Key Points

  • The Third Circuit reversed summary judgment for Sandoz on breach of the 2015 UTC-Sandoz patent settlement, holding that Sections 11(b) and 15(a) are ambiguous in light of the agreement's device-exclusion provisions, and vacated the $61,643,251 judgment.
  • The court affirmed dismissal of the Sherman Act Sections 1 and 2 claims, holding that UTC's cartridge-supply justifications were sincere and unrebutted even though UTC also wanted to hinder the generic launch.
  • The court reversed dismissal of the New Jersey tortious interference claim, holding that malicious but otherwise lawful conduct can be wrongful independent of antitrust law, and affirmed dismissal of the North Carolina unfair trade practices claim.
  • The court affirmed the denial of UTC's Daubert motion against damages expert Dr. Anupam Jena, distinguishing ZF Meritor because Jena benchmarked the RareGen forecast against thirty-three other models.
  • Joining the Eighth and Tenth Circuits, the court held that arguments properly adopted from a co-party's appellate brief under Rule 28(i) do not count toward Rule 28.1(e) word limits.

A federal appeals court on Wednesday threw out a $61.6 million judgment against United Therapeutics Corp., ruling that the drugmaker's patent settlement with Sandoz Inc. does not clearly bar it from cornering the supply of cartridges patients needed to take Sandoz's generic version of its pulmonary hypertension drug.

A unanimous U.S. Court of Appeals for the Third Circuit panel, in an opinion by Circuit Judge Restrepo joined by Judges McKee and Ambro, reversed a summary judgment ruling on liability that U.S. District Judge Brian R. Martinotti of the District of New Jersey had granted Sandoz. The panel ordered the breach-of-contract claim to trial. It upheld the dismissal of federal antitrust claims brought by Sandoz and its marketing partner RareGen LLC, but it revived their state-law tortious interference claim.

The ruling splits the case. United Therapeutics, known as UTC, defeated Sherman Act liability because the court found its business reasons for restricting the cartridges were genuine, even though it also wanted to hinder the generic launch. But UTC now faces a contract trial with no damages award in place, and a renewed tortious interference claim that can go forward if its conduct is found to be malicious, fraudulent or dishonest, whether or not it broke antitrust law.

UTC has sold Remodulin, an injectable form of treprostinil, since 2002. Patients who take the drug subcutaneously, or under the skin, need a pump and disposable cartridges, which Smiths Medical ASD Inc. made and sold to the specialty pharmacies Accredo and CVS Specialty. After Smiths said in 2015 it was discontinuing its CADD-MS 3 pump, UTC paid Smiths $2.5 million in 2016 to keep the pumps and cartridges in production.

In a September 2015 agreement settling patent litigation, UTC licensed Sandoz to sell generic treprostinil and promised "[n]ot to take any action directly or indirectly to prevent, delay, limit, or otherwise restrict the launch" of the generic. In December 2018, after learning that Sandoz was preparing to launch, UTC had Smiths put the cartridges on allocation status, giving UTC approval rights over every sale. According to the opinion, UTC withheld cartridges until the pharmacies agreed to use them only with Remodulin, and the pharmacies warned that their supplies were running low and they might not be able to serve patients. In April 2019, UTC bought Smiths' entire cartridge inventory.

Sandoz launched its generic in March 2019 for intravenous use only. RareGen then had a different manufacturer make an alternative cartridge, and the subcutaneous version did not launch until May 2021. The generic fell short of internal forecasts, and Sandoz ultimately destroyed more than $6 million of product, the opinion said. After a bench trial on damages, Judge Martinotti awarded Sandoz $61,643,251.

Judge Martinotti had ruled that UTC breached the agreement by "locking up the existing inventory by taking title to all commercially available cartridges as Sandoz was preparing to launch its generic." The Third Circuit said "context complicates an isolated reading" of the two provisions at issue, Sections 11(b) and 15(a). Other parts of the settlement excluded from Sandoz's license "any and all rights . . . to the use of any device(s), pump(s), or equipment" used with the drug. UTC argued that the launch provisions were "catch-all provisions aimed at reinforcing UTC's agreement not to wield its intellectual property rights against Sandoz," and the panel found that reading reasonable.

"We thus cannot say there is 'only one reasonable interpretation' of the contract," Judge Restrepo wrote, noting that Section 11(b) follows a covenant not to sue for patent infringement and that Section 15 is titled "Regulatory Approval." Under New Jersey law, a factfinder must now decide what the parties meant.

On the antitrust claims, the panel assumed that the plaintiffs had shown substantial market foreclosure but held that UTC had valid procompetitive justifications under the rule of reason, a burden-shifting test that weighs a restraint's harm to competition against its benefits. UTC worried there would not be enough cartridges for Remodulin patients and sought to increase output, secure supply and keep rivals from free riding on its investment in Smiths.

The plaintiffs called those reasons pretextual. "We do not deny that UTC understood—and even desired—that the cartridge restrictions would hinder Plaintiffs' launch," Judge Restrepo wrote. "There is nothing pretextual about seeking to protect a procompetitive investment and also seizing the opportunity to disadvantage a competitor along the way." The panel also noted that the plaintiffs had limited their own alternative cartridges to Sandoz's generic, and it held they had not shown that the less restrictive options they proposed were workable.

The court also affirmed the dismissal of a claim under North Carolina's unfair and deceptive trade practices statute, finding that it rested on the same conduct as the failed antitrust claims. The tortious interference claim came out differently. The district court had dismissed it on the same reasoning, but the panel held that New Jersey law treats conduct that is malicious but otherwise lawful as "wrongful." The court wrote that "the fact that UTC did not violate the antitrust laws does not alone foreclose a tortious interference claim."

The panel rejected UTC's bid to exclude Sandoz's damages expert, Dr. Anupam Jena, under Daubert, the Supreme Court standard requiring expert testimony to be reliable. UTC argued that Jena relied on an April 2019 RareGen forecast without knowing who prepared it, the same gap that led the Third Circuit to uphold an expert's exclusion in its earlier ZF Meritor decision. The panel said Jena had compared thirty-three forecast models and held that "ZF Meritor does not require courts to exclude an expert who cannot provide the information that was lacking in ZF Meritor."

On a procedural question, the panel rejected UTC's argument that Sandoz forfeited the antitrust issues by adopting RareGen's brief, saying it would "join the Eighth and Tenth Circuits in holding that a party's proper adoption of arguments pursuant to Rule 28(i) does not count toward the word limits."

Charles L. McCloud of Williams & Connolly LLP argued the appeal for United Therapeutics.

The Third Circuit vacated the Nov. 1, 2024, judgment and damages award and sent the case back to the District of New Jersey for a trial on contract liability and for Judge Martinotti to consider the tortious interference claim separately from the antitrust claims. The panel dismissed the parties' remaining evidentiary and damages challenges as moot.