent litigation and three years of Hatch-Waxman proceedings, a task that itself showed the litigation was not objectively baseless. With regard to its conduct of the lawsuit, the Court concluded that, in light of the parties’ negotiations over the provision of samples and the time required for testing, the patent holder did not unduly prolong the litigation before moving to dismiss. Thus, the Court found that neither the objective nor the subjective prong of the sham exception test was met and dismissed the counterclaims.