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From Antitrust Law Daily, March 14, 2014

Brand drug manufacturer could relitigate fraudulent intent issue in bifurcated action over delayed generic competition

By Linda O’Brien, J.D., LL.M.

A brand drug manufacturer was not barred by the doctrine of collateral estoppel from relitigating the issue of fraudulent intent in the antitrust claims portion of a bifurcated action by direct purchasers against the brand and generic pharmaceutical manufacturers of a sleeping disorder medication, the federal district court in Philadelphia has ruled (King Drug Company of Florence, Inc. v. Cephalon, Inc., March 13, 2014, Goldberg, M.). However, the manufacturer was barred from relitigating the issue of materiality of the antitrust fraud claims.

Generic drug manufacturers, pharmaceutical distributors, retailers, and health plan providers that purchased a sleeping disorder medication (modafinil), sold under the brand name Provigil, filed a class action against pharmaceutical manufacturer, Cephalon, Inc., and four generic drug manufacturers for anticompetitive conduct and monopolization by delaying generic competition to Provigil in violation Sections 1 and 2 of the Sherman Act. The plaintiffs alleged the manufacturers engaged in restraint of trade by entering into reverse payment settlements to resolve patent infringement suits, thereby delaying generic competition for Provigil. The patent infringement and antitrust claims were bifurcated and, at a bench trial on the patent claims, the court ruled that Cephalon’s procurement of its RE '516 patent was through inequitable conduct and, therefore, invalid. Subsequently, the plaintiffs moved for summary judgment on the issue of liability of their antitrust claims based on the findings of inequitable conduct and invalidity.

Right to jury trial. The court found that Cephalon’s right to a jury trial under the Seventh Amendment to the U.S. Constitution precluded the application of collateral estoppel. For the doctrine of collateral estoppel to apply: (1) the issue sought to be precluded must be the same as in the prior action; (2) the issue was actually litigated in the prior action; (3) the issue was determined in a valid final judgment; and (4) the determination of the issue was essential to the prior judgment. Although Cephalon did not raise the objection during the patent validity trial that resolution of inequitable conduct claims might deprive it of its jury rights on the antitrust claims, Cephalon did not waive its jury rights regarding the antitrust portion of the case, according to the court. Under Federal Rule of Civil Procedure 42(b), where certain claims are tried separately, a party’s right to a jury trial should be preserved. Thus, Cephalon should be allowed to relitigate this issue of fraudulent intent in the trial on the antitrust claims.

Materiality. However, the court also determined that Cephalon was barred by collateral estoppel from relitigating the issue of materiality in the antitrust trial. The standard for materiality requires that the patent would not have been issued except for the patent examiner’s justifiable reliance on the patentee’s misrepresentation or omission. In the patent validity trial, the RE '516 patent was found to be invalid on the grounds of on-sale bar, obviousness, and derivation, because Cephalon concealed the involvement of another company in the manufacture of batches of Provigil that fell within the patent claims limitations. Since the material omissions in determining the patent invalidity were identical to the materiality elements of the fraud antitrust claims, collateral estoppel barred relitigation of the issue.

Finally, the court findings with respect to Cephalon were not binding on the generic drug manufacturer defendants because they were not involved in the procurement or enforcement of the challenged patent. Thus, the court concluded that the generic drug defendants should be allowed to claim that the patent infringement settlement was pro-competitive and they were unaware of any alleged fraud by Cephalon or the invalidity of the patent.

The case is No. 2:06-cv-1797.

Attorneys: Andrew William Kelly (Odom & Des Roches LLP) and Bruce E. Gerstein (Garwin Gerstein and Fisher L.L.P.) for King Drug Company of Florence, Inc. and J.M. Smith Corp. Allen D. Black (Fine, Kaplan & Black) for Meijer, Inc. Monica L. Rebuck (Hangley Aronchich Segal Pudlin & Schiller) for Walgreen Co. Archana Tamoshunas (Taus Cebulash & Landau LLP) for Giant Eagle, Inc. Emily R. Whelan (Wilmer Hale) for Cephalon, Inc. C. Fairley Spillman (Akin Gump Strauss Hauer & Feld LLP) for Mylan Laboratories, Inc. Gregory L. Skidmore (Kirkland Ellis LLP) for Teva Pharmaceutical Industries, Ltd. and Barr Pharmaceuticals, Inc. Christopher K. Diamond (Venable LLP) for Ranbaxy Laboratories, Ltd.

Companies: King Drug Company of Florence, Inc.; Vista Healthplan, Inc.; Apotex, Inc.; Cephalon, Inc.; J.M. Smith Corp.; Meijer, Inc.; Walgreen Co.; Giant Eagle, Inc.; Mylan Laboratories, Inc.; Teva Pharmaceutical Industries, Ltd.; Barr Pharmaceuticals, Inc.; Ranbaxy Laboratories, Ltd.

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