INSIGHT: A Tale of Two Supreme Court Cases

“It was the best of times, it was the worst of times”—used to describe Paris and London before and during the French revolution, these same words can describe the state of jurisdictional and venue legal issues for the pharmaceutical industry. TC Heartland LLC v. Kraft Foods Group Brands LLC (“TC Heartland”) and Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County (“BMS”), are two seminal U.S. Supreme Court decisions that have uniquely impacted the pharmaceutical industry. Neither plaintiffs nor defendants want to litigate in multiple courts. However, plaintiffs prefer to litigate in purportedly “plaintiff-friendly” forums, while defendants would rather litigate where they are incorporated. The rational of BMS provides the “best of times” for the pharmaceutical industry insofar as BMS effectively limits the forum-shopping in alleged plaintiff-friendly courts that has driven mass action lawsuits, which have plagued the industry for many years. But, TC Heartland has adversely impacted the pharmaceutical industry, and will continue to do so until sound legal precedent or legislation clarifies patent venue for Hatch-Waxman litigation.

Post-BMS v. Superior Court, California—The Best of Times

Before BMS, some courts may have taken a more relaxed approach to assessing jurisdiction. Those days appear to be over. In BMS, the Supreme Court addressed the critical question of specific personal jurisdiction: Whether a plaintiff’s claims can be said to “arise out of or relate to” a defendant’s forum activities if there is no causal connection between the plaintiff’s claims and the defendant’s activities in the forum state.

In the context of a mass tort action in state court, the U.S. Supreme Court reversed the California Supreme Court and held that California could not exercise specific jurisdiction over Bristol-Myers Squibb with respect to claims by nonresidents of California who did not claim to have suffered harm from ingestion of the company’s drug Plavix in California. Writing for the majority, Justice Alito explained that the case against Bristol-Myers Squibb was missing “a connection between the forum and the specific claims at issue.” “When no such connection exists, specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.” Ultimately, the Court concluded that “[t]he mere fact that other plaintiffs were prescribed, obtained, and ingested Plavix in California—and allegedly sustained the same injuries as did the nonresidents—does not allow the State to assert specific jurisdiction over the nonresidents’ claims.” The effective result of this holding is that a pharmaceutical company can be subjected to nationwide class certification only in its home state(s).

Even though the Supreme Court left open the applicability of BMS to a class action in federal court, district courts have begun to extend the Supreme Court’s holding in BMS to class action lawsuits. Many courts have held that BMS applies with equal force in the class action context. (See Practice Mgmt. Support Servs., Inc. v. Cirque du Soleil, Inc., 301 F. Supp. 3d 840, at 860–63 (N.D. Ill. Mar. 12, 2018).) For example, in DeBernardis v. NBTY, Inc., No. 17 C 6125, 2018 BL 16671 (N.D. Ill. Jan. 18, 2018), the court indicated that, “more likely than not based on the Supreme Court’s comments about federalism,” district courts will apply [BMS] to outlaw nationwide class actions in a forum … where there is no general jurisdiction over the Defendants.” In Greene v. Mizuho Bank, Ltd., 289 F. Supp. 3d 870, 874 (N.D. Ill. 2017), the court recognized that nothing in BMS suggests that it does not apply to named plaintiffs in a putative class action; rather, the court announced a general principle—that due process requires a connection between the forum and the specific claims at issue. And in Practice Mgmt. Support Servs., Inc. v. Cirque du Soleil, Inc. the court noted that under the Rules Enabling Act, a defendant’s due process interest should be the same in the class context. Similarly, the Eastern District of New York applied BMS to dismiss a price-fixing complaint on behalf of a nationwide class of dentists against an out-of-state vendor of dental supplies, reasoning that “the constitutional requirements of due process does not wax and wane when the complaint is individual or on behalf of a class.” (In re Dental Supplies Antitrust Litigation, 2017 BL 332564 (E.D.N.Y. Sept. 20, 2017); see also Wenokur v. AXA Equitable Life Ins. Co., No. CV-17-00165-PHX-DLR, 2017 BL 352969, at *6 n.4 (D. Ariz. Oct. 2, 2017) (noting that the court lacked personal jurisdiction over claims of putative class members with no connection to Arizona, citing to BMS).)

Notably, each plaintiff in a mass tort action is an actual named party in the litigation; however, in a class action, the proposed class representatives are the only plaintiffs actually named in the complaint. (See Fed. R. Civ. P. 2.) In other contexts, the Supreme Court has found that non-named class members may be parties for some purposes and not for others. (Devlin v. Scardelletti, 536 U.S. 1, *9–*10 (2002).) Some have argued that class actions can be contrasted from mass torts actions because of the additional due process safeguards for class certification under Federal Rule of Civil Procedure. Even so, district courts construe BMS as barring their exercise of jurisdiction over the purported nonresident plaintiff’s claims in a putative class action. The holding in BMS has created the “best of times” because pharmaceutical companies no longer waste financial resources on litigating jurisdictional issues, which are now backed by sound Supreme Court precedent.

Post-TC Heartland—The Worst of Times

While BMS is a positive game-changer, TC Heartland, on the other hand, is not. TC-Heartland has potentially separated Hatch-Waxman litigations into several different district courts. Venue in most patent cases is governed by a special patent-venue statute, 28 U.S.C. § 1400(b), which provides that any civil action for patent infringement may be brought in the judicial district where (i) the defendant resides, or (ii) where the defendant has committed acts of infringement and has a regular and established place of business. Before TC Heartland, venue was rarely a concern in Hatch-Waxman actions because courts supplemented § 1400(b) with the more permissive venue provisions of 28 U.S.C. § 1391(c).

Whether § 1400(b) governs venue in Hatch-Waxman actions remains an open question. But, after TC Heartland, the safest course for an innovator drug company is to file a patent infringement action against a defendant in districts: (1) where the defendant resides (i.e., is incorporated) (See TC Heartland, 137 S.Ct. at 1517), or (2) where the defendant has both committed acts of infringement and has a regular and established place of business. Under the second prong of §1400(b) venue is proper in a district where the defendant has committed acts of infringement and has a regular and established place of business.

Locating the “act of infringement” has become a contentious issue in Hatch-Waxman cases because the filing of an Abbreviated New Drug Application (“ANDA”) signifies a future and artificial act of infringement. (See 35 U.S.C. § 271(e)(2); AstraZeneca Pharm. LP v. Apotex Corp., 669 F. 3d 1370, 1377 (Fed. Cir. 2012) (citing Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 678 (1990)). ) For Hatch-Waxman cases, the central issue is whether the language “has committed” in § 1400(b) references only past “acts of infringement” or, alternatively, whether § 1400(b) also includes prospective acts of infringement. District courts have addressed this issue and reached different outcomes—Compare Bristol-Myers Squibb Co. v. Mylan Pharmaceuticals Inc., No. CV 17-379-LPS, 2017 BL 318410, at *6–13 (D. Del. Sept. 11, 2017); Celgene Corp. v. Hetero Labs Ltd., No. CV173387ESMAH, 2018 BL 71484, at *2–4 (D.N.J. Mar. 2, 2018); Javelin Pharm., Inc. v. Mylan Labs. Ltd., No. CV 16-224-LPS, 2017 BL 430370, at *3 (D. Del. Dec. 1, 2017) with Galderma Labs., L.P. v. Teva Pharm. USA, Inc., 290 F. Supp. 3d 599, 604-06 (N.D. Tex 2017). Until the Supreme Court or the Federal Circuit opines on where the artificial act of infringement occurs in the context of Hatch-Waxman, parties can expect to see more diverging opinions among the district courts.

In addressing the issue of what is a “regular and established place of business,” many courts have ordered venue-related discovery. In In re Cray Inc., 871 F. 3d 1355, 1360-64 (Fed. Cir. 2017), the Federal Circuit provided significant guidance about the meaning of “regular and established place of business” under § 1400(b). The Federal Circuit clarified that there are “three general requirements relevant to the inquiry: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.” And “[i]n deciding whether a defendant has a regular and established place of business in a district, no precise rule has been laid down and each case depends on its own facts.” Venue-related discovery increases litigation cost for both plaintiffs and defendants in Hatch-Waxman cases.

After the Supreme Court decision in TC Heartland, the legal framework concerning venue is in a state of flux, resulting in rising litigation expenses and more risk for pharmaceutical companies. High litigation expenditures adversely affects the financial bottom line and diminishes revenue allocated for future research and development of novel treatments, which in turn has a long-term impact on patient populations. Litigation in multiple courts also increases potential risk of adverse decisions against the patent holder, and at the very least creates considerable uncertainty as different judges assess patent validity and infringement with possible conflicting judgments at the district court level.

In Hatch-Waxman litigation, the patent holder is the declaratory judgment action defendant. To avoid the filing of declaratory judgment actions in multiple courts, either the courts or Congress needs to clarify that, in Hatch-Waxman cases, venue is appropriate where the defendant (i.e., patent holder) resides. In the meantime, TC Heartland will continue to create the “worst of times” for the pharmaceutical industry.

DISCLAIMER: The opinions expressed by Serena Farquharson-Torres are her own views and do not necessarily reflect the views of the Bristol-Myers Squibb.

DISCLAIMER: Wanda French-Brown represented TC Heartland LLC from Aug. 3, 2014 to March 10, 2016.

Dr. Serena Farquharson-Torres has more than 16 years of experience in patent law working first in private practice at Kenyon and Kenyon and senior patent counsel at several pharmaceutical companies including Schering-Plough/ Merck, Sanofi, and Bristol- Myers Squibb. She has worked in all aspects of patent law on a global level protecting small molecule, biotech and consumer healthcare innovation. She has counseled business development clients in consideration of mergers, acquisitions and licensing deals.

Wanda French-Brown serves as counsel in the New York office of BakerHostetler. She represents clients in a range of technologies, including pharmaceuticals, biotechnology and medical devices, with a concentration in Hatch-Waxman Abbreviated New Drug Application (ANDA)-based litigation.

Laura R. Gordon is an associate in the Philadelphia office of BakerHostetler. Gordon focuses her practice on patent prosecution and client counseling in the life science, biotechnology and pharmaceutical arenas.