Ninth Circuit Denies Review of Decision that IPR Proceedings Do Not Trigger FCA’s Public Disclosure Bar

On January 5, the U.S. Court of Appeals for the Ninth Circuit published an amended opinion and order denying rehearing and rehearing en banc, thus upholding its August reversal of the Northern District of California’s dismissal of a qui tam whistleblower action under the False Claims Act (FCA). The FCA claim was brought by patent attorney Zachary Silbersher against Valeant Pharmaceuticals, predecessor to Canadian drugmaker Bausch Health. The appellate court’s decision turned on the application of the FCA’s public disclosure bar, finding that inter partes review (IPR) proceedings did not trigger the statutory bar to qui tam actions based on evidence previously disclosed during adversarial agency proceedings “in which the Government or its agent is a party.”

Disclosures During IPR Proceedings Lead to Claims of Fraud in Patent Prosecution

In his qui tam complaint, Silbersher alleged that Valeant defrauded the government of money by delaying the market entry of generic versions of Apriso, which treats ulcerative colitis (UC). As the appellate court noted, a substantial portion of Valeant’s $200 million annual earnings for Apriso came from sales funded by Medicare and Medicaid. Silbersher was lead counsel on GeneriCo’s IPR challenge to Valeant’s U.S. Patent No. 8865688 covering delayed-release Apriso administered to patients without food. During the IPR, Silbersher learned of disclosures from Valeant’s U.S. Patent No. 8921344, which has an earlier priority date than the ‘688 patent. The priority application for the ‘344 patent disclosed the “unexpected finding” that administering Apriso without food was effective, leading to Silbersher’s allegations that the ‘688 patent was fraudulently obtained by Valeant.

Qui tam whistleblower actions on behalf of the U.S. federal government are available through the FCA under 31 U.S.C. § 3730(b)(1). To prevent parasitic qui tam actions, U.S. Congress first enacted a public disclosure bar in 1943, now codified at Section 3730(e)(4)(A), that bars qui tam actions based on evidence disclosed by federal adjudications, federal investigations, or the news media. The district court dismissed the qui tam complaint after finding that Silbersher’s evidence on Valeant’s fraud was barred as it was publicly disclosed “in a Federal… administrative hearing.”

FCA’s 2010 Legislative Amendments Loom Large in Ninth Circuit’s Decision

The Ninth Circuit reached a different result, however, due to legislative amendments to the FCA’s public disclosure bar enacted in 2010. These amendments narrowed the application of the bar by requiring that the government be a party to an administrative hearing that produces evidence barring the FCA claims. IPRs are proceedings adjudicated by a federal agency and while they “present many hallmarks of a channel (i) federal administrative hearing” meeting the FCA’s public disclosure bar, the appellate court found that IPRs are adversarial between the patent owner and the IPR petitioner, without the government as a party.

Valeant argued that the government is a party to IPRs because authority to institute those proceedings is held by the Director of the U.S. Patent and Trademark Office (USPTO). However, the Ninth Circuit said that IPR institution authority does not transform the USPTO into a party to the proceeding. The adversarial nature of IPRs also led the Ninth Circuit to reaffirm that these proceedings do not qualify as a channel (ii) federal investigation, which does not require the government as a party for purposes of the FCA’s public disclosure bar.

In a footnote, the Ninth Circuit acknowledged that “[d]iligent readers of this Court’s opinions may feel a sense of déjà vu” as many of the same issues in this appeal were also analyzed by the Ninth Circuit’s decision in United States ex rel. Silbersher v. Allergan (2022), another FCA qui tam action brought by the same purported whistleblower under similar circumstances. Under Allergan, which “emphasized… an important demarcation between channel (i) and channel (ii) disclosures,” Valeant’s patent prosecution histories were channel (ii) disclosures triggering the qui tam action bar. However, “[t]he IPR was without question adversarial” and could not be a channel (ii) investigation without improperly nullifying the government party requirement of channel (i).

Scattered Disclosures Contain Pieces of Puzzle Put Together by Silbersher

The Ninth Circuit also addressed the novel question of whether Valeant’s patent prosecutions, which do qualify as channel (ii) federal investigations under Allergan, disclosed “substantially the same allegations” as Silbersher’s FCA claims, as also required by the Section 3730(e)(4)(A) public disclosure bar. Here, nothing disclosed in Valeant’s patent prosecution “made a direct claim that Valeant committed fraud, nor did they disclose a combination of facts sufficient to permit a reasonable inference of fraud.” Silbersher also asserted news publications that the Ninth Circuit assumed qualified for the public disclosure bar under channel (iii), but did not trigger the bar for the same reasons:

“In sum, the scattered qualifying public disclosures may each contain a piece of the puzzle, but when pieced together, they fail to present the full picture of fraud. In his qui tam action, Silbersher filled the gaps by stitching together the material elements of the allegedly fraudulent scheme.”

Since rehearing has been denied, the case will be remanded to the district court for further rulings consistent with the Ninth Circuit’s view that IPR proceedings do not trigger the FCA’s public disclosure bar.

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