February 8, 2019

Case Name: Salix Pharms., Inc. v. Mylan Pharms Inc., No. 2017-2312, 2017 U.S. App. LEXIS 2312 (Fed. Cir. Feb. 8, 2019) (Circuit Judges Lourie, O’Malley, and Reyna presiding; Opinion by O’Malley, J.) (Appeal from N.D.W.V, Keeley, J.; Appeal from D.N.J., Chesler, J.; Appeal from USPTO) 

Drug Product and Patent(s)-in-Suit: Relistor® (methylnaltrexone bromide); U.S. Patents Nos. 8,552,025 (“the ’025 patent”) and 8,865,688 (“the ’688 patent”) 

Nature of Case and Issue(s) Presented: Salix, through a string of related entities, is a wholly-owned subsidiary of Valeant Pharmaceuticals International, Inc. (“Valeant-CA”). Bausch & Lomb Inc. (“B&L”) is an indirect subsidiary of Valeant-CA and a corporate affiliate of Salix.

Katten Muchin Rosenman LLP (“Katten”) was a longstanding service provider to Valeant-CA, including in its ongoing representation of B&L in a trademark matter regarding the mark MOISTURE EYES. In the course of this representation, Katten signed an engagement letter stating that “[a]ny conflict of interest that is discovered . . . or that develops during an ongoing representation can only be approved, waived or otherwise cleared by the written agreement of the Valeant General Counsel.” The engagement letter also stated that “Valeant expects a significant degree of loyalty from its key external firms,” defined as firms with greater than $1 million of billings within the last calendar year, and that these key firms should “not represent any party in any matters where such party’s interests conflict with the interests of any Valeant entity.”

Plaintiffs filed motions to disqualify Katten as counsel for Mylan. The motions originated from Katten’s representation of: (i) B&L, a corporate affiliate of the NDA holder Salix, in a trademark litigation; and (ii) its concurrent representation of Mylan. The Federal Circuit concluded that the engagement letter created an ongoing attorney-client relationship between Katten and its organizational clients, Valeant-CA and Salix. As a result, Katten’s representation of Mylan gave rise to a concurrent conflict of interest under Model Rule 1.7.

Why Plaintiffs Prevailed: The Federal Circuit disagreed with Katten’s argument that the engagement letter actually permitted the concurrent representation of Mylan. Specifically, Katten had argued that because its 12-month billing did not exceed $1 million (i.e., not a key external firm), it was free to take on matters adverse to a Valeant entity, so long as it otherwise complies with the Rule of Professional Conduct. The Federal Circuit found this to be an “irrational” reading of the engagement letter and instead characterized this provision as requiring “a heightened degree of loyalty from key firms, requiring something more than mere adherence to the ethical rules” (e.g., prohibited from filing an amicus brief that presents no ethical conflict under the rules of professional conduct, but that contains legal arguments contrary to Valeant interests). The Federal Circuit also rejected Katten’s argument that the engagement letter created a relationship only between Katten and B&L and that the letter formed no relationship with Valeant-CA.

The Federal Circuit further explained that even if there were ambiguity in the engagement letter, Katten’s arguments would still fail because Valeant-CA, Salix, and B&L are sufficiently interrelated, such that a corporate-affiliate conflict exists. In particular, the Federal Circuit concluded that all three entities “share a high degree of operational commonality and are financially interdependent.” For example, Valeant-CA provides “accounting, cash management, employee benefits, finance, human resources, travel, computer systems, insurance, and payroll services.” Further, Valeant-CA and B&L “share the same in-house legal department.” The Federal Circuit also relied upon the fact that B&L and Salix contributed over $1 billion and more than $500 million, respectively, to Valeant-CA’s reported revenues. In sum, Valeant-CA, B&L, and Salix were sufficiently interrelated, such that there was a corporate-affiliate conflict.