United States: Does Amgen Have Viable State Law Claims Against Sandoz Arising From The Zarxio Biosimilar Patent Dispute?

In Sandoz Inc. v. Amgen Inc. ( which you can read more about here), the Supreme Court held that 42 USC § 262(l)(9)(C) sets forth the exclusive federal remedy for failing to provide a copy of the biosimilar application to the reference product sponsor. Still, the Court directed the Federal Circuit to revisit Amgen's state law claims to determine whether such conduct is "unlawful" under California's unfair competition laws and/or whether the Biologics Price Competition and Innovation Act (BPCIA) preempts any remedies available under state law. Here, we consider how the Federal Circuit may address these issues.

Amgen's State Law Claims

Amgen's state law claims were brought under California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. As damages, Amgen asserted, among other economic injuries, "lost money that was spent to monitor and respond to Defendants' acts of unfair competition" and "lost profits and increased costs if Defendants are permitted to commercially market the Sandoz biosimilar product without satisfying their obligations under 42 USC § 262(l)."

The Federal Circuit's First Decision

When the Federal Circuit first addressed Amgen's state law claims, it noted that UCL law remedies based on a violation of another law "are not available when the underlying law expressly provides that the remedies in that law are exclusive." The court determined that "because "35 USC § 271(e)(4) provides 'the only remedies which may be granted by a court' for the alleged violation" of §262(l)(2)(A), the district court had correctly dismissed Amgen's unfair competition claim based on that provision of the BPCIA.

The Supreme Court, however, rejected the Federal Circuit's reasoning based on 35 USC § 271(e)(4). In particular, the Supreme Court found that 35 USC § 271(e)(4) does not provide a remedy for violating §262(l)(2)(A). Rather, the Supreme Court explained, "§271(e)(4) provides remedies only for artificial infringement," i.e., for filing an aBLA. "[I]t provides no remedy at all, much less an 'expressly ... exclusive' one, for Sandoz's failure to comply with §262(l)(2)(A)," which the Supreme Court emphasized is not itself an artificial act of infringement.

The Supreme Court also explained that whether Sandoz's conduct is a violation of California's UCL "is a state-law question," and found that "the court below erred in attempting to answer that question by referring to the BPCIA alone."

With regard to preemption, in its first decision the Federal Circuit specifically declined to address the issue, stating, "Sandoz did not argue preemption as a defense to Amgen's state law claims, and thus the district court did not consider that issue. We therefore do not address preemption in this appeal." That said, the Federal Circuit did conclude that (a) Amgen's unfair competition claim was based solely on the notion that Sandoz acted unlawfully by violating the BPCIA, and (b) Sandoz took "a path expressly contemplated by" the BPCIA and, therefore, did not violate the BPCIA.

Was Sandoz's Conduct "Unlawful"?

While the Supreme Court held that §262(l)(2)(A) is not enforceable by a federal injunction, it did not decide whether §262(l)(2)(A) is "mandatory"–such that failure to comply might be "unlawful"–or "conditional"–that is, simply "a condition precedent to the information exchange process" of the patent dance. The Supreme Court reasoned that because this question "matters only for purposes of California's unfair competition law," it need not decide the issue.

Although the Supreme Court directed the Federal Circuit to address this issue on remand, there is little reason to believe the Federal Circuit will move away from its prior findings. For example, in its first decision, the Federal Circuit rejected Amgen's contention that the disclosure requirements of §262(l)(2)(A) are mandatory, rather than merely permissible. Instead, the Federal Circuit was persuaded by Sandoz's contention that the disclosure requirements are "only a condition precedent to engaging in the information-exchange process of paragraphs (l)(3) through (l)(6)" of the BPCIA. Significantly, in looking at the statute as a whole, the Federal Circuit found that "mandating compliance with paragraph (l)(2)(A) in all circumstances would render paragraph (l)(9)(C) and 35 U.S.C. § 271(e)(2)(C)(ii) superfluous, and statutes are to be interpreted if possible to avoid rendering any provision superfluous." Thus, the Federal Circuit seems to have already decided that § 262(l)(2)(A) is "conditional."

Are State Law Remedies Preempted?

If the Federal Circuit decides that the disclosure requirements of §262(l)(2)(A) are not mandatory, the preemption issue would be moot. However, and interestingly, the Supreme Court invited the Federal Circuit to address the question of preemption in any event.

Explaining the doctrine of preemption, the Supreme Court has stated, "Congress' power to preempt state law is derived from the Supremacy Clause of Art. VI of the Federal Constitution." Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208 (1985) (citing Gibbons v. Ogden, 9 Wheat. 1 (1824)). "Preemption of state law can be express or implied." Roberts v. United Healthcare Servs., Inc., 206 Cal. Rptr. 3d 158, 164 (Cal. App. 2d Dist. 2016). In the absence of an express preemption clause, the question turns to whether preemption is implied. Preemption "is implied when courts infer a congressional intent to displace state law under one of three doctrines of 'implied preemption'—namely, 'field, conflict, or obstacle preemption.'" Id. When the federal regulation is comprehensive and leaves no room for state regulation, the doctrine of field preemption applies. Id. Conflict preemption exists where it is impossible to comply with state and federal law at the same time. Id. Obstacle preemption exists when state law serves to obstruct and interfere with Congress' objectives in implementing the federal statute. Id.

Ultimately, "[t]he question whether a certain state action is preempted by federal law is one of congressional intent." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137-38 (1990). Indeed, "'[t]he purpose of Congress is the ultimate touchstone.'" Allis-Chalmers, 471 U.S. at 208 (quoting Malone v. White Motor Corp., 435 U.S. 497, 504 (1978) quoting Retail Clerks v. Schermerhorn, 375 U.S. 96, 103 (1963)). In conducting this inquiry, the Supreme Court has explained that to discern Congress' intent it is necessary to look at the express language, purpose and structure of the statute. See Ingersoll-Rand, 498 U.S. at 138 (explaining how to discern Congressional intent).

When addressing this issue on remand, the Federal Circuit will have to be mindful of the Supreme Court's finding that 35 U.S.C. § 271(e)(4) does not constitute an express preemption. Nevertheless, the Federal Circuit may determine that the BPCIA is so comprehensive that it leaves no room for state regulation, such that the doctrine of field preemption applies. On this point, the Federal Circuit also may consider Sandoz's argument that Congress did not intend "a patchwork enforcement scheme" that might vary across the country where state law claims could be brought outside of the provisions of the BPCIA. Or, the court may determine that because failing to comply with §262(l)(2)(A) is "expressly contemplated by" §262(l)(9)(C) (as it found previously), then providing a remedy under state law would interfere with Congressional intent, such that obstacle preemption applies.

On the other hand, it may revisit Amgen's argument that since the BPCIA does not expressly state that the remedies for failure to comply with §262(l)(2)(A) are limited to those identified in §262(l)(9), state law remedies are not preempted. On this point, Amgen argued that Congress knew how to specify when it intended the BPCIA to be exclusive–and did so in some circumstances–but did not do so with reference to §262(l)(2)(A)/§262(l)(9).

Will The Federal Circuit Address These Issues?

The Supreme Court gave the Federal Circuit options as to how and whether to address these issues on remand. On the one hand, the Court said that "the Federal Circuit should determine whether California law would treat noncompliance with §262(l)(2)(A) as 'unlawful," and then, "[i]f the answer is yes, .. proceed to determine whether the BPCIA preempts any additional remedy available under state law." On the other hand, the Court said that the Federal Circuit is "free to address the preemption question first by assuming that a remedy under state law exists." The Federal Circuit may prefer to decide the federal preemption issue in the first instance, to avoid interpreting state law when it is not necessary to do so.

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