Where’s Waldo: Global Discovery and Finding a Corporation

by Dennis Crouch

This post is about using U.S. Courts to obtain discovery in order to facilitate foreign litigation; with the pending global litigation between Eli Lilly and Novartis serving as our key example.

In 1938, the Federal Rules of Civil Procedure were adopted in the U.S., including powerful and expansive procedures for automatic disclosures and forced discovery.  The standard today is that prior to trial the litigating parties will share “mutual knowledge of all relevant facts.”  Hickman v. Taylor, 329 U.S. 495 (1947).  We do this through various required disclosures as well as requests for documents & admissions, depositions & interrogatories.  But, the U.S. is an outlier.  Although most international civil courts offer some access to discovery, no other country has as extensive or powerful of a process.   Italian law, for instance, has no obligation of discovery absent a specific court order.

Eli Lilly and Novartis are in the midst of complex European patent and competition (antitrust) litigation regarding their competing monoclonal antibody drugs used to treat autoimmune symptoms such as psoriasis and arthritis.  The cases are pending in Ireland, Italy, and Austria; with a German action already settled.  In each of these cases, Novartis is the plaintiff asserting patent infringement.  One quirk is that the Novartis patents were not developed alongside the company’s Cosentyx product.  Rather, Genentech held the patents and was actually looking to enforce them against both Novartis and Lilly.  In 2019/2020, Novartis purchased the portfolio from Genentech, took over prosecution of the pending cases (including some US applications) and started its enforcement campaign.

Lilly has argued that Novartis’ approach violates European competition laws.  Part of what is going-on is that Novartis was trying to challenge the patents when they were held by Genentech–arguing  invalidity at the time.  Novartis changed its tune once it became the owner.  In order to build its case, Lilly wants Novartis to turn-over its internal documents relating to its prior-opposition and subsequent purchase of the patents, including the actual Purchase Agreement.

If the lawsuits were pending in the U.S., a court would almost certainly compel discovery because the request appear to seek relevant information (absent an appropriate privilege or work-product exception).  BUT, the litigation is in Europe where discovery is much less powerful.  So far, Novartis has refused to produce the requested documents, such as the Purchase Agreement.

In 2021, Lilly brought the case to the U.S. with a petition in the E.D.Va. seeking “leave to obtain discovery for use in foreign proceedings.”  This type of application is authorized by Congress in 28 U.S.C. § 1782(a).

(a) The district court [where] a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal. . . . The order may be made . . . upon the application of any interested person.

Id.  The 1728 statutory provision has a key geographic limitation. The district court can only compel discovery from a person who “resides or is found” within the district.  Id.  Novartis is a Swiss company and so seemingly “resides” over there.  And, according to the 4th Circuit, a corporation can be “found” only in locations where its physical presence is shown “by its officers and agents carrying on the corporation’s business.” In re Eli Lilly and Co., 37 F.4th 160 (4th Cir. 2022).  Thus, the 4th Circuit concluded that 1782 does not authorize discovery E.D. Va.

In 2018, the 2nd Circuit interpreted the same provision and concluded that “resides or is found” should be more broadly interpreted to extent to the scope allowed by personal jurisdiction due process limitations.  In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019).  If you recall International Shoe, personal jurisdiction includes “purposeful availment” leading to specific jurisdiction.  Here, specific jurisdiction likely works because Novartis has been prosecuting the offending patent family at the USPTO, which is located in the E.D. Va.  See Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343 (Fed. Cir. 2002) (“Obtaining such a patent is a meaningful contact with the United States; it requires a patentee purposefully to avail him or herself of a significant benefit of United States law.”).  That ongoing prosecution is arguably related to the European patent and competition litigation.  The 4th Circuit noted a second problem–the statute provides discretionary authority (“the district court … may order …”), and here discretion was properly denied.

Lilly has not yet filed its petition for writ of certiorari, but started the process with a request for extension of time that was granted by Chief Justice Roberts.  As is common, Lilly set out some aspects of its case within the request:

On appeal, the Fourth Circuit created a split of authority by holding that the word “found” means that the corporation must be “physically present by its officers and agents carrying on the corporation’s business.” The opinion conflicts with the Second Circuit’s decision in In re del Valle Ruiz, 939 F.3d 520 (2d Cir. 2019), which is the only other circuit court decision to have considered this issue.

Lilly Application for Extension.

A Corporation’s legal location has been in-flux for a number of years with several Supreme Court cases narrowing the scope to basically the corporation’s state of registration.  But, in my view, Section 1782 has the feel of a venue statute, rather being jurisdictional. One clue to that is the limit to the particular district rather than state. Another clue is that by 1948 (when this statute was originally passed) personal jurisdiction was recognized by as guided by the Constitution rather than federal statute.  The venue angle is important because Congress has spoken about the definition of “resides” in the context of venue:

(c)Residency.—For all venue purposes— (2) an entity with the capacity to sue and be sued … shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.

28 U.S.C. § 1391(c).  The petition for certiorari in the 4th Circuit case will be due in December.

There is one more pending case on the same issue with the same parties–this one in the 9th Circuit. Lilly filed a parallel application in the Northern District of California seeking discovery from the third party Genentech.  Novartis intervened in that litigation to try to block discovery, but was unsuccessful. As such, Genentech turned over some amount of information, such as the price Novartis paid.

Have you ever tried to put a cat in a bag? Once the cat is out, it is not going back in.  Information is the same.  Novartis has appealed the N.D. Cal. order, but it can’t exactly ask for the information to be totally excised. It doesn’t work that way.  Rather, Novartis is seeking a court order to prevent anyone who has learned of the purchase price from participating in any subsequent license negotiations between Lilly and Novartis, or at least an order prohibiting the use of the purchase price in any subsequent global license negotiations.  This would be pretty powerful since the folks who are working on the litigation have some of the best information about the patents themselves.  The district court denied Novartis’ motion for a protective order, but that has been stayed pending appeal.  Oral arguments in the 9th Circuit are set for November.

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Katherine Helm and her team at Dechert is representing Lilly in the US litigation, including the Supreme Court briefing.  Willy Jay and his team at Goodwin represents Novartis.