Zachary Silbersher v. Valeant Pharmaceuticals Int'l
U.S. Court of Appeals for the Ninth Circuit
Zachary Silbersher v. Valeant Pharmaceuticals Int'l, 89 F.4th 1154 (9th Cir. 2023)
Zachary Silbersher v. Valeant Pharmaceuticals Int'l
Opinion
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ZACHARY SILBERSHER, Relator, No. 20-16176
Plaintiff-Appellant, D.C. No. 3:18-cv-
01496-JD
and
UNITED STATES OF AMERICA, ex OPINION
rel.; STATE OF CALIFORNIA;
STATE OF COLORADO; STATE OF
CONNECTICUT; STATE OF
DELAWARE; STATE OF FLORIDA;
STATE OF GEORGIA; STATE OF
HAWAII; STATE OF ILLINOIS;
STATE OF INDIANA; STATE OF
IOWA; STATE OF LOUISIANA;
STATE OF MARYLAND; STATE
OF MICHIGAN; STATE OF
MINNESOTA; STATE OF
MONTANA; STATE OF NEVADA;
STATE OF NEW HAMPSHIRE;
STATE OF NEW JERSEY; STATE
OF NEW MEXICO; STATE OF
NEW YORK; STATE OF NORTH
CAROLINA; STATE OF
OKLAHOMA; STATE OF RHODE
ISLAND; STATE OF TENNESSEE;
STATE OF TEXAS; STATE OF
2 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
VERMONT; STATE OF
WASHINGTON;
COMMONWEALTH OF
MASSACHUSETTS;
COMMONWEALTH OF VIRGINIA;
DISTRICT OF COLUMBIA,
Plaintiffs,
v.
VALEANT PHARMACEUTICALS
INTERNATIONAL, INC.;
VALEANT PHARMACEUTICALS
INTERNATIONAL; SALIX
PHARMACEUTICALS, LTD.;
SALIX PHARMACEUTICALS,
INC.; FALK PHARMA GMBH,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding
Argued and Submitted June 10, 2022
Portland, Oregon
Filed August 3, 2023
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 3
Before: Mary M. Schroeder and Gabriel P. Sanchez,
Circuit Judges, and John Antoon II, * District Judge.
Opinion by Judge Sanchez
SUMMARY **
False Claims Act
The panel reversed the district court’s dismissal of
relator Zachary Silbersher’s qui tam action under the False
Claims Act against Dr. Falk Pharma GmbH and drugmaker
Valeant Pharmaceuticals International, Inc., and remanded
for further proceedings.
Silbersher alleged that Valeant fraudulently obtained
two sets of patents related to a drug and asserted these
patents to stifle competition from generic
drugmakers. Silbersher further alleged that defendants
defrauded the federal government by charging an artificially
inflated price for the drug while falsely certifying that its
price was fair and reasonable. Dismissing Silbersher’s
action under the False Claims Act’s public disclosure bar,
the district court concluded that his allegations had already
*
The Honorable John Antoon II, United States District Judge for the
Middle District of Florida, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
been publicly disclosed, including in inter partes patent
review (“IPR”) before the Patent and Trademark Office.
The False Claims Act’s public disclosure bar, as
amended in 2010, applies if (1) the disclosure at issue
occurred through one of the channels specified in the statute;
(2) the disclosure was public; and (3) the relator’s action is
substantially the same as the allegation or transaction
publicly disclosed. Here, it was undisputed that the relevant
documents were publicly disclosed.
Under the first prong of the public disclosure bar, the Act
provides for the following three channels. Channel (i)
applies if a disclosure was made “in a Federal criminal, civil,
or administrative hearing in which the Government or its
agent is a party,” and channel (ii) applies if a disclosure was
made “in a congressional, Government Accountability
Office, or other Federal Report, hearing, audit, or
investigation.” Channel (iii) applies if a disclosure was
made in the news media.
The panel held that an IPR proceeding in which the
Patent and Trademark Office invalidated Valeant’s “‘688”
patent was not a channel (i) disclosure because the
government was not a party to that proceeding, and it was
not a channel (ii) disclosure because its primary function was
not investigative. The panel held that, under United States
ex rel. Silbersher v. Allergan, 46 F.4th 991 (9th Cir. 2022),
the patent prosecution histories of Valeant’s patents were
qualifying public disclosures under channel (ii). The panel
assumed without deciding that a Law360 article and two
published medical studies were channel (iii) disclosures.
The panel held that the “substantially the same” prong of
the public disclosure bar, as revised by Congress in its 2010
amendments to the False Claims Act, applies when the
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 5
publicly disclosed facts are substantially similar to the
relator’s allegations or transactions. None of the qualifying
public disclosures made a direct claim that Valeant
committed fraud, nor did they disclose a combination of
facts sufficient to permit a reasonable inference of
fraud. Accordingly, the public disclosure bar was not
triggered.
The panel resolved a cross-appeal in a separately-issued
memorandum disposition.
COUNSEL
Tejinder Singh (argued), Sparacino PLLC, Washington,
D.C.; Bret D. Hembd, Herrera Kennedy LLP, Burbank,
California; Nicomedes S. Herrera and Andrew M. Purdy,
Herrera Kennedy LLP, Oakland, California; Warren T.
Burns, Burns Charest LLP, Dallas, Texas; Christopher J.
Cormier, Burns Charest LLP, Washington, D.C.; for
Plaintiff-Appellant.
Michelle Lo, Assistant United States Attorney; Office of the
United States Attorney; San Francisco, California; for
Plaintiffs United States of America, States of California,
Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii,
Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan,
Minnesota, Montana, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina, Oklahoma, Rhode
Island, Tennessee, Texas, Vermont, Washington, the
Commonwealth of Massachusetts, the Commonwealth of
Virginia, and District of Columbia.
6 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
Moez M. Kaba (argued), Padraic W. Foran, Daniel C.
Sheehan, and Haoxiaohan Cai, Hueston Hennigan LLP, Los
Angeles, California; for Defendants-Appellees Valeant
Pharmaceuticals International Inc., Valeant Pharmaceuticals
International, Salix Pharmaceuticals Ltd., and Salix
Pharmaceuticals Inc.
Christian E. Mammen (argued), Womble Bond Dickinson
(US) LLP, San Francisco, California; Mary W. Bourke and
Kristen Cramer, Womble Bond Dickinson (US) LLP,
Wilmington, Delaware; for Defendant-Appellee Dr. Falk
Pharma GmbH.
Justin T. Berger, Cotchett Pitre & McCarthy LLP,
Burlingame, California; Jacklyn DeMar, Taxpayers Against
Fraud Education Fund, Washington, D.C.; for Amicus
Curiae Taxpayers Against Fraud Education Fund.
Gordon D. Todd, Kimberly A. Leaman, Christopher S. Ross,
and Katy (Yin Yee) Ho, Sidley Austin LLP, Washington,
D.C.; Jack E. Pace III and Peter J. Carney, White & Case
LLP, New York, New York; for Amici Curiae Johnson &
Johnson and BTG International Ltd.
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 7
OPINION
SANCHEZ, Circuit Judge:
This appeal presents the question whether the public
disclosure bar to the False Claims Act (“FCA”) applies to
Zachary Silbersher’s claims against Dr. Falk Pharma GmbH
and drugmaker Valeant Pharmaceuticals International, Inc.
(collectively, “Valeant”). 1 Silbersher alleges that Valeant
fraudulently obtained two sets of patents related to the anti-
inflammatory drug Apriso and asserted these patents to stifle
competition from generic drugmakers. Silbersher further
alleges that defendants defrauded the government by
charging an artificially inflated price for Apriso while falsely
certifying that the drug’s price was fair and reasonable. The
district court dismissed Silbersher’s qui tam action under the
public disclosure bar. See 31 U.S.C. § 3730(e)(4)(A). This case requires us to examine Congress’s 2010 amendments to the FCA’s public disclosure bar and to determine whether Silbersher’s claims are “substantially the same” as information that was publicly disclosed in one of three enumerated channels under the FCA. Seeid.
We have jurisdiction pursuant to28 U.S.C. § 1291
, and we reverse. 2
1
In 2015, Valeant Pharmaceuticals International, Inc., acquired Salix
Pharmaceuticals, Ltd., and its wholly owned subsidiary, Salix
Pharmaceuticals, Inc. Valeant is now Bausch. We refer to these parties,
along with Dr. Falk Pharma GmbH, collectively as “Valeant” because
Silbersher raises the same allegations against them all.
2
We resolve Dr. Falk Pharma GmbH’s cross-appeal in a separately
issued memorandum disposition.
8 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
I. BACKGROUND
A. False Claims Act
The False Claims Act imposes civil liability on anyone
who “knowingly presents” a “fraudulent claim for payment”
to the federal government. 31 U.S.C. § 3729(a)(1)(A); accord United States ex rel. Mateski v. Raytheon Co.,816 F.3d 565, 569
(9th Cir. 2016). Known as “Lincoln’s Law,” Congress passed the Act at President Lincoln’s request to combat fraud by Civil War defense contractors. See United States ex rel. Bennett v. Biotronik, Inc.,876 F.3d 1011
, 1013 n.1 (9th Cir. 2017). The Act allows private citizens, referred to as “relators,” to bring fraud claims on the government’s behalf against those who have violated the Act’s prohibitions. United States ex rel. Silbersher v. Allergan,46 F.4th 991, 994
(9th Cir. 2022); see31 U.S.C. § 3730
(b)(1). 3 If the government declines to proceed, the relator may prosecute the action and, if successful, recover up to thirty percent of the damages.31 U.S.C. §§ 3730
(b)(4), (d)(2).
The promise of bounty has sometimes incentivized
relators to bring dubious claims. The Supreme Court’s
decision in United States ex rel. Marcus v. Hess, 317 U.S.
537(1943), provides the paradigmatic example of a “parasitic” qui tam suit. Hess brought a qui tam action alleging that electricians colluded to inflate prices by coordinating their bids on government contracts.Id. at 539
. Before Hess’s qui tam action, the government had already indicted the electricians for the same scheme and the electricians entered a plea bargain requiring them to pay 3 Diligent readers of this Court’s opinions may feel a sense of déjà vu: we recently wrestled with certain parts of the FCA in another case brought by the same relator. See United States ex rel. Silbersher v. Allergan,46 F.4th 991
(9th Cir. 2022).
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 9
$54,000 in fines. Id. at 545. Spotting an opportunity, Hess
copied the government’s indictment and brought a qui tam
action against the electricians seeking hundreds of thousands
of dollars in damages. Id. The Court allowed Hess’s suit to
stand, reasoning that the action advanced “one of the
purposes for which the [FCA] was passed” because it
promised “a net recovery to the government of $150,000,
three times as much as the fines imposed in the criminal
proceedings.” Id. at 545.
“Hess inspired public outcry over the liberality of the qui
tam provisions that prompted speedy congressional
response.” United States ex rel. Springfield Terminal Ry. v.
Quinn, 14 F.3d 645, 650(D.C. Cir. 1994). In 1943, President Roosevelt signed amendments to the FCA that barred qui tam claims “based upon evidence or information in the possession” of the federal government.31 U.S.C. § 232
(C) (1945). Congress later determined, however, that this “government knowledge” bar prevented too many relators from bringing potentially meritorious claims. See Mateski,816 F.3d at 570
. In 1986, Congress replaced the government knowledge bar with the “public disclosure” bar.31 U.S.C. § 3730
(e)(4)(A) (1986). The change reflected Congress’s effort “to encourage suits by whistle-blowers with genuinely valuable information, while discouraging litigation by plaintiffs who have no significant information of their own to contribute.” Mateski,816 F.3d at 570
.
The 1986 public disclosure bar prevented qui tam claims
“based upon” public disclosures “in a criminal, civil, or
administrative hearing, in a congressional, administrative, or
Government Accounting Office report, hearing, audit, or
investigation, or from the news media,” unless the relator
10 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
was an “original source” of the disclosure. 4 31 U.S.C.
§ 3730(e)(4)(A) (1986); see Schindler Elevator Corp. v. United States ex rel. Kirk,563 U.S. 401, 412
(2011). The public disclosure bar applied when three conditions were met: “(1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was ‘public’; and (3) the relator’s action is ‘based upon’ the allegations or transactions publicly disclosed.” United States ex rel. Solis v. Millenium Pharms., Inc.,885 F.3d 623, 626
(9th Cir. 2018) (quoting Mateski,816 F.3d at 1570
)
(analyzing the 1986 version of the public disclosure bar).
Congress made important changes to the public
disclosure bar in 2010. As amended, the bar precludes qui
tam actions if:
substantially the same allegations or
transactions as alleged in the action or claim
were publicly disclosed—
(i) in a Federal criminal, civil, or
administrative hearing in which the
Government or its agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal
Report, hearing, audit, or investigation;
or
(iii) from the news media,
4
An “original source” was defined as “an individual who has direct and
independent knowledge of the information on which the allegations are
based and has voluntarily provided the information to the Government
before filing an action under this section which is based on the
information.” 31 U.S.C. § 3730(e)(4)(B) (1986).
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 11
unless the action is brought by the Attorney
General or the person bringing the action is
an original source of the information. 5
31 U.S.C. § 3730(e)(4)(A) (2010). We recently concluded in Allergan that our three-part test for determining whether the public disclosure bar applies to a qui tam action remains good law after the 2010 amendments. See Allergan,46 F.4th at 996
.
The 2010 amendments narrowed the requirements for
triggering the public disclosure bar in several important
respects. Previously, the public disclosure bar was triggered
if the qui tam action was based upon information publicly
disclosed in any “criminal, civil, or administrative hearing.”
See 31 U.S.C. § 3730(e)(4)(A) (1986); see also A-1 Ambulance Serv., Inc. v. California,202 F.3d 1238
, 1243– 44 (9th Cir. 2000) (applying public disclosure bar to information disclosed in county public bidding proceeding). Now, only a “Federal criminal, civil, or administrative hearing” qualifies as a specified channel (i) disclosure.31 U.S.C. § 3730
(e)(4)(A)(i) (2010) (emphasis added); see also
5
An original source is:
an individual who either (i) prior to a public disclosure
under [the public disclosure bar] has voluntarily
disclosed to the Government the information on which
allegations or transactions in a claim are based, or [(ii)]
who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or
transactions, and who has voluntarily provided the
information to the Government before filing an action
under this section.
31 U.S.C. § 3730(e)(4)(B) (2010). 12 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L Allergan, 46 F.4th at 998–99. Likewise, for a “report, hearing, audit, or investigation” to trigger the public disclosure bar under channel (ii), it must now be “Federal.” Compare31 U.S.C. § 3730
(e)(4)(A) (1986), withid.
§ 3730(e)(4)(A)(ii) (2010). See also Allergan,46 F.4th at 998
. Finally, for the public disclosure bar to apply under channel (i), the “Government or its agent” must be “a party” to the “Federal criminal, civil or administrative hearing.” Compare31 U.S.C. § 3730
(e)(4)(A) (1986), withid.
§ 3730(e)(4)(A)(i) (2010).
B. Patent Prosecution and Inter Partes Review
A patent gives its owner the exclusive right to make, use,
or sell a patented invention for a limited period. 35 U.S.C.
§ 271(a). For an invention to be patent-worthy, it must be novel and not obvious to a person with ordinary skill in the relevant art.35 U.S.C. §§ 102
, 103. The process of obtaining a patent is called a patent prosecution. In a patent prosecution, an inventor submits a patent application to the Patent and Trademark Office (“PTO”), which examines the application before accepting or rejecting it. The PTO’s examination is an ex parte proceeding. The PTO relies on applicants to exercise good faith and candor about the originality of their purported inventions. See37 C.F.R. § 1.56
(a). An inventor who applies for a patent must disclose to the PTO “all information known to that individual to be material to patentability.”Id.
Patent applications are generally made public eighteen months after they are filed. See35 U.S.C. § 122
(b).
After a patent has been granted, anyone can challenge its
validity by petitioning the PTO to hold inter partes review
(“IPR”) of the patent. 35 U.S.C. § 311(a). IPR is a trial-like
proceeding conducted at the Patent Trial and Appeal Board
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 13
(“PTAB”), an adjudicatory branch of the PTO. See id.§ 6(a). See generally id. §§ 311–19;37 C.F.R. §§ 42
.100– 42.123 (2021). In an IPR proceeding, the person challenging the patent argues against the validity of the patent, and the patent owner defends it. The PTAB presides as the adjudicator.35 U.S.C. § 316
(c). Both the challenger and the patent owner may present evidence. See Genzyme Therapeutic Prods. Ltd. v. Biomarin Pharm. Inc.,825 F.3d 1360
, 1365–70 (Fed. Cir. 2016). The challenger bears the burden of proving the patent is invalid.35 U.S.C. § 316
(e).
The scope of IPR is limited. Challengers can assert only
that the patented invention was obvious or not novel and
introduce as evidence only previously granted patents and
publications (referred to as “prior art”). See id.§ 311(b). An IPR does not decide whether an inventor obtained a patent wrongfully—by committing fraud, for example. See id.; see also Therasense, Inc. v. Becton, Dickinson & Co.,649 F.3d 1276
, 1288–95 (Fed. Cir. 2011).
C. Factual Background
We now describe the facts as presented in Silbersher’s
qui tam complaint. Valeant manufactures Apriso, a
medication prescribed to treat ulcerative colitis. When
ingested, Apriso travels through the digestive system and
releases its active ingredient, mesalamine. Upon arrival in
the colon, mesalamine reduces the inflammation and
discomfort caused by ulcerative colitis. Valeant owns a set
of patents (“the Otterbeck Patents”) for Apriso’s delayed-
release formula, which maximizes the amount of
mesalamine that reaches the colon.
Beginning in 2012, Valeant enforced the Otterbeck
Patents to prevent competitors from creating cheaper,
generic versions of Apriso. The absence of generic
14 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
competition allowed Valeant to charge high prices for the
drug. A one-month prescription of Apriso retailed for about
$600, earning Valeant over $200 million each year. A
substantial portion of those proceeds came from the federal
government, which paid for Apriso through Medicare and
Medicaid.
The Otterbeck Patents rested on shaky ground. Several
patents predating the Otterbeck Patents describe similar
delayed-release formulas for mesalamine drugs. Viewed
against those prior inventions, Apriso simply put a new label
on an old pill. In 2012, Lupin, a generic drug manufacturer,
submitted an Abbreviated New Drug Application to the FDA
attesting that the Otterbeck Patents were invalid. If the
Otterbeck Patents were invalidated, generic competition
would drive down Apriso’s price. Valeant initiated an
infringement action against Lupin to prevent that from
happening. Seeing the writing on the wall, Valeant sought
to extend its monopoly by applying for a new patent,
claiming it had recently discovered that Apriso was effective
when taken without food. The PTO initially rejected the
application. After several rounds of revisions to the
application, Valeant finally succeeded, and the PTO granted
Patent No. 8,865,688 (“the ’688 Patent”) in 2014.6
Valeant’s gambit paid off. Approval of the ’688 Patent gave
Valeant leverage: even if Lupin successfully invalidated the
Otterbeck Patents, it would need to mount a new, separate
6
The ’688 Patent contained sixteen “claims.” A patent can include
several claims, each treated as a distinct invention and correspondingly
a distinct right to exclude others from practicing the invention. See, e.g.,
Leeds & Catlin Co. v. Victor Talking Mach. Co., 213 U.S. 301, 319
(1909). Only the first and sixteenth claims of the ’688 Patent are relevant
to the present appeal. Our discussion of that patent refers only to those
two claims.
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 15
challenge to the ’688 Patent before it could manufacture an
Apriso generic. In September 2014, Valeant dismissed its
infringement claims against Lupin relating to the Otterbeck
Patents, and Lupin agreed to refrain from introducing a
generic version of Apriso until 2022, four years after the
expiration of the Otterbeck Patents.
In 2015, another generic drug manufacturer, GeneriCo
LLC, sued to invalidate the ’688 Patent. GeneriCo
challenged the ’688 Patent through IPR, arguing it was
obvious that Apriso would be effective without food. As
evidence, GeneriCo presented two published medical studies
predating Valeant’s ’688 Patent application (“the Brunner
and Marakhouski studies”). See GeneriCo, LLC v. Dr. Falk
Pharma GmbH, No. IPR2016–00297, 2017 WL 2211672(P.T.A.B. May 19, 2017), aff’d,774 F. App’x 665
(Fed. Cir. 2019). The Brunner and Marakhouski studies established that mesalamine drugs were effective when taken without food, undermining Valeant’s purported later discovery of the same result. Moreover, Valeant’s own head of research co- authored both studies, discrediting Valeant’s claim that Apriso’s effectiveness without food had been a new discovery.Id. at *6
. The PTAB agreed with GeneriCo and invalidated the ’688 Patent as obvious.Id. at *24
. 7
A legal news outlet, Law360, published an article
describing GeneriCo’s successful arguments and the
PTAB’s decision cancelling the ’688 Patent. See Matthew
Bultman, Part of Apriso Patent Nixed in IPR with Hedge
Fund Ties, Law360 (May 19, 2017, 4:58 PM EDT),
[https://perma.cc/56YR-ET78]. The article stated that
7
The PTAB invalidated “claims 1 and 16 of the ’688 patent.” GeneriCo,
LLC, 2017 WL 2211672at *24. The other fourteen claims in the ’688 Patent were not affected by the PTAB’s decision.Id.
16 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L GeneriCo “had shown the challenged patent claims would have been obvious” by pointing to “a collection of references that included press releases from [Valeant] about clinical drug trials and some academic papers.”Id.
The article did not mention that Valeant’s head of research had co-authored the Brunner and Marakhouski studies.Id.
Silbersher was GeneriCo’s lawyer and led the IPR
challenge that resulted in the ’688 Patent being invalidated.
Silbersher’s investigations into Valeant’s Apriso-related
patents revealed other information that was not disclosed in
the IPR proceeding. He discovered that three years before
applying for the ’688 Patent, Valeant had applied for Patent
No. 8,921,344 (“the ’344 Patent”). In the ’344 Patent
application, Valeant claimed it had made an “unexpected
finding”: taking mesalamine with food made the drug more
effective. In other words, the ’344 Patent application
claimed it was obvious that mesalamine was effective
without food—the exact opposite of what Valeant would
claim a few years later in the ’688 Patent application.
D. Procedural History
Silbersher brought this FCA case seeking damages from
Valeant for making false claims for payment to the federal
government. He alleges that Valeant fraudulently obtained
the Otterbeck and ’688 Patents so that it could prolong its
monopoly and charge an “artificially high price” for Apriso.
According to Silbersher, Valeant “intentionally withheld
material information demonstrating that Valeant’s claimed
granulated mesalamine formulation would be effective when
administered without food.” Silbersher contends that
Valeant knew about the Brunner and Marakhouski studies
and the earlier ’344 Patent application but did not disclose
that information to the PTO when applying for the ’688
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 17
Patent. Similarly, Silbersher alleges that the Otterbeck
Patents are invalid because Valeant failed to disclose “at
least four prior art patents [that] anticipate all or nearly all of
the alleged inventions claimed in the Otterbeck Patents.”
Medicare and Medicaid allegedly paid nearly $250
million for Apriso from 2011 to 2016. Silbersher estimates
that the government would have paid about eighty percent
less if generic manufacturers of Apriso were allowed to enter
the market. Silbersher contends that Valeant therefore
committed fraud when it knowingly overcharged the
government and certified to Medicare and Medicaid that
Apriso’s price was fair and reasonable.
The district court dismissed Silbersher’s qui tam action
as precluded by the public disclosure bar. Guided by our
precedent interpreting the pre-2010 FCA, the district court
reasoned that IPR qualifies as an “other Federal . . . hearing”
under channel (ii) of the bar. The district court determined
that Silbersher’s allegations against Valeant had all been
disclosed in the IPR that invalidated the ’688 Patent.
Accordingly, the district court concluded that Silbersher’s
qui tam action was the “quintessence of the opportunistic
and ‘parasitic’ lawsuit Congress has always intended to bar.”
The court gave Silbersher leave to amend his claims, but
Silbersher instead filed this appeal.
II. DISCUSSION
We review the district court’s ruling on a motion to
dismiss an FCA action de novo. Allergan, 46 F.4th at 996. To determine whether Silbersher’s qui tam action was properly dismissed by the district court under the public disclosure bar, we must assess whether “(1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was public; and (3) the relator’s 18 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L action is substantially the same as the allegation or transaction publicly disclosed.”Id.
(internal quotation marks omitted) (quoting Solis,885 F.3d at 626
). The parties do not dispute that the relevant documents that are the subject of this appeal were all publicly disclosed. Therefore, our analysis is confined to determining whether the public disclosures in question occurred within one of the channels specified by the FCA, and if so, whether they disclosed “substantially the same allegations or transactions as alleged in” Silbersher’s qui tam action.31 U.S.C. § 3730
(e)(4)(A).
Valeant points us to four sets of disclosures: (1) the
patent prosecution histories of the ’344, ’688, and Otterbeck
Patents; (2) the IPR proceeding in which the PTAB
invalidated the ’688 Patent; (3) the Law360 article
summarizing the IPR proceeding; and (4) the Brunner and
Marakhouski studies. We address first whether these
disclosures occurred within a specified channel.
A.
The FCA’s public disclosure bar requires federal courts
to dismiss qui tam suits under certain circumstances where
the complaint’s allegations closely match information that
was publicly disclosed in one of three specified channels. 31
U.S.C. § 3730(e)(4)(A). The full text of the public
disclosure bar is repeated below:
The court shall dismiss an action or claim
under this section, unless opposed by the
Government, if substantially the same
allegations or transactions as alleged in the
action or claim were publicly disclosed—
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 19
(i) in a Federal criminal, civil, or
administrative hearing in which the
Government or its agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal
Report, hearing, audit, or investigation;
or
(iii)from the news media,
unless the action is brought by the Attorney
General or the person bringing the action is
an original source of the information.
31 U.S.C. § 3730(e)(4)(A) (2010).
“[T]he Supreme Court has instructed that to determine
the meaning of one word in the public disclosure bar, we
must consider the provision’s entire text, read as an
integrated whole.” Allergan, 46 F.4th at 997(internal quotation marks omitted) (quoting Schindler,563 U.S. at 408
). As we explained in Allergan, channels (i) and (ii)
focus on two distinct types of federal proceedings. Id. at
999. Channel (i) primarily involves adversarial proceedings
that are adjudicated on the merits before a neutral tribunal or
decisionmaker, whereas channel (ii) primarily involves
federal investigatory proceedings. Id.
Several textual clues lead us to this conclusion. A
“Federal criminal, civil, or administrative hearing in which
the Government . . . is a party” contemplates an adjudicatory
hearing before a neutral tribunal or decisionmaker. See
Hearing, Black’s Law Dictionary (11th ed. 2019) (“A
judicial session, usually open to the public, held for the
purpose of deciding issues of fact or law, sometimes with
20 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
witnesses testifying.”); Administrative Hearing, id. (“An
administrative-agency proceeding in which evidence is
offered for argument or trial.”). As we observed in Allergan,
the term “party” describing the government’s role in such a
hearing contemplates that channel (i) hearings are also
adversarial. Allergan, 46 F.4th at 999 (noting that channel
(i) “suggests a focus on adversarial proceedings because
criminal hearings are always adversarial, and civil and
administrative hearings are very often adversarial when the
government is a party” (citing Party, Black’s Law
Dictionary (11th ed. 2019)).
Conversely, in Allergan we concluded that prong (ii) “is
primarily concerned with proceedings to gain information.”
Id.A “report, hearing, audit, or investigation” all suggest the “activity of trying to find out the truth about something,” whether by “an authoritative inquiry into certain facts, as by a legislative committee, or a systematic examination of some intellectual problem or empirical question.” See Investigation, Black’s Law Dictionary (11th ed. 2019). Invoking the canon of noscitur a sociis, we observed that “[a]ll four nouns apply to a fact-finding or investigatory process ‘to obtain information,’ and together indicate that Congress intended for prong (ii) to cover a wide array of investigatory processes.” Allergan,46 F.4th at 998
(emphasis removed) (citation omitted) (quoting Schindler,563 U.S. at 410
).
We held in Allergan that because a patent prosecution is
an ex parte proceeding before a federal administrative
agency—the PTO—such a proceeding qualifies as an “other
Federal . . . hearing” under channel (ii). Id. at 998–99. We
rejected the contention that “by adding the government-as-
a-party language to prong (i) in the 2010 amendment,
Congress intended to exclude administrative hearings in
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 21
which the government was not a party from the public
disclosure bar writ large.” Id. at 998. Such a sweeping
argument would seemingly read “other Federal . . . hearing”
out of existence from channel (ii), and we noted that the FCA
“contemplates some redundancy” between the channels. Id.
at 999 (quoting Schindler, 563 U.S. at 410). We explained that an ex parte hearing before the PTO in which the government is not a party falls within channel (ii), “[b]ut when the PTO rejects a patent application and the inventor appeals, the appeal could fall under prong (i) but not prong (ii)” as an adjudication before the PTAB.Id.
This appeal requires us to address certain public
disclosures addressed by Allergan as well as other
disclosures that raise novel questions concerning application
of the statutory bar. We turn to the four sets of public
disclosures identified by Valeant.
The patent prosecutions involving the ’344, ’688, and
Otterbeck Patents are qualifying public disclosures under
channel (ii), as “other Federal . . . hearing[s].” See id.at 997–99. A public disclosure “also ‘encompasses publicly- filed documents’ submitted as part of the proceeding.”Id.
at
997 (quoting A-1 Ambulance Serv., 202 F.3d at 1244).
Allergan does not, however, resolve whether the IPR that
invalidated the ’688 Patent was a disclosure occurring within
a specified channel. See id. at 999 (observing that an appeal
by an inventor before the PTAB “could fall under prong (i)
but not prong (ii)” but not reaching the issue). We must
therefore determine whether the IPR proceeding falls within
channel (i) or channel (ii).
As previously explained, IPR is a trial-like, adversarial
hearing conducted before the PTAB between a patent owner
and patent challenger. See 35 U.S.C. §§ 311–19. Other
22 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
parties may join in the IPR at the discretion of the PTO. Id.
§ 315(c). The function of IPR is to adjudicate disputes about
the patentability of a patented invention under the criteria of
novelty and obviousness. Id. § 311(b). The parties may file
motions, take discovery, and present evidence and oral
testimony at a hearing. Id. § 316(a); see 37 C.F.R. §§ 42.20– 25, 42.51–55, 42.61–42.70. At the conclusion of IPR, the PTAB issues “a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”35 U.S.C. § 318
(a); see37 C.F.R. §§ 42
.20–25. The PTAB’s decision may itself be appealed to the Federal Circuit. See35 U.S.C. § 143
.
IPR presents many hallmarks of a channel (i) federal
administrative hearing. It is clearly “Federal”: the PTAB is
an adjudicatory body of the PTO, an agency within the U.S.
Department of Commerce. See 35 U.S.C. § 6(a); Allergan,46 F.4th at 998
. It is an “administrative hearing” in which evidence and argument are presented before a neutral tribunal that adjudicates the merits of a dispute about the patentability of an invention. And it is an adversarial proceeding between two or more parties to the litigation. See35 U.S.C. § 311
(a)–(b) (establishing grounds and scope of IPR proceeding);id.
§ 313 (describing patent owner’s right
to respond); id. § 314 (defining basis for instituting IPR); id.
§ 316(a)(5) (establishing parties’ ability to take “discovery
of relevant evidence”); id. § 316(a)(8) (establishing parties’
ability to present “factual evidence and expert opinions” to
support their arguments); id. § 318 (“[T]he [PTAB] shall
issue a final written decision with respect to the patentability
of any patent claim challenged by the petitioner . . . .”).
But because the government was not a “party” to the IPR
proceeding concerning the ’688 Patent, the proceeding here
was not a channel (i) disclosure. See 31 U.S.C.
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 23
§ 3730(e)(4)(A)(i). Valeant contends that the government
was a party to the IPR because the Director of the PTO is
charged with determining whether an IPR should proceed
and is permitted to participate in an appeal of a PTAB
decision—procedural features that suggest the PTO is acting
on behalf of the United States. We disagree. That the
Director of the PTO decides whether an IPR should be
instituted, see 35 U.S.C. § 314(a), and may adjudicate claims raised in the IPR as a member of the PTAB, seeid.
§ 6(a), does not transform the PTO into a “party” to the IPR proceeding. A “party” is “[o]ne by or against whom a lawsuit is brought; . . . [a] Litigant.” Party, Black’s Law Dictionary (11th ed. 2019); see Allergan,46 F.4th at 999
. The government did not participate as a litigant in the IPR challenging the ’688 Patent. See GeneriCo,2017 WL 2211672
, at *1, 3–6, 21 (referring to the “parties” as the
petitioner and patent owner).
Valeant also contends that the IPR qualifies under
channel (ii) as an “other Federal . . . hearing.” Again, we
disagree. The IPR’s primary function was not investigative
in the sense of conducting a “fact-finding or investigatory
process ‘to obtain information.’” Allergan, 46 F.4th at 998(emphasis removed) (quoting Schindler,563 U.S. at 410
). It was adjudicatory—its purpose was to render a decision between Valeant and GeneriCo as to the obviousness or novelty of the ’688 Patent through a trial-like federal administrative hearing. Moreover, as we emphasized in Allergan, an important demarcation between channel (i) and channel (ii) disclosures is whether the proceeding is ex parte or adversarial. Id. at 999. Here, the IPR was without question adversarial. To conclude that an adversarial, adjudicatory, federal administrative hearing before the PTAB in which the government was not a party nevertheless 24 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L qualifies under channel (ii) as an “other Federal . . . hearing” would render the government-as-a-party requirement in channel (i) a nullity. As Allergan noted, “[i]t is our duty to give effect, if possible, to every clause and word of a statute.” Allergan,46 F.4th at 999
(alteration in original) (internal quotation marks omitted) (quoting Duncan v. Walker,533 U.S. 167, 174
(2001)). Accordingly, we
conclude that the IPR proceeding invalidating the ’688
Patent was not a disclosure occurring in a specified channel.
Finally, Valeant contends that the Law360 article and
Brunner and Marakhouski studies are qualifying “news
media” disclosures under channel (iii). See 31 U.S.C.
§ 3730(e)(4)(A)(iii). Silbersher does not meaningfully
challenge this argument. We need not resolve Valeant’s
contention because, as we explain below, the Law360 article
and the Brunner and Marakhouski studies do not disclose
“substantially the same . . . allegations or transactions” as
Silbersher’s claims.
In sum, we hold that the disclosures in the IPR
proceeding at issue here did not constitute a disclosure
occurring within a specified channel. The prosecution
histories of the ’344, ’688, and Otterbeck Patents were
disclosures in the second channel. See Allergan, 46 F.4th at
997–99. And we assume without deciding that the Law360
article and the Brunner and Marakhouski studies were
disclosures occurring within the third channel.
B.
We next consider whether the qualifying disclosures
reveal “substantially the same . . . allegations or
transactions” as Silbersher’s qui tam action. We have not
yet interpreted the “substantially the same” prong of the
public disclosure bar as revised by Congress in its 2010
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 25
amendments to the FCA. Compare 31 U.S.C.
§ 3730(e)(4)(A) (2010), withid.
(1986). In the previous version of the Act, the public disclosure bar applied when a relator’s allegations were “based upon” a prior public disclosure. Seeid.
(1986).
Ordinarily, Congress’s decision to change “based upon”
to “substantially the same as” would indicate the two phrases
have different meanings. See Rumsfeld v. F. for Acad. &
Institutional Rts., Inc., 547 U.S. 47, 57–58 (2006); Stone v. INS,514 U.S. 386, 397
(1995). Here, however, the change aligns with our caselaw interpreting the previous version of the Act. Under the pre-2010 version of the FCA, our circuit interpreted “based upon” to mean “substantially similar to.” See generally Mateski,816 F.3d at 573
(“Under our case law, for a relator’s allegations to be ‘based upon’ a prior public disclosure, ‘the publicly disclosed facts need not be identical with, but only substantially similar to, the relator’s allegations.’” (emphasis added) (quoting United States ex rel. Meyer v. Horizon Health Corp.,565 F.3d 1195, 1199
(9th Cir. 2009)); see also United States ex rel. Lujan v. Hughes Aircraft Co.,243 F.3d 1181, 1189
(9th Cir. 2001). Thus, as we suggested in Allergan, we conclude that Congress re-enacted its prior law in clearer terms by replacing “based upon” with “substantially the same as,” leaving our precedent interpreting that phrase undisturbed. See Allergan,46 F.4th at 996
n.5; Mateski,816 F.3d at 569
n.7, 573 n.14.
Guided by our precedent interpreting “based upon,” we
next ask whether “substantially the same allegations or
transactions . . . alleged in [Silbersher’s] action or claim
were publicly disclosed.” 31 U.S.C. § 3730(4)(A). We have recognized a distinction between an “allegation” and a “transaction” for purposes of the public disclosure bar. An 26 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L allegation refers to a prior “direct claim of fraud,” while a “transaction” refers to the disclosure of “facts from which fraud can be inferred.” Mateski,816 F.3d at 571
(endorsing
the definition adopted in Springfield Terminal, 14 F.3d at
653–54).
As the parties acknowledge, none of the public
disclosures makes a direct claim that Valeant committed
fraud. We instead turn to the broader question: whether the
qualifying disclosures reveal “facts from which fraud can be
inferred.” The Mateski court explained that “[I]f X + Y = Z,
Z represents the allegation of fraud and X and Y represent
its essential elements. In order to disclose [a] fraudulent
transaction publicly, the combination of X and Y must be
revealed, from which readers or listeners may infer Z, i.e.,
the conclusion that fraud has been committed.” Mateski, 816
F.3d at 571(first alteration in original) (quoting United States ex rel. Found. Aiding the Elderly v. Horizon W., Inc.,265 F.3d 1011, 1015
(9th Cir.), amended on denial of reh’g,275 F.3d 1189
(9th Cir. 2001)). In the Mateski formula, the variables X and Y stand for the fundamental elements of fraud: “a misrepresented state of facts and a true state of facts.” Id. (quoting Horizon,265 F.3d at 1015
); see also Amphastar Pharms. Inc. v. Aventis Pharma SA,856 F.3d 696, 704
(9th Cir. 2017) (“If enough of the underlying facts
making up the elements of fraud are disclosed, the [public
disclosure] bar applies.”).
Applying this framework, we conclude that the
qualifying public disclosures here do not disclose a
combination of facts sufficient to permit a reasonable
inference of fraud. To refresh, Silbersher’s qui tam
complaint alleges that (1) Valeant “intentionally withheld
material information” demonstrating that Apriso’s
effectiveness without food was obvious from prior art (the
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 27
Brunner and Marakhouski studies) when Valeant filed the
’688 Patent application; (2) Valeant’s claims in the ’688
Patent prosecution directly contradicted its claims in the
earlier ’344 Patent prosecution that taking mesalamine with
food made the drug more effective; (3) the ’688 Patent was
invalidly obtained because Valeant was aware that the
Otterbeck Patents were themselves invalid based on prior art
and vulnerable to challenge; and (4) by fraudulently
obtaining the ’688 Patent, Valeant prolonged its monopoly
of Apriso and charged the government an “artificially high
price for the drug,” all while falsely certifying that the drug
price was “fair and reasonable.”
Translating Silbersher’s allegations into the formula, X
stands for the misrepresented facts—Valeant’s claim that it
was not obvious that Apriso would be effective without food
and that the Otterbeck Patents for Apriso’s delayed-release
formula were original discoveries. And Y stands for the
alleged truth—it was obvious that Apriso can be effectively
administered without food and that the Otterbeck Patents
were invalidly obtained. The scattered disclosures possibly
reveal both X and Y, but never the combination of the two.
See Mateski, F.3d at 571. Valeant claimed in the ’688 Patent
that Apriso’s effectiveness without food was not obvious.
Nothing in the prosecution history of that patent, however,
reveals the alleged truth—that it was obvious. In
mathematic terms, the ’688 Patent discloses X but not Y.
The ’344 Patent, meanwhile, has the opposite problem. In
that patent prosecution, Valeant claimed it was obvious that
Apriso would be effective without food. But the ’344 Patent
application contains no misrepresentation, thus disclosing Y
without X. To prove fraud under the FCA, the relator must
demonstrate that a person “knowingly present[ed]” a
“fraudulent claim for payment” to the federal government.
28 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L
31 U.S.C. § 3729(a)(1)(A). Silbersher’s qui tam allegations
provide a critical fact necessary for scienter: Falk and
Valeant took conflicting positions in their patent
prosecutions of the ’344 and ’688 Patents. Neither of these
patent prosecutions, or any other disclosure, reveals that fact.
The Law360 article states that “two claims in the [’688
Patent] were obvious based on a collection of references that
included press releases from [Valeant] about clinical drug
trials and some academic papers.” But the Law360 article
does not disclose—nor even imply—that Valeant knowingly
withheld information when applying for the ’688 Patent.
Similarly, the Brunner and Marakhouski studies (and
Valeant’s involvement in those studies) reinforce that
Valeant understood the obviousness of Apriso’s food-free
effectiveness. The studies do not, however, say anything
about Valeant’s application for the ’688 Patent. The Law360
article and the medical studies thus reveal Y and not X.
Finally, none of the qualifying disclosures—the ’688 and
’344 Patents, the Law360 article, or the scientific studies—
makes any mention of the Otterbeck Patents, much less
disclose anything about the validity of these patents. Valeant
allegedly misrepresented to the PTO that Apriso’s delayed-
release formula underlying the Otterbeck Patents was an
original discovery. The patent prosecutions, however, do
not reveal the alleged truth: the patents were invalidly
obtained. Once again, the Otterbeck Patents disclose X but
not Y.
In sum, the scattered qualifying public disclosures each
contain a piece of the puzzle, but none shows the full picture.
In his qui tam action, Silbersher filled the gaps by putting
together the material elements of the allegedly fraudulent
scheme. See Mateski, 816 F.3d at 571.
SILBERSHER V. VALEANT PHARMACEUTICALS INT’L 29
Valeant contends that our decision in Amphastar should
guide us to a different conclusion. In Amphastar, we
affirmed the dismissal of FCA claims asserted against a drug
manufacturer under the 1986 version of the public disclosure
bar. Amphastar, 856 F.3d at 711. Amphastar, a generic drug manufacturer, filed an application seeking the Food and Drug Administration’s approval to market a generic blood thinner.Id. at 701
. The patent holder, Aventis, sued in federal district court for patent infringement.Id.
at 701–02. In its amended answer and counterclaim, Amphastar asserted that Aventis had obtained an invalid patent through “misrepresentations,” alleged that Aventis “attempted to maintain or obtain a monopoly” over others, and claimed that Aventis “wrongfully derive[d] income” from this conduct.Id. at 704
. After Amphastar succeeded in invalidating the patent, it filed a qui tam action against Aventis alleging the patentee had “obtained an illegal monopoly” over the drug “and then knowingly overcharged the United States.”Id. at 702
.
In upholding the dismissal of the qui tam suit, we
grounded our decision on several factors that distinguish it
from the present case. There, dismissal was based on the
1986 public disclosure bar, which prevented qui tam claims
based upon public disclosures “in a criminal, civil, or
administrative hearing” and did not require, as now, that the
government be a party to the hearing. 31 U.S.C.
§ 3730(e)(4)(A) (1986); see Amphastar, 702856 F.3d at 702
n.7. The Amphastar court also held that the prior public disclosure—the amended answer and counterclaim—“made nearly identical allegations” of fraud as the qui tam complaint.Id. at 704
(emphasis added). Here, no party contends that any public disclosure has made a direct claim of fraud. Finally, we concluded that Amphastar’s prior 30 SILBERSHER V. VALEANT PHARMACEUTICALS INT’L amended answer and counterclaim also revealed sufficient facts from which fraud could be inferred, noting all the material facts had been disclosed in that filing except the claim of overcharging the government.Id.
at 704–05.
Unlike in Amphastar, no public disclosure here, individually
or in combination, establishes facts from which fraud could
be inferred. It is the combination of disclosures and conduct
alleged in Silbersher’s complaint that bring together the
constituent elements of fraud.
We therefore determine that the public disclosure bar is
not triggered here. In concluding that prior public
disclosures did not reveal “substantially the same”
allegations or transactions as described in Silbersher’s qui
tam complaint, we make no statement about the sufficiency
of the pleadings. The Federal Rules require fraud to be
pleaded with particularity, see Fed. R. Civ. P. 9(b), and the
district court did not address whether Silbersher’s
allegations meet that requirement. We remand this case for
the district court to consider whether Silbersher’s qui tam
action may proceed.
III. CONCLUSION
We reverse the district court’s order dismissing
Silbersher’s action and remand the case for further
proceedings consistent with this opinion.
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