In In re DDAVP Direct Purchaser Antitrust Litig(1) the Second Circuit reversed a district court ruling which had found that direct purchasers lacked standing to challenge a brand name manufacturer's alleged fraud on the US Patent and Trademark Office (USPTO). The district court had held that the only proper parties to challenge such conduct (often called a Walker Process claim) were the generic competitors excluded by the allegedly wrongfully obtained patent. In reversing the district court's decision, the Second Circuit has potentially expanded the ability of class action plaintiffs to assert claims against brand name manufacturers based on alleged wrongful conduct before the USPTO.
DDAVP is a drug manufactured by Ferring Pharmaceuticals that is used to treat several conditions, including a form of diabetes. In 2002, after Barr Laboratories sought to sell a generic version of DDAVP, Ferring filed a patent infringement suit against Barr. The judge in that case found the patent unenforceable due to alleged inequitable conduct by Ferring or its agents before the USPTO.
Following that finding, a class action antitrust lawsuit was filed against Ferring and other defendants on behalf of direct purchasers of DDAVP. The plaintiffs alleged that the following actions served wrongfully to delay generic competition and thus resulted in higher prices paid by DDAVP purchasers:
- the inequitable conduct before the USPTO;
- the subsequent listing of the patent in the Orange Book;
- the filing of patent infringement litigation; and
- the filing of an allegedly baseless citizens' petition.
The district court dismissed the claims of the direct purchases, finding that (i) proving fraud on the USPTO required a higher threshold of culpability than inequitable conduct, and (ii) the plaintiffs had failed to plead such fraud with sufficient particularity. The district court also held that the plaintiffs lacked standing to assert a Walker Process claim because the allegedly wrongfully acquired patent had not been enforced against the plaintiffs. The court also dismissed the plaintiffs' remaining claims due to a failure to plead adequately bad faith.
On appeal, the Second Circuit first addressed the issue of antitrust standing. The court found that the district court had been wrong to limit standing to generic competitors, stating that customers alleging that they were overcharged have suffered direct injury of the type that the antitrust laws are intended to prevent. The court also found that granting standing to direct purchasers would further the purposes of the antitrust laws because purchaser lawsuits sought compensation for a different harm (ie, anti-competitive overcharges) from that suffered by competitors (ie, lost profits). The Second Circuit then considered whether granting standing to direct purchasers to assert claims against a brand-name manufacturer premised on the invalidity of the manufacturer's patent was inconsistent with the rule that only alleged infringers have standing to challenge patents. The court acknowledged the difficulty of this issue and the need to avoid what defendants feared would be an "avalanche" of patent challenges by non-infringers. The court decided, however, that where there has already been a judicial finding of inequitable conduct, direct purchasers have standing to assert Walker Process claims against a brand-name manufacturer accused of fraud on the USPTO. The court also reversed the district court's ruling on the merits, finding that plaintiffs' allegations of fraud and bad faith were adequate to state a claim.
The decision in DDAVP could potentially make it easier for class action plaintiffs to assert claims against brand-name drug manufacturers based on alleged wrongful conduct before the USPTO. The Second Circuit expressly permitted such actions after a finding of inequitable conduct and left open whether such actions could be brought even prior to such a finding.
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