Federal Circuit Affirms Dismissal For Improper Venue And Failure To State A Claim As To Domestic And Foreign Defendants Respectively
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  • Federal Circuit Affirms Dismissal For Improper Venue And Failure To State A Claim As To Domestic And Foreign Defendants Respectively

    On November 5, 2021, the Court of Appeals for the Federal Circuit (CAFC) issued an order affirming a decision by the United States District Court for the District of New Jersey, No. 2:19-cv-05802-ES-MAH, Judge Esther Salas, dismissing a patent infringement suit for improper venue and failure to state a claim.  Celgene Corp. v. Mylan Pharmaceuticals Inc., __ F.3d __ (Fed. Cir. Nov. 5, 2021).  In its order, the CAFC affirmed that plaintiff had not established that the domestic defendants committed acts of infringement in New Jersey or had regular and established places of business there and had not sufficiently pleaded a claim against the foreign parent defendant.

    Plaintiff holds patents related to a multiple-myeloma drug, pomalidomide.  In early 2017, pursuant to the Hatch-Waxman Act, defendants submitted an abbreviated new drug application (“ANDA”) to the FDA for approval to market generic pomalidomide.  As required under the Act, in conjunction with its ANDA defendants sent a notice to plaintiff including a detailed statement of the basis for defendants’ opinion that plaintiff’s pomalidomide patents are invalid or will not be infringed.  Plaintiff then filed a patent infringement suit against defendants in New Jersey in May 2017.

    After two years of venue-related discovery, the district court concluded that venue was improper under In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017), because plaintiff failed to show that defendants had committed acts of infringement or had a regular and established place of business in the district under 28 U.S.C. § 1400(b).  The district court also concluded that plaintiff failed to state a claim upon which relief could be granted against the foreign parent defendant.  Plaintiff appealed.

    With respect to “acts of infringement,” plaintiff argued that the statutory “act of infringement stemming from the ANDA submission extends nationwide” (i.e., wherever the generic drug will be marketed and sold).  Relatedly, it contended that the effects of the ANDA submission will be “felt” in New Jersey.  Plaintiff also argued that, because defendant sent its notice letter to plaintiff’s headquarters in New Jersey, that too constituted an act of infringement in New Jersey.

    The CAFC rejected these arguments based on its prior decision in Valeant Pharms. N. Am. LLC v. Mylan Pharms. Inc., 978 F.3d 1374, 1381–82 (Fed. Cir. 2020).  In Valeant, the CAFC held that, under the Hatch-Waxman Act, it is only the submission of the ANDA, and not the generic-drug sponsor’s mandatory provision of notice to a patent owner, that constitutes an act of infringement for purposes of establishing venue.  This means venue is proper only “where an ANDA-filer submits its ANDA to the FDA.”  The CAFC further concluded that defendants’ service of notice of its ANDA submission on plaintiff, as required under the Hatch-Waxman Act, was not itself part of the ANDA or an act in preparation of the application, as required under Valeant test.

    The CAFC next addressed whether the domestic defendants had a “regular and established place of business” in New Jersey.  Citing Cray, the CAFC identified three requirements for making this determination:  “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.”

    The CAFC focused on the third requirement, emphasizing that the place must be “of the defendant, not solely … of the defendant’s employee.”  Accordingly, noted the CAFC, “the defendant must establish or ratify the place of business,” and it is “not enough that the employee does so on his or her own.”

    Plaintiff contended that the presence of a handful of employees’ homes in New Jersey should be imputed to the domestic defendants.  Plaintiff pointed to a roster of employees who live in the state, a handful of business cards with employee names and New Jersey home addresses, and two LinkedIn profiles mentioning New Jersey.  The CAFC concluded that this was all too speculative to show ratification of those addresses as defendants’ places of business.

    In further support of its decision, the CAFC noted that defendants presented undisputed evidence that they had not (1) required or instructed those employees to live in New Jersey, (2) paid for their homes, (3) required the employees to store materials in their homes or in New Jersey, or (4) paid for secretarial or support staff to work at their homes.  The CAFC further concluded that the presence of lockers in the district rented in the employees’ own names and used to intermittently store and access product samples, not inventory, was insufficient to establish a place of business of defendants.

    In the alternative, plaintiff argued that the New Jersey office of a former subsidiary of one of the domestic defendants should be imputed to that defendant for venue purposes.  Plaintiff argued that the subsidiary used the same trade name as the defendant and had significant economic ties with that defendant.  The CAFC, however, explained that venue may be imputed under these circumstances only under an alter-ego or veil-piercing theory, and concluded that neither applied in this case.  As the CAFC explained, “courts have refused to pierce the veil even when subsidiary corporations use the trade name of the parent, accept administrative support from the parent, and have a significant economic relationship with the parent.”

    With respect to the adequacy of the allegation of infringement against the foreign parent defendant, the CAFC noted that it was undisputed that the domestic, not the foreign, defendants signed and physically submitted the ANDA—the act of infringement.  The question, then, according to the CAFC, was whether plaintiff pled sufficient facts that either (1) the foreign parent was actively involved in and directly benefited from the ANDA (including in the agent-principal sense) or (2) the domestic defendants acted as the foreign parent’s alter ego in derogation of the corporate form.

    The CAFC concluded that plaintiff had not sufficiently pled either alternative.  Mere ownership of the domestic defendants that submitted the ANDA was not sufficient to establish the parent’s liability.  And, according to the CAFC, plaintiff’s remaining allegations were too conclusory.  For instance, nothing in the complaint suggested how the parent defendant was involved in the ANDA process or how it bypassed the corporate form to make its domestic subsidiaries its alter egos.