Argument analysis: The Supreme Court struggles with the ACA’s patent provisions

In a surprise to virtually no one, the oral argument in the consolidated patent cases Sandoz v. Amgen and Amgen v. Sandoz showed the Supreme Court struggling to understand both the highly complex patent provisions in the Affordable Care Act (aka the “Obamacare” statute) and the many procedural complexities of the underlying litigation.

The argument began with an unusual announcement by Chief Justice John Roberts, who told the lawyers for the two battling pharmaceutical firms that “the Court has decided to give each of you five extra minutes” of argument time.  Each advocate must have thought, “Wow, five whole minutes! For each of us! How generous!”

Joking aside, however, I’m sure that the advocates understood what the court was doing. The court could not possibly have thought that the five more minutes would really bring much more clarity to the issue. Even five extra hours of argument might not have helped much. The extra time signals to the lawyers, and to the larger biomedical community that cares about these legal issues, that the court understands that this litigation is far more complex than most others and that the justices are willing to put in extra effort to try to resolve the relevant issues in a conscientious manner.

The five additional minutes might signal something else too. There is, I believe, a real chance that the court might decline to rule on some or even all of the issues presented in these consolidated cases. You read that correctly: The justices may not decide any of the issues but instead might dismiss as improvidently granted the petitions for certiorari in the case (a so-called “DIG” of the petitions). The extra minutes might be designed to show that the court was not merely trying to avoid work or otherwise being cavalier in waiting to opine on the issues until another day.

Such DIGs are unusual, but so are the consolidated cases here. In one of the most highly cited cases concerning DIGs, The Monrosa v. Carbon Black Export, Inc., the court wrote that its function is to “decide[] questions of public importance,” but only “in the context of meaningful litigation,” and not simply to answer questions in an “administrative or managerial” role.

At multiple points in the oral argument, the parties seemed to be encouraging the justices to assume just such an administrative or managerial role with respect to this statute (the 17-page biosimilars subchapter contained in the larger ACA).  As mentioned in my argument preview, all of the issues in this particular case are moot, and the court granted certiorari based on the exception to mootness for issues “capable of repetition yet evading review.” Yet as the argument played out, this particular litigation seemed more unusual and less typical, and the parties were seeking rulings that may or may not be relevant to future cases. Justice Stephen Breyer was the most vocal of the justices in rejecting such a role, as he repeatedly stated that the issues would be better resolved in a comprehensive administrative rulemaking rather than in Supreme Court litigation.

Below I will discuss the specific issues raised in the litigation, and in doing so, I will follow the structure of my argument preview, which described the issues in five layers. Throughout my discussion, however, I will point out the places in the argument where comments by the justices and even by the attorneys seem to hint that the case may be a poor vehicle for answering the questions presented.

*                      *                    *

Very few questions at the oral argument focused on the two most general aspects of the case: (i) the long-running policy war over the optimal level of patent protection for medicines, and (ii) the complex technology of biologics and biosimilars. The dearth of questions on those matters is to be expected. The justices clearly understood that, in enacting the relevant statute, Congress was trying to strike a balance between patent protection and access to medicines, and that the underlying complexities of the technology partly explain why the statute is so complex. The justices were instead devoting almost all of their attention to trying to discern what balance had been struck by Congress.

The first specific legal issue that gave rise to the litigation between Amgen and Sandoz is whether, under the statute, Amgen was entitled to obtain Sandoz’s FDA application to market a biosimilar to Amgen’s drug filgrastim (trade name Neupogen). One of the very first steps in the statutory “exchange of information” process is that the applicant for a biosimilar license – here Sandoz – “shall provide to the [research pharmaceutical company] a copy of the application submitted [to the agency] under subsection (k).” Amgen’s position is that “shall” in that sentence means that the disclosure is mandatory, and that a federal court may issue injunctive relief if the application is not disclosed. Sandoz argues that disclosure is optional, with the statute merely permitting a declaratory judgment action about possible patent infringement if the application is not provided.

A few points of clarity emerged on this issue, but no real resolution. The court seemed willing to assume that the word “shall” bespeaks a mandatory duty. At one point in his questioning of Amgen’s lawyer—former Solicitor General Seth Waxman — Justice Neil Gorsuch said, “let’s say I spot you that … ‘shall’ means shall.”  The hard issue is then whether the statute’s listed consequences for nondisclosure are the exclusive remedies, and as Justice Gorsuch noted, “it’s hard to divorce a right from its remedy.”

Justice Sotomayor questions Seth P. Waxman, the lawyer for Amgen (Art Lien)

Justice Stephen Breyer then identified the key ambiguity in the statute, stating: “You’re right. ‘Shall’ means ‘shall.’ Okay? But [the remedial provision in the federal statute] doesn’t say that’s the only remedy or that there are others.” The statute provides a remedy for the applicant’s non-disclosure of its FDA application, but it is ambiguous as to whether that remedy is exclusive.

In the underlying litigation, Amgen sued Sandoz and received Sandoz’s application in discovery, so the issue of the remedy for nondisclosure is moot in this litigation. Nevertheless, the justices speculated about whether such a disclosure-via-discovery solution would always be present or was the exception.  Questioning Sandoz’s counsel — former Assistant to the Solicitor General Deanne Maynard — Justice Sonia Sotomayor asked whether other litigants would generally have “a good-faith basis” for bringing such a suit so that the FDA application could be obtained in discovery. That question led to extended speculation about possible future lawsuits, and that sort of speculation might very well be a signal to the court that it’s a bad idea to decide a moot legal question without seeing the issue arise in a more concrete context.

The next issue in the case was whether the biosimilar applicant Sandoz provided proper notice to Amgen. The statute required Sandoz to provide notice “not later than 180 days before the date of the first commercial marketing of the biological product licensed [by the FDA].” Sandoz sent the notice while its biosimilar application was still pending before the FDA, and the U.S. Court of Appeals for the Federal Circuit held that notice to be too early. Logically, the Federal Circuit believed, the notice would have “to follow licensure, at which time the product, its therapeutic uses, and its manufacturing processes are fixed.”

Breyer again identified the precise ambiguity in the statute that creates uncertainty here. He rhetorically asked: “What does this notice [have to] say?” He then started to paraphrase the statute and realized that the statute does not provide any indication about the information that should be in the notice. It’s a “crucial ambiguity,” he noted. At that point, he suggested that the contents of the notice would be better decided by administrative regulation, admitting that he was “operating in a field I know nothing about,” and then asking “[s]o why isn’t the way to go about this case to ask the agency to issue some regulations?”

Later in the argument, Breyer returned to that idea, but admitted that the court may not be able to prod the agency into action: “I would stick with the idea of the FDA doing this first, but maybe I can’t get there. And if I can’t get there, I’m stuck.”

Deanne E. Maynard, the lawyer for Sandoz (Art Lien)

The last issue in the case is whether federal courts could provide injunctive remedies that are not expressly authorized in this particular statute. In my preview, I worried that the court might inadvertently decide a major issue concerning the scope of federal equity powers without realizing the full implications of such a decision. The oral argument, however, focused on a different theory — a theory that (no surprise here) is hopelessly muddled in this litigation.

The oral argument focused on Amgen’s theory that, to remedy any violations of the biosimilar provisions in the ACA, Amgen could rely on the California’s Unfair Competition Law, which authorizes injunctive relief for any “unlawful, unfair or fraudulent business act or practice.”

I did not discuss that theory in my preview because my reaction to the argument was similar to that of John Roberts, who commented: “[T]his is a very reticulated statute with enormous consequences, and you’re reading along and you finally figure it out, and all of a sudden up pops California law.” Roberts seemed to indicate that he thought such a combination of state and federal law would be “odd” and that the state law could not be used to supplement the federal statute under “well-established preemption” principles.

Amgen’s lawyer Waxman had an answer for that: “[P]reemption was waived” by Sandoz! Roberts was unpersuaded, but not because he disagreed that the issue had been waived. Rather, he said: “I understand [the waiver problem], but I’m not going to interpret a Federal statute based on the decisions of one party to waive the argument or not.”

To any sophisticated observer of the Supreme Court, the entire exchange between Waxman and Roberts points to what’s wrong with this case. Roberts is absolutely correct that the court isn’t in the habit of “interpret[ing] a Federal statute based on the decisions of one party to waive the argument.” But the court doesn’t routinely forgive waivers either. In fact, the justices do not usually hear such cases at all because they typically deny certiorari when a case has such a significant procedural problem.

*                      *                    *

In closing, I’ll note a final general impression about the argument. At numerous points, the advocates and the justices found themselves speculating about how this statute might work, but it’s clear that the discussion was speculative because the statute is so new.

For example, the Roberts asked “how often” a particular issue is likely to arise, and Waxman answered “[w]e don’t have a sufficient data set [because the FDA] has only granted 5 [applications], the last one being last Friday.” Earlier in the argument, Justice Elena Kagan asked Maynard whether “as a matter of practice, … that’s the way people operate under this statute.” Maynard answered that Amgen took that course in this case and “this is the only situation in which I’m aware ….”

The best line — one that received a good bit of laughter — came after Maynard speculated about the strength of the “incentives” provided by the statute for parties to take certain actions, and Sotomayor interrupted: “All incentives have a way of failing. Just look at our society.”

It’s a funny line. But it hints at a serious question about the proper role of the court in deciding complex issues arising under a new statutory scheme, and the justices seem to be thinking about that as much as about the substantive issues presented in these consolidated cases. We will know more about how that concern plays out by the end of June.

Posted in: Analysis, Featured, Merits Cases

CLICK HERE FOR FULL VERSION OF THIS STORY