Bad Patents and the False Claims Act

by Dennis Crouch

An interesting False Claims Act case has recently been unsealed. USA ex rel. Lower Drug Prices for Consumers (LDPFC) v. Allergan and Forest Labs., Case No. 16-cv-09 (E.D.Tex. 2016) (SEALED USA Complaint).

The False Claims Act provides special incentives for whistleblowers to uncover fraud against the U.S. Government.  The Act authorizes the whistleblower to file a qui tam lawsuit on behalf of the Government and then receive a cut of any recovered damages. See 31 U.S.C. §§ 3729–3733.  The whistleblower here LDPFC appears to be a branch of the hedge fund Foxhill Capital.

This case involves Allergan/Forrest Labs U.S. Patent No. 6,545,040 that is listed in the FDA Orange Book as covering the drug Bystolic.  The basic false claims argument is that the market price of Bystolic is high because of the patent coverage – but the patent is (allegedly) invalid.  If true, this means that Medicare, Medicaid, and the VA hospitals are all paying more than they should for the drug.  As stated by the complaint: “The current market price for Nebivolol (Bystolic) is a false price because the ‘040 patent is invalid.”

Although the legal theory makes sense, the facts may get in the way: Is the patent invalid (PTAB says its close, but no) and, if it is invalid – did the patentee have knowledge of the invalidity?

30 thoughts on “Bad Patents and the False Claims Act

  1. 10

    “Is the patent invalid (PTAB says its close, but no)…”

    Whoa, hold on – I thought winning at the PTO/PTAB (close or not) was like “gold plating” your patent, in the sense that if your patent can survive in such unfavorable administrative conditions then its prospective validity in court becomes all the more likely.

    And even if the “presumption of validity” still fails, it should at least be sufficiently unexpected that nobody could say “invalidity” was “known.”

    1. 10.1

      Not so on several accounts Ken.

      First, the presumption of validity is the same (so there is no such thing as gold plating).

      Second, the (actual) underlying “legal theory” here may well still be met even with the Office not saying that the patent is invalid. There may well yet be other as of yet undiscovered fraud on the Office.

      1. 10.1.1

        So you’re saying that because this is a qui tam statute, anyone who feels like it can go on a fishing expedition to see if, maybe, there was fraud on the PTO in procuring a patent that was listed in the Orange Book and that OB listing resulted in a higher price. And that, as with the false marking suits, the patentees will settle. This, even though the plaintiff has no evidence whatsoever that the patentee knew the patent was invalid.

        You can see what’s wrong with that, can’t you?


          Atari Man,

          As hard as I squint, I cannot see ANY where in my comment that your new argument fits in.

          Did you post your response to the correct person?

  2. 9

    Loser case, but will be fun to watch.

    False Claims Act only criminalizes knowingly making a false claim for payment to the government. It generally covers things like agreeing to supply the government one product but actually delivering another while still invoicing for the original product, or promising the government they pay a price lower than all other customers, but actually charging the government more.

    Unless Medicare/Medicaid actually have a rep in supply contracts with Allergen/Forest Labs to the effect that if their price reflects a monopoly based on patent rights and to their knowledge the patents are valid and enforceable – the courts are going to have to create a new branch of law to make it work .

    1. 9.1

      You speak as though the New progressive and flexible US, is anything like the United States of America as it was and should be, a republic with a Constitution, ruled by Law and not Men, and guided by the idea of individual rights.

      Courts need only “interpret” subjective law in harmony with the current will and whim of the State, and the “need” of the “public” is involved vis-a-vis Healthcare, so the courts almost certainly can “make it work”, “somehow”.

  3. 8

    A “high price” is not a “false claim” in any case. There’s simply no such thing as a “falsely” high price. Even an *unfairly* or *illegitimately* high price is not in any sense “false.” Moreover, a “price” itself is in no sense ever a “claim.” What the hell is happening to language here?

    I could perhaps conceive of an argument that stating “I believe this patent to be valid” could be false if the person so attesting actually holds no such belief, but people rarely make such assertions in licensing or selling any patented item. Typically it’s understood to be a probabilistic matter in any event.

    1. 8.1

      Statements here which appeal to reason or are unabashedly true … are often met with silence.

      You will, however, recognize that it is the same silence which accompanied the Emperor whenever he, at the same time, did and did not, wear his new clothes.

      1. 8.1.1

        You will also notice that the voice of reason – as innocent as a child’s – is attempted to be hushed as well.

  4. 7

    Is this more evidence of desperation in get rich quick attempts by shorting a company’s stock and then attempting to invalidate their patents? Will the lack of success for that tactic take all the wind out of the sails [attempted sales to Congress] of giving all of pharma a free pass from all IPRs?

    1. 7.1

      I do not know of all of the “shorts and IPRs” have been kicked out, so there may still be impetus for Pharma to want out of that regime.

  5. 6

    What a load of cr@p. The False Claims Act criminalizes parties for *knowingly* making false claims for payment from the federal government; the definition of “knowingly” in the statute does not include “should have known”.

    The patent in question was granted by the USPTO and has a presumption of validity. Until an authorized tribunal adjudicates the patent to be invalid, it is presumed to be valid. Even if the patentee subjectively believed that the patent might be invalid in view of certain prior art publication, it did not have knowledge of such invalidity, and could not have had such knowledge, until the patent was adjudicated to be invalid.

    The complaint doesn’t allege that the patentee withheld information from the PTO that, had that information been disclosed to the PTO, would have prevented the grant of the patent that is now listed in the Orange Book. Rather, the complaint alleges that, despite the lack of a judgment of invalidity, the patentee independently *knew* that the patent was invalid, yet maintained the patent’s listing in the Orange Book. The complain also alleges that but for that O.B. listing, the patentee wouldn’t have been able to charge Medicare as much as it did for the drug. But the basis for that invalidity was…a prior US patent, one which was listed on the front page of the subject patent as having been considered during prosecution.

    Moreover, despite the USPTO having been aware of that prior patent during prosecution, that prior US patent was later specifically pointed out to the USPTO in an inter partes review petition (filed by the now-plaintiff) that didn’t result in the sought-after invalidation of the O.B.-listed patent – the PTO said to the petitioner, “Sorry, Charlie”.

    Additionally, the patentee sued several competitors in ANDA litigation, and those cases settled. The complaint says that that means the patentee tried to prevent adjudication of the question of validity, because the patentee knew the patent was invalid. Funny, seems to me that it was the defendants in the ANDA litigations who were likely the ones interested in avoiding a verdict, namely a verdict of validity and infringement, which means that they thought the patent might be valid. If they thought it might be valid, how can the patentee be said to have *known* it was *invalid*?

    So now the losing IPR petitioner argues in court that the patentee defrauded the US government by keeping a patent listed in the Orange Book even though the patentee “knew” that the patent was invalid in view of a prior patent that the USPTO itself issued and was aware of during prosecution, and that the USPTO itself has said, again, years later, doesn’t invalidate the subject patent?

    In the words of Tom Hanks in Big, I don’t get it.

    After the AIA finally put to bed all those false marking suits, this looks like another attempt to use frivolous qui tam suits to get rich quick , this time under the False Claims Act. I hope this doesn’t become the next in-vogue thing in the world of extortion masquerading as a lawsuit.

    1. 6.1

      DF The patent in question was granted by the USPTO and has a presumption of validity. Until an authorized tribunal adjudicates the patent to be invalid, it is presumed to be valid. Even if the patentee subjectively believed that the patent might be invalid in view of certain prior art publication, it did not have knowledge of such invalidity, and could not have had such knowledge, until the patent was adjudicated to be invalid.

      Setting aside the particular facts of this case, is it possible that you are injecting a tad too much immunity into this beloved “presumption”?

    2. 6.2

      I do not at all disagree with anything you say here, Dan. Nevertheless, I hope that the court does not decide the case on the basis of any of the facts that you just listed. What you are saying is, in effect, that the patentee here did not know the patent to be invalid (I dare say you are correct about that), and therefore the patentee did not have to…

      Well, now comes the tricky part. Did not have to do what, exactly? There is no mechanism for the patent owner to require the FDA to delist a patent from the Orange Book. Mylan Pharma. v. Thompson, 268 F.3d 1323, 1330 (Fed. Cir. 2001). Therefore, if the court were to hold that the patentee has a duty to delist the patent, the patentee is stuck in an untenable position.

      It seems to me that if the patentee gets off in this case only on the grounds that the patentee did not know the patent to be invalid, that leaves open the possibility of a different patentee with a different set of facts being caught in that untenable position mentioned above. What about if the art being cited were not listed on the patent’s face page (sometimes previously unknown art really is discovered)? What about if the patent had not already just come through an IPR petition unscathed over the very same art?

      It seems to me that the reason that this suit should fail is simply because listing your patent in the Orange Book is not a “false claim” under the false claims act. If this case really is decided on the more picayune facts that you recite, Dan, then the pharma industry is going to be left in a very tight space between a patent rock and a qui tam hard place.

  6. 5

    I STATE that US x,xxx,xxx is a granted patent.

    I STATE that US x,xxx,xxx is listed in the FDA Orange Book as covering the drug A

    I SET a price Y for drug A, I PRODUCE it and offer to sell it at that price take it or leave it.

    Where is the FALSE claim? Or does “false” and/or “claim” in this context not actually mean what the words mean …

    A market price is not a claim… none other than “I WILL give it to you FOR this price.”

    1. 5.1

      I should add, technically the “claim” here would be a bill for delivery of drug A noting the amount owed is Y, according to prior agreement to purchase/sell.

      1. 4.1.1

        (What saves – or dooms – patents is not the causal relationship between being on patent and being able to charge more for being on patent).



          Note also, if the “patentee” knows that a patent is invalid, and that therefore someone WILL discover that fact, and therefore that someone will begin to produce the drug, and spend the money to invalidate the patent, and market and begin selling the drug, would the patentee not charge the highest price the markets will bear NOW simply because now, it has no competition for the moment, and that it knows it will soon have competition?

          In actuality the price be could be “false” because it is NOT HIGH ENOUGH… because the patentee “should” know its days are numbered… this makes as much sense as a “legal theory” as the original, no?

          High prices are in no way false but simply a reflection of the fact that for the moment there are no others currently producing the drug.

          Am I wrong to think this complaint is sheer insanity?


            You may well be correct.

            I was just distinguishing something that appeared to be masquerading as “legal theory.”

            Not like we have any issues here at all on what passes for “legal theory,” n’est ce pas?


    1. 4.2

      Certainly, the presumption has important weight – and can be overcome with indications of actual fraud on the Office.

      But to say that the “legal theory” advanced makes sense seems to misconstrue exactly what the “legal theory” is.

      As written here, there is no emphasis on the “fraud on the Office” notion, which is what makes sense.

      Instead, the emphasis appears to be that if invalid, an illicit gain has been obtained.

      That is perhaps a natural result – and NOT a legal theory.

      This is why I think that Fg posted concerning the presumption.

      As written, the articles emphasis (and perhaps the emphasis being argued in court) is on the wrong thing.

      1. 4.2.1

        Correct. If IBM owns a patent and gets to charge “above market” prices for the patented product, it does not have to give refund of the portion above “market price” if the patent is later found invalid.

  7. 2

    It’s certainly interesting, although I wouldn’t trust the PTAB to not side with Pharma after reading their ludicrous decision in Apotex v. Wyeth.

  8. 1

    Did the patent lawyers who wrote the claims have detailed knowledge of the discussions on this blog? Will Patently O have to surrender the server logs to demonstrate that the attorneys involved knew or should have known that the claims were invalid?

    1. 1.1

      Surrounding logs (or other information) becomes a much more interesting question given the rather questionable editing that has gone on.

      Hint: when the editing operates without consistent application of rules (even rules that are not listed), and shapes the conversation, the protections of any online role are jeopardized.

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