May 242013

Decision Highlights Dangers of Competitor Qui Tam Suits Following Patent Litigation

Jonathan F. Cohn, Paul Ray and Benjamin M. Mundel
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A recent decision by a federal district court highlights some of the dangers of qui tam suits under the False Claims Act brought by a company against one of its competitors capitalizing on a patent dispute victory.

Needless to say, qui tam suits are typically brought by former officers or employees of a defendant corporation, because these persons are most likely to have access to the type of non-public information generally necessary for a successful qui tam action. See 31 U.S.C. § 3730(e)(4). But, in Amphastar Pharmaceuticals Inc. v. Aventis Pharma SA, EDVC-09-0023 MJG (C.D. Cal.), one pharmaceutical company has brought a qui tam action against one of its competitors. Amphastar, a drug manufacturer, is suing competitor Sanofi (formerly Aventis), alleging that Sanofi fraudulently inflated the price of one of its drugs (Lovenox) over which Sanofi claimed (ultimately unenforceable, as determined in litigation with Amphastar) patent rights and thus overcharged the federal government, as well as several state governments, for the drug. The case is important, because it could mark a new species of False Claims Act case involving corporate qui tam plaintiffs suing their competitors after prevailing in prior patent litigation.

The United States District Court for the Central District of California denied Sanofi’s motion to dismiss Amphastar’s amended complaint on April 19. (Coverage of an earlier order dismissing Amphastar’s original complaint with leave to replead. Under Ninth Circuit precedent, the submission of false claims is often pleaded by describing representative examples of particular false claims that have been submitted. Because Amphastar is a competitor of Sanofi rather than a former officer or employee of the company, it did not have ready access to Sanofi’s internal information that might have helped Amphastar detail particular false claims in its complaint. Instead, it pleaded more broadly that Sanofi held the exclusive right to sell Lovenox, that as a result of its fraudulently obtained patent, Sanofi was able to inflate Lovenox’s price, and that the federal government bought certain quantities of Lovenox from Sanofi or its distributors. Sanofi argued that Amphastar’s complaint failed to plead with the particularity required by Federal Rule of Civil Procedure 9(b) that Sanofi had submitted false claims for Lovenox, as necessary for a claim under the False Claims Act. See 31 U.S.C. § 3729(a).

The court disagreed. It acknowledged that “Amphastar has not provided a detailed account of Aventis’s claims submission process, nor specifics regarding how government reimbursement programs work, both of which could be helpful to evaluate the presence of reliable indicia of claims submission.” Nevertheless, it concluded that “[s]uch detail … is not necessary,” because Amphastar “present[ed] a plausible contention that every claim for reimbursement at the inflated price was an actionable false claim.” Accordingly, the court found that Amphastar had pleaded its qui tam claim with adequate particularity under Rule 9(b), and denied Sanofi’s motion to dismiss.

This is an important case that may unfortunately increase the scope of FCA liability. The theory of liability in this case is novel and raises serious risks for pharmaceutical companies. Claims of fraud are a staple in patent litigation. If FCA liability can be predicated on the invalidation of the underlying patents of branded drugs after those patents have been invalidated by competitors on grounds of fraud, then pharmaceutical companies may face new and substantial FCA liability as a consequence of being defeated in patent litigation.

Jonathan F. Cohn

jfcohn@sidley.com

Paul Ray

PaulRay@sidley.com

Benjamin M. Mundel

Washington, D.C.

bmundel@sidley.com

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