A recent decision by Vice Chancellor Kathaleen McCormick presents a primer on increasingly common defenses to stockholder books and records inspection demands and a cautionary tale for defendants in Section 220 proceedings who opt to pursue overly aggressive defense strategies that seek to place obstacles to the use of Section 220 as a quick and easy pre-filing discovery tool.

In Pettry v. Gilead Sciences, C.A. No. 2020-0132-KJSM (Del. Ch. Nov. 24, 2020), five stockholder plaintiffs sought to inspect books and records of Gilead Sciences Inc. Their purpose was to investigate possible wrongdoing in connection with the company’s development, marketing and sale of HIV drugs. The four categories of possible wrongdoing were:

  • Anticompetitive activity resulting in a multibillion-dollar lawsuit accusing the company of violating federal and state antitrust laws by colluding with competitors to unlawfully extend patent protection and drive up the price of its HIV drugs;
  • Mass torts resulting in more than 15,000 claims by plaintiffs who alleged they were harmed by the company’s decision to delay the introduction of safer and more effective HIV treatments in order to protect the profitability of existing medications;
  • Patent infringement resulting in a lawsuit against the company for infringement of patents held by the federal government; and
  • Kick-back schemes resulting in DOJ investigations into False Claims Act violations.

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