Corporate & Securities Law

Braintree Labs v. Schwarz Pharma, Inc., __ F.Supp.2d __, No. 03-477-SLR, 2008 WL 2944655 (D. Del. July 31, 2008)

By Sheppard Mullin Richter Hampton, LLP

In a July 31, 2008 decision, the District Court of Delaware rejected antitrust and unjust enrichment claims by a generic drug manufacturer for failing to satisfy the “sham litigation” exception to the Noerr-Pennington Doctrine. Braintree Labs v. Schwarz Pharma, Inc., __ F.Supp.2d __, No. 03-477-SLR, 2008 WL 2944655 (D. Del. July 31, 2008).

The suit arose out of the filing of an Abbreviated New Drug Application (“ANDA”) by a generic drug manufacturer, Schwarz Pharma, Inc. (“SPI”), with the Federal Drug Administation (“FDA”) to market a generic version of a constipation drug using a single ingredient, polyethylene glycol 3350 (“PEG”).  Id. at *1.  PEG’s administration for treatment of constipation is protected by a patent owned by the brand-name manufacturer of a similar drug, Braintree.  Id.  Upon SPI’s filing of the ANDA, Braintree filed a patent infringement suit that triggered a 30-month stay of the FDA approval of SPI’s ANDA, but nearly a year later, Braintree voluntarily dismissed its complaint for infringement against SPI and waived the remainder of the 30-month stay.  Id.  Upon dismissal of the infringement complaint, the District Court dismissed SPI’s invalidity counterclaims as moot.  Id.  Nonetheless, SPI proceeded to trial on its remaining counterclaims for unfair competition, tortious interference with business advantage/opportunities, and actual or attempted monopolization against Braintree, contending, in essence, that Braintree initiated the patent litigation in bad faith.  Id.  Evidence demonstrated and the court found that Braintree believed that its relevant patent was “weak.”  Id. at *3-*6.

As an initial matter, the District Court noted that the Noerr-Pennington doctrine provides immunity from antitrust liability to “[a] party who petitions the government for redress,” and that this immunity “extends to persons who petition all kinds of government entities, including legislatures, administrative agencies, and courts.”  Id. at *6.  The court went on to explain that the immunity applies not just to antitrust claims but also “universally to business torts” including tortious interference claims, such as those at issue in the case.  Id.   Accordingly, the court noted that, for SPI to succeed on its counterclaims, it must come within the “sham litigation” exception to the Noerr-Pennington doctrine, which has two prongs:  First, the litigation must be “objectively baseless in the sense that no reasonable litigant could realistically expect to succeed on the merits”; and, if plaintiff satisfies this prong (i.e., shows that the litigation is objectively baseless), then plaintiff must also demonstrate that the “baseless lawsuit conceals ‘an attempt to interfere directly with the business relationships of a competitor.’”  Id.  To invoke the “sham” exception, SPI had to prove, “by clear and convincing evidence,” that Braintree’s activities “were not really efforts to vindicate its rights in court.”  Id.

Although it found that Braintree “obtained and relied upon an admittedly ‘weak’ patent for protection from other generic competition,” the court nonetheless concluded that SPI failed to demonstrate by clear and convincing evidence that Braintree’s lawsuit was objectively baseless such that “no reasonable litigant could realistically expect success on the merits,” i.e., a sham.”  Id. *7-*8 (emphasis added).  The court noted, “Even a potential ‘weak’ patent enjoys a presumption of validity” and that “[t]he valdity of [the pertinent] patent has not been adjudicated by any court (or the USPTO on reexamination).”  Id. at *8.  Accordingly, the court concluded,

This court has no occasion to judge the merits of SPI’s invalidity arguments, and declines to issue a finding that Braintree “should have known” of its patent’s invalidity absent such findings. As discussed previously, the evidence demonstrates that Braintree appreciates that its ′183 patent is “weak.”  Notwithstanding, the test for objective baselessness is an objective one.  That is, “[i]t is not what the parties think of the merits of their positions that matters; it is whether there are, in fact, sufficient bases for the positions taken.”

Braintree, 2008 WL 2944655, at *8 (emphasis added).  The court declined to decide whether Braintree’s construction of its pertinent patent claim was correct, but instead found “that Braintree’s proposed construction is not frivolous and is sufficiently reasonable to support its validity position.”  Id. at *9.  The court further declined to address the second, subjective prong of the test for the sham litigation exception in light of its finding that the objective prong was not satisfied.  Id. at *8 n.21.  Accordingly, the court held that SPI failed to demonstrate, “by clear and convincing evidence, the lack of any objectively reasonable argument that the [relevant] patent is valid” and thus could not satisfy the sham litigation exception to the Noerr Pennington doctrine.  Id. at *10.  For the same reasons, the court also concluded that the unjust enrichment claim also failed.  Id. (“For the same reasons, the court declines to find that Braintree’s activities were devoid of justification such that equity warrants this court’s award of restitutionary damages.”)

Authored by:

Mona Solouki

(415) 774-3210

msolouki@sheppardmullin.com

Full post as published by Antitrust Blog Review on September 12, 2008 (boomark / email).