The New Plague: False Claims Liability Based on Inequitable Conduct During Patent Prosecution
Gregory Michael, William Newsom, and Matthew Avery
ARTICLE

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In January 2009, Amphastar Pharmaceuticals filed a first-of-its-kind qui tam suit on behalf of the federal government and several states alleging that its competitor, Aventis Pharma, violated the Federal False Claims Act (“FCA”) when it fraudulently acquired a patent and then overcharged the government for its patented drug. By utilizing a fraudulently acquired patent to elevate the price of Lovenox, a drug for treating deep-vein thrombosis, Amphastar alleged that Aventis had overcharged the government for every Lovenox pill purchased with government funds, including all prescriptions funded in part by Medicare or other federal insurance programs. The FCA provides a means for litigants to pursue recovery for fraud perpetrated against the federal government. In its complaint, Amphastar alleged that Aventis obtained its patent by engaging in inequitable conduct during prosecution of its patent application before the United States Patent and Trademark Office. Our analysis of FCA claims based on this novel inequitable-conduct theory concludes that a patentee could be liable for violating the False Claims Act if (1) the government purchased the patented product, (2) the prices of that product were in fact elevated because of the exclusivity provided by the fraudulently obtained patent, and (3) the patentee knew, deliberately ignored, or showed reckless disregard in deciding to submit a claim for payment from the government at this elevated price. If the court in Amphastar finds Aventis liable under this novel theory, the consequences could be far-reaching. Given the nature of modern patent litigation, with inequitable conduct defenses being nearly ubiquitous, such a ruling could expose nearly every patent holder that does business with the federal government to possible liability under the FCA.

This Article discusses the implications of bringing FCA claims based on an inequitable-conduct theory, explores the rationale behind invoking the FCA in this context, and suggests precautions that practitioners can take in such lawsuits. It proposes a variety of reforms to the False Claims Act to check the problems caused by these types of FCA claims. These proposals may become more relevant after the resolution of the Amphastar case if the court validates Amphastar’s novel theory and others follow suit in bringing FCA claims against pharmaceutical patent holders.

I have based the [qui tam provision of the False Claims Act] upon the old-fashioned idea of holding out a temptation, and “setting a rogue to catch a rogue,” which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.

-U.S. Senator Jacob M. Howard^[1]

INTRODUCTION

[I]

n January 2009, Amphastar Pharmaceuticals filed a lawsuit under the Federal False Claims Act (“FCA”) alleging that its competitor Aventis Pharma fraudulently inflated the price of Lovenox (enoxaparin), a patented drug for treating deep-vein thrombosis, and overcharged the federal government and various state governments by making claims for payment through Medicare and state Medicaid systems.^[2] The FCA provides a means for both private litigants and the Department of Justice to pursue recovery for fraud perpetrated against the federal government.^[3] Amphastar’s FCA suit was based on the novel theory that Aventis defrauded the government when it fraudulently acquired its patent by engaging in inequitable conduct while prosecuting its patent application before the United States Patent and Trademark Office (“USPTO”).^[4] Aventis’s fraudulent acquisition of this patent allowed it to monopolize Lovenox sales, elevate the price of the drug, and illegally overcharge the government.^[5] This lawsuit is currently being litigated and it is unclear whether Amphastar’s theory of FCA liability based on inequitable conduct is even valid, let alone whether Amphastar will prevail.^[6]

Under the patent law doctrine of inequitable conduct, a patent can be held unenforceable if a court finds that the patentee obtained the patent by engaging in improper conduct before the USPTO.^[7] Once referred to as an “absolute plague” on the patent system by the Court of Appeals for the Federal Circuit, inequitable conduct is routinely asserted by defendants in patent cases.^[8] Common examples of inequitable conduct include making false statements to the patent office or intentionally withholding material in- formation during prosecution.^[9] Where a patentee engages in inequitable conduct and then sells its patented product to the government (or seeks reimbursement through programs such as Medicare), it can be argued that the improperly obtained patent allowed the patentee to sell its product at fraudulently inflated prices, thereby violating the FCA by submitting a false claim for payment.^[10] Consequently, if Amphastar’s theory prevails, it could expose nearly every patent holder that does business with the federal government to possible liability under the FCA and create a new plague on the patent system.

This Article explores the implications of bringing FCA claims based on this novel theory of inequitable conduct. Part I of this Article provides a brief overview of federal and state false claims laws. In addition to claims by competitors like those in the Amphastar v. Aventis case, this theory provides an avenue for whistleblowers to profit from their knowledge of fraudulent conduct by serving as a relator in a false claims qui tam action.^[11] Alternatively, a defendant in a patent infringement suit may gain access to confidential information that could invalidate the patent and be used as the basis for a qui tam action. Part II provides an overview of the current state of the doctrine of inequitable conduct, which requires a showing that the patent holder’s conduct was both material to patentability and done with the specific intent to deceive the patent office. Part III discusses the Amphastar v. Aventis case, and then analyzes the suitability and practicability of the inequitable-conduct-based theory of false-claims liability. Part IV provides strategic considerations for practitioners who are attempting to mitigate this type of false-claims liability. Finally, Part V proposes modifications to the current regulatory regime to resolve problems with FCA claims brought under a theory of inequitable conduct.

* Mr. Michael is a J.D. Candidate at the University of California, Hastings College of the Law, 2015.

** Mr. Newsom is an Associate at Cooley LLP in Palo Alto, California.

*** Mr. Avery is an Associate at Baker Botts LLP in Palo Alto, California.

The views expressed in this Article are the Authors’ alone, and do not necessarily reflect those of their affiliated institutions.