Opinion ID: 2461
Heading Depth: 2
Heading Rank: 3

Heading: Was the Antitrust Claim Adequately Pled?

Text: Granting standing to the plaintiffs does not resolve this appeal, because the district court also concluded that the plaintiffs had failed to state a claim. We review the district court's dismissal of a complaint for failure to state a claim de novo, accepting as true all facts alleged in the complaint and drawing all inferences in favor of the plaintiff.... Faulkner v. Beer, 463 F.3d 130, 133 (2d Cir.2006) (internal quotation marks omitted). [O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). We believe that the plaintiffs meet this standard for their antitrust claim under each of their four theories. Walker Process fraud, the plaintiffs' first theory, requires: (1) a representation of a material fact, (2) the falsity of that representation, (3) the intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to be the equivalent of intent (scienter), (4) a justifiable reliance upon the misrepresentation by the party deceived which induces him to act thereon, and (5) injury to the party deceived as a result of his reliance on the misrepresentation. Nobelpharma, 141 F.3d at 1069-70. A fraudulent omission, which can be just as reprehensible as a fraudulent misrepresentation, can be sufficient to support a finding of Walker Process fraud. Id. at 1070. A party alleging fraud or mistake... must state with particularity the circumstances constituting fraud or mistake. Fed.R.Civ.P. 9(b). The plaintiffs argue that they have pled each element with sufficient specificity. They alleged a series of highly material omissions, without which the '398 patent would not have issued. Compl. ¶ 74. The Federal Circuit agreed on the high[] material[ity] of the omissions when it found the '398 patent unenforceable. Ferring I, 437 F.3d at 1194. The Ferring I litigation also addressed the third element of intent, as the district court found clear and convincing evidence of an intent to mislead the examiners. Ferring B.V., 2005 WL 437981, at . Reliance and injury, the fourth and fifth elements, are straightforward here: the PTO was justified in relying on the information the defendants provided, and injury is a matter of course whenever the other four elements are met. Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 375 F.3d 1341, 1361 (Fed.Cir.2004), rev'd on other grounds, 546 U.S. 394, 126 S.Ct. 980, 163 L.Ed.2d 974 (2006). Thus, the plaintiffs contend the district court's dismissal on the pleadings was erroneous. The defendants respond that the district judge's rejection of the plaintiffs' claim must be affirmed because he was also the district judge in the initial infringement litigation, in which he held the '398 patent unenforceable. The defendants argue that the judge's involvement in both cases enabled him to validly conclude that his previous findings could not support a claim of fraudulent procurement in the instant case. This is a logical non sequitur. The district judge could be correct in determining that inequitable conduct occurred and yet mistaken that such conduct did not amount to fraud. Moreover, the defendants' argument ignores the distinction between findings and pleadings. Even if the district judge was correct that the earlier record did not show fraud, the record in this case could be different following discovery. The defendants contend that simply adding a conclusory allegation of fraud to the previous findings is inadequate to meet the plaintiffs' obligation to allege facts that give rise to a strong inference of fraudulent intent. Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995). We are, however, lenient in allowing scienter issues to withstand summary judgment based on fairly tenuous inferences, because such issues are appropriate for resolution by the trier of fact. Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 538 (2d Cir.1999). The same holds true for allowing such issues to survive motions to dismiss. The district court found an intent to deceive in the patent litigation. Ferring B.V., 2005 WL 437981, at . Granting the plaintiffs all favorable inferences as we must on a motion to dismiss, and given that the omissions at issue occurred repeatedly over a period of years, this intent is sufficient to plausibly support a finding of Walker Process fraud. The defendants next argue that the plaintiffs must allege evidence of intent distinct from the omission itself. While a false or clearly misleading statement can permit an inference of deceptive intent, a misrepresentation in the form of an omission is more likely to be innocent and cannot support Walker Process fraud without evidence of intent separable from the simple fact of the omission. Dippin' Dots, Inc. v. Mosey, 476 F.3d 1337, 1347 (Fed.Cir.2007). The issue in the initial infringement litigation was inequitable conduct, not Walker Process fraud. Moreover, the district court in that litigation correctly noted that high materiality could overcome a lesser showing of intent. Ferring B.V., 2005 WL 437981, at ; see Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1380-81 (Fed.Cir. 2001). While such balancing is impermissible with Walker Process claims, we think the plaintiffs' allegations are nonetheless sufficient. Dippin' Dots concerned findings, not pleadings, see 476 F.3d at 1341-42; even if the district court's findings in the Ferring I litigation could not satisfy Dippin' Dots, the plaintiffs' pleadings could plausibly lead to additional findings that would satisfy Dippin' Dots, which is all that is required at this stage of the litigation. The defendants additionally argue that the allegations of materiality are insufficient. Specifically, they contend that the plaintiffs do not dispute the '398 patent's patentability on the merits or claim that, but for the alleged fraud, no patent could have been issued to anyone. For antitrust purposes, whether a patent could be issued matters more than who would possess it; if a patent could still have been issued to someone, its market power would still have been concentrated (properly) in one party. Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 265 (7th Cir.1984). As a result, Walker Process fraud must concern a material issue of patentability; otherwise, a patent would have issued regardless of any fraud, and potential plaintiffs would have suffered the same monopoly effects (but legitimately). Although the plaintiffs do not address patentability directly in the complaint, the issue is implicit in their allegations. The defendants' allegedly fraudulent affidavits were attempts to explain away prior art. The Federal Circuit found them absolutely critical to the defendants' overcoming the patent application's initial rejection. Ferring I, 437 F.3d at 1189. Whether or not these declarations, if accompanied by full disclosure, would have resulted in an enforceable patent is debatable, but we think that, at the pleading stage, the fact of non-disclosure is sufficient to properly allege materiality. Overall, then, the plaintiffs have sufficiently alleged Walker Process fraud to survive the defendants' motion to dismiss on the pleadings. We likewise conclude that the sham litigation claim has been adequately alleged. In order to state a claim for sham litigation, the plaintiffs need to allege that the litigation in question is: (i) `objectively baseless,' and (ii) `an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process ... as an anticompetitive weapon.' Primetime 24 Joint Venture v. Nat'l Broadcasting Co., 219 F.3d 92, 100-01 (2d Cir.2000) (citing Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993)). Based on the same facts alleged to sustain a Walker Process claim, we find that in the circumstances of this case, the plaintiffs' allegations are also sufficient to make out a sham litigation claim. The defendants effectively concede as much. See Brief of Defendants-Appellees Ferring B.V. and Ferring Pharms. at 38 ([A] sham litigation claim here not only requires proof that defendants defrauded the PTO, but also that they knew their misconduct before the PTO had rendered the patent invalid.... [Plaintiffs'] `sham' litigation allegation is thus substantively duplicative of their patent fraud claim....). The plaintiffs also may proceed on their Orange Book claim. The defendants all but concede that the plaintiffs would have a basis for contending the Orange Book listing was fraudulent if the '398 patent is found to have been fraudulently procured. See id. at 41 ([T]he allegations regarding the Orange Book listing arelike the sham litigation claimspurely derivative of the underlying claim that the '398 patent was fraudulently procured.). Indeed, the Orange Book listing's validity flows from the patent's validity. Having determined that the Walker Process and sham litigation theories are still in play, we similarly conclude that the plaintiffs have adequately alleged that the defendants improperly listed the '398 patent in the FDA's Orange Book. The final theory is the plaintiffs' citizen petition theory, which, as we have explained, stands apart from the '398 patent's validity. The district court dismissed this theory on the basis that it concerned petitioning activity protected by the First Amendment. Id. To reach this conclusion, the district court presumably reasoned that the plaintiffs could not plausibly show the petition to be a sham, i.e., objectively and subjectively baseless, a proposition with which we disagree. The FDA found that the citizen petition had no convincing evidence and lacked any basis for its arguments. Compl. ¶ 115 (internal quotation marks and emphasis omitted). In the Ferring I litigation, the district court suggested that the petition might have been nothing more than a hardball litigation tactic, motivated by a desire to keep out competition for as long as possible after the expiration of the patent and raise transactional costs for Barr. Ferring B.V., 2005 WL 437981, at . Together, these findings indicate the plaintiffs could plausibly show the citizen petition to have been a sham. Finally, the defendants contend that the citizen petition cannot give rise to antitrust liability because it could not have impacted the FDA's decision, as the FDA ultimately rejected the petition. But this ignores the possibility that the sham petition caused a delay in generic competition, a possibility reinforced by the fact that the FDA approved the generic drug on the same day that it rejected the petition. See 21 C.F.R. § 10.35(d)(1) (enabling a stay of FDA action after the filing of a petition). Whether the '398 patent was valid on the date the petition was filed is immaterial to this theory's success, because the plaintiffs can plausibly show the patent to have been fraudulently procured. It may turn out at trial that this petition was not a sham, or that the FDA's approval of the generic drug was not delayed by the petition, but the possibility that the petition was a sham, and that it impacted the FDA's decision, is sufficiently plausible to defeat the motion to dismiss. Overall, the plaintiffs have stated an antitrust claim upon which relief may be granted. Based on the pleadings, each of their four theories could plausibly succeed. The district court erred by concluding to the contrary.