Mayor and City Council of Baltimore v. AbbVie Inc.

42 F.4th 709

• Court: Court of Appeals for the Seventh Circuit
• Decided: August 1, 2022
• Docket: 20-2402
• Status: Published

Opinion

In the

United States Court of Appeals For the Seventh Circuit ____________________

No. 20-2402 MAYOR AND CITY COUNCIL OF BALTIMORE, et al., Plaintiffs-Appellants,

v.

ABBVIE INC., et al., Defendants-Appellees. ____________________

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 19 CV 1873 — Manish S. Shah, Judge. ____________________

ARGUED FEBRUARY 25, 2021 — DECIDED AUGUST 1, 2022 ____________________

Before EASTERBROOK, WOOD, and KIRSCH, Circuit Judges. EASTERBROOK, Circuit Judge. Humira (the domestic brand name for adalimumab), a monoclonal antibody, is one of the world’s best-selling and most profitable drugs. On the World Health Organization’s list of essential medicines, Humira is approved to treat rheumatoid arthritis, psoriatic arthritis, an- kylosing spondylitis, Crohn’s disease, ulcerative colitis, plaque psoriasis, hidradenitis suppurativa, uveitis, and juve- nile idiopathic arthritis. The basic U.S. patent for Humira, No. 2 No. 20-2402

6,090,382, expired at the end of 2016, but AbbVie, its owner, obtained 132 additional patents related to the medicine, for details such as manufacturing or administering the drug. The last of these expires in 2034. Plaintiffs, welfare-benefit plans that pay for Humira on be- half of covered beneficiaries, contend that these additional pa- tents, and the sealement of litigation about them, violate sec- tions 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 1px solid var(--green-border)">2. The district court dismissed the complaint. 465 F. Supp. 3d 811 (N.D. Ill. 2020). AbbVie might have defended the suit on the ground that the plaintiffs, as indirect purchasers, are blocked by the doc- trine of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). But AbbVie has not done so, and as the Illinois Brick doctrine is not jurisdictional we do not mention it again. For their part, plain- tiffs do not rely on Walker Process Equipment, Inc. v. Food Ma- chinery & Chemical Corp., 382 U.S. 172 (1965), which holds that fraud on the Patent Office can violate the antitrust laws. Nor do plaintiffs deny that valid patents authorize their owners to exclude competition and charge monopoly prices. See United States v. Line Material Co., 333 U.S. 287 (1948). Instead they con- tend that 132 patents are just too many for anyone to hold, especially when they are weak and subject to challenge, and that by establishing what plaintiffs call a “patent thicket” AbbVie violated §2 of the Sherman Act. Before we address that argument, a few words are in order about how competitors could enter despite AbbVie’s patents. Specialists may be familiar with the Hatch-Waxman Act, 21 U.S.C. §355, which regulates copycat entry in much of the drug market. Someone who wants to offer a generic equiva- lent to a brand-name drug notifies its seller, which can No. 20-2402 3

respond by identifying patents said to block competition. Do- ing this requires the brand-name firm to commence patent- infringement litigation. If this happens the Food and Drug Administration forbids sales of the generic until the litigation ends, or 30 months have elapsed, whichever is first. If entry occurs, the first applicant gets an exclusive right to sell the ge- neric drug for 180 days, and much of the profit from the entry occurs during that window. The Supreme Court’s opinion in FTC v. Actavis, Inc., 570 U.S. 136, 142–44 (2013), describes the process. See also Xechem, Inc. v. Bristol-Myers Squibb Co., 372 F.3d 899 (7th Cir. 2004). Humira is not covered by the Hatch-Waxman Act. As a drug based on a biologic rather than a synthetic substance, it comes within the Biologics Price Competition and Innovation Act, 42 U.S.C. §262. Someone who wants to compete with an approved biologic drug asks the FDA for permission to sell a “biosimilar” drug; the applicant must show the absence of “clinically meaningful differences” between the drug already on the market and the biosimilar. The producer of a proposed biosimilar drug cannot seek approval until four years after the original was put on the market, and the FDA cannot approve it until 12 years after that drug’s first sale. (These windows do not depend on patents.) Once the FDA has approved the bio- similar, however, the competitor can offer it to the public im- mediately. If the original seller believes that a patent blocks competition, it must initiate litigation. 42 U.S.C. §262(l)(6). (There are some other steps, which need not be described.) Invoking a patent and filing suit does not itself block the bio- similar; the competitor is free to sell at risk of an adverse out- come in the patent litigation, while a proposed entrant under Hatch-Waxman is not. As it happened, none of AbbVie’s po- tential competitors chose to launch at risk, even after the 4 No. 20-2402

FDA’s approval. This sets up the payors’ contention that the sheer number of arguably applicable patents scared off the competitors and enabled AbbVie to collect monopoly profits not authorized by the expired ‘382 patent. But what’s wrong with having lots of patents? If AbbVie made 132 inventions, why can’t it hold 132 patents? The pa- tent laws do not set a cap on the number of patents any one person can hold—in general, or pertaining to a single subject. See In re Brand Name Prescription Drugs Antitrust Litigation, 186 F.3d 781 (7th Cir. 1999). Tech companies such as Cisco, Qual- comm, Intel, Microsoft, and Apple have much larger portfo- lios of patents. Thomas Edison alone held 1,093 U.S. patents. When the FTC challenged Qualcomm’s patent practices, it ob- jected to licensing terms rather than the sheer size of the port- folio—and the FTC lost in the end. FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020). Of course invalid patents cannot be used to create or pro- tect a monopoly. But our plaintiffs have not offered to prove that all 132 patents are invalid or inapplicable to all potential biosimilar competitors, and it is far from clear that payors would have standing to make such an argument. The validity of the patents is a subject for dispute between AbbVie and the potential competitors, with review in the Federal Circuit. The fact that the 132 patents can be traced to continuation appli- cations from 20 root patents seems to us neither here nor there. It may be easier to aaack 20 clusters of patents than 132 independent patents, but the fact remains that every patent comes with a presumption of validity. 35 U.S.C. §282(a). The payors insist that AbbVie’s patents are weak—too weak to monopolize the sales of such an important drug. This argument leaves us cold. Weak patents are valid; to say they No. 20-2402 5

are weak is to say that their scope is limited, not that they are illegitimate. Payors or competitors might argue to the Patent Office that the advances claimed by AbbVie are too marginal to justify legal protection, and such arguments were made in requests for inter partes reopenings. (On that procedure see United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).) The Direc- tor of the Patent and Trademark Office set five of AbbVie’s patents for reexamination under this procedure, and the PTO’s adjudicative arm (the Patent Trial and Appeal Board) found three of the five invalid. (AbbVie withdrew the other two.) But the Director also concluded that 13 more of AbbVie’s patents were solid enough not to need review, while on still others AbbVie prevailed before the Board. And no one asked the Director to review the many other patents in AbbVie’s Humira-related portfolio. Instead of aaacking all 132 patents, the payors maintain that AbbVie violated §2 of the Sherman Act by obtaining them, then invoking them against the biosimilars. Yet the payors have abjured any reliance on the Walker Process doc- trine, which makes it hard to see how AbbVie can be penal- ized for its successful petitions to the Patent Office. (The dis- trict court observed that AbbVie had a “baaing average” of .534, 465 F. Supp. 3d at 822, which is stellar in patent practice and unheard-of in baseball.) Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993), holds that objectively baseless petitions to the government can violate the antitrust laws, if they smother competition, but AbbVie’s patent applications cannot be called baseless. After all, the 132 patents issued. Trying to conjure liability out of successful petitions for governmental aid in blocking competition runs into the Noerr- 6 No. 20-2402

Pennington doctrine. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); Mine Workers v. Pennington, 381 U.S. 657 (1965). This doctrine, rooted in the First Amendment, deems petitioning a protected activity. Unsuccessful petitioning can be a source of liability when the petitioner runs up rivals’ costs and so stifles competition independent of a petition’s success. An example would be fil- ing a frivolous suit, as many a suit is more costly to defend than to prosecute. The Justices held in BE&K Construction Co. v. NLRB, 536 U.S. 516 (2002), that no one has a constitutional right to pursue baseless litigation. Professional Real Estate says that petitioning exceeds the scope of the Noerr-Pennington doctrine when the petitioner tries “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.” 508 U.S. at 60–61 (cleaned up; emphasis in original). But the payors express concern about the successful outcome of AbbVie’s petition- ing, not about costs imposed by the process of petitioning. Pa- tent applications, successful or not, do not impose costs on ri- vals; only issued patents do so. Doubtless it is possible to use properly issued patents in a way that Noerr-Pennington does not protect. For example, if AbbVie were to assert irrelevant patents against producers of biosimilar drugs, that might come within the scope of BE&K Construction. The payors contend that AbbVie listed some ir- relevant patents in the litigation it commenced against would- be entrants, but they do not contend that AbbVie listed only irrelevant patents in those suits. What’s more, the sifting of wheat from chaff is a job for the judges hearing those patent cases. The would-be entrants, such as Amgen, Samsung No. 20-2402 7

Bioepis, Sandoz, and Fresenius Kabi, were free to make argu- ments along these lines; a separate antitrust suit by strangers to the patent litigation does not justify an effort to adjudicate by proxy what might have happened in the patent litigation, but didn’t. What did happen in the patent litigation is sealement. We move on to the §1 claim, which is that the terms of the seale- ments established a cartel among AbbVie and the potential entrants. All of AbbVie’s patent suits were sealed on terms that per- mit the biosimilar drugs to enter the U.S. market during 2023 (the dates for different entrants range from January through December). The sealements were compromises: many of the 132 patents last beyond 2023, but AbbVie threw in the towel on the extended terms in exchange for promises not to enter before 2023. If this is a cartel (AbbVie and its potential com- petitors carving up the market, 100% in AbbVie’s favor, from 2017 through 2022), then all sealements of patent cases violate the Sherman Act, yet the Supreme Court has said repeatedly that normal sealements of patent litigation are lawful. Actavis adds that one kind of sealement, in which the pa- tent holder pays the potential entrant to defer entry, could be unlawful when the payment exceeds any reasonable estimate of the costs of litigation and is best understood as a portion of the spoils from a market-division agreement. The Justices mused that the Hatch-Waxman Act, and particularly the 180- day period of exclusivity, might lie behind reverse-payment sealements, which can be struck with just a single rival yet allow it to postpone the entry of multiple rivals. 570 U.S. at 155–56. In biologics, though, there’s no period of exclusivity. 8 No. 20-2402

The payors do not contend that there is anything fishy or anticompetitive about the sealements allowing entry in 2023 without any payment from AbbVie to the potential entrants— if those sealements are viewed by themselves. But the payors contend that they should not be viewed in isolation. They ob- serve that AbbVie and affiliated firms have patents for Humira throughout the European Union. Those patents, and potential competition from biosimilar drugs, led to litigation that was sealed with an October 2018 entry date. According to the payors, AbbVie gifted the biosimilar makers with 4+ years of profits in Europe, in exchange for their agreement not to enter the U.S. market until 2023. That makes the global set- tlement (treating the U.S. and the E.U. as the globe) look like a reverse-payment deal that comes within the scope of Actavis. The district court was not persuaded. In the United States AbbVie struck a normal sealement without any payment to the entrants, a sealement of the kind that Actavis says is not problematic. 570 U.S. at 152, 158–59. In Europe AbbVie and the potential entrants struck the same kind of deal, which is proper for the same reason. In each AbbVie agreed to entry before the last patents expired and didn’t pay anyone to delay entry. As the district judge saw things, 0 + 0 = 0. We see this the same way. As far as we are aware, none of the other reverse-payment cases entails a claim of the sort our payors advance. The U.S. and E.U. sealements are a poor candidate for a pathfinder de- cision, for two reasons. First, three of the potential U.S. en- trants, Mylan, Boehringer Ingelheim, and Coherus Biosci- ences, apparently do not plan to sell in Europe yet agreed to 2023 dates for entry in the United States. This makes it hard to see 2023 as a delay that AbbVie “bought” by concessions No. 20-2402 9

made in Europe. Second, the European sealement is not as simple as we described it. Each member state in the E.U. has its own patent law, and AbbVie held patents that were stronger in some nations than in others or had different expi- ration dates. Moreover, some entry in 2018 was inevitable be- cause AbbVie has not claimed post-2018 patent protection in Europe on all nine of the uses (“indications”) listed in the first paragraph of this opinion. As of October 2018, AbbVie’s European rights, on its own understanding, were limited to three of the nine conditions that Humira has been authorized to treat. So entry of biosim- ilar drugs was inevitable, and AbbVie had to negotiate for terms. The terms of the sealement require the entrants to pay royalties on the three indications that remain under patent. That makes the E.U. sealement one of the traditional kinds squarely protected by Actavis—and if, as the payors contend, AbbVie has dropped out of the E.U. market, the licensing of a patented product in exchange for royalties is common and lawful. (We recognize that the operative complaint in this case does not mention the licensing of three uses in Europe, but the initial complaint filed by UFCW Local 1500 Welfare Fund did so, and the amended, consolidated complaint does not take back or otherwise deny that admission.) Suppose that what we’ve said in the preceding two para- graphs were to be disregarded on the ground that these mat- ters are best characterized as defenses rather than reasons why the complaint is deficient. Still, the payors’ claim boils down to a contention that, by leaving money on the table in Europe, AbbVie effectively paid the potential entrants for de- lay in the United States. This is a use of the economic concept of opportunity cost, which treats a forgone earning 10 No. 20-2402

opportunity (fewer years of monopoly profit in Europe) as equivalent to a payment out of pocket. Plaintiffs’ problem is that Actavis itself considered, and re- jected, the argument that an opportunity cost is the same as a reverse-payment sealement. Here is the passage: [W]hen Company A sues Company B for patent infringement and demands, say, $100 million in damages, it is not uncommon for B (the defendant) to pay A (the plaintiff) some amount less than the full demand as part of the seOlement—$40 million, for example. See Schildkraut, Patent-Spli0ing Se0lements and the Reverse Payment Fallacy, 71 Antitrust L.J. 1033, 1046 (2003) (suggesting that this hy- pothetical seOlement includes “an implicit net payment” from A to B of $60 million—i.e., the amount of the seOlement discount). The cited authorities also indicate that if B has a counterclaim for damages against A, the original infringement plaintiff, A might end up paying B to seOle B’s counterclaim. Cf. Metro-Goldwyn Mayer, Inc. v. 007 Safety Products, Inc., 183 F.3d 10, 13 (CA1 1999) (describing trademark dispute and seOlement). Insofar as the dis- sent urges that seOlements taking these commonplace forms have not been thought for that reason alone subject to antitrust liability, we agree, and do not intend to alter that understanding. But the dissent appears also to suggest that reverse payment seOle- ments—e.g., in which A, the plaintiff, pays money to defendant B purely so B will give up the patent fight—should be viewed for antitrust purposes in the same light as these familiar seOlement forms. See post, at 168–169. We cannot agree. In the traditional ex- amples cited above, a party with a claim (or counterclaim) for damages receives a sum equal to or less than the value of its claim. In reverse payment seOlements, in contrast, a party with no claim for damages … walks away with money simply so it will stay away from the patentee’s market. That, we think, is something quite different.

570 U.S. at 151–52 (cleaned up). The example discussed in this passage—a suit seeking $100 million and sealed for $40 million—illustrates an No. 20-2402 11

opportunity cost. The patent holder leaves $60 million on the table. That could be characterized as a $60 million payment to the would-be entrant. Yet the Court rejected the possibility of treating an “implicit net payment” as equivalent to an actual payment, characterizing the reverse-payment problem as “something quite different” from an opportunity cost. If that is true of the example in Actavis, it is equally true of money that AbbVie is said to have left on the table in Europe. In neither the United States nor Europe did any of the po- tential biosimilar producers start out lacking a plausible mon- etary claim against AbbVie yet end up with money paid to delay entry. Instead we have different legal systems, with dif- ferent patent expiration dates, but fundamentally similar structures of sealement. On each continent AbbVie surren- dered its monopoly before all of its patents expired, and the rivals were not paid for delay. It would be much too specula- tive to treat the different entry dates as some kind of “reverse payment” rather than a normal response to a different distri- bution of legal rights under different patent systems. Both the U.S. sealement and the E.U. sealement are tradi- tional resolutions of patent litigation. AbbVie did not pay the would-be entrants on either continent. Neither individually nor collectively do these sealements state a claim under §1 of the Sherman Act. We need not address any of the other issues debated by the parties. AFFIRMED