Thursday, August 31, 2023

Using the False Claims Act to Address Alleged Fraud in the Procurement of a Patent

As some readers may be aware, I am working on a book project addressing the various ways that nations regulate what I refer to as “wrongful patent assertion”—“assertion” both in the sense of “enforcement,” as (for example) when a patent owner files an action for the infringement of a patent that was obtained by means of fraud on the Patent Office, and in the sense of “communication,” as for example when a patent owner knowingly communicates to a supplier the false representation that a competitor’s products infringe.  Of course, these two types of assertion sometimes overlap (as when someone expressly threatens to file suit for the infringement of fraudulently-obtained patent); and there are a variety of legal doctrines that may be relevant in such cases, including claims or defenses arising antitrust law, unfair competition law, the law of unjustified or groundless threats, patent law itself (for example, the inequitable conduct doctrine), or other generally applicable bodies of law (for example, the abuse of right doctrine in civil law jurisdictions).   Each of these claims or defenses comes with its own evidentiary requirements, however, as well as its own consequences, and in general each is intended primarily to carry out a different policy (e.g., preventing market distortion, promoting the integrity of the marketplace, etc.).

A recent decision that Dennis Crouch blogged about the other day, Silbersher v. Valeant Pharmaceuticals International, Inc., falls into the “other generally applicable bodies of law” category.  The claimant is a patent attorney who filed suit under the False Claims Act (FCA), 31 U.S.C. §§ 3729-33, which is one of a small number of qui tam statutes that still exist in the United States.  The basic idea behind a qui tam claim, which dates back to medieval England, is that the claimant sues on behalf of the sovereign, and if successful is entitled to recover some portion of the proceeds recovered on the sovereign's behalf (in cases under the FCA, up to 30% of the government’s damages resulting from the fraud).  In a similar vein, readers may recall the short-lived rise of false patent marking claims about 15 years ago, after the Federal Circuit in a trio of cases interpreted what was at the time another qui tam statute, the U.S.  false patent marking statute, 35 U.S.C. § 292, in an expansive manner.  In 2011, however, Congress put an end to almost all of these false marking claims by amending the statute by  requiring a private claim to provide evidence of competitive injury.

Anyway, as Professor Crouch explains in his post, the defendants here owned a family of patents relating to Apriso, a drug used to treat colitis.  The earliest of these, the Otterbeck patents, claimed a delayed-release formula for the active ingredient, mesalamine.  These, according to the court, "rested on shaky ground" and were the subject of challenge brought by a generic firm-which challenge, however, resulted in a settlement that kept the generic version off the market until 2022.  Valeant also obtained the ‘688 Patent, the point of novelty of which if I understand correctly was the claimed effectiveness of the drug when taken without food.  But this patent was invalidated in an IPR on obviousness grounds--after which Silbersher, the attorney representing the IPR petitioner, filed this suit under the FCA, premised largely on the defendants’ allegedly having made inconsistent statements during the course of yet another patent prosecution, involving the '344 Patent.   The district court dismissed the FCA claim, but the Ninth Circuit reverses.  

At issue is a provision of the FCA, 31 U.S.C. § 3730(e)(4)(A), that reads as follows:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or

(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

Here, although the information on which Silbersher’s complaint is based is taken from public sources (including the prosecution histories of ‘688 and '344), the specific information alleged in the complaint does not trigger any of the above exceptions.  First, the court concludes that the IPR does not fall within subparagraphs (i) and (ii), because the government is not a party to an IPR, as would be required under subparagraph (i), and because an IPR is not an investigative proceeding, as would be required under the Ninth Circuit's interpretation of subparagraph (ii).  Second, although the various patent prosecutions would fit within subparagraph (ii)--and a Law360 article about the IPR, plus a couple of journal articles allegedly demonstrating the obviousness of '688, also would fit within subparagraph (iii)--the information alleged in Silbersher's complaint is not "substantially the same" as the information disclosed in any single one of these.  Writing for the panel, Judge Sanchez states:

. . .  we conclude that the qualifying public disclosures here do not disclose a combination of facts sufficient to permit a reasonable inference of fraud. To refresh, Silbersher’s  qui tam complaint alleges that (1) Valeant “intentionally withheld material information” demonstrating that Apriso’s effectiveness without food was obvious from prior art (the Brunner and Marakhouski studies) when Valeant filed the ’688 Patent application; (2) Valeant’s claims in the ’688 Patent prosecution directly contradicted its claims in the earlier ’344 Patent prosecution that taking mesalamine with food made the drug more effective; (3) the ’688 Patent was invalidly obtained because Valeant was aware that the Otterbeck Patents were themselves invalid based on prior art and vulnerable to challenge; and (4) by fraudulently obtaining the ’688 Patent, Valeant prolonged its monopoly of Apriso and charged the government an “artificially high price for the drug,” all while falsely certifying that the drug price was “fair and reasonable.”

Translating Silbersher’s allegations into the formula, X stands for the misrepresented facts—Valeant’s claim that it was not obvious that Apriso would be effective without food and that the Otterbeck Patents for Apriso’s delayed-release formula were original discoveries. And Y stands for the alleged truth—it was obvious that Apriso can be effectively administered without food and that the Otterbeck Patents were invalidly obtained. The scattered disclosures possibly reveal both X and Y, but never the combination of the two. . . . Valeant claimed in the ’688 Patent that Apriso’s effectiveness without food was not obvious. Nothing in the prosecution history of that patent, however, reveals the alleged truth—that it was obvious. In mathematic terms, the ’688 Patent discloses X but not Y. The ’344 Patent, meanwhile, has the opposite problem. In that patent prosecution, Valeant claimed it was obvious that Apriso would be effective without food. But the ’344 Patent application contains no misrepresentation, thus disclosing Y without X. To prove fraud under the FCA, the relator must demonstrate that a person “knowingly present[ed]” a “fraudulent claim for payment” to the federal government.

Silbersher’s qui tam allegations provide a critical fact necessary for scienter: Falk and Valeant took conflicting positions in their patent prosecutions of the ’344 and ’688 Patents. Neither of these patent prosecutions, or any other disclosure, reveals that fact. The Law360 article states that “two claims in the [’688 Patent] were obvious based on a collection of references that included press releases from [Valeant] about clinical drug trials and some academic papers.” But the Law360 article does not disclose—nor even imply—that Valeant knowingly withheld information when applying for the ’688 Patent. 

Similarly, the Brunner and Marakhouski studies (and Valeant’s involvement in those studies) reinforce that Valeant understood the obviousness of Apriso’s food-free effectiveness. The studies do not, however, say anything about Valeant’s application for the ’688 Patent. The Law360 article and the medical studies thus reveal Y and not X. 

Finally, none of the qualifying disclosures—the ’688 and ’344 Patents, the Law360 article, or the scientific studies—makes any mention of the Otterbeck Patents, much less disclose anything about the validity of these patents. Valeant allegedly misrepresented to the PTO that Apriso’s delayed-release formula underlying the Otterbeck Patents was an original discovery. The patent prosecutions, however, do not reveal the alleged truth: the patents were invalidly obtained. Once again, the Otterbeck Patents disclose X but not Y.

In sum, the scattered qualifying public disclosures each contain a piece of the puzzle, but none shows the full picture. In his qui tam action, Silbersher filled the gaps by putting together the material elements of the allegedly fraudulent scheme. 

The case was remanded to the district court.

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