Guest post by Professor Jorge L. Contreras of the University of Utah School of Law. Note that the author was a partner at a law firm that was involved in Rambus v. FTC and Broadcom v. Qualcomm while those cases were litigated and decided. The author had no direct involvement in either case.
During the dozen years demarcated by the FTC’s 1996 consent decree with Dell Computer (121 FTC 616 (1996)) and the DC Circuit’s 2008 decision in Rambus, Inc. v. FTC (522 F.3d 456 (D.C. Cir. 2008)), the U.S. saw a spate of cases in which participants in voluntary standards-development organizations (SDOs) were alleged to have violated an SDO’s rules by failing to disclose patents essential to the SDO’s standards. In addition to Dell and Rambus, highly-publicized deception cases such as Broadcom v. Qualcomm (548 F.3d 1004 (Fed. Cir. 2008)) explored what SDO policies actually required of their participants and what penalties could be imposed for their breach, whether under contract, equity, patent or antitrust law. These questions, and the large sums at stake, generated a cottage industry of legal and economics scholarship around the law and lore of standardization. But by the early 2010s, the information and communications technology (ICT) sector seems to have learned the lessons of Dell, Rambus and Qualcomm: SDOs improved the clarity of their internal processes, SDO participants adopted a policy of “disclose, disclose, disclose” (on the theory that it can never hurt to disclose too many patents), and the cases turned to other pressing questions like the meaning of SDO commitments to license patents on terms that are “fair, reasonable and nondiscriminatory” (FRAND), which continues to bedevil courts today. I was thus intrigued to see a case that harkens back to the heyday of the old SDO deception cases in a pair of recent decisions in Momenta Pharmaceuticals, Inc. v. Amphastar Pharmaceuticals, Inc. (D. Mass., No. 11-cv-11681, Feb. 7, 2018 and No. 16-10112-NMG, Mar, 19, 2018). Surprisingly, this non-ICT case may give courts an unexpected opportunity to revisit the DC Circuit’s controversial decision in Rambus v. FTC, which found no antitrust liability for an allegedly deceptive failure to disclose patents to an SDO.
The ‘886 Patent Dispute
The long-running dispute in Momenta is between two generic producers of the blockbuster anticoagulant drug enoxaparin, which Sanofi-Aventis first marketed in 1993 under the brand name Lovenox (2009 U.S. sales $2.7 billion). In July 2010, Momenta Pharmaceuticals, in conjunction with Novartis’s Sandoz division, received FDA approval for a biosimilar version of enoxaparin. Amphastar Pharmaceuticals, another generics manufacturer, received FDA approval for its own biosimilar version of enoxaparin on September 19, 2011. Two days later, Momenta sued Amphastar for infringement of U.S. Patent 7,575,886 (the ‘886 Patent), which claims a quality control process used in the manufacture of enoxaparin. Momenta applied for the ‘886 Patent in 2003; it was issued in 2009 listing five inventors including Dr. Zachary Shriver. After a lengthy set of proceedings, including two separate appeals to the Federal Circuit, a jury found in 2017 that Amphastar infringed the claims of the ’886 patent, but that the claims were invalid due to lack of enablement and inadequate written description.
Dispute Over Method 207
The United States Pharmacopeial Convention (USP) is an SDO that develops standards for testing the quality and purity of foods and drugs. In 2006, with the encouragement of Sanofi-Aventis, USP began to consider a standard for testing enoxaparin. Beginning in 2008, Momenta’s employee Dr. Shriver participated in the USP advisory panel that developed what came to be known as USP Method 207 pertaining to enoxaparin manufacture, which USP eventually approved and adopted as a standard in 2009. Amphastar alleges that the claims of the ‘886 patent cover key portions of Method 207.
USP has a number of written policies that are binding on individuals and firms participating in its standardization work. Amphastar argues that USP’s written policies required Dr. Shriver to disclose the existence of Momenta’s application for the ‘886 patent to USP prior to approval of the standard, which he did not. Due to this failure, Amphastar alleges that Momenta intentionally violated USP’s policies. In consequence, Amphasrar argues that (1) Momenta has waived its right to enforce the ‘886 patent, (2) Momenta is estopped from enforcing the ‘886 patent, and (3) Momenta and Sandoz violated Section 2 of the Sherman Act, as well as various state antitrust and competition statutes by “wrongfully acquiring monopoly power by deceiving the USP into adopting a standard which they later claimed was covered by” the ‘886 Patent (Mar. 19, 2018, slip op. at 9). These allegations reflect the classic SDO deception scenario, akin to those alleged in cases like Dell, Rambus and Qualcomm. In each of these cases the central issue is “the consequence of silence in the face of a duty to disclose patents in a standards-setting organization” (Qualcomm, 548 F.3d at 1008).
The USP Policies
In assessing Momenta’s obligation to disclose the ‘886 patent, Judge Nathaniel Gordon of the District Court for the District of Massachusetts considered three of USP’s written policies. First, Section 2.05 of the Rules and Procedures of the USP Council of Experts (the “Expert Rules”) states that no advisory panel member with a “financial or other interest that may conflict, or may appear to conflict, with his or her duties and responsibilities with respect to a particular matter, shall vote on such matter.” Dr. Shriver abstained from voting on the Method 207 standard (Feb. 7, 2018, slip op. at 10).
Second, Section 2.06(a) of the Expert Rules requires that each advisory panel member submit to USP a written statement disclosing his or her employer, sources of research funding, and “other professional or financial interests, including intellectual property rights, that may result in a conflict of interest or the appearance of a conflict of interest” (id. at 9, emphasis added). Dr. Shriver submitted such a statement in which he identified Momenta as his employer.
Third, under a separate document known as the USP Guidelines, all “Sponsors” of USP technical proposals are requested to disclose “whether any portion of the methods or procedures submitted are subject to patent or other IP rights” (id. at 10). Momenta made no disclosure responsive to this provision.
Amphastar argued that these three provisions, individually and collectively, required Momenta, through Dr. Shriver, to disclose the existence of the ‘886 patent and its relevance to Method 207 while it was under consideration at USP. Judge Gordon, however, disagreed. With respect to Section 2.05 of the Expert Rules, Dr. Shriver’s abstention from the vote on Method 207 was in compliance with the Rules. As for the Guidelines, Momenta was not formally a “Sponsor” of Method 207 (the only official Sponsor being Sanofi-Aventis), making the patent disclosure request inapplicable to Momenta. Finally, Dr. Shriver’s conflict of interest form correctly identified Momenta as his employer. At most, the catch-all provision requiring disclosure of “other professional or financial interests” was ambiguous in its requirements. Accordingly, Judge Gordon found the USP policies to be ambiguous regarding Momenta’s obligation to disclose the ‘886 patent (id. at 11).
Participant Understanding of Disclosure Requirement
Notwithstanding the ambiguity of USP’s policies, Judge Gordon, citing Qualcomm (548 F.3d at 1012), went on to consider whether USP participants may have “understood the policies to include a duty to disclose” patents essential to USP standards (id. at 11-12). A former USP employee testified that there was a “common understanding” among USP participants that patent disclosures were required (Feb. 7, 2018, slip op. at 15). In addition, the witness described a 2008 advisory panel meeting at which USP noted that Sanofi-Aventis, the Sponsor of Method 207, had disclosed a relevant patent. According to the witness, a representative from Momenta then requested that Sanofi-Aventis be requested to abandon the patent before the standard was approved, which it ultimately did (id. at 13). These factors, taken together, the court reasoned, “indicate[d] that Momenta itself, a participant in the USP, acknowledged its own obligation to disclose and abandon like patents” (id.). Thus, as in both Qualcomm and Rambus, Inc. v. Infineon Techs. AG (318 F.3d 1081, 1098 (Fed. Cir. 2003)), the court found that, notwithstanding the absence of an express requirement that patents essential to an SDO’s standards be disclosed by SDO participants, such an obligation existed on the basis of unwritten participant expectations (a good example of private ordering influencing legal determinations).
Interestingly, Momenta argued that it should not be deemed to have an obligation to disclose the ‘886 patent because it opposed the approval of Method 207 at USP, principally because it used a different method for testing enoxaparin. What’s more, Method 207 was not a compulsory standard, meaning that even if Momenta held a patent covering the standard, it could not hold the industry “hostage” (id. at 15). The court did not find these arguments persuasive, noting in particular Amphastar’s claim that the FDA did require it to use Method 207 in order to secure approval of its biosimilar version of enoxaparin.
Amphastar argued that Momenta’s breach of its obligation to disclose the ‘886 patent to USP should result in a waiver of Momenta’s right to enforce the patent. The unenforceability remedy in patent law is a harsh one, usually extending not only to the infringer, but to the entire world (see Qualcomm, 548 F.3d at 1024, and this article, discussing unenforceability in earlier standards cases). In both Dell and Qualcomm, the unenforceability remedy was limited to implementations of the standards in question and, in theory, the patents could have been enforced against products that did not comply with those standards. The court in this case likewise limited unenforceability of the ‘886 patent to Method 207. Judge Gordon carefully analyzed the precise manufacturing processes used by Amphastar to determine which the processes the unenforceability remedy should apply to. Momenta alleged that three different manufacturing processes used by Amphastar, referred to as the “15-25%” procedure (both original and revised) and the “DBB” procedure, infringed the ‘886 patent. But the court concluded that the DBB procedure did not conform to Method 207. Accordingly, the ‘886 patent was held to be unenforceable as to the 15-25% procedures, but not to DBB (Feb. 7, 2018, slip op. at 16-18).
Amphastar also argued that because it reasonably relied on Momenta’s misleading conduct (i.e., failing to disclose the existence of the ‘886 patent) and made investments in manufacturing capacity for enoxaparin on that basis, Momenta should be estopped from enforcing the patent against it. Judge Gordon agreed, citing Hynix Semiconductor Inc. v. Rambus, Inc. (645 F.3d 1336, 1348 (Fed. Cir. 2011)). But as with waiver, the remedy was applied only to the 15-25% process, and not to the DBB process.
In addition to the waiver and estoppel defenses raised by Amphastar, Amphastar brought a separate action charging Momenta and Sandoz with violations of the Sherman Act and California antitrust and competition law based on Momenta’s failure to disclose the ‘886 patent to USP. Amphastar argues that Momenta “wrongfully acquir[ed] monopoly power by deceiving the USP into adopting” the Method 207 standard. This conduct, Amphastar alleges, both improperly excluded Amphastar from the market for generic enoxaparin and drove up the price of generic enoxaparin by billions of dollars over the years (Mar. 19, 2018, slip op. at 6).
In denying Momenta’s motion to dismiss, Judge Gordon looked to Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297, 314 (3rd Cir. 2007), which explains that “[d]eception in a consensus-driven private standard-setting environment harms the competitive process by obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer market power on the patent holder”. Accordingly, he held that Amphastar had articulated a cognizable claim for monopolization under the Sherman Act.
A jury trial in the antitrust case is currently scheduled to begin in September 2019. While there appears to be ample basis in the record supporting Amphastar’s claims regarding Momenta’s deceptive conduct toward USP, Amphastar’s greatest challenge at trial will likely be proving the existence of an antitrust injury, particularly in view of the FTC’s case against Rambus, which faltered on this very point. As the DC Circuit explained in Rambus, Inc. v. FTC, 522 F.3d at 466, “An otherwise lawful monopolist’s end-run around price constraints, even when deceptive or fraudulent, does not alone present a harm to competition in the monopolized market.” Rather, antitrust injury – harm to competition, rather than to a competitor – cannot be said to exist if an SDO, “in the world that would have existed but for [the patent holder’s] deception, would have standardized the very same technologies” (id.). Thus, will Amphastar be able to show that but for Momenta’s deceptive conduct, the Method 207 standard would not have been approved by USP?
The result will be interesting, both at trial and, if appealed, at the First Circuit, which is not strictly bound to follow the DC Circuit’s precedent in Rambus v. FTC. There are certainly many, including Commissioners at the FTC, who felt the DC Circuit’s decision in Rambus was excessively forgiving of deceptive conduct within SDOs. Momenta, which unexpectedly raises a fact pattern that has all but disappeared from the ICT litigation landscape, may give courts an opportunity to revisit this controversial decision in a new context.