United States v. Allergan, Inc.

46 F.4th 991

UNITED STATES of America; State of California; State of Colorado; State of Connecticut ; State of Delaware; State of Florida ; State of Georgia; State of Hawaii; State of Illinois ; State of Indiana; State of Iowa; State of Louisiana; State of Maryland; State of Michigan ; State of Minnesota ; State of Montana; State of Nevada ; State of New Jersey ; State of New Mexico; State of New York; State of North Carolina; State of Oklahoma; State of Rhode Island; State of Tennessee; State of Texas; State of Vermont; State of Washington ; Commonwealth of Massachusetts; Commonwealth of Virginia ; District of Columbia, ex rel Zachary Silbersher, Relator, Plaintiffs-Appellees,

v.ALLERGAN, INC.; Allergan USA, Inc.; Allergan Sales, LLC ; Forest Laboratories Holdings, Ltd.; Adamas Pharma LLC; Adamas Pharmaceuticals, Inc., Defendants-Appellants.

No. 21-15420

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 10, 2022 San Francisco, California

Filed August 25, 2022

Erin E. Murphy (argued), M. Sean Royall, Olivia Adendorff, Kasdin M. Mitchell, and James Y. Xi, Kirkland & Ellis LLP, Washington, D.C., for Defendants-Appellants Allergan, Inc.; Allergan USA, Inc.; Allergan Sales, LLC; and Forest Laboratories Holdings, Ltd.

Andrew Hoffman II (argued), Matthew Holian, Courtney Saleski, and Lianna Bash, DLA Piper LLP (U.S.), Los Angeles, California, for Defendants-Appellants Adamas Pharma LLC, and Adamas Pharmaceuticals, Inc.

Tejinder Singh (argued), Goldstein & Russell P.C., Bethesda, Maryland; Nicomedes Sy Herrera and Bret D. Hembd, Herrera Kennedy LLP, Oakland, California; Warren T. Burns and Christopher J. Cormier, Burns Charest LLP, Dallas, Texas; for Plaintiffs-Appellees.

Jeffrey S. Bucholtz and Jeremy M. Bylund, King & Spalding LLP, Washington, D.C.; Andrew R. Varcoe and Paul V. Lettow, U.S. Chamber Litigation Center, Washington, D.C.; James C. Stansel and Melissa B. Kimmel, Pharmaceutical Research and Manufacturers of America; for Amici Curiae Chamber of Commerce of the United States of America and Pharmaceutical Research and Manufacturers of America.

Gordon D. Todd, Kimberly A. Leaman, Christopher S. Ross, Alaric R. Smith, and Katy (Yin Yee) Ho, Sidley Austin LLP, Washington, D.C.; Jack E. Pace III, Peter J. Carney, and Kevin M. Bolan, White & Case LLP, New York, New York; for Amici Curiae Johnson & Johnson and BTG International Ltd.

Justin T. Berger, Cotchett Pitre & McCarthy LLP, Burlingame, California; Jacklyn DeMar, Taxpayers Against Fraud Education Fund, Washington, D.C.; for Amicus Curiae Taxpayers Against Fraud Education Fund.

Alexandra H. Moss, Public Interest Patent Law Institute, La Quinta, California, for Amicus Curiae Public Interest Patent Law Institute.

Before: Ronald M. Gould, Mark J. Bennett, and Ryan D. Nelson, Circuit Judges.

GOULD, Circuit Judge:

Defendant-Appellants ("Appellants") challenge the district court's denial of their motion to dismiss relator Zachary Silbersher's qui tam action. In his qui tam action, Silbersher alleged that Appellants violated the False Claims Act (FCA). Silbersher contended that Appellants fraudulently obtained patents on two drugs to combat Alzheimer's disease and, by virtue of these fraudulent patents, prevented generic drug competitors from entering the market. According to Silbersher, preventing generic drug competitors from entering the market permitted Appellants to charge Medicare inflated prices for the two drugs. We have jurisdiction pursuant to 28 U.S.C. § 1292(b), and we reverse the district court's denial of Appellants' motion to dismiss and remand.

I. BACKGROUND

A. The FCA

The FCA creates civil liability for "any person who (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."

31 U.S.C. § 3729(a)(1). A private person, known as a qui tam relator, may bring a civil action under the FCA in the name of the U.S. government. 31 U.S.C. § 3730(b). The government may proceed with the action or decline to take over the action; if the government declines, then the relator can still pursue the action.¹ Id. § 3730(b)(4). The FCA incentivizes whistleblowers to come forward by offering successful relators up to thirty percent of the recovery. Id. § 3730(d).

"The FCA was enacted in 1863 with the principal goal of stopping the massive frauds perpetrated by large private contractors during the Civil War." Vt. Agency of Nat. Res. v. United States ex rel. Stevens , 529 U.S. 765, 781, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000) (cleaned up). When it was originally enacted, "the FCA placed no restriction on the sources from which a qui tam relator could acquire information on which to base a lawsuit." Schindler Elevator Corp. v. United States ex rel. Kirk , 563 U.S. 401, 412, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011).

The current version of the FCA, though, provides limits on who can bring a qui tam action and the sources of information upon which they can base their suit. See United States ex rel. Bennett v. Biotronik, Inc. , 876 F.3d 1011, 1013 (9th Cir. 2017) ("[T]he right to bring qui tam suits is not absolute," and "even if the Government does not intervene and take over the action, the FCA still does not allow every relator to bring a suit, but rather contains a series of ‘bars’ to such suit."). These "bars" to suit are intended to prevent "parasitic" or "opportunistic" qui tam actions. Schindler , 563 U.S. at 412–13, 131 S.Ct. 1885. Here, the parties dispute the proper interpretation of the FCA's public disclosure bar.

We have previously noted that the public disclosure bar is triggered when: "(1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was ‘public’; and (3) the relator's action is ‘based upon’ the allegations or transactions publicly disclosed." United States ex rel. Solis v. Millennium Pharms., Inc. , 885 F.3d 623, 626 (9th Cir. 2018) (analyzing the 1986 version of the public disclosure bar). The public disclosure bar seeks to strike a balance between "encourag[ing] suits by whistle-blowers with genuinely valuable information, while discouraging litigation by plaintiffs who have no significant information of their own to contribute." United States ex rel. Mateski v. Raytheon Co. , 816 F.3d 565, 570 (9th Cir. 2016) (analyzing the 1986 version of the public disclosure bar). Stated another way, the public disclosure bar prevents a relator from merely repackaging information enumerated in the public disclosure bar for personal profit by asserting an FCA claim.

B. The Patent Process

To obtain a patent, an inventor applies to the Patent and Trademark Office (PTO). A patent examiner at the PTO then reviews the application and either accepts or rejects the claims and explains why. A patent may only be issued if it would not have been obvious to a person having ordinary skill in the art to which the subject matter pertains. 35 U.S.C. § 103. Patent applications are generally kept confidential. See 35 U.S.C. § 122.

The initial patent examination (called a patent prosecution) is an ex parte administrative proceeding, and the applicant has "a duty of candor and good faith ... which includes a duty to disclose to the [PTO] all information known to that individual to be material to patentability." 37 C.F.R. § 1.56(a). No patent should be granted if the application was fraudulent or the "duty of disclosure was violated through bad faith or intentional misconduct." Id.

If an examiner initially rejects an application, the applicant may request further examination or submit a modified application. The applicant may appeal a final rejection to the administrative judges of the Patent Trial and Appeal Board ("PTAB"). The Applicant files a brief in support of their application to the PTAB, the examiner files an answering brief, and the applicant files a reply. The PTAB can hear oral argument. If the PTAB upholds the examiner's rejection, the applicant may appeal to the Federal Circuit or the Eastern District of Virginia. If a patent is granted, a private party can challenge the validity of the patent, but that type of challenge is often an expensive and long process.

C. Silbersher's claims

Silbersher, a patent attorney, brought the present qui tam action against Appellants in May 2018. Silbersher alleged that Appellants unlawfully obtained several patents critical to two drugs used to treat Alzheimer's disease, Namenda XR and Namzaric. Silbersher asserted that Appellants, by using these allegedly unlawfully obtained patents, were able to block competitors from producing generic versions of both drugs.² As a result, Medicare paid inflated prices for the drugs. Silbersher estimates that the entry of generic versions of a drug can reduce prices by more than 80%. Medicare reimbursed approximately 5.4 million prescriptions for Namenda XR and Namzaric in 2014 and 2015, costing nearly $1.5 billion.

The U.S. Department of Justice and all of the states that have analogues to the federal qui tam provision, and the District of Columbia, declined to intervene in Silbersher's action. California submitted a statement of interest stating that Silbersher's "suits, if successful, may set an important precedent that would discourage drug companies from taking advantage of the ex parte nature of patent proceedings by withholding or misrepresenting material information relating to patentability and thereby significantly reduce the amount governments and insurers pay for important medicines."

It is salient and potentially controlling that the key factual information underlying Silbersher's complaint was all publicly disclosed and much could be found in websites maintained by the PTO and other government agencies. Silbersher has brought two similar FCA suits.³

The district court denied Appellants' motions to dismiss, holding that the public disclosure bar did not...