Qui Tam Action Filed under False Claims Act over Certain Prescription Drug Prices

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Those with moderate memories may recall that there was a spate of qui tam actions several years ago for false marking of patented articles, aimed at manufacturers who had neglected to remove patent marking from their products after their patents had expired.  Some of these transgressions were of ancient provenance, particularly with regard to consumer goods; these were attractive targets because the "damages" to the private attorneys general accrued on a "per instance" basis and thus the reward (50% of which going to the "relator" who brought the action) could be sizable.  Alas, for these enterprising public guardians, the troll-like nature of these actions was enough for Congress to amend the statute as part of the Leahy-Smith America Invents Act for them to disappear as quickly as they had arisen.

Recently, a complaint was filed in the U.S. District for the District of New Jersey on behalf of the relator (a New York-based patent attorney) and the States of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, Washington, and the District of Columbia against Janssen Biotech, Jansen Oncology, Janssen R&D, Johnson and Johnson, and BTG International alleging violation of the Federal False Claims Act (31 U.S.C. §§ 3729-3733) and corresponding state laws.  The alleged "false claims":  "Medicare, Medicaid, and other government program[]" reimbursement for the prostate cancer drug Zytiga® (abiraterone acetate, administered in combination with prednisone) paid after expiration of Orange Book-listed U.S. Patent No. 5,604,213, which expired on December 13, 2016.  The complaint was based on an allegation that Orange Book-listed U.S. Patent No. 8,822,438 was obtained by "fraud,", i.e. inequitable conduct.  (That patent has been invalidated in related inter partes review (IPR) proceedings but has not been held to have been obtained as the result of inequitable conduct in ANDA litigation.  Rather, in a consolidated action the District Court held the patent to be invalid for obviousness, and the Federal Circuit affirmed both the District Court decision and the Final Written Decisions of obviousness in the related IPRs.)

As set forth in the complaint, the basis for the action is "civil liability [that arises] when a defendant makes, or causes to be made, a false or fraudulent claim for payment to the government."  The "false claim" here is "overpriced prescription drugs," which the complaint asserts are the basis for "many FCA cases."  Here, in addition to allegedly improperly obtaining allowance of the '438 patent, the complaint alleges that defendants "manipulate[ed] the regulatory structure for genetic approval [that] allowed Defendants to wrongfully shield over $1 billion in Zytiga revenue, most of it paid by federal and state government funds."  (Elsewhere in the complaint, the amount rises to $2.5 billion.)  The rhetoric regarding the nature of the problem of prescription drug prices and the perfidy of these defendants is reliably purple, and a review of the substance of the allegations useful for discerning whether there is any basis for the allegations.

According to the complaint, the two "fraudulent" acts alleged to have been performed by defendants were 1) failing to disclose that "one of its competitors had not obtained FDA approval [for its competing drug] during the time period for which Defendants were making critical market share comparisons between Zytiga and its biggest competitor, Xtandi®" and "withheld material information from the Patent Office that the claimed commercial success of Zytiga lacked any nexus" to the invention claimed in the '438 patent.  Their allegation is "but for" -- by engaging in inequitable conduct, Defendants were able to exclude generic competition and thus their reimbursement by the Federal government amounted to filing false claims with the government.  The complaint lays out the course of patent prosecution for the '438 patent, whose claims were repeatedly rejected on obviousness grounds under 35 U.S.C. § 103.  Defendant patent owner Janssen asserted so-called "secondary considerations" or objective indicia of non-obviousness in response to these rejections, specifically that the commercial success of Zytiga rebutted the prima facie obviousness case established by the Office.  The course of prosecution of the application (U.S. Application No. 13/034,340) was not excessively lengthy, the application having been filed in February 2011 and granted on September 2, 2014.  The defect in applicants' assertion of commercial success is purportedly due to a failure to properly establish commercial sales with the benefits of the putatively obvious invention to be patented, which the complaint further states must show "increasing market share and the maintenance of such shares in the face of competitors and other adverse market forces," citing Gaderma Labs L.P. v. Tolmar Inc. and Ashland Oil v. Delta Resins & Refractories.  (The complaint includes the further caveat that the success cannot be due to blocking patents or other "reasons other than the merits of the claimed invention.")

The complaint characterizes as "misleading and fraudulent" statements made by Defendants in response to the Office refusing to accept the evidence of commercial success first submitted, based on statements that market share increased from 15% to 20%, instead of relator's calculation that it was only an increase of 3%, and that one of the comparator drugs, Xtandi®, had not been approved by the FDA.  The complaint further alleges inequitable conduct because Xtandi® overtook Zytiga sales "by the end of 2015"; however, to the extent the '438 patent was granted on September 2, 2014, is it difficult to understand how this datapoint supports an inequitable conduct allegation.  For another subset of the patient market (chemorefractory patients), Xtandi® overtook Zytiga sales in the relevant timeframe, but Defendants' representations were with regard to the ~70% of the market that was "chemo-naïve" and thus the relevance of this market information is somewhat questionable, particularly because the complaint states that "[i]n the same submission" Defendants acknowledged the reduction in sales.  If the "submission" was not Defendants' response to the Office's obviousness rejection, it is unclear that is intended, and if it was, then Defendants seem to have satisfied their duty of disclosure.  Additional allegations regarding relative timing of FDA approval for Zytiga and competing drugs, and the complex interplay between market share and the pattern in which the drugs are prescribed will no doubt be more fully argued by relator and Defendants' experts at trial.  But the central allegation -- that the Office granted the '438 patent based on the arguments for commercial success -- is supported by the prosecution history.

The complaint also alleges that the '213 patent was a "blocking" patent and makes much of he procedural facts that the '438 patent was not a continuation of the '213 patent and that the Examiners of the two patents were not the same, but neglects to allege than the '213 patent was cited to the Examiner of the '438 patent.  Other allegations have less potential persuasive punch, such as asserting Defendants' statements that Zytiga was "the most successful oral oncology launch in history" was misleading because "numerous non-oral cancer drugs have been far more successful than Zytiga" (which is a non sequitur on its face).  And others lack context in the complaint sufficient to be persuasive without further expert explication.

Relator will be required to establish his theories regarding misrepresentation and show the requisite intent to deceive, both by clear and convincing evidence, in order to prevail.

In addition, the complaint alleges that listing the '438 patent in the Orange Book was in itself a "false and fraudulent statement to the U.S. government," raising another, related ground for bringing this qui tam action.  And citing requirements for federal contracts that suppliers affirm and attest that their prices are "fair and reasonable" the complaint established its own nexus between the alleged fraud in procuring the '438 patent, listing the purportedly invalid and unenforceable '438 patent in the Orange Book, and collecting branded prices from the government on account of avoided regulatory approval of presumably lower priced generic competitors (there having been more than a dozen ANDA filers precluded by the market by the Orange Book-listed '438 patent after expiry of the '213 patent in December 2016).

The prayer for relief includes the statutory amount of treble damages as well as "not less than $5,500 or more than $21,916" for "each and every" violation of the Federal False Claims Act, as well as treble damages and other penalties in each of the state law-based violations.

The false-marking qui tam plaintiffs would be no doubt envious of the potential windfall due the relator should he prevail.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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