The New Plague: False Claims Liability Based on Inequitable Conduct During Patent Prosecution

Posted by Social Science Research Network

The New Plague: False Claims Liability Based on Inequitable Conduct During Patent Prosecution Gregory Michael (University of California), William J Newsom (Cooley LLP) & Matthew Avery (Baker Botts LLP)

Abstract: 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.