Summary of the Argument
This Court should grant the petition for a writ of certiorari and reverse the Third Circuit’s decision because it conflicts with this Court’s sham-litigation test articulated in PRE by effectively eliminating the second step of the sham litigation test: the inquiry into whether a patent owner had a subjective belief that his patent infringement suit lacked merit or was in different to the outcome of the suit. The Third Circuit’s novel approach—inferring subjective bad faith from a finding of objective baselessness—is at odds with PRE itself and sham-litigation jurisprudence in the other circuit courts. The petitioners address the relevant facts of this case, as well as this Court’s applicable jurisprudence. Therefore, Amici offer additional insights concerning how the Third Circuit’s decision threatens innovators’ property rights, as well as the Congressionally created incentives in the Hatch-Waxman Act, and poses a real and serious threat to pharmaceutical innovation, a key pillar of the U.S. innovation economy.
The FTC’s urging of the Third Circuit to adopt a truncated approach to the sham-litigation test is simply another attempt by the FTC to dictate that so called “reverse-payment” settlement agreements in the pharmaceutical industry are necessarily anticompetitive. After failing to convince this Court in Actavis to adopt a “quick-look” approach to evaluating reverse-payment settlement agreements, the FTC is now seeking to avoid having to develop actual proof of subjective bad faith on the part of a patent owner. Instead of marshalling any such evidence, the FTC seeks to rely on an inference that a finding that a patent suit was objectively baseless given a complicated patent validity issue necessarily means that the pa tent owner harbored a subjective belief that the suit was without merit or was indifferent to whether the suit succeeded.
This truncated inquiry into subjective intent un does the safeguard that the bad-faith inquiry serves— namely, ensuring that litigants whose suits are ultimately found to be meritless but who sincerely sought a favorable outcome are immune from antitrust liability under the Noerr-Pennington doctrine. Moreover, the Third Circuit’s novel approach to the subjective prong of the PRE test is particularly ill suited in the context of the Hatch-Waxman Act. The Third Circuit’s subjective-motivation analysis conflicts with the incentives inherent in the Hatch-Waxman regime by subjecting an innovator to antitrust liability—and accompanying treble damages—when an innovator files a patent infringement suit against an alleged infringer and automatically activates the thirty-month stay provision designed by Congress to encourage quick resolution of patent challenges.
If this Court allows the Third Circuit’s new interpretation of the subjective-motivation prong of the sham-litigation test to stand, it will have detrimental chilling effects on Hatch-Waxman lawsuits and settlements, both of which are encouraged by Hatch-Waxman. In turn, the Third Circuit’s truncated version of the sham-litigation test will discourage pharmaceutical innovation and harm our innovation economy—an acutely undesirable result in an era where the need for rapid pharmaceutical innovation is paramount. This Court should reverse the Third Circuit’s erroneous decision.