The district court dismissed a qui tam complaint alleging healthcare fraud, finding the action foreclosed by the public disclosure bar. The relator was an attorney who successfully litigated a challenge to a pharmaceutical patent and then brought an FCA complaint based on the findings of the PTAB hearing, arguing that the defendants’ fraudulently-obtained drug patent induced the submission of false claims for reimbursement. The court found the complaint was entirely based on the findings of the hearing, and therefore barred by the public disclosure bar. While the relator argued the PTAB hearing was not one of the enumerated fora in the public disclosure bar as amended, the court was not persuaded by semantics. The court also held the relator was not an original source, because he had been hired to identify and present the information underlying his complaint in the PTAB hearing.
Plaintiff-relator Zachary Silbersher filed a qui tam suit alleging that Valeant Pharmaceuticals International Inc. fraudulently obtained a patent for one of its drugs, which allowed it to raise the price by wrongfully excluding generic competitors, and that the inflated prices paid by government healthcare programs for the drug amounted to false claims. The defendants moved to dismiss.
Silbersher’s complaint is based on a patent case he litigated that resulted in the invalidation of the patent for Apriso, a drug that uses the active ingredient mesalamine. Although mesalamine had been off-patent for some time, the defendants successfully moved the U.S. Patent and Trademark Office to issue a patent for its extended release formulation of the drug. After the patent was issued, several manufacturers of generic versions sued to invalidated it, arguing that the claims were unpatentable because mesalamine had long been used for the treatment claimed as patentable by the defendants.
PTAB agreed that the claims were unpatentable as obvious, finding that coating mesalamine to provide a timed release was not a new or unique solution in the drug industry and that a person of ordinary skill would have been aware of this approach. The success of the lawsuit was widely publicized in legal and pharmaceutical publications.
The relator filed this complaint, based on knowledge gleaned from his work as lead counsel on the case. His claim is premised on the allegation that defendants wrongfully obtained their patent by advising USPTO that their claims were not obvious. He argued the defendants violated the duty of candor by deliberately withholding studies demonstrating their claims were already widely acknowledged.
The relator argued the defendants obtained the patent to exclude competition from generics and to elevate prices. According to the complaint, competition would have lowered the price of the defendants’ drug by at least 80 percent and the defendants would have lost some 90 percent of market share. The patent allowed them to escape these adverse effects. The relator argued that the artificially inflated pricing was passed on to government healthcare programs in claims for reimbursement, and that these claims were false, because the prices were based on a fraudulently obtained patent.
The defendants move to dismiss on three grounds: (1) it does not allege an actionable false claim; (2) the claim is foreclosed by the FCA’s public disclosure bar; and (3) the claim sounds in fraud and has not been alleged with the degree of particularity required by Rule 9(b).
The court noted that the Ninth Circuit had previously affirmed the dismissal of a nearly identical case, in which a generic drug manufacturer successfully challenged a patent and then filed a qui tam action alleging the patent holder had engaged in inequitable conduct by withholding material disclosures from the USPTO and had obtained an illegal monopoly over the drug and then knowingly overcharged the United States. The circuit court affirmed dismissal on the grounds that the material allegations of fraud had been publicly disclosed in the litigation.
The court also noted that Silbersher was not a typical relator, in that he did not work for the defendants or in their industry, and had no direct inside knowledge of the alleged fraud. His knowledge of the alleged fraud was based entirely on publicly available references and other public documents, and the decision by the PTAB in favor of his client. Nothing in the complaint reflected any non-public or insider evidence. The relator argued that his information was not publicly disclosed, but other than this blanket statement, the court found no evidence in support of this assertion.
The relator argued that changes in the public disclosure bar made by the Patient Protection and Affordable Care Act saved his case, but the court disagreed, holding that the factors for determining when the bar applies have not materially changed. The court found that the complaint’s allegations were all disclosed in the PTAB proceedings, and that the complaint expressly relies on the board’s findings. While the relator newly alleged liability under the FCA, he did not assert new information.
Generally, Silbersher argued that PTAB is not an enumerated forum that might trigger the disclosure bar, but the court found the difference between PTAB hearings and the other listed fora to be merely semantic. For the sake of completeness, the court also held that the news media bar required dismissal, as the findings of the patent case had been widely disseminated.
As noted above, the court also found Silbersher did not qualify as an original source of the allegations. The relator argued for the first time in his opposition brief that he is an original source because he disclosed the medical studies to PTAB while representing his client in the patent proceedings, but the court explained that pre-filing information disclosed in the course of a relator’s job does not qualify as a “voluntary disclosure.” In his role, the relator’s job was to find this information to invalidate the patent at issue. He did not voluntarily disclose this alleged fraud, but was compelled to do what he was hired to do.
