The Federal Trade Commission (“FTC”) has sought permission to file an amicus brief in a pharmaceutical patent case, urging a district court to reject the argument that patent infringement suits brought under the Hatch-Waxman Act are categorically exempt from antitrust scrutiny. See Takeda Pharm. Co. Ltd. et al. v. Zydus Pharm. (USA) Inc. et al., E.C.F. No. 42, No. 18-1994-FLW-TJB (D.N.J.) (June 6, 2018). The amicus brief was submitted in response to Takeda Pharmaceutical Company’s (“Takeda”) motion to dismiss antitrust counterclaims filed by generic drugmaker Zydus Pharmaceuticals Inc. (“Zydus”). Zydus alleged that Takeda had anti-competitively brought a sham suit under Hatch-Waxman to delay Food and Drug Administration (“FDA”) approval for Zydus’s generic version of Takeda’s Prevacid® SoluTab™ (“Prevacid”), an over-the-counter heartburn medication. Takeda moved to dismiss Zydus’s antitrust counterclaims, arguing that its claims under Hatch-Waxman are immune from antitrust scrutiny.

The Hatch-Waxman Framework

The Hatch-Waxman Act provides a regulatory framework for generic drugmakers to introduce generics into the market and lower drug costs while balancing incentives for pharmaceutical innovation. To speed entry into the market, a generic drug company must submit an Abbreviated New Drug Application (“ANDA”) to the FDA and demonstrate that the generic is “bioequivalent” to an approved patented drug. This allows the generic to rely on the safety and efficacy data of the branded drug without having to repeat expensive pre-clinical and clinical trials during the FDA approval process.

When filing an ANDA to market a drug before the relevant patent expires, the generic drug manufacturer is required to provide notice to the patent-holder that the relevant patent is invalid or will not be infringed. Branded pharmaceutical companies then have 45 days to file a patent-infringement suit against the generic company. The filing of the lawsuit automatically stays FDA approval by 30 months unless a court rules sooner for the ANDA applicant.

Takeda Files Suit Over Zydus’s Amended ANDA

The parties’ dispute here dates back to 2010, when Takeda brought an earlier infringement suit against Zydus over Prevacid. SeeTakeda Pharm. Co. Ltd. et al. v. Zydus Pharm. (USA) Inc. et al., No. 10-01723-JAP-TJB (D.N.J.). After a finding of infringement by the district court, Zydus appealed to the Federal Circuit and ultimately prevailed. In a 2014 decision, the Federal Circuit held that the proper construction of the term “fine granules having an average particle diameter of 400 µm or less” required a hard cutoff and did not allow for any variance, and that Zydus’s generic product, which had an average granule diameter of 412 µm, did not infringe.

Having won that litigation, Zydus pressed ahead with its ANDA. On January 3, 2018, Zydus sent a notice letter to Takeda that it had amended its ANDA to address unrelated concerns by the FDA. In that letter, Zydus noted that the average granule diameter was still greater than 400 µm and thus non-infringing, and also alleged that other changes in the amended ANDA were immaterial. Takeda disagreed, arguing the changes were material.

Takeda also rejected its “offer of confidential access” to evaluate any potential patent infringement by the amended ANDA, and — without reviewing the amended ANDA — immediately filed suit against Zydus for patent infringement, thus starting a new 30-month stay for the FDA’s approval of the generic.

Zydus’s Antitrust Counterclaims

Zydus counterclaimed that Takeda’s lawsuit was filed in violation of antitrust laws, arguing that Takeda did not have sufficient basis to assert its patent against the amended ANDA, but rather did so in order to inhibit competition by delaying FDA approval.

Takeda moved to dismiss Zydus’s antitrust counterclaims, arguing that Hatch-Waxman lawsuits are categorically exempt from antitrust scrutiny. In particular, Takeda argued that its suit was protected First Amendment speech under the Noerr-Pennington doctrine, which allows private parties to be shielded from antitrust liability when they petition the government, even if such efforts may decrease competition. But such immunity does not extend to “sham” litigation — i.e., suits that are ostensibly directed to governmental action but are actually brought to interfere with a competitor’s business. Takeda argued that its suit was not frivolous because Zydus’s filing of its ANDA constituted a “technical act” of infringement giving rise to an unqualified right to sue. As the Hatch-Waxman framework was designed to promote litigation prior to full investigation, Takeda argued that it could reasonably assume that it would have some likelihood of success in bringing suit.

The FTC’s Amicus Brief

Two days after Zydus filed its opposition to Takeda’s motion to dismiss, the FTC sought leave to file an amicus brief arguing that neither the Hatch-Waxman Act nor any case interpreting it creates special protection from antitrust liability. The FTC noted that the filing of an ANDA constitutes a “technical act” of infringement only for jurisdictional purposes — to allow a patent holder to file a Hatch-Waxman lawsuit. The ultimate question of infringement is still open for determination under traditional patent law. The FTC thus concluded that the Hatch-Waxman Act in and of itself “does not create any evidentiary presumptions, alter the burden of proof, or relieve Takeda of its obligation not to file lawsuits that are objectively baseless.” Thus, “Takeda’s suit may still be a sham,” even if Zydus’s “technical act” of infringement can give rise to a patent-infringement suit.

The FDA also took issue with Takeda’s claim that the act of amending an ANDA, by itself, provided sufficient basis for Takeda to file suit because the amendment suggested that Zydus’s original non-infringement argument may have been flawed. The FTC disagreed, arguing that a proposed amendment “does not establish that Takeda had an objectively reasonable basis for filing its suit” because “FDA regulations regarding the listing and challenging of patents are agnostic as to the merits of the patents and any subsequent litigation.”

Notably, the FTC expressed that it had no opinion regarding the merits of Zydus’s antitrust claims, and even acknowledged that, “[t]he Federal Circuit may well be right when it observed that ‘[g]iven the presumption of patent validity and the burden on the patent challenger to prove invalidity by clear and convincing evidence, it will be a rare case in which a patentee’s assertion of its patent in the face of a claim of invalidity [or noninfringement] will be so unreasonable as to support a claim that the patentee has engaged in sham litigation.’” Tyco Healthcare Grp. LP v. Mutual Pharm. Co., 762 F.3d 1338, 1345 (Fed. Cir. 2014). But the FTC’s message here is clear: “While the species of sham Hatch-Waxman litigations may be rare, it should not be declared extinct.” Ultimately, the FTC argues that Hatch-Waxman lawsuits should be judged like any other lawsuit, based on the case-specific applications of Noerr-Pennington principles.

What This Means for You

The FTC has signaled its belief that antitrust law still has a role to play in the balance that Congress set between generic and branded drugs under Hatch-Waxman. If Takeda prevails on its argument that all Hatch-Waxman litigation is immune from antitrust counterclaims, pharmaceutical manufacturers might expect an increase in Hatch-Waxman litigation designed to slow the entry of generics to market. If Zydus prevails, generic drug companies will continue to have an antitrust arrow-in-the-quiver against branded pharmaceutical companies, for those “rare” cases lacking an objectively reasonable basis. This case thus raises important issues about the application of the Noerr-Pennington doctrine in the pharmaceutical industry. Companies should stay tuned to see how the court defines “sham” litigation in the Hatch-Waxman context.