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United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund v. Novartis Pharmaceuticals Corp.

United States Court of Appeals, First Circuit

August 21, 2018

UNITED FOOD AND COMMERCIAL WORKERS UNIONS AND EMPLOYERS MIDWEST HEALTH BENEFITS FUND; LABORERS HEALTH AND WELFARE TRUST FUND FOR NORTHERN CALIFORNIA, on behalf of themselves and others similarly situated; AFSCME HEALTH AND WELFARE FUND, on behalf of themselves and others similarly situated; MINNESOTA LABORERS HEALTH AND WELFARE FUND, on behalf of themselves and others similarly situated; PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND, on behalf of themselves and others similarly situated; LOUISIANA HEALTH SERVICE & INDEMNITY COMPANY, d/b/a Blue Cross and Blue Shield of Louisiana, on behalf of themselves and others similarly situated, Plaintiffs, Appellants
v.
NOVARTIS PHARMACEUTICALS CORPORATION; NOVARTIS CORPORATION; NOVARTIS AG, Defendants, Appellees. RXDN, INC., on behalf of itself and on behalf of the Direct Purchaser Class, Plaintiff, Appellant,
v.
NOVARTIS PHARMACEUTICALS CORPORATION; NOVARTIS CORPORATION; NOVARTIS AG, Defendants, Appellees.

          APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Allison D. Burroughs, U.S. District Judge]

          Thomas M. Sobol, with whom Hannah W. Brennan, Hagens Berman Sobol Shapiro LLP, John D. Radice, Radice Law Firm, P.C., Noah Rosmarin, Adkins, Kelston & Zavez, P.C. were on brief, for appellants.

          Saul P. Morgenstern, with whom David K. Barr, Mark D. Godler, Laura S. Shores, Arnold & Porter Kaye Scholer LLP, William A. Zucker, Wyley S. Proctor, McCarter & English LLP, Grant J. Esposito, Jessica Kaufman, and Morrison & Foerster LLP were on brief, for appellees.

          Before Lynch, Kayatta, and Barron, Circuit Judges.

          BARRON, Circuit Judge.

         In these consolidated appeals from orders dismissing two putative antitrust class actions, purchasers of a brand-name, prescription drug allege that the drug maker unlawfully delayed the entry of generic versions of the drug into the United States market. Specifically, the plaintiffs allege that the drug maker committed antitrust violations by obtaining through a fraud on the United States Patent and Trademark Office ("Patent Office") a patent for a particular form of a component necessary to manufacture a drug to treat leukemia and by then seeking to enforce that patent through "sham" infringement litigation against manufacturers trying to enter the market with generic versions of that drug.

         The drug maker moved to dismiss the antitrust actions on the ground that there was no fraud and that it was immune from antitrust liability for merely enforcing its patent through litigation. The drug maker claimed this immunity based on the Noerr-Pennington doctrine. See United Mine Workers of Am. v. Pennington, 381 U.S. 657, 669 (1965); E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 136 (1961). That doctrine provides a party immunity from antitrust liability for petitioning the government for redress, in light of the First Amendment right to petition the government. And it is clear that the petitioning activity within this doctrine's protection includes enforcing one's intellectual property rights in court. See Prof'l Real Estate Inv'rs, Inc. v. Columbia Pictures Indus., Inc. ("PREI"), 508 U.S. 49, 63-65 (1993) (applying Noerr-Pennington immunity to copyright infringement litigation); Amphastar Pharm. Inc. v. Momenta Pharm., Inc., 850 F.3d 52, 56-58 (1st Cir. 2017) (applying Noerr-Pennington immunity to patent infringement litigation).

         The District Court agreed with the drug maker that Noerr-Pennington immunity applied to its alleged conduct and, on that basis, dismissed the putative class actions under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim. The District Court acknowledged that Noerr-Pennington immunity has two exceptions. An antitrust defendant may not enjoy the immunity in enforcing its patent if it obtained that patent through a fraud on the Patent Office, Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177-78 (1965), or if its suit to enforce the patent is a "sham" for impermissible anti-competitive conduct, PREI, 508 U.S. at 51. The District Court held, however, that the purchasers had not plausibly alleged that either exception applies here. We now affirm.

         I.

         The putative class actions at issue in these consolidated appeals were brought against Novartis, which distributes and holds the patents for Gleevec, a prescription drug for treating leukemia.[1] Health plans that purchased Gleevec on behalf of their beneficiaries -- so-called end payers -- are the plaintiffs in the first action. A party standing in the shoes of a direct purchaser of the drug is the named plaintiff in the other action.

         The suits arise from the following events. In 1996, Novartis obtained the original patent for Gleevec, or Patent No. 5, 521, 184 ("Patent '184"). This patent claimed Gleevec's active ingredient -- a compound called "imatinib" -- as well as the compound's "corresponding salts." That patent's expiration date was July 4, 2015.

         Four years after obtaining that patent, Novartis filed an application for another one. This application sought a patent that pertained to one of the compound's "corresponding salts," the "mesylate" salt of imatinib. Specifically, Novartis's patent application claimed a particular crystalline form of that salt -- namely, the non-needle or "β-crystalline" form.

         According to the complaints filed in each of the antitrust actions against Novartis, chemists commonly modify compounds from "free base" to "salt" form during the pharmaceutical process in order to enhance the drug's properties, such as its solubility. The complaints further point out that, although a salt can be left amorphous, chemists often crystallize salts in various shapes to further select for favorable properties. For this reason, a patent for a particular crystalline form of one of imatinib's corresponding salts, such as the one Novartis claimed, could be quite valuable.

         The patent examiner rejected Novartis's patent application for the β-crystalline form of imatinib mesylate. The examiner concluded that this form of imatinib mesylate was not patentable in consequence of the requirements set forth in 35 U.S.C. § 102, which provides that an invention is not patentable if it is entirely anticipated by a single item of prior art, and 35 U.S.C. § 103, which provides that an invention is not patentable if, from a body of prior art, "the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious . . . to a person having ordinary skill in the art to which the claimed invention pertains."

         With reference to § 102, the patent examiner ruled that the β-crystalline form of imatinib mesylate was "anticipated" by Patent '184. With reference to § 103, the patent examiner ruled that Novartis failed to carry its burden to "show that employing routine procedures" would not produce the β-crystalline form of the salt.

         Novartis appealed the patent examiner's ruling to the Patent Trial and Appeal Board ("Board"), which reversed. With respect to § 102, the Board "assume[d] arguendo, without deciding," that Patent '184, which was set to expire in 2015, anticipated the mesylate salt of imatinib. But, the Board ruled, Patent '184 "contains insufficient disclosure to support a finding of anticipation" of the β-crystalline form of imatinib mesylate that Novartis claimed in its application for the new patent. With respect to § 103, the Board concluded that the patent examiner had erroneously "shift[ed] the burden of persuasion to applicants to establish that the β-crystalline form recited in their claim 'cannot be made following routine conditions.'" Moreover, the Board explained, "on this record, the examiner has not adequately explained how a person having ordinary skill would have been led from 'here to there,' i.e., from [imatinib mesylate] to the . . . β-crystalline form of that compound."

         The next month, the patent examiner issued a "notice of allowance," which issues "[i]f, on examination, it appears that the applicant is entitled to a patent" and which specifies the fees that must be paid to obtain the patent. 37 C.F.R. § 1.311. Thereafter, Novartis made a supplemental disclosure of two prior art references that disclosed the mesylate salt of imatinib (but not the β-crystalline form of imatinib mesylate for which Novartis sought the patent).

         The Patent Office finally issued Novartis's patent for the β-crystalline form of imatinib mesylate, or Patent No. 6, 894, 051 ("Patent '051"), on May 17, 2005, with an expiration date in 2019.[2] Novartis then submitted that patent to the Food and Drug Administration ("FDA") for inclusion in what is known as the "Orange Book" -- which lists FDA-approved drugs along with their corresponding patents -- as one of the patents, along with the as-yet-unexpired original '184 patent, that covers Gleevec.

         In 2006, a generic drug manufacturer named Sun Pharma filed an abbreviated new drug application ("ANDA") with the FDA. Sun Pharma's ANDA sought to market a generic version of Gleevec in the United States. In its ANDA, Sun Pharma certified that Novartis's second patent for Gleevec, Patent '051, was invalid. Sun Pharma thus sought the FDA's approval for marketing generic Gleevec as soon as the original Gleevec patent, Patent '184, expired on July 4, 2015, even though Novartis's second Gleevec patent, Patent '051, would not expire until 2019.

         Several years later, in 2013, while waiting for Patent '184 to expire, Sun Pharma sued Novartis in federal court seeking a declaratory judgment that the second Gleevec patent, Patent '051, was indeed invalid. Novartis counterclaimed, alleging infringement of Patent '051 and seeking a declaratory judgment that the patent was valid.

         In May of 2014, before any substantive rulings in that litigation, Sun Pharma and Novartis settled. The parties to that settlement did not disclose its terms, except to announce that Sun Pharma would be permitted to launch its generic version of Gleevec on February 1, 2016, some seven months after the expiration of the original Gleevec patent, Patent '184.[3]

         The two putative class actions at issue here were filed in the wake of that settlement in the United States District Court for the District of Massachusetts. Each action alleged that Novartis had "engaged in an exclusionary, anticompetitive scheme designed to create and maintain a monopoly for Gleevec and its generic substitutes" in the United States market. The complaints in each case alleged that Novartis carried out this monopolistic scheme in the following way in order to delay generic Gleevec's entry into the United States market.

         First, the complaints alleged that Novartis fraudulently procured Patent '051 from the Patent Office by falsely representing that the prior art did not disclose imatinib mesylate and that the discovery of its β-crystalline form was "surprising[]." Second, the complaints alleged that Novartis listed Patent '051 in the Orange Book.[4] And, third, the complaints alleged that Novartis then pursued infringement litigation against manufacturers of generic versions of Gleevec to enforce Patent '051 that was a "sham" for anticompetitive conduct -- given that Novartis could not reasonably expect the patent to withstand an invalidity defense.

         The direct purchaser alleged its monopolization claim in its suit under the federal Sherman Act, 15 U.S.C. § 2, while the end payers alleged their monopolization claim under the antitrust laws of twenty-three states and the District of Columbia. See Ill. Brick Co. v. Illinois, 431 U.S. 720, 730 (1977) (holding that indirect purchasers generally lack standing to enforce federal antitrust laws). The plaintiffs in both actions sought monetary damages as well as class certification on behalf of similarly situated direct purchasers and end payers respectively.

         Novartis moved to dismiss the end-payers complaint under Rule 12(b)(6). Proceedings in the direct-purchaser action were stayed pending adjudication of Novartis's motion to dismiss. Novartis contended in that motion that, under Noerr-Pennington, it could not incur antitrust liability for exercising its right to enforce Patent '051 in court against an infringer. Novartis did acknowledge that there are "two relevant exceptions" to Noerr-Pennington immunity -- namely, the exceptions based on a showing of Walker Process fraud and "sham" ...


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