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A federal judge in Philadelphia has preserved the attorney-client privilege for a pharmaceutical company that had been found to have defrauded the patent office.

A group of direct purchasers of Cephalon’s drug Provigil had asked the judge in the pay-for-delay case to grant a motion to compel thousands of privileged documents, arguing that the company’s fraud on the patent office would trigger the crime-fraud exception to the attorney-client privilege.

“In urging that the thousands of communications made between Cephalon and its attorneys were in furtherance of a fraud, the direct purchasers have offered nothing more than a broad categorical approach,” said U.S. District Judge Mitchell S. Goldberg of the Eastern District of Pennsylvania in King Drug Co. of Florence v. Cephalon.

“We are not prepared, based upon such an overbroad and general approach, to override the attorney-client privilege,” he said.

Cephalon, which was recently acquired by Teva Pharmaceuticals, had claimed to have invented the formula for its wakefulness drug called Provigil when it applied for patents in the 1990s. However, in a related case, Apotex v. Cephalon, the court had found in 2011 that the company committed fraud on the patent office by concealing the fact that a French company, Laboratoire L. Lafon, had actually developed the drug.

Not only did Cephalon hide from the patent office that the French company had invented the drug, with the active ingredient of modafinil, it also misled the office by suggesting that it had altered the particle size of modafinil, according to the opinion.

Apotex had proved its case that Cephalon had defrauded the patent office under a newly heightened standard, set by the U.S. Court of Appeals for the Federal Circuit in 2011 with its opinion in Therasense v. Becton, Dickinson and Co., according to Goldberg’s opinion.

The Federal Circuit, which handles appeals in patent cases, changed the standard for finding inequitable conduct, also called fraud on the patent office.

“Specifically, the court concluded that, to establish inequitable conduct, the ‘accused infringer must prove [by clear and convincing evidence] that the patentee acted with the specific intent to deceive the PTO,’ and that the patent would not have issued ‘but-for’ the deception,” Goldberg explained. That was the standard that Apotex met in its case against Cephalon.

The direct purchasers in the case currently before the court argued that Therasense put inequitable conduct in line with the common-law standard for fraud, which would mean that the court’s holding in the Apotex case would establish the fraud element of the crime-fraud exception, Goldberg said.

In order to crack the attorney-client privilege through the crime-fraud exception, the movant “must demonstrate that there is a reasonable basis to suspect (1) that the privilege holder was committing or intending to commit a crime or fraud, and (2) that the attorney-client communication or attorney work product was used in furtherance of that alleged crime or fraud,” Goldberg said, quoting from the Third Circuit’s 2012 opinion in In re Grand Jury.

Goldberg, though, avoided ruling on the direct purchasers’ novel argument, saying, “Because we conclude that the second ‘in furtherance’ element has not been met, we need not decide the meaning and import of Therasense here, and leave that for another day.”

To prove the furtherance element of the crime-fraud exception, the direct purchasers would have to demonstrate that communication between Cephalon and its lawyers were intended to facilitate future fraud.

“Despite the fact that thousands of discoverable documents have been exchanged and numerous depositions have been taken, the direct purchasers have been unable to patch together any type of record to establish that the communications at issue were in furtherance of future fraud,” Goldberg said.

“Moreover, the direct purchasers’ categorical approach offers no way of distinguishing between communications made in furtherance of future fraud (if they exist), and those that legitimately relate to the patent prosecution,” he said, denying the direct purchasers access to the privileged documents.

Similarly, the judge declined to grant in camera review of a reduced number, more than 800, of the documents, holding that the direct purchasers had also failed to meet the lower standard for compelling review of privileged documents by the court.

“Review of even the selection of documents identified by the direct purchasers would consume considerable court resources,” Goldberg said. “While the evidence obtained, even if determined to be unprotected, might be useful in some respects, the breadth of the request reduces the likelihood that any given communication will be found to fall within the exception, and increases the harm to Cephalon from having a third party, even if it is the court, comb through its privileged communications.”

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the nine-page opinion in King Drug Co. of Florence v. Cephalon, PICS No. 14-0056, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)