The Sham Litigation Exception after AbbVie – Is the Subjective Element a Sham?

Background: The Federal Trade Commission (“FTC”) sued AbbVie and Besins Healthcare, co-owners of a patent that covered brand AndroGel, in 2017. The FTC claimed that the manufacturers had brought “sham” patent infringement litigation in 2011 against Teva and another generic supplier, Perrigo.1 AndroGel is a blockbuster testosterone replacement therapy. The FTC also claimed that the December 2011 Teva settlement constituted an illegal reverse payment settlement under FTC v. Actavis, in violation of Section 5 of the FTC Act.2 The settlement permitted Teva to launch its generic version of AndroGel in November 2012 and also provided Teva a license for a different cholesterol drug.3 The District Court dismissed the reverse payment claim and later granted summary judgment to the FTC on the sham claim, finding that AbbVie’s patent lawsuits were objectively baseless in that AbbVie could not reasonably have expected to prevail in any of its patent infringement cases.4

After a bench trial, the District Court found that AbbVie’s patent lawsuits were actually an attempt to interfere with its rivals’ business relationships.5 The District Court also found that AbbVie exercised monopoly power and, therefore, violated § 5 of the FTC Act.6 In the following proceedings, the FTC prevailed on its monopolization claim against AbbVie. The District Court ordered Defendants to disgorge $448 million in ill-gotten profits but denied the FTC’s request for an injunction.7 On appeal, the Third Circuit held that the District Court erred in rejecting the reverse-payment theory and in concluding that litigation against Teva was a sham8 The District Court did not err, according to the Third Circuit, in concluding that litigation against Perrigo, was a sham, that defendants had monopoly power in the relevant market, or in denying FTC’s request for an injunction.9 The Court also held that the FTC had overstepped its authority in seeking disgorgement, because Section 13(b) of the FTC Act contained no provision authorizing this kind of remedy, thus forestalling any remedy against defendants unless the district court found antitrust liability on the reverse payment theory on remand.10

This article focusses on Third Circuit’s analysis with respect to sham litigation inquiry and the issues raised in the petition for a writ of certiorari.

Appeal: On appeal, among other items, AbbVie and Besins argued that the District Court erred in concluding the infringement suits against Teva and Perrigo met either prong of the sham-litigation standard, and that AbbVie had monopoly power in the relevant market.11

Sham litigation and Noerr-Pennington immunity: Generally, lawsuits are immune from antitrust challenges under the Noerr-Pennington doctrine, which protects parties’ first amendment right to petition the government.12 However, the immunity is not absolute and an exception arises if a lawsuit is “a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor.”13

The Third Circuit found that the district court erred in concluding that AbbVie/Besins’s litigation against Teva was a sham.14 Specifically, the opinion noted that the Supreme Court has recognized two prongs for determining an exception to the Noerr-Pennington doctrine:

First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant’s subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon. This two-tiered process requires the plaintiff to disprove the challenged lawsuit’s legal viability before the court will entertain evidence of the suit’s economic viability.15

The opinion then summarized precedent on what constitutes each prong. “Under the objective baselessness prong, a ‘probable cause determination irrefutably demonstrates’ a defendant’s immunity. Probable cause is a ‘reasonable belief that there is a chance that a claim may be held valid upon adjudication.”16 Generally, the more ‘unsettled’ the law is, the more reasonable is a belief that a claim will be held valid. Then, a court should ask whether the defendant’s claim “at the very least was based on an objectively ‘good faith argument for the extension, modification, or reversal of existing law.’”17

“Under the subjective motivation prong, a plaintiff must show the defendant ‘brought baseless claims in an attempt to thwart competition (i.e., in bad faith).” Some factors relating to a defendant’s ‘economic motivations” in bringing suit include whether the defendant was ‘indifferent to the outcome on the merits of the … suit, whether any damages for infringement would be too low to justify … investment in the suit, or whether [the defendant] had decided to sue primarily for the benefit of collateral injuries inflicted through the use of legal process.”18

Within the context of an ANDA litigation, the Court opined that the nature of litigation mitigates against finding a litigation to be sham, however, “the automatic 30 month stay is a collateral injury” that favors the brand company as an “anticompetitive weapon” an NDA holder can use regardless of whether there is a good faith basis that the generic drug infringes any patents.19

Analyzing the suit against Teva, the Court opined that it was not objectively baseless for AbbVie/Besins to assert infringement under the doctrine of equivalents based on the amendment’s “tangential relationship” to prosecution history estoppel regarding penetration enhancers stated by AbbVie/Besins’ during prosecution and the one’s used in Teva’s formulation.20

In contrast, the Third Circuit stated that the District Court was correct in concluding that litigation against Perrigo was sham.21 The Court was not convinced that any tangential relationship to amendments existed in the Perrigo litigation since [n]o reasonable litigant in AbbVie and Besins’s position would believe it had a chance of winning on these arguments.”22 Citing precedent, the Third Circuit rejected two critical arguments presented by AbbVie/Besins.23 First, voluntary nature of the amendment avoids prosecution history estoppel and second, such amendments were made to expedite prosecution.24 The Court also agreed with district courts finding that Perrigo settled for reasons “independent of the merits of [AbbVie and Besins’s] claims,” including especially the cost of litigating.25

Having satisfied the objectively baseless prong, the Third Circuit then reviewed whether AbbVie/Besins’s suit met the subjective motivation prong of the sham litigation test.26 The Third Circuit opined that “the ultimate inquiry under sham litigation’s subjective prong is defendant’s subjective motivation, not its subjective belief about the merits of its claim.”27 Further to reflect that the two prongs of the sham litigation test are interrelated, the Court reviewed the syllogism correctly applied by the District Court:

(1) A lawsuit is objectively baseless if “no reasonable litigant could realistically expect success on the merits,” . . . (2) and a litigant who files an objectively baseless lawsuit must have had some subjective motivation for suing; (3) but because the lawsuit was objectively baseless, the litigant’s subjective motivation could not have been success on the merits, unless the litigant was unreasonable; (4) thus, a reasonable litigant’s subjective motivation for filing an objectively baseless lawsuit must be something besides success on the merits.28

Applying this syllogism to the case in hand, the District Court:

[F]irst held that AbbVie and Besins’s lawsuits were objectively baseless. It then reasoned that because AbbVie and Besins’s decisionmakers were all very experienced patent attorneys who had reviewed Perrigo’s paragraph IV notices and consulted outside counsel, they knew the lawsuits were baseless. Finally, it reasoned that because the decisionmakers knew the lawsuits were baseless, they must have been motivated by something other than success on the merits.29

The Third Circuit also stated that the automatic 30-month stay, a statutory requirement inherent to the Hatch-Waxman litigation provides sufficient circumstantial evidence, in a situation where attorney-client privilege is asserted, to decipher and satisfy the subjective motivation prong of the test.30 The Third Circuit also affirmed the District Court’s finding of AbbVie/ Besins monopoly power in the relevant market.31

Writ of Certiorari at the Supreme Court: AbbVie/ Besins filed a petition for a writ of certiorari to review the Third Circuit’s ruling, asking the Supreme Court to address “[w]hether the subjective element of the ‘sham litigation’ exception to Noerr-Pennington immunity may be met by an inference from a finding that a challenged lawsuit was objectively baseless, even without evidence that the antitrust defendant actually believed the suit lacked merit or was indifferent to the outcome.”32 In its petition, AbbVie/ Besins argued that the Third Circuit’s decision effectively nullifies the subjective prong of the Noerr-Pennington doctrine’s sham litigation exception and shifts the burden to show subjective intent from the plaintiff to the defendant.33 AbbVie/ Besins took issue with the fact that “the Third Circuit treated circumstances that are present in virtually all Hatch-Waxman Act litigation—that AbbVie’s patent-infringement suit was directed by experienced lawyers who understood the law and the financial stakes of the cases and who knew that a lawsuit under the Hatch-Waxman Act would automatically stay FDA approval of Perrigo’s product—as supporting the inference of bad faith.”34

The petition was denied subsequently.35 After the Supreme Court declined to review the ruling, the Federal Trade Commission withdrew the remaining reverse-payment claim, ending its litigation against AbbVie.36

Aftermath: Under AbbVie, there is no requirement to prove subjective intent to restrain competition or bad faith separate from the filing of an objectively baseless Hatch-Waxman lawsuit. The sham litigation exception has always been extremely “narrow.” Precedent dictates that the subjective component of Noerr-Pennington immunity protects litigation that is not motivated by an improper purpose, even when the lawsuit is not “reasonably based.”37

The truncated analysis of the two prong test could be partly attributed to the fact that because petitioners invoked attorney-client privilege to shield communications involving their in-house counsel, there was “no direct evidence” of petitioners’ motives, which will almost always be the case. Thus the District Court focused on “circumstantial evidence” such as in-house counsel’s experience and awareness of the prosecution history of the patent etc. to find that any alternative explanation for filing the lawsuit could not possibly exist. Therefore, implicit in the Third Circuit’s ruling is the notion that if an antitrust defendant in a Hatch-Waxman litigation invokes privilege, circumstantial evidence inherent to the nature of the litigation itself might be sufficient to satisfy the second prong of the sham litigation analysis. Moreover, Third Circuit’s approach of finding subjective intent from a suit’s objective lack of merit through a “syllogism” rather than independently approaching the two prongs invariably shifts the burden of proof on the antitrust defendant to show that it subjectively expected the lawsuit to succeed.

If a brand company has a competitively neutral motivation for bringing a lawsuit (which does not relate to the merits of the lawsuit), that company may improve its antitrust position by documenting that motivation in non-privileged documents, but the nature of Hatch-Waxman litigation creates very little space to prove a pro-competitive motivation to bring a baseless lawsuit against an ANDA filer, and AbbVie reinforces that challenge by putting the burden on the brand.

1FTC v. AbbVie Inc., No. 14-5151, 2017 U.S. Dist. LEXIS 149824, at *3 (E.D. Pa. Sep. 15, 2017).2Id. at *11; See FTC v. Actavis, Inc., 570 U.S. 136 (2013).
3AbbVie Inc., 2017 U.S. Dist. LEXIS 149824, at *3.
4AbbVie Inc., 2017 U.S. Dist. LEXIS 149824, at *32, rev’d and remanded sub nom. Fed. Trade Commn. v. AbbVie Inc, 976 F.3d 327 (3d Cir. 2020).
5FTC v. AbbVie Inc., 329 F. Supp. 3d 98, 143 (E.D. Pa. 2018).
6Id. at 136.
7Id. at 146.
8FTC v. AbbVie Inc., 976 F.3d 327, 338 (3d Cir. 2020).
11Id. at 346.
12Id. at 359-360; See E. R. R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965).
13AbbVie Inc., 976 F.3d 327, 360 (citing In re Wellbutrin XL Antitrust Litig. Indirect Purchaser Class, 868 F.3d 132, 147 (3d Cir. 2017), judgment entered sub nom. In re Wellbutrin XL Antitrust Litig., 15-2875, 2017 WL 3529114 (3d Cir. Aug. 9, 2017); Noerr, 365 U.S. at 144.
14Id. at 360.
15Id. at 360 (internal quotation marks, citations omitted).
18Id. at 360-361 (internal citations and quotations omitted).
19Id. at 361.
20Id. at 362.
22Id. at 366.
24Id. at 365-367(citing Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 344 F.3d 1359, 1365 (Fed. Cir. 2003; Biogen, Inc. v. Berlex Labs., Inc., 318 F.3d 1132, 1142 (Fed. Cir. 2003))
25Id. at 368.
27Id. at 369.
28Id. at 370.
30Id. at 371.
31Id. at 372.
32Petition for Writ of Certiorari, AbbVie Inc. v. FTC, No. 20-1293 (filed Mar. 18, 2021).
33Id. at 3.
35AbbVie Inc. v. FTC, No. 20-1293, 2021 U.S. LEXIS 3233 (June 21, 2021).
36Federal Trade Commission Withdraws Remaining Case against AbbVie after Supreme Court Decision Strips Consumers of Relief, July 30, 2021,
37See BE & K Const. Co. v. N.L.R.B., 536 U.S. 516, 528 (2002).