Court Opinion

ID: 7796912
Source: CourtListenerOpinion
Date Created: 2022-08-01 21:00:22.424186+00
Date Added: 2024-06-11T16:28:32.842573
License: Public Domain

In the

     United States Court of Appeals
                 For the Seventh Circuit
                       ____________________

No. 20-2402
MAYOR AND CITY COUNCIL OF BALTIMORE, et al.,
                                     Plaintiffs-Appellants,

                                 v.

ABBVIE INC., et al.,
                                               Defendants-Appellees.
                       ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
            No. 19 CV 1873 — Manish S. Shah, Judge.
                       ____________________

   ARGUED FEBRUARY 25, 2021 — DECIDED AUGUST 1, 2022
                       ____________________

   Before EASTERBROOK, WOOD, and KIRSCH, Circuit Judges.
    EASTERBROOK, Circuit Judge. Humira (the domestic brand
name for adalimumab), a monoclonal antibody, is one of the
world’s best-selling and most proﬁtable drugs. On the World
Health Organization’s list of essential medicines, Humira is
approved to treat rheumatoid arthritis, psoriatic arthritis, an-
kylosing spondylitis, Crohn’s disease, ulcerative colitis,
plaque psoriasis, hidradenitis suppurativa, uveitis, and juve-
nile idiopathic arthritis. The basic U.S. patent for Humira, No.
2                                                     No. 20-2402

6,090,382, expired at the end of 2016, but AbbVie, its owner,
obtained 132 additional patents related to the medicine, for
details such as manufacturing or administering the drug. The
last of these expires in 2034.
    Plaintiﬀs, welfare-beneﬁt plans that pay for Humira on be-
half of covered beneﬁciaries, contend that these additional pa-
tents, and the sealement of litigation about them, violate sec-
tions 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2.
The district court dismissed the complaint. 465 F. Supp. 3d
811 (N.D. Ill. 2020).
    AbbVie might have defended the suit on the ground that
the plaintiﬀs, as indirect purchasers, are blocked by the doc-
trine of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). But
AbbVie has not done so, and as the Illinois Brick doctrine is not
jurisdictional we do not mention it again. For their part, plain-
tiﬀs do not rely on Walker Process Equipment, Inc. v. Food Ma-
chinery & Chemical Corp., 382 U.S. 172 (1965), which holds that
fraud on the Patent Oﬃce can violate the antitrust laws. Nor
do plaintiﬀs deny that valid patents authorize their owners to
exclude competition and charge monopoly prices. See United
States v. Line Material Co., 333 U.S. 287 (1948). Instead they con-
tend that 132 patents are just too many for anyone to hold,
especially when they are weak and subject to challenge, and
that by establishing what plaintiﬀs call a “patent thicket”
AbbVie violated §2 of the Sherman Act.
   Before we address that argument, a few words are in order
about how competitors could enter despite AbbVie’s patents.
Specialists may be familiar with the Hatch-Waxman Act, 21
U.S.C. §355, which regulates copycat entry in much of the
drug market. Someone who wants to oﬀer a generic equiva-
lent to a brand-name drug notiﬁes its seller, which can
No. 20-2402                                                     3

respond by identifying patents said to block competition. Do-
ing this requires the brand-name ﬁrm to commence patent-
infringement litigation. If this happens the Food and Drug
Administration forbids sales of the generic until the litigation
ends, or 30 months have elapsed, whichever is ﬁrst. If entry
occurs, the ﬁrst applicant gets an exclusive right to sell the ge-
neric drug for 180 days, and much of the proﬁt from the entry
occurs during that window. The Supreme Court’s opinion in
FTC v. Actavis, Inc., 570 U.S. 136, 142–44 (2013), describes the
process. See also Xechem, Inc. v. Bristol-Myers Squibb Co., 372
F.3d 899 (7th Cir. 2004).
    Humira is not covered by the Hatch-Waxman Act. As a
drug based on a biologic rather than a synthetic substance, it
comes within the Biologics Price Competition and Innovation
Act, 42 U.S.C. §262. Someone who wants to compete with an
approved biologic drug asks the FDA for permission to sell a
“biosimilar” drug; the applicant must show the absence of
“clinically meaningful diﬀerences” between the drug already
on the market and the biosimilar. The producer of a proposed
biosimilar drug cannot seek approval until four years after the
original was put on the market, and the FDA cannot approve
it until 12 years after that drug’s ﬁrst sale. (These windows do
not depend on patents.) Once the FDA has approved the bio-
similar, however, the competitor can oﬀer it to the public im-
mediately. If the original seller believes that a patent blocks
competition, it must initiate litigation. 42 U.S.C. §262(l)(6).
(There are some other steps, which need not be described.)
Invoking a patent and ﬁling suit does not itself block the bio-
similar; the competitor is free to sell at risk of an adverse out-
come in the patent litigation, while a proposed entrant under
Hatch-Waxman is not. As it happened, none of AbbVie’s po-
tential competitors chose to launch at risk, even after the
4                                                   No. 20-2402

FDA’s approval. This sets up the payors’ contention that the
sheer number of arguably applicable patents scared oﬀ the
competitors and enabled AbbVie to collect monopoly proﬁts
not authorized by the expired ‘382 patent.
    But what’s wrong with having lots of patents? If AbbVie
made 132 inventions, why can’t it hold 132 patents? The pa-
tent laws do not set a cap on the number of patents any one
person can hold—in general, or pertaining to a single subject.
See In re Brand Name Prescription Drugs Antitrust Litigation, 186
F.3d 781 (7th Cir. 1999). Tech companies such as Cisco, Qual-
comm, Intel, Microsoft, and Apple have much larger portfo-
lios of patents. Thomas Edison alone held 1,093 U.S. patents.
When the FTC challenged Qualcomm’s patent practices, it ob-
jected to licensing terms rather than the sheer size of the port-
folio—and the FTC lost in the end. FTC v. Qualcomm Inc., 969
F.3d 974 (9th Cir. 2020).
    Of course invalid patents cannot be used to create or pro-
tect a monopoly. But our plaintiﬀs have not oﬀered to prove
that all 132 patents are invalid or inapplicable to all potential
biosimilar competitors, and it is far from clear that payors
would have standing to make such an argument. The validity
of the patents is a subject for dispute between AbbVie and the
potential competitors, with review in the Federal Circuit. The
fact that the 132 patents can be traced to continuation appli-
cations from 20 root patents seems to us neither here nor
there. It may be easier to aaack 20 clusters of patents than 132
independent patents, but the fact remains that every patent
comes with a presumption of validity. 35 U.S.C. §282(a).
   The payors insist that AbbVie’s patents are weak—too
weak to monopolize the sales of such an important drug. This
argument leaves us cold. Weak patents are valid; to say they
No. 20-2402                                                      5

are weak is to say that their scope is limited, not that they are
illegitimate. Payors or competitors might argue to the Patent
Oﬃce that the advances claimed by AbbVie are too marginal
to justify legal protection, and such arguments were made in
requests for inter partes reopenings. (On that procedure see
United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).) The Direc-
tor of the Patent and Trademark Oﬃce set ﬁve of AbbVie’s
patents for reexamination under this procedure, and the
PTO’s adjudicative arm (the Patent Trial and Appeal Board)
found three of the ﬁve invalid. (AbbVie withdrew the other
two.) But the Director also concluded that 13 more of
AbbVie’s patents were solid enough not to need review, while
on still others AbbVie prevailed before the Board. And no one
asked the Director to review the many other patents in
AbbVie’s Humira-related portfolio.
     Instead of aaacking all 132 patents, the payors maintain
that AbbVie violated §2 of the Sherman Act by obtaining
them, then invoking them against the biosimilars. Yet the
payors have abjured any reliance on the Walker Process doc-
trine, which makes it hard to see how AbbVie can be penal-
ized for its successful petitions to the Patent Oﬃce. (The dis-
trict court observed that AbbVie had a “baaing average” of
.534, 465 F. Supp. 3d at 822, which is stellar in patent practice
and unheard-of in baseball.) Professional Real Estate Investors,
Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993),
holds that objectively baseless petitions to the government
can violate the antitrust laws, if they smother competition, but
AbbVie’s patent applications cannot be called baseless. After
all, the 132 patents issued.
   Trying to conjure liability out of successful petitions for
governmental aid in blocking competition runs into the Noerr-
6                                                    No. 20-2402

Pennington doctrine. Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961); Mine Workers v.
Pennington, 381 U.S. 657 (1965). This doctrine, rooted in the
First Amendment, deems petitioning a protected activity.
    Unsuccessful petitioning can be a source of liability when
the petitioner runs up rivals’ costs and so stiﬂes competition
independent of a petition’s success. An example would be ﬁl-
ing a frivolous suit, as many a suit is more costly to defend
than to prosecute. The Justices held in BE&K Construction Co.
v. NLRB, 536 U.S. 516 (2002), that no one has a constitutional
right to pursue baseless litigation. Professional Real Estate says
that petitioning exceeds the scope of the Noerr-Pennington
doctrine when the petitioner tries “to interfere directly with
the business relationships of a competitor, through the use of
the governmental process—as opposed to the outcome of that
process—as an anticompetitive weapon.” 508 U.S. at 60–61
(cleaned up; emphasis in original). But the payors express
concern about the successful outcome of AbbVie’s petition-
ing, not about costs imposed by the process of petitioning. Pa-
tent applications, successful or not, do not impose costs on ri-
vals; only issued patents do so.
    Doubtless it is possible to use properly issued patents in a
way that Noerr-Pennington does not protect. For example, if
AbbVie were to assert irrelevant patents against producers of
biosimilar drugs, that might come within the scope of BE&K
Construction. The payors contend that AbbVie listed some ir-
relevant patents in the litigation it commenced against would-
be entrants, but they do not contend that AbbVie listed only
irrelevant patents in those suits. What’s more, the sifting of
wheat from chaﬀ is a job for the judges hearing those patent
cases. The would-be entrants, such as Amgen, Samsung
No. 20-2402                                                    7

Bioepis, Sandoz, and Fresenius Kabi, were free to make argu-
ments along these lines; a separate antitrust suit by strangers
to the patent litigation does not justify an eﬀort to adjudicate
by proxy what might have happened in the patent litigation,
but didn’t.
   What did happen in the patent litigation is sealement. We
move on to the §1 claim, which is that the terms of the seale-
ments established a cartel among AbbVie and the potential
entrants.
    All of AbbVie’s patent suits were sealed on terms that per-
mit the biosimilar drugs to enter the U.S. market during 2023
(the dates for diﬀerent entrants range from January through
December). The sealements were compromises: many of the
132 patents last beyond 2023, but AbbVie threw in the towel
on the extended terms in exchange for promises not to enter
before 2023. If this is a cartel (AbbVie and its potential com-
petitors carving up the market, 100% in AbbVie’s favor, from
2017 through 2022), then all sealements of patent cases violate
the Sherman Act, yet the Supreme Court has said repeatedly
that normal sealements of patent litigation are lawful.
    Actavis adds that one kind of sealement, in which the pa-
tent holder pays the potential entrant to defer entry, could be
unlawful when the payment exceeds any reasonable estimate
of the costs of litigation and is best understood as a portion of
the spoils from a market-division agreement. The Justices
mused that the Hatch-Waxman Act, and particularly the 180-
day period of exclusivity, might lie behind reverse-payment
sealements, which can be struck with just a single rival yet
allow it to postpone the entry of multiple rivals. 570 U.S. at
155–56. In biologics, though, there’s no period of exclusivity.
8                                                 No. 20-2402

     The payors do not contend that there is anything ﬁshy or
anticompetitive about the sealements allowing entry in 2023
without any payment from AbbVie to the potential entrants—
if those sealements are viewed by themselves. But the payors
contend that they should not be viewed in isolation. They ob-
serve that AbbVie and aﬃliated ﬁrms have patents for
Humira throughout the European Union. Those patents, and
potential competition from biosimilar drugs, led to litigation
that was sealed with an October 2018 entry date. According
to the payors, AbbVie gifted the biosimilar makers with 4+
years of proﬁts in Europe, in exchange for their agreement not
to enter the U.S. market until 2023. That makes the global set-
tlement (treating the U.S. and the E.U. as the globe) look like
a reverse-payment deal that comes within the scope of Actavis.
   The district court was not persuaded. In the United States
AbbVie struck a normal sealement without any payment to
the entrants, a sealement of the kind that Actavis says is not
problematic. 570 U.S. at 152, 158–59. In Europe AbbVie and
the potential entrants struck the same kind of deal, which is
proper for the same reason. In each AbbVie agreed to entry
before the last patents expired and didn’t pay anyone to delay
entry. As the district judge saw things, 0 + 0 = 0. We see this
the same way.
    As far as we are aware, none of the other reverse-payment
cases entails a claim of the sort our payors advance. The U.S.
and E.U. sealements are a poor candidate for a pathﬁnder de-
cision, for two reasons. First, three of the potential U.S. en-
trants, Mylan, Boehringer Ingelheim, and Coherus Biosci-
ences, apparently do not plan to sell in Europe yet agreed to
2023 dates for entry in the United States. This makes it hard
to see 2023 as a delay that AbbVie “bought” by concessions
No. 20-2402                                                    9

made in Europe. Second, the European sealement is not as
simple as we described it. Each member state in the E.U. has
its own patent law, and AbbVie held patents that were
stronger in some nations than in others or had diﬀerent expi-
ration dates. Moreover, some entry in 2018 was inevitable be-
cause AbbVie has not claimed post-2018 patent protection in
Europe on all nine of the uses (“indications”) listed in the ﬁrst
paragraph of this opinion.
    As of October 2018, AbbVie’s European rights, on its own
understanding, were limited to three of the nine conditions
that Humira has been authorized to treat. So entry of biosim-
ilar drugs was inevitable, and AbbVie had to negotiate for
terms. The terms of the sealement require the entrants to pay
royalties on the three indications that remain under patent.
That makes the E.U. sealement one of the traditional kinds
squarely protected by Actavis—and if, as the payors contend,
AbbVie has dropped out of the E.U. market, the licensing of a
patented product in exchange for royalties is common and
lawful. (We recognize that the operative complaint in this case
does not mention the licensing of three uses in Europe, but the
initial complaint ﬁled by UFCW Local 1500 Welfare Fund did
so, and the amended, consolidated complaint does not take
back or otherwise deny that admission.)
    Suppose that what we’ve said in the preceding two para-
graphs were to be disregarded on the ground that these mat-
ters are best characterized as defenses rather than reasons
why the complaint is deﬁcient. Still, the payors’ claim boils
down to a contention that, by leaving money on the table in
Europe, AbbVie eﬀectively paid the potential entrants for de-
lay in the United States. This is a use of the economic concept
of opportunity cost, which treats a forgone earning
10                                                              No. 20-2402

opportunity (fewer years of monopoly proﬁt in Europe) as
equivalent to a payment out of pocket.
    Plaintiﬀs’ problem is that Actavis itself considered, and re-
jected, the argument that an opportunity cost is the same as a
reverse-payment sealement. Here is the passage:
     [W]hen Company A sues Company B for patent infringement and
     demands, say, $100 million in damages, it is not uncommon for B
     (the defendant) to pay A (the plaintiﬀ) some amount less than the
     full demand as part of the seOlement—$40 million, for example.
     See Schildkraut, Patent-Spli0ing Se0lements and the Reverse Payment
     Fallacy, 71 Antitrust L.J. 1033, 1046 (2003) (suggesting that this hy-
     pothetical seOlement includes “an implicit net payment” from A
     to B of $60 million—i.e., the amount of the seOlement discount).
     The cited authorities also indicate that if B has a counterclaim for
     damages against A, the original infringement plaintiﬀ, A might
     end up paying B to seOle B’s counterclaim. Cf. Metro-Goldwyn
     Mayer, Inc. v. 007 Safety Products, Inc., 183 F.3d 10, 13 (CA1 1999)
     (describing trademark dispute and seOlement). Insofar as the dis-
     sent urges that seOlements taking these commonplace forms have
     not been thought for that reason alone subject to antitrust liability,
     we agree, and do not intend to alter that understanding. But the
     dissent appears also to suggest that reverse payment seOle-
     ments—e.g., in which A, the plaintiﬀ, pays money to defendant B
     purely so B will give up the patent ﬁght—should be viewed for
     antitrust purposes in the same light as these familiar seOlement
     forms. See post, at 168–169. We cannot agree. In the traditional ex-
     amples cited above, a party with a claim (or counterclaim) for
     damages receives a sum equal to or less than the value of its claim.
     In reverse payment seOlements, in contrast, a party with no claim
     for damages … walks away with money simply so it will stay
     away from the patentee’s market. That, we think, is something
     quite diﬀerent.

570 U.S. at 151–52 (cleaned up).
   The example discussed in this passage—a suit seeking
$100 million and sealed for $40 million—illustrates an
No. 20-2402                                                 11

opportunity cost. The patent holder leaves $60 million on the
table. That could be characterized as a $60 million payment to
the would-be entrant. Yet the Court rejected the possibility of
treating an “implicit net payment” as equivalent to an actual
payment, characterizing the reverse-payment problem as
“something quite diﬀerent” from an opportunity cost. If that
is true of the example in Actavis, it is equally true of money
that AbbVie is said to have left on the table in Europe.
    In neither the United States nor Europe did any of the po-
tential biosimilar producers start out lacking a plausible mon-
etary claim against AbbVie yet end up with money paid to
delay entry. Instead we have diﬀerent legal systems, with dif-
ferent patent expiration dates, but fundamentally similar
structures of sealement. On each continent AbbVie surren-
dered its monopoly before all of its patents expired, and the
rivals were not paid for delay. It would be much too specula-
tive to treat the diﬀerent entry dates as some kind of “reverse
payment” rather than a normal response to a diﬀerent distri-
bution of legal rights under diﬀerent patent systems.
    Both the U.S. sealement and the E.U. sealement are tradi-
tional resolutions of patent litigation. AbbVie did not pay the
would-be entrants on either continent. Neither individually
nor collectively do these sealements state a claim under §1 of
the Sherman Act. We need not address any of the other issues
debated by the parties.
                                                    AFFIRMED