In a case concerning competition between would-be entrants to a generic drug market and competition between generic pharmaceutical firms and a patentee, the Eleventh Circuit held that a patentee’s infringement action is immune from antitrust challenge, but the same patentee’s settlement of infringement proceedings with a third party may give rise to liability under Sections 1 and 2 of the Sherman Act. Andrx Pharmaceuticals, Inc. v. Elan Corp., PLC, 11th Cir., No. 03-13605, 8/29/05.

1. Infringement Actions Shielded from Antitrust Liability under Noerr-Pennington

The context of Andrx Pharmaceuticals is the process of obtaining FDA approval to market a generic version of a patented drug and the dealings between such applicants and the patentee itself. To obtain FDA approval to market and sell a generic version of a patented drug, the applicant must follow the procedures set forth in § 355(b) of the U.S. Food, Drug and Cosmetic Act, 21 U.S.C., known commonly as the Hatch Waxman Act. This requires the filing of an abbreviated new drug application (“ANDA”). If the patent covering the generic version is listed in the FDA Orange Book, the applicant must make one of four certifications in its ANDA. A Paragraph IV certification states that the listed patent is either invalid or not infringed. The applicant must also notify the patentee of the Paragraph IV filing, and the patentee has forty-five days to file an infringement suit against the applicant. An infringement proceeding stays the FDA’s approval of the generic for up to thirty months unless the patent is found by a court earlier to be invalid or not infringed.

In this instance, Andrx had filed an ANDA to manufacture and sell a generic form of Elan’s patented controlled release naproxen medication followed by a Paragraph IV certification. Pursuant to Hatch Waxman, Elan sued Andrx for infringement of its patented naproxen medication. Andrx in turn sued Elan on antitrust grounds, alleging that Elan brought its patent infringement action against Andrx to improperly protect its monopoly on the market for the naproxen drug since its patent was invalid.

In its defense, Elan argued it was immune to Andrx’s action by virtue of the Noerr-Pennington doctrine. The Noerr-Pennington doctrine protects a party’s First Amendment right to petition the government for a redress of grievances, and this right to petition extends to court proceedings. Both the district court and the Eleventh Circuit agreed with Elan, with the Eleventh Circuit citing the Supreme Court’s holdings in Prof’l Real Estate Investors v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993) (judicial proceedings brought by defendant protected by Noerr-Pennington doctrine); and Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972).

Andrx’s attempt to thwart Elan’s use of the Noerr-Pennington doctrine by invoking the “sham litigation exception” failed in both district court and the Eleventh Circuit. Applying Prof’l Real Estate’s two part test for sham litigation, the Eleventh Circuit found that Elan’s infringement suit against Andrx was neither objectively baseless, nor that Elan was shown to have brought the proceedings with a subjective motivation to interfere directly with Andrx’s business relationships. Andrx’s “sham” argument hinged on the finding that Elan’s patent was invalid due to the on-sale bar found in 35 U.S.C. § 102. Two courts, however, had previously rejected this argument as did the Eleventh Circuit. With Elan’s patent likely to be found valid, the court stated that while Elan’s separate infringement action against Andrx has not yet been adjudicated, Elan’s infringement suit could not be considered objectively baseless under the Prof’l Real Estate standard.

In addition, the Eleventh Circuit affirmed the district court’s holding refusing to grant Andrx leave to amend. It found that Andrx had been on notice of the insufficiency of its pleadings of the “sham litigation exception” theory for more than one year before it filed leave to amend. Andrx’s explanations for its delay did not, the court held, demonstrate that justice required the grant of the motion to amend. (Citing to Carruthers v. BSA Adver., Inc., 357 F.3d 1213, 1218 (11th Cir. 2004) (per curiam).) Likewise, the court rejected Andrx’s attempt to inject a “sham litigation exception” theory based on Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), which it had not pled in its first amended complaint. The district court did not, the court held, abuse its discretion in denying Andrx’s motion for leave to amend.

2. Patent License Agreement May Give Rise to Sherman Act §§ 1 and 2 Liability

Andrx’s antitrust complaint also alleged that a license agreement entered into by Elan and another drug manufacturer, Skye Pharma, Inc., violated both §§ 1 and 2 of the Sherman Act. The agreement was entered into as part of a settlement between Elan and Skye Pharma after Skye Pharma, like Andrx, filed a Paragraph IV ANDA for a generic form of controlled release naproxen followed by an infringement suit brought by Elan.

The district court held that Andrx’s claims regarding the settlement and license arrangements between Elan and Skye Pharma failed to state a claim as necessary for these claims to survive a motion for judgment on the pleadings. The Eleventh Circuit reversed. Contrary to earlier decisions, the Federal Rules of Civil Procedure, Rule 8(a)(2) does not, the court held, mandate a heightened pleading standard. (Citing Eleventh Circuit precedents Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989, 995 (11th Cir. 1983); and Spanish Broad Sys. of Fla., Inc.v. Clear Channel Communications, Inc., 376, F.3d 1065, 1077 (11th Cir. 2004).)

According to the Eleventh Circuit, under the notice pleading requirements of F.R.C.P. 8(a), to prevail on a claim that a patent infringement settlement agreement violates § 1 of the Sherman At, a plaintiff must prove (1) the scope of the exclusionary potential of the patent; (2) the extent to which the agreements exceed that scope of the patent; and (3) the resulting anticompetitive effects in the relevant market.

In this instance, Andrx properly alleged that Elan’s patent was necessary to the manufacture and sale of a controlled release naproxen medication and that the owner could effectively exclude competitors from making other controlled release naproxen medications. The court thus found that Andrx satisfied the first element to stating its claim.

Andrx’s allegations as to the second element of this pleading requirement are more interesting. An assignment of a patent is specifically authorized by the Patent Act, 35 U.S.C. § 261 (1994), and is generally lawful under the antitrust laws. However, an assignment may violate the Sherman Act where the assignment constitutes unlawful monopolization or is part of an agreement by competitors to restrain trade beyond the scope of the patent grant. (See In re Cardizem Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003); and Valley Drug v. Geneva Pharmaceuticals, 344 F.3d 1294 (11th Cir. 2003).)

In this instance, Andrx contended that as part of the settlement agreement, Skye Pharma agreed with Elan not to manufacture or sell a generic controlled release naproxen drug and that this putative agreement exceeded the lawful scope of patent rights as well as creating a bottleneck monopoly under Hatch Waxman as Skye Pharma was the first generic and entitled to the exclusive 180-day period to market a generic form of the drug covered by a § 355(b) application. This agreement not to manufacture or sell thus effectively blocked entry by Andrx and other potential generic competitors. and found by the court sufficient to satisfy the third element.

(b) Pleading Requirements to Adequately State a Claim that a Settlement and License Agreement of Patent Rights Violates S. 2 of the Sherman Act

The Eleventh Circuit likewise overturned the district court’s finding that Andrx failed to state a Sherman Act § 2 claim of attempted monopolization relating to Elan’s settlement and license agreement with Skye Pharma. Applying Quality Foods, 711 F.2d at 996, the court set out the requirements to state such a claim: (1) plaintiff must show specific intent on the part of the defendant to bring about a monopoly; and (2) the defendant’s conduct has a dangerous probability of success. Andrx satisfied the first prong by stating that Elan had the specific intent to monopolize and preserve a monopoly in the controlled release naproxen market. Andrx additionally alleged that Elan was the only supplier of naproxen in the United States and that Elan therefore had achieved a probability of success. Andrx thus satisfied the second prong.

Authored by:
Heather M. Cooper
213-617-5457
hcooper@sheppardmullin.com