Ninth Circuit Panel Subtly Back-Pedals Prior Ruling on the Application of the Public Disclosure Bar in the False Claims Act Context
We previously wrote here regarding the Ninth Circuit’s decision in United States ex rel. Silbersher v. Valeant Pharmaceuticals Int’l Inc., 76 F.4th 843 (9th Cir. Aug. 3, 2023) (Valeant). Earlier this month, the same panel denied Valeant Pharmaceuticals’ petition for a rehearing en banc, but also issued a revised decision, significantly curtailing its original opinion.
To recap, the relator in Valeant alleges that Valeant Pharmaceuticals fraudulently obtained a set of patents by (1) knowingly failing to disclose to the Patent Office two studies that rendered its invention obvious; and (2) making claims in a prior patent application that directly contradicted what Valeant would claim a few years later in a different application. To support his claim, the relator relies on the patent prosecution histories for the relevant patents, filings from inter partes review (IPR) proceedings, a Law360 article summarizing the IPR proceeding, and two medical studies.
In Valeant, the Ninth Circuit held that the FCA’s public disclosure bar did not apply where particular qualifying public disclosures did not reveal “substantially the same . . . allegations or transactions” as the relator’s complaint. Id. at 856-67. The court considered whether the qualifying public disclosures revealed sufficient “facts from which fraud [could] be inferred.” Id. The court applied the “Mateski formula” according to which, “[i]f X + Y = Z, where Z represents the allegation of fraud, and X and Y represent its essential elements (…), the combination of both X and Y must be revealed, [for readers] to infer Z.” United States ex rel. Mateski v. Raytheon Co., 816 F.3d 565, 571 (9th Cir. 2016). The disclosures, the panel ruled, “possibly revealed both X and Y, but never the combination of the two,” thereby requiring that evidence of the key facts be revealed in a single public disclosure. Valeant, 76 F.4th at 857 (“[T]he scattered qualifying public disclosures each contain a piece of the puzzle, but none shows the full picture.”).
In its petition for rehearing, Valeant argued compellingly that the panel’s decision conflicted with precedents from the Ninth and eleven other circuits, which held that the relevant facts constituting the X and the Y need not appear in the same prior disclosure, but rather may be spread across several sources. See United States v. Cath. Healthcare W., 455 F.3d 1147, 1151 (9th Cir. 2006) (“the misrepresented state of facts” (the X) and the “true state of facts” (the Y) may be disclosed piecemeal through multiple sources); id. at 1151 n.1 (“[T]he elements of the fraud allegation need not have been made public in a single document.”); see also United States v. Allergan, Inc., 46 F.4th 991, 999 (9th Cir. 2022) (Allergan) (same).
Confronted with these precedents, the panel denied rehearing and instead issued a revised opinion cutting back on the prior language suggesting that the material elements of a fraud must be within a single disclosure. Instead, the Court held that, as a factual matter, the qualifying disclosures did not reveal all of the facts necessary to infer fraud in the first instance. Compare “In sum, the scattered qualifying public disclosures each contain a piece of the puzzle, but none shows the full picture”; with “In sum, the scattered qualifying public disclosures may each contain a piece of the puzzle, but when pieced together, they failed to present the full picture of fraud.”
In treating the relator’s allegation of fraud as a necessary but previously undisclosed fact, the amended opinion tenders a further, and different potentially novel, requirement: that the allegation of fraud itself must explicitly be laid out in the qualifying disclosure(s).
The panel’s decision and amended opinion are available here.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
