District Of New Jersey Finds State Antitrust And Consumer Protection Claims Based On Allegedly Fraudulent Procurement And Enforcement Of Patents And Related Reverse-Payment Agreement Not Preempted By Federal Patent Law
09/25/2018On September 18, 2018, Judge Peter G. Sheridan of the U.S. District Court for the District of New Jersey granted in part and denied in part a defense motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) seeking dismissal of state antitrust and consumer protection claims based on the allegedly fraudulent procurement and enforcement of certain pharmaceutical patents and a related alleged pay-for-delay scheme. In re Effexor Antitrust Litig., No. 3:11-cv-05661 (D.N.J. Sept. 18, 2018).
Plaintiffs – a collection of end-payors, including insurers, pension and employee welfare funds, municipalities and individuals, who purchased, paid, and/or provided reimbursement for Effexor XR or its generic equivalent (i.e., indirect as opposed to direct purchasers) - alleged that defendants engaged in a scheme to delay generic competition for Effexor in violation of a number of state antitrust and consumer protection statutes. As part of this alleged conspiracy, plaintiffs asserted that defendants schemed to (1) fraudulently obtain three separate, but related, patents from the United States Patent and Trademark Office; (2) list these patents in a book of Approved Drug Products with Therapeutic Equivalence Evaluations; (3) engage in sham litigation relating to these patents; (4) enter into an unlawful reverse payment agreement with the aim of delaying the release of a generic version of Effexor XR; and (5) otherwise work to maintain exclusivity with respect to Effexor and prevent other generic companies from entering the market. Plaintiffs alleged that this scheme caused them to pay more for Effexor than they would have in a competitive market. Defendants moved for judgment on the pleadings, arguing that, because plaintiffs’ claims were all based on the allegedly fraudulent procurement and enforcement of patents, they were preempted under federal patent law. Judge Sheridan rejected the preemption theory, finding that although questions as to the validity and enforceability of the patents were placed at issue by plaintiffs’ complaint, this was not enough to preempt plaintiffs’ claims.
Addressing the allegations of fraudulent patent procurement and enforcement first, Judge Sheridan explained: “Antitrust and consumer protection law protect consumers from being overcharged for products, which is a wholly different goal than patent law.” Because “there are reasons completely unrelated to the provisions and purposes of the patent laws why the plaintiff may or may not be entitled to the relief it seeks,” the claims cannot be said to “arise under” patent law. In other words, that substantial questions of patent law may need to be resolved in addressing the state claims does not transform those claims into claims arising under federal law. Further, the elements required to plead the state antitrust and consumer protection causes of action differ from the elements required to plead a federal patent law claim. The court similarly rejected defendants’ argument that the state claims based on the reverse settlement of federal patent litigation also implicate federal patent law, and therefore must be preempted. The question of whether a valid patent or other regulatory barrier would have delayed generic entry in the absence of the challenged reverse settlement, thus breaking the alleged causal chain leading to plaintiffs’ damages, is a factual one that could not be decided at the pleadings stage.
Although the court found that no claim asserted in the complaint was preempted, the court did grant defendants’ motion in part with respect to certain of the state law claims, including plaintiffs’ consumer protection claims arising under laws in Massachusetts, West Virginia, Rhode Island, Tennessee, Illinois and Maine, and their antitrust claims arising under laws in Arizona, Nevada, Utah, Illinois, Rhode Island and Washington, D.C., finding, among other things, that plaintiffs failed to comply with certain of those states’ pre-filing notice requirements and failed to properly allege standing. At the same time, the court rejected plaintiffs’ attempt to secure dismissal of other state claims on statute of limitations grounds, finding that the claims were timely under the “continuing-violation doctrine.” The Court therefore allowed plaintiffs to move forward, subject to some additional limitations, with its remaining state consumer protection claims, including in California, Illinois, Nevada, New Mexico, New York, Tennessee and North Carolina, and antitrust claims, including in Kansas, Mississippi, Montana, New York, and Tennessee.CATEGORY: State Antitrust and Competition Law