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CADE rules in Eli Lilly Sham Litigation

Here's a guest post from our Brazilian friend Magda Voltolini, on the topic of what is termed "sham litigation" -- and which can be explained as a form of litigation which appears to be objectively unjustifiable in terms of protection of one's intellectual property. This is how she explains the topic:
Does anti-competitive conduct mean “don’t breach loyalty and diligence and don’t abuse your litigation rights”? 
Following an extensive investigation involving administrative and legal proceedings, leading to the assessment of serious harmful effects on competition, the Brazilian Competition Authority (CADE)’s answer is “yes”. In light of doctrine, legal opinions and jurisprudence, Reporting Commissioner Ana Razao held that Eli Lilly infringed competition rules by unduly obtaining a monopoly to commercialize Gemzar and by distorting market prices for gemcitabine hydrochloride. 
Eli Lilly, who had argued that the antitrust authority had no power to replace the judiciary or to recognize that there was an error in judgment and/or that the judge was wrong (see CADE ruling at [379]), will now apparently file an appeal to overturn CADE’s findings. 
This was the first time that CADE held a company liable on the ground of sham litigation in Brazil (Administrative Proceeding (AP) N.  08012.011508/2007-91), imposing a BRL 36.6 million fine on Eli Lilly calculated according to criteria established in Article 45 of Law 12.529 of 30 November 2011. The Advocate General still can examine consumer damages. 
Background and sham litigation analysis 
Eli Lilly filed patent application PI 9302434-7 in 1993 for the process of preparing gemcitabine hydrochloride, the active ingredient of cancer treatment medicine Gemzar, before the National Institute of Industrial Property (INPI); this application did not however relate to Gemzar itself.  In 1996, Eli Lilly presented the first request to examine the merit of its patent application on the basis of TRIPS, but INPI rejected this request on the basis that TRIPS was inapplicable.  Eli Lilly then filed a lawsuit, in result of which, in 2004, the 2nd Region Federal Regional Tribunal (TRF-2) set aside INPI’s decision. In December 1996 INPI published the continuation of its analysis of the patent concerning the process. This lawsuit was not considered sham litigation, as explained by the Reporting Commissioner Ana Razao at [252]. 
After INPI again rejected the patent application on the ground of the lack of inventive step, Eli Lilly provided technical opinions from university professors and added a new request, including claim 14 concerning the patent process. INPI denied this request in its technical opinion on the basis of lack of inventive step of claim 14.  In response Eli Lilly filed an administrative appeal before INPI, seeking to amend its second technical report concerning claim 14, and presenting two more claims -- 15 and 16: these dealt with the product gemcitabine hydrochloride, thus effectively changing the application from a process to a product. 
Additionally, in 2005, Eli Lilly had brought action N. 2005.51.01.506948-1 before the 39th Federal Court of Rio de Janeiro to overturn INPI’s opinion and validate the patent application, including claim 14; the court was also asked to assess claims 15 and 16 and to stay the INPI administrative proceedings in the INPI, seeking an order that the court to stay the INPI examination of claim 14 for inventive step until the issuance of the court decision. A stay of the administrative proceedings was ordered. 
Concerning the examinations of claims 15 and 16, INPI finally presented its conclusions to the court, explaining that claims 15 and 16 had not been subjected to its examination since the administrative proceedings had been stayed, and adding that the scope of the patent application could not be enlarged to include claims 15 and 16 since they concerned a product, not a process as initially disclosed. Consequently, the Court held that only INPI’s opinion concerning the analysis of the first 14 claims were the object of its judgment. 
Eli Lilly then filed an interlocutory appeal before the TRF-2, seeking inclusion in its judgment of claims 15 and 16, as if they had been part of INPI’s opinion concerning claim 14.  At this point, ProGenéricos joined the battle on INPI’s side. In 2007 the TRF-2 made its final decision on the Interlocutory Appeal and upheld refusal of the patent. The Federal Judge of the 39th Federal Court then refused to deal with claims 15 and 16. An expert nominated by that Court therefore only examined the requirements for patentability of the 14 process claims, finally determining the possibility of the grant of the patent as such. Claims 15 and 16 relating to product were not analyzed, following the TRF-2’s decision. 
Eli Lilly then filed another action before the Federal Justice of the Federal District against INPI, to reverse the TRF-2 decision, seeking a declaration that claims 15 and16 fulfilled all the requirements for patentability on the basis that there had been no change in the initially disclosed matter. 
The CADE investigation 
The CADE considered that Eli Lilly practised anti-competitive conduct by enlarging the patent’s scope to include matter which had not been disclosed at the time of the original patent application, and by submitting new matter after INPI had confirmed its refusal to register the patent in its administrative appeal, on the basis of Art. 32 of Law 9.279/96 which allow only changes in the patent application in relation to matter which is clear or already known before the final assessment of the patent registration [277].  Accordingly Eli Lilly acted strategically by adding claims 15 and 16. However, the CADE decided not to deem such conduct as sham litigation in light of the principle of in dubio pro reo (when in doubt, hold for the accused) [285]. Reciting that Art.70.9 TRIPS only admits grant of Exclusive Marketing Rights (EMRs) for patented products, not for patented processes, CADE found that the conduct in seeking to enlarge the scope of the patent was the first strategic step to obtain an undue degree commercialization of Gemzar in Brazil [286]. 
In Brazil, proceedings to obtain EMRs are less rigid than the process of obtaining a patent grant, in the sense that EMRs are based on a pending patent application request: the grant of exclusive rights stems purely from an expectation of rights, which is what Eli Lilly sought to obtain. 
The CADE decision also reports that in 2006 Eli Lilly brought a lawsuit before the Federal Justice of the Federal District against the National Health Surveillance Agency (ANVISA) to obtain EMRs for the product Gemzar on the basis of Article 70.9 TRIPS, affirming the patent was for a product but omitting pertinent information.  Eli Lilly disclosed that proceedings were stayed but not that claims 15 and 16 had been excluded from the patent’s scope. Indeed, it omitted pertinent information concerning the action before the 39th Federal Court, the TRF-2 and concerning the INPI opinion. In any event, the Federal Justice dismissed the case. 
However, an appeal was made before the TRF-1 asking for a preliminary injunction, which it obtained. This decision ordered ANVISA to refrain, until the end of proceedings, from granting EMRs for commercialization of a product similar to GEMZAR while INPI had not examined the object of the patent application, including those relating to the second amendment (claims 15 and 16). This action before the Federal Justice was deemed sham litigation. CADE took into account the abuse of the right to petition, considering that Eli Lilly demonstrated lack of good faith and diligence [345], based on the diversion of the purpose of the law, identified from the breach of duty of care and of objective good faith [348]. 
Sandoz intervened in the case to inform the TRF-1 of the TRF-2 decision of 2007, which had rejected the addition of claims 15 and 16 to the patent’s scope and to request the revocation of the preliminary injunction granted by the TRF-1. Importantly, the TRF-1 decision had authorized Eli Lilly to sell GEMZAR but exclusively for the treatment of cancer in Brazil. Subsequently, the Supreme Tribunal of Justice suspended the preliminary injunction considering there to be a distortion of market prices. Also, Sandoz brought a lawsuit before the Court of Sao Paulo requesting that Eli Lilly discontinue the fake accusations concerning the cancellation of its rights to commercialize the drug GEMCIT and indemnify Sandoz for incurred damages. However, for a period of three months the Sao Paulo Court prevented the commercialization of GEMCIT, which served to treat any type of cancer, on the basis of Eli Lilly’s responses. In December 2007 though, it overruled its decision on the basis of an acknowledgement of the TRF-1 judgment.

Against this background, CADE considered as sham litigation the filing of other lawsuits in different jurisdictions with the goal to circumvent the unfavourable decisions given earlier on.

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