Petition for Writ of Certiorari — AIDS Healthcare Foundation, Inc., Petitioner v. Gilead Sciences, Inc., et al.

App. 1

United States Court of Appeals

for the Federal Circuit

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AIDS HEALTHCARE FOUNDATION, INC.,

Plaintiff-Appellant

v.

GILEAD SCIENCES, INC., JAPAN

TOBACCO INC.,

Defendants-Appellees

JOHNSON & JOHNSON, JANSSEN –

SCIENCES IRELAND UC,

Defendants

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No. 2016-2475

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Appeal from the United States District Court for

the Northern District of California in No. 3:16-cv00443-WHA, Judge William H. Alsup.

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Decided: May 11, 2018.

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DANIEL P. HIPSKIND, Berger & Hipskind LLP, Los

Angeles, CA, argued for plaintiff-appellant. Also represented by DORIAN S. BERGER.

GARY N. FRISCHLING, Irell & Manella LLP, Los Angeles, CA, argued for defendants-appellees. Gilead Sciences, Inc. also represented by JOHN PRESTON LONG,

YITE JOHN LU, KEITH A. ORSO, JASON SHEASBY.

App. 2

JEROME WAYNE HOFFMAN, Holland & Knight, LLP,

Jacksonville, FL, for defendant-appellee Japan Tobacco Inc. Also represented by NEAL N. BEATON, New

York, NY; BRUCE C. HAAS, CHRISTOPHER EARL LOH, Fitzpatrick, Cella, Harper & Scinto, New York, NY.

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Before NEWMAN, DYK, and STOLL, Circuit Judges.

NEWMAN, Circuit Judge.

This appeal is from the dismissal of a declaratory

judgment action filed by AIDS Healthcare Foundation,

Inc. (“Healthcare” or “AHF”) against Gilead Sciences,

Inc. et al. (“Defendants”) in the United States District

Court for the Northern District of California.1 On appellate review, we conclude that this action does not

meet the requirements of the Declaratory Judgment

Act.

BACKGROUND

The Defendants produce or sell several drug

products containing the antiviral agent tenofovir alafenamide fumarate (“TAF”), which is used in the treatment of AIDS. The first TAF-containing drug product,

brand name Genvoya®, received FDA approval in November 2015 and is a combination drug product containing TAF and other specified antiviral agents. Dist.

Ct. Op. at *3. In 2016, the FDA approved two

1

AIDS Healthcare Found. v. Gilead Scis., Inc., No. C 1600443 WHA, 2016 WL 3648623 (N.D. Cal. July 6, 2016) (“Dist. Ct.

Op.”).

App. 3

additional TAF-containing combination products—

Descovy® and Odefesey®—each of which contains at

least one other antiviral agent. Id. The Defendants

have patents or are licensees of patents on TAF and its

combination products.

Healthcare provides medical care to persons afflicted with AIDS, including providing antiviral drugs

such as the TAF products that Healthcare buys from

the Defendants. Id. Healthcare filed this suit requesting declarations of invalidity for five patents purportedly covering TAF and various combination products.

Healthcare told the district court that it brought this

declaratory action in order to “clear out the invalid patents” so that it “would have the ability then to partner

with generic makers and purchase generic TAF as soon

as it could become available” on expiration of the fiveyear New Chemical Entity exclusivity set forth in 21

U.S.C. § 355(j)(5)(F)(ii). Tr. of Hr’g at 17:10–13, June 23,

2016, ECF No. 102; Dist. Ct. Op. at *4–5.

Healthcare argued that in view of the lengthy time

consumed by litigating patent validity, such litigation

needed to start well in advance of expiration of the

five-year exclusivity period. See, e.g., AHF Br. 5; Dist.

Ct. Op. at *4–5. Healthcare filed this declaratory action

in January 2016, two months after the FDA approved

Genvoya®—the first TAF-containing product to receive FDA approval. The other TAF products were still

undergoing clinical trials and FDA approval procedures. It is undisputed that no unlicensed source was

offering a TAF product or preparing to do so when this

declaratory action was filed.

App. 4

The district court asked Healthcare to clarify its

role with respect to TAF products:

Court: But the Healthcare, AIDS Healthcare is not going to be manufacturing anything? Or will you even be buying anything?

Counsel:

We would be purchasing it. . . .

Court: So AIDS Healthcare Foundation is a

consumer?

Counsel:

It is a consumer. . . .

Tr. of Hr’g at 16:13–24, June 23, 2016, ECF No. 102.

Healthcare told the district court that it “had reached

out to a number of generic makers” but that “none of

the generic makers wanted to enter the market because there was the fear of liability because of these

patents.” Id. at 17:3–10.

The district court ruled that Healthcare’s actions

in encouraging others to produce generic TAF products

in the future, and Healthcare’s interest in purchasing

such products, did not create a case of actual controversy in terms of the Declaratory Judgment Act. Dist.

Ct. Op. at *5–6. Healthcare appeals, arguing that there

are several grounds on which it meets the declaratory

judgment criteria, and that the district court erred in

dismissing this action.

App. 5

DISCUSSION

Exercise of the Constitution’s judicial power is

limited to actual cases and immediate controversies.

Muskrat v. United States, 219 U.S. 346, 356 (1911).

When this constitutional requirement is not met, a

court has no authority to decide the issues presented,

whatever the “convenience and efficiency” of such judicial action. Hollingsworth v. Perry, 133 S. Ct. 2652,

2661 (2013) (quoting Raines v. Byrd, 521 U.S. 811, 820

(1997)); see Muskrat, 219 U.S. at 356 (“[U]nless [the exercise of the judicial power] is asserted in a case or controversy within the meaning of the Constitution, the

power to exercise it is nowhere conferred.”). The Declaratory Judgment Act conforms to these principles,

providing:

In a case of actual controversy within its jurisdiction, except . . . , any court of the United

States, upon the filing of an appropriate

pleading, may declare the rights and other legal relations of any interested party seeking

such declaration, whether or not further relief

is or could be sought. Any such declaration

shall have the force and effect of a final judgment or decree and shall be reviewable as

such.

28 U.S.C. § 2201(a).

A plaintiff seeking a declaratory judgment bears

the burden of demonstrating that a case of actual controversy existed at the time the declaratory action was

filed. Matthews Int’l Corp. v. Biosafe Eng’g, LLC, 695

F.3d 1322, 1328 (Fed. Cir. 2012). That requires a

App. 6

showing of injury-in-fact, connection between the challenged conduct and the injury, and redressability by

the requested remedy. Steel Co. v. Citizens for a Better

Env’t, 523 U.S. 83, 103–04 (1998).

The existence of a patent, without more, does not

create a case of actual controversy. See Prasco, LLC v.

Medicis Pharm. Corp., 537 F.3d 1329, 1339 (Fed. Cir.

2008) (“[J]urisdiction generally will not arise merely

on the basis that a party learns of the existence of a

patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.” (quoting SanDisk Corp.

v. STMicroelectronics, Inc., 480 F.3d 1372, 1380–81

(Fed. Cir. 2007))).

Healthcare presents several additional arguments

for declaratory jurisdiction, including that (1)

Healthcare is an indirect infringer of the TAF patents

based on its requests to potential producers to provide

the patented products; (2) Gilead’s non-response to

Healthcare’s request for a covenant not to sue created

a present controversy; and (3) public policy favors invalidation of invalid patents and thus the testing of

“weak” patents. The district court, receiving all of

Healthcare’s arguments, correctly held that the declaratory judgment criteria were not met.

App. 7

A

The declaratory requirement of immediacy

and reality is not met by litigation delay

The foundation of a declaratory action is that “the

facts alleged, under all the circumstances, show that

there is a substantial controversy, between parties

having adverse legal interests, of sufficient immediacy

and reality to warrant the issuance of a declaratory

judgment.” MedImmune Inc. v. Genentech, Inc., 549

U.S. 118, 127 (2007) (quoting Maryland Cas. Co. v. Pac.

Coal & Oil Co., 312 U.S. 270, 273 (1941)). “The immediacy requirement is concerned with whether there is

an immediate impact on the plaintiff and whether the

lapse of time creates uncertainty.” Sandoz Inc. v.

Amgen Inc., 773 F.3d 1274, 1277 (Fed. Cir. 2014).

Healthcare argues that it meets this requirement

because of the lengthy time required for patent litigation, such that an immediate start is needed. However,

the time consumed by litigation of a speculative future

controversy does not provide the “immediacy and reality” required for declaratory judgment actions; nor is a

declaratory tribunal precluded from providing expedited relief when such is warranted. In this case, where

there is no present infringement, no threat of or possibility of infringement litigation, and no meaningful

preparation to infringe, the “immediacy and reality”

criteria are not met. See, e.g., Prasco, 537 F.3d at 1338–

39.

The Sandoz court summarized the application of

the law: “We have assessed ‘immediacy’ by considering

App. 8

how far in the future the potential infringement is,

whether the passage of time might eliminate or change

any dispute, and how much if any harm the potential

infringer is experiencing, at the time of suit, that an

adjudication might redress.” 773 F.3d at 1278. In Cat

Tech LLC v. Tubemaster, Inc., 528 F.3d 871, 880 (Fed.

Cir. 2008), the court elaborated that “the issue of

whether there has been meaningful preparation to

conduct potentially infringing activity remains an important element in the totality of circumstances which

must be considered in determining whether a declaratory judgment is appropriate,” citing Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482

F.3d 1330, 1339 (Fed. Cir. 2007), for the principle that

“MedImmune requires that a court look at ‘all the circumstances’ to determine whether a justiciable Article

III controversy exists.” For “[i]f a declaratory judgment

plaintiff has not taken significant, concrete steps to

conduct infringing activity, the dispute is neither ‘immediate’ nor ‘real’ and the requirements for justiciability have not been met.” Cat Tech, 528 F.3d at 880. Thus

“meaningful preparation to conduct potentially infringing activity” is “an important element in the totality of circumstances which must be considered in

determining whether a declaratory judgment is appropriate.” Prasco, 537 F.3d at 1336 n.4 (quoting Cat Tech,

528 F.3d at 880). Here, however, there was no showing

or representation of such “meaningful preparation.”

The district court observed the absence of evidence

of preparation to produce a product covered by any of

the TAF patents, and found “significant uncertainty

App. 9

about the nature of any hypothetical product.” Dist. Ct.

Op. at *5. The uncertainty of whether future infringement might occur at all weighs against the immediacy

and reality requirement of declaratory action. Matthews, 695 F.3d at 1328–29. In addition, precedent illustrates that the mere possibility of future

infringement does not meet the immediacy and reality

criteria, for “[a] party may not obtain a declaratory

judgment merely because it would like an advisory

opinion,” id. at 1329 (quoting Cat Tech, 528 F.3d at

881). For example, in Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1349 (Fed. Cir. 2007), this

court held that a representation that the declaratory

plaintiff “expects to begin work shortly” on “potentially

infringing” activities was of insufficient immediacy to

support a declaratory action.

The district court concluded that Healthcare’s role

as an encourager of others to provide infringing product in the future, and its role as a future purchaser of

such product, fell short of the declaratory judgment requirements of immediacy and reality. Dist. Ct. Op. at

*6. We note that the Hatch-Waxman statute created an

artificial act of infringement by the filing of a certain

abbreviated new drug application (“ANDA”); this is an

explicit statutory basis for litigation before actual infringement occurs. See Acorda Therapeutics Inc. v.

Mylan Pharm. Inc., 817 F.3d 755, 760–62 (Fed. Cir.

2016). Here, it is undisputed that no potential generic

producer had filed an ANDA for any TAF-containing

products at the initiation of this action, for TAF’s New

Chemical Entity period of exclusivity forecloses such a

App. 10

filing until November 2019; nor is there any other basis for declaratory judgment jurisdiction. The district

court correctly concluded that Healthcare, “in its current posture, cannot invoke any statutory relaxation of

otherwise-applicable immediacy and reality requirements,” Sandoz, 773 F.3d at 1281, and Healthcare has

not otherwise shown that there is a controversy of sufficient immediacy and reality to create declaratory

judgment jurisdiction.

B

Liability for inducing infringement

requires that there be direct infringement

Healthcare argues that it is incurring present liability for inducing infringement, 35 U.S.C. § 271(b), by

its attempts to persuade possible manufacturers to

provide generic TAF products after the five-year New

Chemical Entity period of exclusivity. Healthcare refers to its “public statements soliciting unlicensed production of TAF,” AHF Br. 5, and its “request[s] to place

orders with pharmaceutical manufacturers” for the patented TAF products. AHF Br. 13.

Liability for induced infringement requires that

some other entity is directly infringing the patent.

Power Integrations, Inc. v. Fairchild Semiconductor

Int’l, Inc., 843 F.3d 1315, 1331 (Fed. Cir. 2016). Jurisdiction for a declaratory action premised on an inducement theory does not arise in the absence of “concrete

steps [that] have been taken with the intent to conduct

activity which could constitute infringement.” Fina

App. 11

Research, S.A. v. Baroid Ltd., 141 F.3d 1479, 1485 (Fed.

Cir. 1998).

The district court was told that Healthcare’s requests for generic production of TAF-containing drug

products elicited no response from the solicited pharmaceutical manufacturers. Dist. Ct. Op. at *3; see Tr. of

Hr’g at 18:3–11, June 23, 2016, ECF No. 102 (stating

that no manufacturer responded to Healthcare’s requests). There was no evidence or allegation that

Healthcare’s requests had induced potentially infringing activity.

The district court also considered Healthcare’s

role as a purchaser of TAF drugs. Dist. Ct. Op. at *5.

“Such an economic interest alone, however, cannot

form the basis of an ‘actual controversy’ under the Declaratory Judgment Act.” Creative Compounds, LLC v.

Starmark Labs., 651 F.3d 1303, 1316 (Fed. Cir. 2011)

(quoting Microchip Tech. Inc. v. Chamberlain Group,

Inc., 441 F.3d 936, 943 (Fed. Cir. 2006)). The district

court reached the correct conclusion, for as discussed

post, a potential customer’s interest in buying infringing product does not create present liability for induced infringement. See Arris Grp., Inc. v. British

Telecomms. PLC, 639 F.3d 1368, 1374–75 (Fed. Cir.

2011) (“In the absence of a controversy as to a legal

right, a mere adverse economic interest is insufficient

to create declaratory judgment jurisdiction.”).

Healthcare also argues that its present actions

“create liability for indirect infringement the moment

an ANDA is filed.” AHF Reply Br. 6. This theory of

App. 12

possible future liability does not achieve the immediacy and reality required by the Declaratory Judgment

Act.

The district court correctly held that declaratory

standing did not arise on the theory of induced or indirect infringement.

C

An interest in buying infringing product

is not an adverse legal interest for

declaratory jurisdiction

Healthcare argues that its legal interests are adverse to the Defendants, thereby creating a present

controversy subject to declaratory action. However, a

general interest in a patented product, without foundation in actual case-or-controversy, does not create declaratory standing. Litigation-supportive adverse legal

interests exist where there is “a dispute as to a legal

right, such as an underlying legal cause of action that

the declaratory defendant could have brought or

threatened to bring, if not for the fact that the declaratory plaintiff had preempted it.” Creative Compounds,

651 F.3d at 1316; see also AbbVie Inc. v. MedImmune

Ltd., 881 F.3d 1334, 1336 (Fed. Cir. 2018) (“As a general

principle, federal courts, when determining declaratory judgment jurisdiction, often look to the character

of the threatened action that the declaratory-judgment

defendant might have brought. In other words, courts

examine declaratory actions, at least in part, by looking to the mirror image suit the declaratory defendant

App. 13

might bring if and when it seeks coercive relief.” (internal quotation marks and citations omitted)).

An adverse economic interest alone is insufficient.

Arris Grp., 639 F.3d at 1374; see Caraco Pharm. Labs.,

Ltd. v. Forest Labs., Inc., 527 F.3d 1278, 1296–97 (Fed.

Cir. 2008) (explaining why “the dispute as to infringement or invalidity of the relevant Orange-Book-listed

patents” afforded jurisdiction to a generic manufacturer having an adverse economic interest). In response to the district court’s inquiry, see ante,

Healthcare verified that its sole interest was in buying

cheaper product than was available from the Defendants.

The district court recognized that an actionable legal interest is not here present, for neither Healthcare

nor any producer of TAF products is infringing or preparing to infringe any TAF patent. Precedent clearly

counsels that an adverse economic interest is not of itself an adverse legal interest.

Healthcare argues that its risk of liability need not

be absolute in order to establish an adverse legal interest sufficient to support declaratory standing, citing

Fina Research, 141 F.3d at 1480, and Allergan, Inc. v.

Alcon Laboratories, Inc., 324 F.3d 1322, 1332 (Fed. Cir.

2003). These cases do not support Healthcare’s argument.

In Fina Research, the declaratory plaintiff was a

foreign entity that was manufacturing and selling an

ingredient of drilling mud abroad; the holder of United

States patents on compositions containing the drilling

App. 14

mud had sent letters to the foreign producer, stating

that the patentee would sue for infringement if the ingredient were introduced in the United States. The

court held that such a direct threat of suit against an

existing product and its producer established declaratory jurisdiction. Fina Research, 141 F.3d at 1482–84;

see also SanDisk, 480 F.3d at 1382 (describing how the

presentation of “a thorough infringement analysis”

and “element-by-element” product analyses created a

case or controversy supporting declaratory judgment

jurisdiction). In contrast, here the record does not refer

to threats of litigation on importation of existing product, or even an identification of any product whose importation may violate Gilead’s patent rights. No such

TAF-containing products are reported to exist.

In Allergan, the court considered whether a

Hatch-Waxman proceeding was available on the filing

of an ANDA directed to an unpatented product and

use; the court held that a Hatch-Waxman action can be

for induced infringement, and considered whether possible inducement of an infringing use that has not received FDA approval provided Hatch-Waxman

jurisdiction. 324 F.3d at 1331–32. The unique facts of

Allergan do not support the declaratory jurisdiction

here requested by Healthcare.

Precedent illustrates the variety of circumstances

in which declaratory jurisdiction has been considered,

but no precedent supports Healthcare’s position. The

district court correctly held that Healthcare did not

meet the criteria of declaratory judgment standing.

App. 15

D

The absence of a covenant not to sue does

not create a declaratory controversy

Healthcare argues that the Defendants did not

agree to grant a covenant not to sue, and that since

Gilead is known to protect its patent rights, the withholding of a covenant not to sue supports declaratory

jurisdiction.

However, the absence of a covenant not to sue infringers did not create a justiciable case or controversy.

Under the circumstances here, there was no affirmative act by the patentee to assert patent rights against

Healthcare for any present or planned activity. See

generally BP Chems. Ltd. v. Union Carbide Corp., 4

F.3d 975, 980 (Fed. Cir. 1993) (confirming the relevance

of “a patentee’s refusal to give assurances that it will

not enforce its patent”); see also SanDisk, 480 F.3d at

1380–81 (“[D]eclaratory judgment jurisdiction generally will not arise merely on the basis that a party

learns of the existence of a patent owned by another or

even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.”

(emphasis added)). The Defendants also point out that

the covenant not to sue was not requested by

Healthcare until after this suit was filed, and thus this

aspect was not among the circumstances at the time of

filing. Tr. of Hr’g at 18:11–24, June 23, 2016, ECF No.

102.

The absence of a covenant not to sue did not create

a case-or-controversy between the Defendants and

App. 16

Healthcare. See Prasco, 537 F.3d at 1341 (“[T]hough a

defendant’s failure to sign a covenant not to sue is one

circumstance to consider in evaluating the totality of

the circumstances, it is not sufficient to create an actual controversy—some affirmative actions by the defendant will also generally be necessary.”) The absence

of a covenant not to sue, even had it been timely requested and denied, does not here shift the balance to

create a controversy of the immediacy and reality

needed to support declaratory jurisdiction.

E

Policy aspects involve considerations in

addition to declaratory principles

Healthcare argues that public policy is served by

invalidation of invalid patents, and thus supports immediate challenge to the “weak” TAF patents. Yet the

Hatch-Waxman Act is already a balance of several policy interests, seeking to preserve the patent incentive

to invent new drugs, while enabling validity challenge

by ANDA filers before actual infringement occurs. Andrx Pharm., Inc. v. Biovail Corp., 276 F.3d 1368, 1371

(Fed. Cir. 2002).

The present policy reflects a balance of several factors and public interests; any policy change would require re-exploration of all aspects. Healthcare’s

proposal of a change in policy to facilitate challenge to

drug patents would warrant legislative consideration,

not departure from precedent. SAS Inst., Inc. v. Iancu,

App. 17

138 S. Ct. 1348, 1358 (2018) (“Policy arguments are

properly addressed to Congress, not this Court.”)

CONCLUSION

The district court correctly held that Healthcare

had not established a case of actual controversy within

the meaning of the Constitution and the Declaratory

Judgment Act. The dismissal of Healthcare’s declaratory action is affirmed.

AFFIRMED

App. 18

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

No. C 16-00443 WHA

AIDS HEALTHCARE

FOUNDATION, INC.,

Plaintiff,

v.

GILEAD SCIENCES, INC., ORDER GRANTING

JOHNSON & JOHNSON, MOTIONS TO DISMISS

INC., JANSSEN SCIENCES

(Filed Jul. 6, 2016)

IRELAND UC, JAPAN

TOBACCO, INC.,

Defendants.

/

INTRODUCTION

In this action claiming antitrust violations and patent invalidity involving pharmaceutical treatments

for human immunodeficiency virus, defendants move

to dismiss. For the reasons stated below, defendants’

motions are GRANTED.

STATEMENT

This case concerns the compound tenofovir, which

was discovered in 1984 and is useful in treating human

immunodeficiency virus (“HIV”). Plaintiff AIDS Healthcare Foundation, Inc., is a non-profit purchaser of

drugs that contain “prodrugs” of tenofovir, which are

compounds that are converted into their active ingredient once metabolized in the human body. AIDS

App. 19

Healthcare contends that defendant Gilead Sciences,

Inc., improperly used the complex regulatory regime of

the Food and Drug Administration that governs pharmaceutical drugs to protect its position in the market

for prodrugs of tenofovir. This order first explains the

applicable regulations.

1. FDA REGULATORY REGIME.

New pharmaceutical drugs, such as those containing tenofovir prodrugs, can only be sold or marketed

upon approval by the FDA. A company seeking approval for a new drug must conduct extensive research

and clinical testing to establish the safety and efficacy

of the drug and submit the results of that research as

part of a “new drug application” (“NDA”) before winning approval. A manufacturer seeking approval for a

drug via an NDA must identify all patents (regardless

of the patent owner) that it believes cover the drug in

question, which the FDA lists in a publication called

the “Orange Book.”

In 1984, the Hatch-Waxman Act introduced a new

procedure intended to encourage the entry of safe, effective, and affordable generic versions of drugs. Pursuant to the Hatch-Waxman Act, a manufacturer that

wishes to make an identical copy of a drug that has

already been approved can avoid duplicating the expense of research and clinical testing required as part

of an NDA by filing an “abbreviated new drug application” (“ANDA”), which can be approved based on the

clinical data from the original NDA. The filer of an

App. 20

ANDA must assure the FDA that its generic drug will

not infringe the patents listed in the Orange Book for

that drug. It can do so by stating, for each listed patent,

that it will not market the generic version until the patent expires (if it has not already expired) or by stating

that the patent is invalid or not infringed by the generic

product.

The latter certification (invalidity/non-infringement)

is known as a Paragraph IV certification and constitutes an artificial act of patent infringement. If the patent owner initiates litigation against the ANDA filer

within forty-five days, the FDA cannot approve that

ANDA’s drug for thirty months or until a court issues

final judgment invalidating the patent or finding that

the ANDA’s product will not infringe, whichever is earlier.

The Hatch-Waxman Act provides incentives to the

first generic manufacturer to file a Paragraph IV certification for a given drug. Specifically, it guarantees

(subject to limited exceptions) that the first-filing manufacturer will receive 180 days of exclusivity during

which the FDA may not approve any other ANDAs covering that drug. In other words, it guarantees a period

of duopoly between the brand-name manufacturer and

the first generic manufacturer to file an ANDA with a

Paragraph IV certification.

The first-filing generic manufacturer is guaranteed that exclusivity period even if it settles litigation

with a patent owner without resolving the invalidity or

non-infringement issues. No later-filing manufacturer

App. 21

can obtain that exclusivity right from the FDA. Thus,

when a patent owner settles litigation with the first

generic manufacturer to file an ANDA with a Paragraph IV certification, the incentive for a later-filing

generic manufacturer to press a challenge to the validity or scope of the patents listed in the Orange Book is

significantly diminished. This is because, unlike the

first filer, later filers will need to wait until the first

filer has exhausted its exclusivity period before any

later filers’ ANDAs can be approved. The later filers

would face competition from any other later filers,

driving the margins on the generic products toward

zero.

Generic drug manufacturers may alternatively

seek approval of a modified generic version of a drug

if the original drug has already won FDA approval.

(Brand-name manufacturers may also use this process

for modifications to their own drugs.) A modification

might involve a substitution of certain ingredients, a

change in dosage, or approval for a new indication. Although the modifications on the approved drug preclude a generic manufacturer from winning approval

with an ANDA, the generic manufacturer may use a

special kind of NDA under Section 505(b)(2) of the

Hatch-Waxman Act.

Unlike a regular NDA, a Section 505(b)(2) application does not require an applicant to develop and

submit original safety and efficacy data covering the

product as a whole. Instead, the Section 505(b)(2) applicant may refer to the safety and efficacy data submitted as part of an NDA for a previously-approved

App. 22

drug. The applicant may then provide additional data

that demonstrates the safety and efficacy of the proposed modifications.

As with an ANDA, a Section 505(b)(2) application

requires the applicant to assure the FDA that the proposed product will not infringe the relevant patents in

the Orange Book. Upon approval, the applicant for a

modified version of a previously-approved drug is entitled to three years during which the FDA will not approve an ANDA that relies on the supplemental safety

and efficacy data submitted with the Section 505(b)(2)

application (although a manufacturer could win approval with its own NDA supported by new data).

To offset generic manufacturers’ ability to freeride on the safety and efficacy data developed by the

brand-name manufacturers via the ANDA and Section

505(b)(2) procedures, the Hatch-Waxman Act provides

an incentive to brand-name manufacturers to encourage them to develop new products that contain ingredients never before approved by the FDA. Specifically,

it grants such applicants a five-year period of “new

chemical entity” (“NCE”) exclusivity, which operates

independent of any patent protection. NCE exclusivity

bars the FDA from approving any application for a

drug containing the covered new chemical entity for

five years following approval of the first NDA containing that ingredient. The FDA also cannot receive applications for drugs containing that ingredient until

the fourth year following the approval of the first NDA.

App. 23

This order now turns to the drugs in question in

our case.

2. DEVELOPMENT OF TENOFOVIR THERAPIES.

In its initial formulation, tenofovir needed to be

injected intravenously. In 1997, defendant Gilead Sciences, Inc., obtained a patent on a “prodrug” of tenofovir, which could be administered orally and converted

into its active ingredient once metabolized in the human body. That prodrug was called tenofovir disoproxil

fumarate (“TDF”).

In 2001, Gilead received FDA approval to offer

TDF as a standalone drug and as part of several fixeddose combination pills that combined TDF with other

active ingredients. Physicians used the fixed-dose combination pills as part of a multi-drug regimen called

highly-active antiretroviral therapy. That regimen gave

physicians flexibility to prescribe different drug combinations to optimize treatment for patients with various needs (such as differing symptoms).

TDF had side effects involving bone and kidney

toxicity. In 2002, Gilead hired physicians to conduct

safety and efficacy research into an alternative formulation of a tenofovir prodrug, called tenofovir alafenamide fumarate (“TAF”). Meanwhile, in 2004, Gilead

publicly announced that it had abandoned development of TAF, although it filed seven patent applications relating to the use of TAF between 2004 and

2005. Gilead then resumed its clinical trials in 2011. In

2014, it published a study concluding that TAF had a

App. 24

higher absorption rate than TDF, thereby reducing the

bone and kidney toxicity side effects.

In 2015, two years before the expiration of the

patents covering TDF, Gilead sought FDA approval of

three new combination drugs, which were new versions of Gilead’s marquee drugs that substituted TAF

for TDF, while keeping the remaining active ingredients the same. It licensed TAF to defendants Japan

Tobacco, Inc., and Janssen Sciences Ireland UC, for use

in combination with other ingredients for the manufacture of three new fixed-dose combination drugs.1

Below is a chart of the ingredients in Gilead’s new

drugs:

DRUG

LICENSEE

Genvoya

Japan Tobacco elvitefragir, cobicistat,

emtricitabine, and TAF

Descovy

Japan Tobacco emtricitabine and TAF

Odefsey

Janssen

INGREDIENTS

rilpivirine, emtricitabine,

and TAF

The FDA approved the first drug listed, Genvoya,

in November 2015. Because TAF was a new chemical

entity, the FDA also granted Gilead a five-year NCE

exclusivity period over any product containing TAF,

which period began in November 2015. Accordingly, no

generic drug containing TAF can be approved by the

1

Johnson & Johnson, Inc., is a distinct corporate entity from

Janssen Sciences Ireland UC (although they are related). AIDS

Healthcare defines them collectively as “Janssen” in its complaint.

Johnson & Johnson joins in Janssen’s motion to dismiss.

App. 25

FDA until November 2020. (The FDA may not receive

applications until November 2019.) Additionally, Gilead listed twelve patents in the Orange Book covering

Genvoya with expiration dates ranging from 2015 to

2032. Gilead’s NCE exclusivity bears no relationship

to the exclusive rights conferred by its patents.

The FDA approved Descovy and Odefsey in 2016.

Because those drugs also contained TAF, they also fell

within the protection of Gilead’s NCE exclusivity period. Thus, the FDA may not approve any generic version of them until November 2020.

In the first quarter of 2016, Gilead applied for

FDA approval of a standalone version of TAF for use

in treating hepatitis B virus. It expects the application

to be approved in November.2

*

*

*

Plaintiff AIDS Healthcare Foundation, Inc., provided HIV medical care nationwide to hundreds of

thousands of patients. It purchased millions of dollars

worth of drugs from Gilead and began purchasing Genvoya, Odefsey, and Descovy for pharmacies located in

California and Nevada soon after they became available. AIDS Healthcare solicited various pharmaceutical

manufacturers to begin making either a standalone

2

The fact that Gilead began developing standalone TAF does

not appear in the complaint, but AIDS Healthcare concedes that

fact in its brief, citing Gilead’s December 2014 Form 10-K filed

with the SEC, of which judicial notice is taken (Dkt. No. 35-2).

App. 26

TAF product or generic versions of the fixed-dose combination drugs. None responded.

AIDS Healthcare asked Gilead for a covenant not

to sue for infringement if it ultimately began to sell a

generic product containing TAF. (The proposed covenant did not cover claims against any generic manufacturers that might choose to develop a product

containing TAF.) Gilead refused. AIDS Healthcare recognized that Gilead’s patents covering TAF and Japan

Tobacco’s patent covering a combination therapy that

included TAF served as barriers to entry for any generic TAF patent. Accordingly, it curbed or forestalled

investment in research, education, and preparation for

the distribution of generic TAF products as well as its

efforts to encourage generic manufacturers to provide

generic substitutes.3

AIDS Healthcare commenced this action in January 2016. After several defendants moved to dismiss,

AIDS Healthcare amended its complaint. Several defendants were dismissed without prejudice by stipulation.

The complaint now asserts seven claims: (1) declaratory judgment of patent invalidity, (2) monopolization

in violation of Section 2 of the Sherman Antitrust Act,

(3) conspiracy in violation of Section 1 of the Sherman

Antitrust Act, (4) tying in violation of Section 1 of the

Sherman Antitrust Act, (5) foreclosure of competition

in violation of the Cartwright Act, (6) violations of the

3

AIDS Healthcare states in its brief that Japan Tobacco also

refused a covenant not to sue. That allegation does not appear in

the complaint, and Japan Tobacco contends it is factually false.

App. 27

California Unfair Competition Law, and (7) violations

of the Nevada Unfair Trade Practices Law. Gilead

moves to dismiss on all claims. Janssen and Johnson &

Johnson move to dismiss the only claims against them,

which are the Section 1 claims and the state law antitrust claims. Finally, Japan Tobacco moves to dismiss

the only claims against it, which are the declaratory

judgment claim, the Section 1 claims, and the state law

antitrust claims. This order follows full briefing and

oral argument.

ANALYSIS

1. DECLARATORY JUDGMENT OF PATENT INVALIDITY.

AIDS Healthcare seeks declaratory judgment of

invalidity of five patents that cover the various combination drugs containing TAF, identified below:

PATENT

PATENT OWNER

7,390,791 — “Prodrugs of

phosphonate nucleotide

analogues.”

Gilead

7,800,788 — “Prodrugs of

phosphonate nucleotide

analogues.”

Gilead

8,754,065 — “Tenofovir

alafenamide hemifumarate.”

Gilead

8,148,374 — “Modulators of

pharmacokinetic properties

of therapeutics.”

Gilead

App. 28

8,633,219 — “Combination

Therapy.”

Japan Tobacco

Gilead and Japan Tobacco contend that AIDS

Healthcare’s prayer for declaratory judgment does not

present a justiciable case or controversy and thus must

be dismissed.

In MedImmune, Inc. v. Genentech, Inc., 549 U.S.

118, 127 (2007), the Supreme Court abrogated the Federal Circuit’s stricter “reasonable apprehension of suit”

test for determining the scope of jurisdiction over

claims for declaratory judgment in patent suits in favor of a traditional test. Under MedImmune, a party

seeking to establish declaratory judgment jurisdiction

for a claim of patent invalidity must demonstrate that

“the facts alleged, under all the circumstances, show

that there is a substantial controversy, between parties

having adverse legal interests, of sufficient immediacy

and reality to warrant the issuance of a declaratory

judgment.” Ibid. “Immediacy” is measured based on

consideration of “how far in the future potential infringement is, whether the passage of time might eliminate or change any dispute, and how much if any

harm the potential infringer is experiencing a [sic] the

time of suit that an adjudication might redress.”

Sandoz, Inc. v. Amgen, Inc., 773 F.3d 1274, 1278 (Fed.

Cir. 2014). “Reality” is measured by considering “any

uncertainties about whether the plaintiff will take an

action that will expose it to potential infringement liability and, if so, exactly what action.” Ibid.

App. 29

AIDS Healthcare contends that this dispute is

sufficiently real and immediate because it sought to

encourage generic manufacturers to develop products

that contain TAF, but none has responded. AIDS Healthcare presumes that no manufacturers have taken up

that effort because TAF is protected by the aboveidentified patents. This ignores the fact that TAF is

also protected by Gilead’s NCE exclusivity, which bars

the FDA from receiving any application for a drug containing TAF until November 2019 and from approving

that drug until November 2020.

In Benitec Australia, Ltd. v. Nucleonics, Inc., 495

F.3d 1340, 1345 (Fed. Cir. 2007), a generic drug manufacturer filed counterclaims for declaratory judgment

of invalidity and unenforceability of patents covering a

biologic product. The patent owner had charged the generic manufacturer with patent infringement but later

dismissed those claims because the alleged infringement had not yet begun, although the generic manufacturer was “developing and submitting information

to the FDA related to” the patent technology. Applying

MedImmune (following supplemental briefs on that

decision, which had come down after oral argument in

Benitec), the Federal Circuit held that “the fact that

[the generic manufacturer] may file an NDA in a few

years does not provide the immediacy and reality required for a declaratory judgment” and affirmed the

district court’s judgment that it lacked subject matter

jurisdiction over the claims for declaratory judgment.

In Sandoz, 773 F.3d at 1279, the Federal Circuit

noted that it had never found a justiciable case or

App. 30

controversy before a drug manufacturer had applied

for FDA approval. Although that decision declined to

“adopt a categorical rule,” the decision held that a

generic manufacturer’s ongoing preparations for a

clinical trial could not establish a case or controversy

because “[a]ny dispute about patent infringement is

at present subject to significant uncertainties – concerning whether it will actually arise and if so what

specific issues will require decision.” Id. at 1280.

Here, generic manufacturers are still several steps

behind even the manufacturers in Benitec or Sandoz,

and there is significant uncertainty about the nature

of any hypothetical product. The NCE exclusivity ensures that the first act of “artificial infringement” (the

filing of an ANDA) will not occur until 2019, at the earliest, and any proposed generic product cannot be approved until 2020. AIDS Healthcare’s efforts to get a

product to market on the early range of that timeline

do not eliminate the uncertainty that the Federal Circuit identified as fatal in Benitec and Sandoz.

If we were writing on a clean slate, this order

would hold that AIDS Healthcare, at least as a purchaser seeking to encourage manufacturers to prepare

to make TAF-containing products as soon as Gilead’s

NCE exclusivity expires, could pursue its invalidity

theories in district court as the first step in solving

a multi-layered problem. (This would contrast with

the competitors that could not pursue declaratory

judgment in the decisions addressed above.) If AIDS

Healthcare were to succeed in clearing away the allegedly invalid patents, then generic manufacturers

App. 31

would be all the sooner poised to apply for FDA approval for TAF-containing products when the application period opens in three-plus years. This would

reduce the barriers to speedily bringing low-cost effective drugs to victims of HIV and AIDS. But our Federal

Circuit’s holdings insist that generic manufacturers

must first wait until they can seek FDA approval to

sue to invalidate the relevant patents. This delay will

be compounded by the likelihood that the first generic

manufacturer to challenge the patents via a Paragraph

IV certification can be expected to withdraw that challenge as part of a settlement with Gilead or Japan Tobacco, a story regularly told under the Hatch-Waxman

regime. See Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design

Problem, 81 N.Y.U. L. REV. 1553, 1579 (2006).4

But the slate isn’t clean. The Federal Circuit’s interpretation of Article III prevents challenges of patents in district court at least until a generic drug

manufacturer has neared completion of a product (and

perhaps until the manufacturer has “infringed” by

seeking FDA approval). This effectively extends NCE

exclusivity beyond its five-year period by tacking on

the time it takes to successfully challenge bad patents

covering the new chemical entity.

The closest decision on point is Consumer Watchdog

v. Wisconsin Alumni Research Foundation, 753 F.3d 1258,

4

Entering pay-for-delay agreements is just one of many

methods drug manufacturers use to delay generic entry. See Robin

Feldman, Fixing the Generic Regulatory Process, SAN FRANCISCO

DAILY JOURNAL, June 30, 2016, at 7.

App. 32

1261 (2014). There, a consumer advocacy group appealed a decision from the Patent Trial and Appeal

Board affirming the validity of a patent. That decision

largely focused on alleged injuries relating to the consumer group’s procedural rights to seek an appeal before the PTAB. Before reaching that issue, however, the

Federal Circuit swiftly and without much discussion

determined that the advocacy group lacked standing

because it had not “engaged in any activity involving

[the patented technology] that could form the basis for

an infringement claim” and it did not “intend to engage

in such activity.” Also insufficient was the alleged burden the patent placed on taxpayer-funded research relating to the patented technology. The Federal Circuit

cited no authority for that proposition, but it indicated

that the Federal Circuit would extend the rule set forth

in Benitec to entities other than competitors. (Consumer Watchdog predated Sandoz.)

Here, although AIDS Healthcare has encouraged

manufacturers to make infringing products, and it has

made preparations to encourage the use of such products, the infringing nature of that activity remains dependent on the resolution of the uncertainty identified

in Sandoz and Benitec, since, as stated, no manufacturer can even apply for FDA approval of an infringing

product until 2019. Under the Federal Circuit’s rule,

that is insufficient.5

5

AIDS Healthcare could have pursued its anticipation and

obviousness theories (but not its subject matter theory) through

the inter partes review procedure at the United States Patent and

Trademark office where it would have enjoyed a more favorable

App. 33

Accordingly, AIDS Healthcare’s claim for declaratory judgment of patent invalidity is DISMISSED. No

leave to amend may be sought because AIDS

Healthcare cannot plead facts to overcome the hypothetical nature of any proposed infringing product.

2. SHERMAN ACT CLAIMS.

A. Tying.

AIDS Healthcare alleges that Gilead entered into

agreements with Janssen and Japan Tobacco to tie

sales of TAF to sales of Janssen’s and Japan Tobacco’s

respective drugs by combining them into fixed-dose

combination drugs (Genvoya, Descovy, and Odefsey) in

violation of Section 1 of the Sherman Antitrust Act. To

plead a claim for tying, a plaintiff must allege “(1) that

there exist two distinct products or services in different markets whose sales are tied together; (2) that the

seller possesses appreciable economic power in the tying product market sufficient to coerce acceptance of

the tied product; and (3) that the tying arrangement

affects a not insubstantial volume of commerce in the

tied product market.” Paladin Assocs., Inc. v. Mont.

Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003) (internal

quotations omitted).

claim construction standard, but it could not have asserted its

theories that the patents covered unpatentable subject matter or

failed to enable one to make or use the invention. See Cuozzo

Speed Techs., LLC v. Lee, 15-446, 2016 WL 3369425 (U.S. June 20,

2016).

App. 34

Defendants argue that AIDS Healthcare fails on

the first element because, regardless of the alleged demand for a standalone-TAF product, TAF has not been

approved by the FDA for sale as a distinct product.

(Rather, Gilead has only won FDA approval for the

very combinations of products challenged as an illegal

tying arrangement.) AIDS Healthcare responds that

this is a factual challenge to its market definition,

which must be resolved on a full factual record and

that the proper test for the existence of two distinct

products “turns not on the functional relation between

them, but rather on the character of demand for the

two items.” Jefferson Parish Hosp. Dist. No. 2 v. Hyde,

466 U.S. 2, 19 (1984).

AIDS Healthcare contends that the unique safety

profile of TAF (as compared to TDF) and Gilead’s plan

to release a standalone TAF product demonstrate that

the consumer demand for TAF is separable from that

of the alleged tied products. The extent of consumer demand for standalone TAF is irrelevant because TAF

cannot be sold as a standalone product as a matter of

law. That is, far from possessing appreciable economic

power in the market for standalone TAF, Gilead lacks

any power to sell standalone TAF until the FDA approves Gilead’s NDA for that drug, which required Gilead to undertake additional clinical testing and

research.

The only decision to evaluate a tying arrangement

involving a product that could not be sold legally is in

accord. In General Cigar Holdings, Inc. v. Altadis, S.A.,

205 F. Supp. 2d 1335, 1355-56 (S.D. Fla. 2002) (Judge

App. 35

Frederico A. Moreno), the plaintiff challenged the defendant’s efforts to leverage the promise of future sales

of Cuban cigars (contingent on their becoming legal for

sale in the United States) to force consumers to purchase the defendant’s non-Cuban cigars. Because the

ability to actually sell the alleged tying product was

conditioned on the speculative possibility that the

United States would lift the embargo on Cuban cigars,

plaintiff could not state a claim for tying. So too here.

Whether or not there existed demand for a standalone TAF, that demand could not be met until the

FDA approved it for sale. True, Gilead elected not to

seek approval of TAF until several months after it released the first combination drug containing TAF, but

it had no duty to pursue FDA approval of the standalone version. To hold otherwise would require manufacturers to seek approval of each component of the

drug before seeking approval of the combination drug.

This could entirely undermine the FDA’s policy of encouraging the development of combination drugs. See

Food and Drug Administration, New Chemical Entity Exclusivity Determinations for Certain Fixed-Combination

Drug Products, GUIDANCE FOR INDUSTRY (October 2014)

(Dkt. No. 81-2 at 2).

At all relevant times, the FDA has prohibited the

sale of TAF as a standalone product. As such, AIDS

Healthcare has failed to plead the existence of a market for a tying product in AIDS Healthcare’s tying

claim and Gilead’s market power therein. Thus AIDS

Healthcare’s fourth claim must be DISMISSED.

App. 36

AIDS Healthcare may not seek leave to amend its

tying claim, inasmuch as it cannot plead around the

defect that no market for the tying product exists.

B. Monopolization.

AIDS Healthcare also claims that Gilead engaged

in monopolization in violation of Section 2 of the Sherman Antitrust Act. “There are three essential elements

to a successful claim of Section 2 monopolization: (a) the

possession of monopoly power in the relevant market;

(b) the willful acquisition or maintenance of that power;

and (c) causal ‘antitrust’ injury.” Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp., LP, 592 F.3d

991, 998 (9th Cir. 2010).

In its amended complaint, AIDS Healthcare alleges that Gilead improperly bundled TAF with the

other ingredients in Genvoya, Descovy, and Odefsey as

a means of maintaining its dominance in the TAF market. Specifically, it alleges that by bundling TAF with

the other ingredients, it insulated the allegedly weak

patents covering TAF from challenges, because any generic manufacturer seeking to produce a TAF product

would need to invalidate all the patents listed in the

Orange Book for those drugs before it could win FDA

approval, rather than just the TAF patents.

In opposing Gilead’s motion to dismiss, AIDS

Healthcare entirely abandons this theory under Section 2, asserting it instead as a claim under California’s Unfair Competition Law. Nevertheless, this order

App. 37

addresses the defects in AIDS Healthcare’s Section 2

claim as pled.

First, AIDS Healthcare’s Section 2 claim relies on

the premise that Gilead possesses monopoly power

over TAF-containing drugs. Nowhere in the complaint

does AIDS Healthcare allege facts supporting a market definition limited to TAF-containing drugs. This

failure to plead a market definition is fatal.

Second, AIDS Healthcare fails to allege any anticompetitive conduct on the part of Gilead. Gilead

elected to release TAF as part of a combination drug

before seeking approval for TAF as a standalone. “As

a general rule, any firm, even a monopolist . . . may

bring its products to market whenever and however it

chooses.” Foremost Pro Color, Inc. v. Eastman Kodak

Co., 703 F.2d 534, 545 (9th Cir. 1983). There is no legal

basis for concluding that Gilead had a duty to release

TAF as a standalone product. See Allied Orthopedic,

592 F.3d at 1002 (“[A] monopolist has no duty to help

its competitors survive or expand when introducing an

improved product design.”).

Third, AIDS Healthcare acknowledged in its brief

on this motion that Gilead has already sought FDA

approval of standalone TAF, which is expected to be

granted by November 2016. Thus, no anticompetitive

effect can result because Gilead has already taken

steps to expose the alleged vulnerabilities of the patents protecting TAF several years before its NCE exclusivity will expire and the first possible generic TAF

products can enter the market.

App. 38

Fourth, any competitor seeking to market TAF in

a new product after expiration of the NCE exclusivity

period could file a Section 505(b)(2) application for

such a new product. The application would require the

competitor to conduct its own clinical trials about

the differences between its product and the alreadyapproved combination drug, but a change in formulation could enable the competitor to isolate the TAF

patents (by certifying that any other patents are not

infringed because the ingredients simply aren’t present), thus defeating AIDS Healthcare’s “insulation”

theory.

In its brief, AIDS Healthcare pivots to a new theory that Gilead used its monopoly in TAF to monopolize an “aftermarket” for drugs used in combination

with TAF, although that theory is not pled as the basis

for its Section 2 claim. As argued, this theory fails for

the same reason AIDS Healthcare’s tying claim fails.

There is no “foremarket” for TAF – it is only sold as one

of several ingredients in the combination drugs Genvoya, Odefsey, and Descovy, and it is not yet approved

for sale on its own. Accordingly, AIDS Healthcare’s Section 2 claim must be DISMISSED.

AIDS Healthcare may seek leave to amend its monopolization claim to more clearly state the theory it

intends to pursue.

C. Conspiracy.

AIDS Healthcare also claims that defendants conspired to commit the alleged monopolization already

App. 39

discussed in violation of Section 1 of the Sherman Antitrust Act. AIDS Healthcare does not address its conspiracy claim in its opposition brief at all. In any case,

the conspiracy claim fails for the same reason the monopolization claim fails. AIDS Healthcare may seek

leave to amend this claim.

3. CARTWRIGHT ACT AND NEVADA CLAIMS.

AIDS Healthcare’s claims under California’s Cartwright Act and Nevada’s Unfair Trade Practices Act

mirror its claims under the Sherman Act. See Dimidowich v. Bell & Howell, 803 F.2d 1473, 1477 (9th Cir.

1986) (California); Boulware v. State of Nevada Dep’t of

Human Res., 960 F.2d 793, 800 (9th Cir. 1992) (Nevada). The primary difference is that neither state law

statute limits claims by indirect buyers to the exceptions set forth in Illinois Brick v. Illinois, 431 U.S. 720

(1977), and its progeny. Just as AIDS Healthcare’s

Sherman Act claims fail, so too do its claims under the

Cartwright Act and the Nevada Unfair Trade Practices

Act.

4. UCL CLAIMS.

California’s Unfair Competition Law prohibits

“unlawful, unfair, or fraudulent business act[s] or practices.” Cal. Bus. & Prof. Code § 17200. “When determining whether a practice is ‘unlawful,’ section 17200

‘borrows’ violations of other laws. . . .” AICCO, Inc. v.

Ins. Co. of N. Am., 90 Cal. App. 4th 579, 587 (2001).

Here, AIDS Healthcare seeks to “borrow” the violations

App. 40

asserted in its antitrust claims addressed above. As

stated, those claims fail. Thus, AIDS Healthcare cannot state a claim under the unlawful prong.

AIDS Healthcare also asserts two theories under

the “unfair” prong of the UCL. It first contends that

defendants conspired to game the FDA system to insulate TAF from patent challenges by combining it with

additional patented ingredients. This theory has already

been rejected as a basis for a Section 2 claim, in part

because Gilead had no duty to release a standalone

TAF product. In Chavez v. Whirlpool Corp., 93 Cal. App.

4th 363, 375 (2001), the California Court of Appeal

held that conduct that is “deemed reasonable and condoned under the antitrust laws” could not support a

claim under the unfair prong of the UCL. “To permit a

separate inquiry into essentially the same question

under the unfair competition law would only invite

conflict and uncertainty and could lead to the enjoining

of procompetitive conduct.” Ibid. Thus, AIDS Healthcare’s insulation theory cannot support its UCL claim.

AIDS Healthcare’s second theory (which appears

only in its brief, not in its complaint) fares no better.

AIDS Healthcare contends that Gilead knew of the efficacy and safety benefits of TAF in 2004 but shelved

its clinical trials until 2011, leading to FDA approval

(and a grant of NCE exclusivity) in 2015, just before

the patents on TDF were set to expire.

This, AIDS Healthcare contends, delayed the expiration date of Gilead’s NCE exclusivity and thus

delayed the moment that competitors would seek to

App. 41

challenge Gilead’s patents on TAF. Further, it left consumers to bear the higher bone and kidney toxicity of

TDF longer than necessary.

AIDS Healthcare fails to explain how this “delay”

constituted unfair competition. Gilead’s patents gave

it a monopoly over both TDF and TAF. It had no obligation to introduce the improved product at an earlier

date. Any competitor could have beaten Gilead to market (and thus NCE exclusivity). “Without more, it is not

unlawful [under antitrust law] for any competitor in

any market to delay the introduction of a new product

or an entire line of new products until, as [the plaintiff ]

alleged in this case, the competition forces such introduction.” Foremost Pro Color, Inc. v. Eastman Kodak

Co., 703 F.2d 534, 545 (9th Cir. 1983). Under Chavez,

AIDS Healthcare cannot recast its claim that Gilead

unreasonably restrained competition by allegedly delaying the release of TAF as a claim under the unfair

prong of the UCL.

Accordingly, AIDS Healthcare’s UCL claim must

be DISMISSED. AIDS Healthcare may seek leave to

amend this claim.

CONCLUSION

For the reasons stated above, all three defendants’

motions to dismiss are GRANTED.

AIDS Healthcare may seek leave to amend its monopolization, conspiracy, and state law claims within

FOURTEEN CALENDAR DAYS of this order with a formal

App. 42

motion noticed on the standard 35-day calendar. The

motion must affirmatively identify how the proposed

amendments cure the defects identified above. AIDS

Healthcare should plead its best case, and it should address all defects identified in defendants’ motions, not

just those addressed herein. It should also specifically

plead the theories it raised for the first time in its opposition to the instant motion. Theories raised for the

first time in a brief will not be considered.

Both sides requested judicial notice of various documents reflecting FDA policy, financial disclosures of

the parties, publications discussing tenofovir, and the

patents-in-suit. To the extent not referred to above, the

cited documents were not necessary to this order.

Accordingly, the parties’ requests for judicial notice are DENIED AS MOOT.

IT IS SO ORDERED.

Dated: July 6, 2016

/s/

William Alsup

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE