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Second Circuit Declares That, to Survive Motions to Dismiss, Antitrust Allegations Require Factual Support for All “Necessary Premises”

Last Wednesday, the Second Circuit Court of Appeals partially vacated the judgment of the district court in In re Actos End-Payor Antitrust Litigation.  In doing so, the Second Circuit allowed only plaintiffs’ claims that Takeda delayed Teva’s market entry for a generic ACTOS diabetes drug by allegedly falsely describing two patents to the FDA, but dismissed similar claims of delaying nine other generic drug manufacturers from entering the market.  The Second Circuit so held because plaintiffs failed to provide factual support for a “necessary premise” to their allegations concerning nine of the generic manufacturers.  To understand the Second Circuit’s holding, first we provide some background on the Drug Price Competition and Patent Term Restoration Act of 1984, or “Hatch-Waxman Act.”

The Hatch-Waxman Act

In this decision, two aspects of the Hatch-Waxman Act are relevant: (1) an initial applicant’s duty to file a New Drug Application (“NDA”) with the FDA prior to marketing a new drug; and (2) a subsequent applicant’s duty to file an Abbreviated New Drug Application (“ANDA”) with the FDA, which must assure the FDA that its generic drug will not infringe the initial applicant’s patents.

Of relevance here, NDAs must be classified as “drug,” “drug product,” or “method of use” patents and they are published by the FDA in a tome called the “Orange Book” that puts generic manufacturers on notice of patents they must address in their ANDAs.  Prior to August 2003, the Orange Book only stated one classification (“drug,” “drug product,” or “method of use”) per patent, even if an applicant listed two or more classifications in its NDA.

As for ANDAs, there are two ways to file.  The first option (“certification”) is to certify that each of the brand’s patents is invalid or will not be infringed by the generic drug.  This certification is deemed an act of patent infringement, allowing the patent holder to sue.  But to encourage applications, the Hatch-Waxman Act provides a 180-day window of exclusivity to the first generic filer that files its ANDA and is approved. 

The second option (“statement”) is only available when the brand’s patent is classified as a “method of use.”  In the second option, the generic filer states that it is seeking to market a generic for a non-patented use.  This route is not deemed an act of infringement and thus does not automatically make the applicant vulnerable to litigation, nor does it create the 180-day window of exclusivity.

The Second Circuit’s Decision

In this case, plaintiffs allege that Takeda’s original ACTOS patent was set to expire in January 2011, but, in an effort to continue to deter generic competition, Takeda later filed two ACTOS-related patent applications, both of which were classified as “method of use” and “drug product” patents.  Plaintiffs allege that Takeda falsely described these patents as drug product patents, thus forcing the generic manufacturers to file “certification” ANDAs, which led to the 180-day window of exclusivity, causing a “bottleneck” which would delay all but the first filer’s generic from entering the market in January 2011.

However, the Second Circuit found that plaintiffs’ allegations rested on the “necessary premise” that the “generic manufacturers knew that Takeda had described [its patents] as drug product patents when they filed their ANDAs.”  However, the undisputed facts showed that the Orange Book listed both of Takeda’s patents as only method-of-use patents.  Therefore, because the plaintiffs had only alleged knowledge through the Orange Book and through no other means, they had failed to show that Takeda’s false description had prompted the nine generic manufacturers to file “certification” ANDAs (which caused the 180-day “bottleneck”).

The generic manufacturer Teva, however, did file a “statement” ANDA.  But the FDA did not finally approve Teva’s ANDA because, expressly relying on Takeda’s patent descriptions as a “drug product,” it announced that Teva must file a “certification” ANDA in order to show that Teva’s generic would not infringe Takeda’s patents.  Therefore, the Second Circuit held that plaintiffs’ allegations regarding the cause of Teva’s delayed entry were sufficiently plausible because “but for the false patent descriptions, the FDA would not have made th[e] announcement, and Teva would have entered the market sooner than it did.”

In short, to prove causation, even at the motion to dismiss stage the antitrust plaintiff must provide factual support for all “necessary premises” in its argument.