Appeal by Plaintiffs Meijer, Inc., Meijer Distribution, Inc., Rochester Drug Co-operative, Inc., and Louisiana Wholesale Drug Co., Inc., from the dismissal of their class action antitrust complaint in the United States District Court for the Southern District of New York (Charles L. Brieant, Judge) for lack of standing and failure to state a claim upon which relief can be granted. We hold that the district court erred in dismissing the complaint, because the plaintiffs have antitrust standing and have adequately stated a claim upon which relief can be granted.
The opinion of the court was delivered by: John M. Walker, Jr., Circuit Judge
Argued: September 15, 2008
Before: FEINBERG, WALKER, and LIVINGSTON, Circuit Judges.
This case presents a novel question of standing that lies at the junction of antitrust and patent law. The plaintiffs, direct purchasers of desmopressin acetate tablets (sold under the name DDAVP), filed this class action in the Southern District of New York (Charles L. Brieant, Judge) against the defendants Ferring B.V., Ferring Pharmaceuticals (collectively, "Ferring"), and Aventis Pharmaceuticals ("Aventis"), alleging that Ferring and Aventis abused the patent system to unlawfully maintain a monopoly over DDAVP. Ferring developed, patented, and manufactures DDAVP, and Aventis holds FDA approval for DDAVP tablets as well as a license from Ferring to market and sell the drug. The plaintiffs alleged that Ferring and Aventis inflated the price of DDAVP by suppressing generic competition for the tablets in violation of the antitrust laws. The district court dismissed the suit, concluding that the plaintiffs both lacked antitrust standing and had failed to state a claim upon which relief could be granted. This appeal followed.
The facts that follow are either undisputed or, because they are properly pled, presumed true for the purposes of this appeal at the pleading stage. See Diaz v. Paterson, 547 F.3d 88, 91 (2d Cir. 2008).
DDAVP is an antidiuretic prescription medication used to manage a form of diabetes, excessive urination, excessive thirst, and bed wetting. Ferring developed and manufactures DDAVP and owns U.S. Patent No. 5,047,398 (the "'398 patent"), which claims the compound in tablet form. Ferring filed its application for the '398 patent on December 17, 1985, and the Patent and Trade Office ("PTO") issued the patent on September 10, 1991. Ferring granted an exclusive license to Aventis to market and sell the patented tablets under the DDAVP name. In addition to its license from Ferring, Aventis also holds an approved New Drug Application ("NDA") from the FDA for the tablets. A manufacturer seeking to market a new drug must file an NDA to demonstrate the drug's safety and efficacy.
In 2002, Ferring filed a patent infringement suit against Barr Laboratories, Inc. ("Barr"), which came before the same district judge who later presided over this action. Earlier that year, Barr had filed an Abbreviated New Drug Application ("ANDA") for a generic version of the compound. An ANDA filing accelerates the approval process for a generic drug by allowing the manufacturer to rely on the safety and efficacy data provided in the NDA for the drug's branded counterpart. As part of the ANDA, Barr filed a certification (called a "paragraph IV certification") stating that the '398 patent was invalid, unenforceable, and/or would not be infringed by Barr's generic product. This filing triggered Ferring's infringement action against Barr pursuant to 35 U.S.C. § 271(e)(2).
Ferring's suit failed. On summary judgment, the district court found that the '398 patent, rather than having been infringed by Barr, was unenforceable due to inequitable conduct before the PTO by Ferring and its agents. Ferring B.V. v. Barr Labs., Inc., No. 7:02-CV-9851, 2005 WL 437981, at *10 (S.D.N.Y. Feb. 7, 2005). The Federal Circuit affirmed. See Ferring B.V. v. Barr Labs., Inc. ("Ferring I"), 437 F.3d 1181 (Fed. Cir. 2006).
The inequitable conduct that crippled the '398 patent occurred on the patent's troubled path to approval. In November 1986, PTO examiners rejected certain of the '398 patent's claims as anticipated by or obvious from U.S. Patent No. 3,497,491 (the "'491 patent"), a patent exclusively licensed to Ferring that subsequently expired in 1987. See id. at 1183-84. The Board of Patent Appeals and Interferences ("BPAI") affirmed the examiners' rejection in September 1990, but on slightly different grounds: relying only on the '491 patent, the BPAI concluded that the '491 patent rendered the '398 patent "obvious" when considered "in light of" a 1973 article written by Ivan Vavra. Id. at 1184. In November 1990, in an effort to persuade the examiners of the '398 patent's novelty, the applicants, two Ferring employees who assigned their prospective patent rights to Ferring, submitted declarations from several scientists stating that the '491 patent and Vavra article did not suggest the '398 patent. Id. at 1185. It turned out, however, that four of the five declarants previously had either "been employed or had received research funds from Ferring," facts that the submissions failed to disclose to the PTO. See id. On the strength of these declarations, the earlier rejection notwithstanding, the PTO issued the '398 patent in September 1991. See id. at 1185, 1188-89. The district judge found this non-disclosure to be inequitable conduct in the Barr litigation, and determined the patent to be unenforceable. See id. at 1194-95.
Upon de novo review, the Federal Circuit held both that the undisclosed affiliations would have been material to the examiners' decision to issue the '398 patent, see id. at 1187-90, and that the evidence suggested that the affiants' previous relationships with Ferring were "deliberately concealed," id. at 1193. The Federal Circuit therefore concluded that the district court had not abused its discretion in finding inequitable conduct, see id. at 1194-95, rendering the '398 patent unenforceable as against Barr and all other parties.
Less than two months after the Federal Circuit's February 2006 ruling, the direct purchaser plaintiffs filed the instant suit. The plaintiffs argue that the defendants' conduct, in addition to making the '398 patent unenforceable, violated the antitrust laws. They allege that defendants Ferring and Aventis "engaged in an exclusionary scheme" that included (1) "[p]rocuring the '398 patent by committing fraud and/or engaging in inequitable conduct before the PTO," (2) "[i]mproperly listing the fraudulently obtained '398 patent in the [FDA's] Orange Book," thereby enabling patent infringement claims against potential competitors, (3) prosecuting sham infringement litigation against generic competitors, and (4) "filing a sham citizen petition to further delay FDA final approval of Barr's ANDA." Compl. ¶ 144. The plaintiffs claim that the lack of competing, generic versions of DDAVP injured them by forcing them to pay monopolistic prices for the drug.
Ferring and Aventis jointly moved to dismiss the complaint on the basis that, inter alia, the plaintiffs lacked standing to assert their claimed antitrust violations. Aventis separately moved to dismiss the case on the ground that the plaintiffs had not sufficiently alleged misconduct against it. The district court granted both motions and dismissed the antitrust action. See In re DDAVP Direct Purchaser Antitrust Litig., No. 05 Cv. 2237, slip op. at 15 (S.D.N.Y. Nov. 2, 2006).
The district court acknowledged that, while conduct in obtaining and enforcing a patent is generally protected from antitrust liability by the First Amendment, a patentee loses this immunity and can incur antitrust liability for enforcing a patent if the patent was obtained by fraud on the PTO. See id. at 5-6 (citing Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 173 (1965)). However, the district court held that the plaintiffs failed to plead fraud on the PTO with sufficient particularity, noting that fraud requires a greater showing of culpability than the inequitable conduct that can render a patent unenforceable. See id. at 7-8. The district court concluded that, "[f]or this reason alone, granting the motions to dismiss is appropriate." Id. at 8.
However, "in the interest of completeness," the district court also considered the plaintiffs' standing. Id. As an initial matter, the district court noted the lack of binding precedent "with regard to the specific issue of whether purchaser plaintiffs like those in this case have standing to assert a Walker Process claim." Id. at 10-11. The district court then held that the plaintiffs lacked antitrust standing for their Walker Process claim because the '398 patent had not been enforced against them, and they were not competitors of Ferring or Aventis. Id. at 11-12 (citing In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514 (E.D.N.Y. 2005); Walgreen Co. v. Organon, Inc. (In re Remeron Antitrust Litig.), 335 F. Supp. 2d 522 (D.N.J. 2004)).
With little discussion, the district court also rejected the plaintiffs' non-Walker Process claims - the Orange Book listing, the sham infringement litigation, and the sham citizen's petition - on the basis that the defendants had not acted "in subjective bad faith." Id. at 13. Finally, the district court granted Aventis's separate motion to dismiss, concluding that the plaintiffs had failed to sufficiently allege that Aventis was complicit in Ferring's fraud upon the PTO. Id. at 14-15.
The plaintiffs now appeal the district court's decision in its entirety. They argue that the district court erred in dismissing the complaint and, in doing so, violated their due process rights. The defendants moved in this court to transfer the case on the basis that the Federal Circuit has exclusive jurisdiction over this appeal. We reserved decision on that motion.
We disagree that this appeal properly belongs in the Federal Circuit. The Federal Circuit has exclusive jurisdiction over appeals where the district court's jurisdiction is "based, in whole or in part, on section 1338 of [title 28]," 28 U.S.C. § 1295(a)(1), which in turn gives district courts "original jurisdiction of any civil action arising under any Act of Congress relating to patents," id. § 1338(a). Such jurisdiction exists if a case "arises under" patent law, such that "a well-pleaded complaint establishes either  that federal patent law creates the cause of action or," as is relevant here, " that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims." Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09 (1988). However, "as long as there is at least one alternative theory supporting the claim that does not rely on patent law, there is no 'arising under' jurisdiction under 28 U.S.C. § 1338." In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 199 (2d Cir. 2006). In such a scenario, because "there are reasons completely unrelated to the provisions and purposes of federal patent law why petitioners may or may not be entitled to the relief they seek under their monopolization claim, the claim does not arise under federal patent law." Id. (quoting Christianson, 486 U.S. at 812).
In this case, because the plaintiffs have filed an antitrust suit, patent law does not create the cause of action. The Federal Circuit's jurisdiction over this case, if it exists, must rest upon the second part of the Christianson test: that "the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law." 486 U.S. at 809. The plaintiffs argue that their right to relief can stand on any one of four different theories: (1) the defendants committed Walker Process fraud in obtaining and securing the '398 patent; (2) the defendants listed the '398 patent in the FDA's Orange Book despite knowing the patent was fraudulently procured and therefore invalid; (3) the defendants, knowing the '398 patent was invalid, prosecuted sham patent infringement litigation against generic competitors in order to delay FDA approval of the competitors' generic ...