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A lawsuit from a lawyer who is claiming whistleblower status while actually revealing well-known public information threatens to rattle the patent system, endangering drug development and investment that saves lives.
Given the potential chilling effect on innovation, the Biotechnology Innovation Organization (BIO) filed an amicus brief in this case on May 9. BIO’s brief asks the U.S. Supreme Court to consider reviewing the case and upholding legislation and legal precedents that ensure a robust U.S. patent system.
“Our legal framework is clearly designed to prevent this kind of unneeded risk for patent holders,” says Hans Sauer, BIO Vice President for Intellectual Property. “Innovation in biotech—and other fields—relies on predictable patent enforcement. If the argument in this case is accepted, a wave of ‘parasitic’ suits could generate uncertainty and reduce the investment that enables biotech innovators to bring patients the drugs they need.”
The potential implications of the case are sufficiently important such that BIO has chosen to file an amicus brief even though the defendant, Valeant Pharmaceuticals (now known as Bausch Health), is not a member of BIO’s professional association, Sauer says.
Details of the case
Based on patents for its colitis drug Apriso, Valeant maintained exclusive rights to the formula, and generic competitors could not enter the market. GeneriCo—a self-described global generic specialty drug company about which little is known publicly—challenged Valeant’s exclusivity in 2015, saying some of the patents were established with obvious information that should not be patentable. GeneriCo won its challenge in a Patent and Trademark Office inter partes review (IPR), an adjudicative trial-like proceeding.
GeneriCo’s lawyer, Zachary Silbersher, then filed a new suit under the False Claims Act (FCA), as a whistleblower or “relator.” Acting on his own, and no longer representing GeneriCo, Silbersher sought a particularly large award, which could net him tens of millions of dollars, according to Sauer.
The FCA, enacted in 1863 to fight Civil War-era Defense Department fraud, allows someone with unknown information about a false claim made to the federal government to sue on behalf of the government and share a portion of the funds recovered. Those shown to have defrauded the government in an FCA case must pay three times the assessed damages, so these cases are particularly lucrative.
“The whistleblower provisions of the statute were meant to encourage those with specific nonpublic information about the false claims to come forward and act on them. But those provisions were not meant to encourage or reward ‘parasitic’ lawsuits that merely repackaged information about fraud that had already been made public. Thus, a public disclosure bar was added to the statute,” according to a Law360 article.
Silbersher’s case maintains Valeant defrauded the federal Medicare and Medicaid programs by charging a brand name price for the drug and preventing a generic competitor from entering the market with a cheaper alternative.
Silbersher makes the unusual argument that the federal government was not a party to the IPR process—even though the judges in the case were all federal officials—and therefore, the information from that proceeding was technically not known to the federal government. This would allow Silbersher to bring that information out in the open as a whistleblower.
After the District Court for the Northern District of California rejected his argument, Silbersher appealed to the Court of Appeals for the Ninth Circuit, which ruled in August the IPR decision was not public information.
In an effort to have the Ninth Circuit’s decision overturned, lawyers for Valeant are asking the U.S. Supreme Court to hear the case. BIO joined the Pharmaceutical Research and Manufacturers of America (PhRMA) in a “friend of the court,” or amicus, brief that urges the Supreme Court to take up the case.
BIO’s amicus brief
If Silbersher’s suit is allowed to stand, it would mean anyone who looks through decisions from Patent Office IPRs could “stitch together” their own FCA suit against a pharmaceutical company or any other company that loses a patent challenge, BIO’s Sauer explains.
BIO’s amicus brief questions the claim that an IPR hearing does not qualify as public disclosure. It notes that the 2010 amendment to the FCA was intended to make it clear that Federal hearings, such as IPR hearings, are public and known to the federal government. Clearly the federal government is fully aware of ongoing IPR hearings—it in fact convenes and conducts them—so it cannot reasonably be said that the results of these proceedings are unknown to the government and must be brought to its attention by “whistleblowers” such as Silbersher, the brief notes.
The amicus brief also argues against the Ninth Circuit Court’s opinion that it’s enough for a whistleblower to claim they have uncovered fraud by collecting publicly-known information from several sources and “stitching together the material elements of the allegedly fraudulent scheme.” The amicus brief says the Congressional amendment and subsequent court precedents specifically forbid this approach.
BIO’s amicus brief outlines the risks that the decision would pose for the industry:
“The Ninth Circuit’s holding creates a gaping exception to the public disclosure bar that will invite an onslaught of new parasitic FCA suits. Indeed, even the least creative relator will be able to allege that he or she has identified some purported inconsistency between any number of otherwise public documents,” the brief says.
“Unless addressed by this Court, the Ninth Circuit’s ruling will have significant consequences in the pharmaceutical industry and beyond. The number of IPR proceedings and FCA lawsuits will skyrocket,” the amicus brief warns. “Such a result would derail the efficient administration of U.S. patent laws.”
Letting the ruling stand would also raise ethical concerns by encouraging self-interested lawyers involved in IPR hearings to neglect the interests of their clients as they pursue large FCA payouts.
“The Ninth Circuit’s decision will foster an environment where legal counsel in IPR proceedings could prioritize personal gain over client interests, positioning themselves to benefit from potential follow-on FCA cases,” according to the brief.
Notably, the U.S. government may have its own concerns about Silbersher’s legal theories. The United States has an opportunity to examine and then join FCA suits, but in this case, the federal government decided against doing so.
“It seems the government doesn’t feel that this is a good case for the Justice Department to get involved in,” says Sauer.
The Supreme Court is expected to decide whether to review this case by September of this year.
