The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
KING DRUG COMPANY OF FLORENCE, : CIVIL ACTION
INC., ET AL. :
:
v. :
: NO. 19-3565
ABBOTT LABORATORIES, ET AL. :
MEMORANDUM
Bartle, J. March 27, 2023
This is an antitrust action in which plaintiffs have
sued the defendants for anticompetitive conduct and monopoly
under §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, in
connection with defendants’ manufacture and sale of Androgel, a
testosterone replacement drug. Plaintiffs have filed a motion
asking the court to undertake an in camera review of documents
which they assert are subject to the crime-fraud exception to
the attorney-client privilege and attorney work product
doctrine. According to plaintiffs, they have reason to believe
that the documents will show the fraudulent conduct of
defendants AbbVie, Inc. and Besin Healthcare, Inc., and their
attorneys in the filing of a sham action, Abbott Products, Inc.
v. Perrigo Company, No. 11-CV-06357 (D.N.J.), as part of their
alleged anticompetitive and monopolistic strategies.1 That
action alleged that Perrigo Company infringed their ‘894 patent
for Androgel.
I
In order for an action to be a sham, it must be
established that it was: (1) objectively baseless, that is “no
reasonable litigant could realistically expect success on the
merits” and (2) the litigant’s subjective motivation for filing
the objectively baseless lawsuit was something besides success
on the merits. FTC v. AbbVie, Inc., 976 F.3d 327, 370 (3d Cir.
2020). For example, subjective motivation to impose expense and
delay on a party’s entry into the market is not a motivation to
assert a patent in good faith. See id. at 371. The Court of
Appeals of the Third Circuit, in the above lawsuit, affirmed
this court’s decision that the Perrigo action was a sham. See
id. at 366. This court has reiterated the same holding in this
pending lawsuit. See King Drug Co. of Florence v. Abbott
Lab'ys, No. CV 19-3565, 2023 WL 324505, at *6 (E.D. Pa. Jan. 19,
2023).
The attorney-client privilege is one of the oldest
privileges known to the common law. See U.S. v. Zolin, 491 U.S.
1. Abbott Products, Inc. and Besin Healthcare, Inc. co-owned
the patent and were plaintiffs in the action against Perrigo.
Since that time, as a result of various corporate changes,
AbbVie, Inc. now owns Abbott’s interest in Androgel.
554, 562 (1989). It allows for the full and frank discussion
between the attorney and client and fosters the observance of
law and the administration of justice. See id. Integral to the
privilege is the freedom of a client to disclose and discuss
past wrongdoing with his or her attorney without fear that the
veil of secrecy will be lifted. The privilege comes at a cost
as it protects from discovery relevant information in the search
for truth. Nonetheless, the privilege is not absolute. While
it applies to past wrongdoing, it does not apply to future
wrongdoing. The crime-fraud exception to the privilege
authorizes disclosure of communications between an attorney and
client made in furtherance of a future crime or future fraud.
See In re Grand Jury, 705 F.3d 133, 153 (3d Cir. 2012).
“The work-product doctrine . . . protects from
discovery materials prepared or collected by an attorney ‘in the
course of preparation for possible litigation.’" In re Grand
Jury Investigation, 599 F.2d 1224, 1228 (3d Cir. 1979) (quoting
Hickman v. Taylor, 329 U.S. 495, 505 (1947)). It allows
attorneys to “work with a certain degree of privacy, free from
unnecessary intrusion by opposing parties and their counsel.”
Hickman, 329 U.S. at 510. Work product, however, is not
protected when it is used in furtherance of an alleged crime or
fraud. See In re Grand Jury, 705 F.3d at 153. It is treated in
the same way as the attorney-client privilege for purposes of
the crime-fraud exception. See id.
II
Defendants argue that fraud within the meaning of the
crime-fraud exception does not encompass the conduct of
attorneys or clients who file a sham patent infringement action.
Defendants primarily rely on two decisions of the United States
Court of Appeals for the Federal Circuit: Unigene Lab’ys, Inc.
v. Apotex, Inc., 655 F.3d 1352 (Fed. Cir. 2011), and In re
Spalding Sports Worldwide, Inc., 203 F.3d 800 (Fed. Cir. 2000).
Defendants maintain that this court must follow the law of the
Federal Circuit on the crime-fraud exception rather than the law
enunciated by the Court of Appeals of the Third Circuit. In
defendant’s view, fraud for purposes of the crime-fraud
exception is limited to common law fraud which requires not only
a material misrepresentation but also reliance. To the extent
plaintiffs rely on fraud on the court, defendants assert that
such fraud only encompasses egregious conduct such as bribing of
a judge or juror or entering a false document into the record
and does not extend to the filing or pursuit of a meritless
lawsuit.
In Spalding Sports, the District Court had before it a
patent infringement action. Defendant maintained that plaintiff
had committed fraud on the patent office in obtaining the patent
in issue and sought the communications between the inventor and
his patent attorneys pursuant to the crime-fraud exception to
the attorney-client privilege. The District Court granted
relief requested by defendant, but the Federal Circuit granted a
writ of mandamus to prevent discovery. The Federal Circuit held
that common law or “Walker Process”2 fraud and not simply
inequitable conduct is required to break the attorney-client
privilege. The Court concluded that defendant had not made out
a prima facie showing that the invention record was made in
furtherance of fraud during the patent prosecution. In doing
so, the Court held that its law applied and not that of the
First Circuit where the District Court sat. The Federal Circuit
explained that its law controls on issues of substantive patent
law, on procedural issues if the issue pertains to patent law as
well as when the issue “bears an essential relationship to
matters committed to our exclusive [jurisdiction] by statute, or
if it clearly implicates the jurisprudential responsibilities of
this court in a field within its exclusive jurisdiction.” In re
Spalding Sports Worldwide, Inc., 203 F.3d at 803 (quoting
Midwest Indus., Inc. v. Karavan, 175 F.3d 1356, 1359 (Fed. Cir.
1999)).
2. In Walker Process Equip., Inc. v. Food Mach. & Chem. Co.,
382 U.S. 172 (1965), the Supreme Court held that the enforcement
of a patent procured by fraud on the Patent Office may
constitute a violation of § 2 of the Sherman Act.
The second Federal Circuit case on which defendants
rely is Unigene Laboratories. That too was a patent
infringement action. Defendants moved to obtain documents based
on the crime-fraud exception. Defendants asserted that
plaintiffs had failed to provide certain prior art to the Patent
Office and had presented an erroneous table with other prior
art. The latter was promptly corrected. The District Court
denied the motion. As part of the appeal of the grant of
summary judgment in favor of plaintiffs, the Court ruled that
there must be common law fraud to pierce the privilege. There
must be clear and convincing evidence of “deceptive intent
together with a clear showing of reliance.” Unigene Lab’ys,
Inc., 655 F.3d at 1359 (quoting In re Spalding Sports Worldwide,
Inc., 203 F.3d at 803). Since the record did not show “clear
evidence of intent” of a fraudulent act, the court did not reach
the reliance issue and agreed with the ruling of the District
Court. Id.
The Court of Appeals for the Third Circuit has handed
down several significant decisions on the subject of the crime-
fraud exception. In contrast to the Federal Circuit, the Third
Circuit in none of its cases has stated that common law fraud
requiring reliance is necessary to invoke the crime-fraud
exception. See, e.g., In re Chevron Corp., 633 F.3d 153 (3d
Cir. 2011); In re Grand Jury, 705 F.3d 133 (3d Cir. 2012);
Haines v. Liggett Grp. Inc., 975 F.2d 81 (3d Cir. 1992).
In re Chevron Corp was a massive environmental lawsuit
pending in an Ecuadorian Court. The District Court had allowed
discovery to take place in the United States for use in a
foreign proceeding pursuant to 28 U.S.C. § 1782. The District
Court found that an expert engaged by the Ecuadorian Court had
employed a technical expert to aid him with his report on
damages. That technical expert, however, was also employed by
the plaintiff in that action. The District Court granted the
defendant’s motion for disclosure of documents under the crime-
fraud exception. The Court of Appeals reiterated the rule that
to obtain discovery the party invoking the crime-fraud exception
must make a prima facie showing that:
(1) the client was committing or intending
to commit a fraud or crime, and (2) the
attorney-client communications were in
furtherance of that alleged crime or fraud.
In re Chevron Corp., 633 F.3d at 166 (quoting In re Grand Jury
Subpoena, 223 F.3d 213, 217 (3d Cir.2000)).
Our Court of Appeals held that the first element of
the crime-fraud exception was established because there was
fraud “predicated on the presence of the conflict of interest
attributable to [the technical expert’s] dual and, at least to
us, inconsistent employment.” Id. It remanded the case to the
District Court to determine before disclosure of documents
whether the defendant could make out a “prima facie showing that
there were communications between the client and attorney in
furtherance of that fraud.” Id. at 167. The Court of Appeals
did not require the existence of common law fraud to pierce the
attorney-client privilege. A conflict of interest of an expert
is sufficient if it simply advances a fraud.
Furthermore, the decisions of the Third Circuit,
unlike those of the Federal Circuit, have described fraud in the
crime-fraud exception to include advice as to attempted or
intended fraud. See, e.g., In re Grand Jury, 705 F.3d at 151;
Haines, 975 F.2d at 95. While the crime-fraud exception
requires advice or work in furtherance of the fraud, nowhere do
the Third Circuit cases require that the fraud be consummated.
If the fraud does not have to be consummated, there can be no
requirement of reliance. For example, if a lawyer advises a
client how to cash a bogus check at a bank and the client
attempts to do so but the teller recognizes it as a bad check
before it is cashed, no reliance as a result of the attempted
fraud has occurred. The court concludes that the law of the
Third Circuit applies the crime-fraud exception without the need
for reliance and does not allow the attorney-client privilege or
work product to shield attempted or intended fraud from public
view. In sum, reliance while an essential element of common law
fraud is not an essential element of fraud for purposes of the
crime-fraud exception in the Third Circuit. For this reason, it
is not necessary to decide whether the filing of a sham
litigation in this Circuit is a common law fraud on the court.
The court must determine whether to apply Federal
Circuit law or Third Circuit law to the pending motion. The
decision depends on the jurisdiction of these two appellate
courts. The Federal Circuit has exclusive jurisdiction over
appeals of final decisions of district courts in civil actions
in which a party has asserted a claim or compulsory claim
“arising under any Act of Congress relating to patents.”
28 U.S.C. § 1295(a)(1). The Supreme Court had occasion to opine
on the jurisdictional scope of 28 U.S.C. § 1338(a),3 a statute
similar to § 1295(a)(1), in Christianson v. Colt Industries
Operating Corp., 486 U.S. 800 (1988).
In that action, plaintiffs sued Colt under §§ 1 and 2
of the Sherman Act. The plaintiffs alleged that Colt engaged in
various anticompetitive acts, including the use of invalid
patents, to drive plaintiffs out of business. The District
Court granted plaintiffs’ motion for summary judgment on
3. Section 1338(a) then provided: “The district courts shall
have original jurisdiction of any civil action arising under any
Act of Congress relating to patents, plant variety protection,
copyrights, and trademarks. Such jurisdiction shall be exclusive
of the courts of the states in patent, plant variety protection
and copyright cases.”
liability. It did so on the ground that Colt had acted
unlawfully in invoking what it held to be nine invalid patents
to advance Colt’s anticompetitive purposes.
The issue before the Supreme Court was whether the
Seventh Circuit or the Federal Circuit had jurisdiction over the
appeal. The Supreme Court decided in favor of the Seventh
Circuit. It explained that the Federal Circuit’s jurisdiction
extends:
only to those cases in which a well-pleaded
complaint establishes either that federal
patent law creates the cause of action or
that the plaintiff's right to relief
necessarily depends on resolution of a
substantial question of federal patent law,
in that patent law is a necessary element of
one of the well-pleaded claims.
Id. at 809. Although the patent law issue was “arguably
necessary to at least one theory under each claim, [it was] not
necessary to the overall success of either claim.” Id. at 810.
In FTC v. AbbVie, 976 F.3d 327 (3d Cir. 2020), our
Court of Appeals examined whether an antitrust action that
included a sham patent litigation theory fell under the Federal
Circuit’s jurisdiction. The FTC asserted two claims: (1)
defendants maintained a monopoly through a course of
anticompetitive conduct, which included sham patent infringement
litigation; and (2) defendants entered anticompetitive reverse
payment agreements. The Court determined that it was the
antitrust law and not federal patent law that created both
causes of action. Federal patent law issues were not necessary
to the success of the action because sham patent litigation was
only one theory underlying the FTC’s monopolization claim. The
Court further explained in detail that a sham patent litigation
theory does not present substantial patent law issues. See id.
at 349-350. See also In re Lipitor Antitrust litigation, 855
F.3d 126, 145-46 (3d Cir. 2017). As a result, our Court of
Appeals held that it had jurisdiction over that action and
affirmed this court’s finding that defendants engaged in sham
patent litigation against Perrigo.
The well-pleaded complaint in this pending action
states antitrust claims under §§ 1 and 2 of the Sherman Act and
alleges in support of those claims that defendants used sham
patent litigation as well as other illegal acts to maintain a
monopoly. Patent law does not create any cause of action here
even if a patent law issue may be necessary to one or more
theories of the action but is not necessary to the overall
success of a claim. See Christianson, 486 U.S. at 810. As
noted above, our Court of Appeals explained that there was no
patent claim and the Federal Circuit did not have jurisdiction
over an antitrust action even though there were allegations of
sham patent litigation. See AbbVie, 976 F.3d at 347. That is
precisely the situation here. The plaintiffs allege claims
against the defendants under the Sherman Act. The fact that
plaintiffs rely on the defendants’ use of an invalid patent as
one of the theories to support plaintiffs’ antitrust claims does
not make this action one with a patent law claim giving the
Federal Circuit appellate jurisdiction.
Plaintiffs’ claims likewise do not raise a substantial
question of federal patent law. See Christianson, 486 U.S. at
810. Our Court of Appeals has established that the inclusion of
a sham patent litigation theory among others in an antitrust
action does not present substantial patent law issues. See
AbbVie, Inc., 976 F.3d at 349-350. Finally, it must be
emphasized that the definition of sham litigation is not limited
to patent infringement actions but applies broadly to actions
that have nothing to do with patent law.
The Federal Circuit does not have jurisdiction over
any appeal in this action. It would be anomalous for this court
to be bound by the evidentiary privilege precedents of a
tribunal which has no say over this action. It follows
therefore that this court should apply the law of the Third
Circuit, which does have jurisdiction over this antitrust
action, on the issues of the attorney-client privilege, the work
product doctrine, and the crime-fraud exception. If the Seventh
Circuit had appellate jurisdiction over an antitrust action
where a district court held nine patents to be invalid, the
Third Circuit certainly has jurisdiction here. See
Christianson, 486 U.S. at 806.
The defendants argue that if the court holds that
documents advancing the filing of a sham litigation are subject
to the crime-fraud exception, the salutary cloak of the
attorney-client privilege and work product doctrine will be torn
asunder. Defendants maintain that every lawsuit deemed to be
meritless will be the subject of a motion for documents under
the crime-fraud exception. Defendants are incorrect and their
fears are unfounded. A sham litigation is much more than a
meritless lawsuit. To be a sham, a lawsuit must not only be
objectively baseless, that is meritless, but also the subjective
motivation for bringing the lawsuit must be something other than
to succeed on the merits, for example to cause delay and expense
to the opposing party. Furthermore, as explained hereafter,
merely claiming fraud is not sufficient for in camera review.
In any event, the applicability of the crime-fraud exception
does not depend on the matter of frequency. It is important not
to lose sight of the fact that the attorney-client privilege and
the work product doctrine are not absolute and may not be used
to conceal discussion of future wrongdoing regardless of how
often such discussions take place.
The Third Circuit, in this court’s view, would
conclude based on In re Chevron that the filing of a patent
infringement action held to be a sham is encompassed within the
definition of a fraud under the crime-fraud exception to the
attorney-client privilege and work product doctrine. If an
expert’s conflict of interest in a foreign court can be a fraud,
surely the filing of a sham lawsuit in the United States
District Court for the District of New Jersey can be a fraud.
III
Any party invoking the crime-fraud exception is of
course under an initial handicap because that party does not
have access to the documents in question. As is true here, that
party generally has been provided with a log prepared by the
opposing party which simply identifies the author and
recipients, the date, the title if any, and a minimal
description of each document in issue. The party seeking the
documents must ask the court to review them in camera to
determine whether the party’s assertion about the crime or fraud
has validity. Merely making a charge of fraud is not enough to
trigger court review. See Clark v. United States, 289 U.S. 1,
15 (1933). A fishing expedition will not suffice. The Supreme
Court has set the standard that the party seeking to breach the
attorney-client privilege must meet before a court undertakes in
camera review. It explained in U.S. v. Zolin that:
for the Court to engage in an in camera
inspection of documents to determine whether
the exception applies, the party opposing
the privilege . . . must present evidence
sufficient to support a reasonable belief
that in camera review may yield evidence
that established the exception’s
applicability.
491 U.S. at 574-75. The decision of the court to review
documents is a minimal intrusion into the attorney-client
privilege and work product doctrine. The standard for
undertaking such a review is much more lenient than for a
finding that the veil of secrecy no longer applies. See id. at
572.
The plaintiffs have met the standard for this court’s
in camera review of documents identified in the log provided by
the defendants. This court as well as the Court of Appeals has
previously determined by a preponderance of the evidence that
the attorneys who brought the Perrigo lawsuit were experienced
patent attorneys who knew the patent they were attempting to
enforce was invalid. The court found that the Perrigo lawsuit
was not only objectively baseless but also was filed “to impose
expense and delay on . . . Perrigo so as to block [its] entry
into the TTRT market.” AbbVie, 329 F. Supp. 3d at 126. There
is sufficient evidence to support this court’s “reasonable
belief that in camera review may yield evidence that establishes
the exception’s applicability.” Zolin, 491 U.S. at 747-75.
To find that the disclosure of documents is warranted
under the crime-fraud exception, the test is higher. As
previously noted, the party seeking to overcome the privilege
“must make a prima facie showing that (1) the client was
committing or intending to commit a fraud or crime, and (2) the
attorney-client communications were in furtherance of that
alleged crime or fraud.” In re Grand Jury, 705 F.3d at 151.
Our Court of Appeals has defined the meaning of a
“prima facie showing.” It has explained that:
where there is a reasonable basis to suspect
that the privilege holder was committing or
intending to commit a crime or fraud and
that the attorney-client communications or
attorney work product were used in
furtherance of the alleged crime or fraud,
this is enough to break the privilege.
Id. at 153.
Plaintiffs seek in camera review of 211 documents
which the court is advised total some 800 pages. The court has
discretion to decline or limit any review based on a number of
factors including the volume of materials. See Zolin, 491 U.S.
at 572. At this time, the court will direct the defendants to
produce for review one hundred of those documents as selected by
the plaintiffs. The court will grant defendants an opportunity
for further briefing to support their position that such
documents should not be made available to the plaintiffs. See
Haines, 975 F.2d at 96-97. The plaintiffs may file a response.
If the court determines that any document should be disclosed to
plaintiffs, it will give the defendants an opportunity to obtain
appellate review of this court’s order before any disclosure
takes place. See id. at 97.