You Can Dance if You Want To

On December 14, the Federal Circuit handed down the latest decision in the dispute between Sandoz and Amgen concerning the process for patent litigation under the Biologics Price Competition and Innovation Act amendments to the Public Health Service Act (PHSA). The matter was on remand from the Supreme Court. Judge Lourie, writing for a unanimous panel, concluded that Sandoz had not waived its argument that Amgen’s state law claims were preempted by federal law and, moreover, that those state law claims were indeed preempted.  A dive into the decision below, with apologies for the length.

The Relevant Facts

Amgen holds an approved biologics license application, which allows it to market Neupogen (filgrastim) in the United States. Sandoz filed an application under section 351(k) of the PHSA, proposing to market a biosimilar copy of Neupogen. Sandoz then notified Amgen that it would not be providing a copy of its application or manufacturing information. Amgen believed that federal law — section 351(l)(2)(A) of the PHSA — required Sandoz to provide these materials. It brought suit in the Northern District of California.

The complaint alleged two causes of action under California law. [I am leaving out another issue in the case and the patent infringement claim.] First, Amgen alleged unfair competition. It asked the court to order Sandoz to provide its application and manufacturing information, and it sought restitution. Second, Amgen alleged conversion. It asked the court to enjoin Sandoz from continuing to pursue its application before FDA and/or to order Sandoz to suspend review of its application, unless and until the company obtained permission to cite the Neupogen license (or complied with federal law as Amgen understood it). It also sought compensatory damages, restitution, and punitive damages.

The Supreme Court’s Ruling

In June, the Supreme Court ruled that Amgen could not obtain a federal injunction ordering Sandoz to provide its application and manufacturing information. Federal law does, however, provide Amgen some relief in this situation. Specifically, if a biosimilar company violates the requirement to provide its application, the Court explained, the innovator may sue at any time for a court order declaring that the biosimilar product infringes its patent. Moreover, in these situations the biosimilar company may not challenge the patent on its own initiative before it launches; it must wait to be sued for patent infringement. In other words, because Sandoz failed to provide its application, the PHSA gave Amgen the control over the litigation that Sandoz otherwise would have had. This was Amgen’s remedy under the statute. See my discussion on the Health Affairs blog, here.

The Court wrote repeatedly, however, that Sandoz was “required” to provide its marketing application and manufacturing information. As a result, I interpret the ruling to be that Amgen lacks recourse under federal law. That is, Amgen cannot obtain an injunction, grounded in the PHSA, forcing Sandoz to comply. There is no private right of action.

The Supreme Court remanded to the Federal Circuit, instructing it to determine whether California would treat “noncompliance” with federal law as “unlawful” under California unfair competition law and, if so, whether federal law preempted a remedy under state law. In the alternative, the Court wrote, the court of appeals could assume a remedy under state law and simply proceed to the preemption issue. This is what the Federal Circuit did.

In the Federal Circuit

First, the court of appeals found “field preemption.” The notion here is that a state law is preempted when it would regulate conduct in a “field” that Congress intends the federal government to “occupy.” Patent law is purely federal, of course, but it has been clear for decades that federal patent law in itself does not preempt the entire field of state unfair competition law. So the Federal Circuit decided that the field here was — instead — biosimilar patent litigation. The court then swiftly disposed of Amgen’s claims, ruling that the federal government has fully occupied the field of biosimilar patent litigation.  (See Op. at 21.)

Without a doubt Congress means to occupy the field of biosimilar patent litigation, just as it occupies the field of patent law generally. But we know that patent law does not fully preempt the field of unfair competition law, and the court doesn’t clearly explain why the rule for biosimilar patent litigation should be any different — or why the rule also applies to conversion claims.

The conversion claim deserved a closer look. Amgen holds an approved biologics license, which is unquestionably property. To earn this license, the company submitted preclinical and clinical data proving its filgrastim product was safe and effective. That Sandoz used this property should not be controversial. A biosimilar application does not prove safety and effectiveness; it cites a competitor’s product. The application contains preclinical and clinical data that establish a bridge to the competitor’s product, but for approval the applicant relies directly on the competitor’s license and indirectly on the competitor’s data. The Sandoz product was approvable only because the company relied on Amgen’s license and Amgen’s data. This was use of Amgen’s property and analogizes nicely to the facts in one of my favorite cases relating to use of licenses: the 9th circuit Rasmussen case.

The starting point for the conversion claim is that use of another company’s license/property must be authorized (by law or by the license holder). Amgen reasoned that Sandoz used the Amgen license without permission and without complying with the one federal law that permits reliance in certain situations. Consequently, use of the license was not authorized, which is conversion under state law. Although a court would need to consider federal law in the course of determining whether Sandoz had any authority to rely on Amgen’s license, the essence of this claim is pure state law, and it’s a field the states have traditionally occupied.

Second, the court found “conflict preemption” — specifically “obstacle preemption.” The notion here is that state law is preempted if it would stand as an obstacle to accomplishing the purposes of federal law, i.e., if it would frustrate the objectives of federal law. Here, the court of appeals found that Amgen’s state law claims “clash” with the PHSA. In particular, the remedies sought by Amgen were not available under federal law, which created a “conflict in the method of enforcement” between the two legal frameworks.

Whether this conclusion is correct depends on the objectives of the federal law.  Consider Geier v. American Honda Motor, an obstacle preemption ruling from the Supreme Court in 2000. The Department of Transportation had allowed car manufacturers to select from several passive restraint systems, including airbags. That is, the federal government had consciously decided to phase in passive restraints and had deliberately, in the rulemaking, chosen to give companies a variety of choices. DC law purported to require an airbag. Although it would have been possible for Honda to comply with both federal and DC law — by using an airbag — the Court concluded that a state law requiring the use of airbags would frustrate the objective of federal law: the objective of variety and choice.

Is the Amgen dispute similar or different? It depends on the objective of federal law.

On the one hand, the objective may be to provide a choice to biosimilar applicants. Indeed, in its brief to the Federal Circuit, the government cited Geier as analogous. In 2015, the government wrote, the court of appeals effectively ruled that the PHSA provides the biosimilar applicant with a choice. An applicant may provide its application and keep control of the litigation, or it may withhold the application and lose control. Under this view of the statute, a state law requiring the application to be provided would frustrate the objective of federal law: to provide a choice.

On the other hand, the objective may be to require biosimilar applicants to provide their applications. The Supreme Court was clear that the PHSA “requires” the biosimilar applicant to provide its application; it used the word repeatedly and even, in one place, referred to a “violation” of the requirement. The Court did not address the question whether the federal government could itself enforce the requirement the Court had confirmed.  The question simply never came up. And there is a decent argument, as I’ve written before, that the government may do so. After all, section 351(f) of the PHSA [42 U.S.C. § 262(f)] makes it a federal crime to violate any provision of section 351 — which includes section 351(l)(2). This may also give FDA lesser authorities, such as the authority to refuse to file biosimilar applications if the applicants don’t certify to compliance. Under this view of the statute, a state law requiring the application to be provided would actually be fully consistent with — and promote — the objective of federal law.

We don’t know which view of federal law is correct.  The Supreme Court ducked the question. It noted the dispute over whether section 351(l)(2)(A) is “mandatory in all circumstances” or actually provides an applicant “the option to withhold its application.”  But, Justice Thomas wrote, this “does not present a question of federal law.” It would have been more accurate to say that this question did not need to be resolved for purposes of resolving Amgen’s California unfair competition claim on the merits.  For that, the lower courts would need to determine whether California would treat noncompliance with 351(l)(2)(A) as unlawful for state law purposes.

Here, though, the question of federal law seems key. In its brief, Sandoz admitted that state law remedies would “encourage compliance” with the PHSA, but argued that the state law “method of enforcement” conflicted with federal law. Where state law uses a stick (injunctions to enforce compliance), federal law provides a carrot (the incentive of controlling litigation). This presents a stark “conflict in technique.” The court of appeals adopted this view. But, does section 351(f) mean what it says — that any person who “violates” any provision of section 351 shall be punished upon conviction by a fine or imprisonment? Does it apply to a “violation” — the Supreme Court’s wording — of section 351(l)(2)(A)?  If the federal government can itself enforce section 351(l)(2)(A), both bodies of law use sticks.

What Now?

All of this said . . . the case ends here, unless there is a panel rehearing, a rehearing en banc, or another petition for certiorari. Enforcement of the “requirement” in section 351(l)(2) of the PHSA will be punted to FDA, which had previously declined to take action because of the pending litigation.  Justice Breyer’s citation of Brand X in his concurrence suggests that even if the Court had written that FDA may not enforce the requirement, the matter might remain open for revisiting at the agency level. That said, I think the chances are low that FDA will take up the issue.

As a result, the rule on the ground will be that biosimilar applicants may dance, or not, as they see fit.

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