Manufacturers of pharmaceuticals, biologics, and herbicides, as well as companies in virtually every industry, routinely make statements in SEC filings, as well as public statements to investors regarding patent litigation, patent office invalidation proceedings, patent validity, and market exclusivity.  Many of these statements acknowledge the risk of adverse decisions finding patents covering a product invalid or not infringed that could lead to entry of generic or competing products that can adversely affect financial results and the pendency of litigation and invalidation proceedings when they are occurring.  Such run-of-the-mine statements rarely lead to investor challenges.  However, despite such disclosures, two investor class action suits, Heeg v. FMC Corp., No. 2:23-cv-4398 (E.D. Pa. filed Nov. 9, 2023) and Employer-Local Teamsters Local Nos. 165 & 505 Health & Welfare Fund v. FMC Corp., No. 2:23-cv-4487 (E.D. Pa. filed Nov. 14, 2023), have recently been filed against chemical manufacturing company FMC Corp. alleging that the company misled investors regarding losses in patent- and exclusivity- related matters in India, China, and Brazil relating to FMC’s flagship diamide insecticides, specifically chlorantraniliprole and cyantraniliprole, resulting in trading of FMC stock at inflated prices and losses to investors. 

These cases allege that FMC and its executives made a series of false statements about the status of patent protection for FMC’s diamide products in SEC filings, press releases, and presentations to the market via securities analysts, money and portfolio managers, and institutional investors following legal defeats in India, China, and Brazil that FMC had concealed from investors resulting in harm to them.  The complaints rely in large part on information compiled and set forth in a research report published on September 7, 2023 by short activist investment firm Blue Orca Capital contending that FMC made false statements regarding, and concealed from investors, that losses in patent litigation and proceedings allowed competitors to launch competing generic diamide insecticide products at significantly lower prices than FMC’s products.  The report cites to FMC’s SEC filings and conference call transcripts, witness interviews, and documents obtained from India, China, and Brazil, including foreign language news articles and documents obtained from courts and regulatory agencies.  On the day the report was published, FMC’s stock price fell by approximately 7.4%, representing approximately $630 million in shareholder losses, and continued to fall over the next two days.  FMC has taken the position that the report contains misleading and factually inaccurate statements regarding FMC's diamide insecticide patents and inaccurately speculated on the strength of FMC’s business. 

For instance, the complaints allege that FMC made false statements about patent litigation in India against competitor Natco.  The complaints acknowledge that FMC initially obtained an interim injunction in July 2021 and issued a press release, but state that in September 2022, the High Court of Delhi vacated the injunction and found that FMC failed to show infringement.  However, on November 2, 2022, FMC filed a Form 10-Q with the SEC stating that “[p]atents may be challenged in the courts, as well as in various administrative proceedings before U.S. or foreign patent offices, and may be deemed unenforceable, invalidated or circumvented” and that “an adverse patent enforcement decision which could lead to the entry of competing chlorantraniliprole products in relevant markets may materially and adversely impact our financial results.” The complaints contend this statement is false and misleading because it framed a risk that had already materialized, a loss in a significant legal matter concerning intellectual property protections in India, as merely a theoretical possibility.  FMC appealed and lost its appeal in December 2022. The complaints also allege that FMC separately lost a case in India against GSP Crop Sciences clearing the way for GSP to introduce a generic chlorantraniliprole product.  Despite these losses, FMC stated in its Form 10-K filed with the SEC in February 2023 that during 2022 it initiated patent enforcement proceedings against generic producers and infringers resulting favorable judgments and settlements, including in India and China and the complaints contend that FMC’s CFO told analysts that it had won infringement cases in both China and India. The complaint alleges that these statements were materially false and misleading and failed to disclose material adverse facts—namely the aforementioned losses in India.  The complaints also allege that FMC made false and misleading statements concerning patent protection in China as well as about regulatory proceedings in India. 

While the merits of the allegations in the complaints will be determined during the course of the litigations, these suits illustrate a cautionary tale for manufacturers and underwriters alike when it comes to regulatory filings and public statements regarding patent validity and litigation.  Detailed disclosure regarding various decisions during the course of a litigation is often unnecessary. However, while the facts of each case are different, companies run a risk of misleading investors when they fail to disclose adverse substantive decisions that can result in increased competition and entry of competitors into the market, such as those finding invalidity or non-infringement, especially where the party has publicized earlier favorable decisions.  General statements acknowledging the risk of a patent being found invalid or not infringed are not likely to insulate a party from potential liability to investors in such circumstances where the party is aware of a negative substantive result on infringement or validity but fails to specifically disclose it as material information is nonetheless withheld.  Where the adverse decision is on appeal, the better course is to disclose the adverse decision and the appeal, rather than to rely on a general disclosure of risk, perhaps based on the thinking that the adverse decision is not final in the sense that it is not appealable.  Moreover, issues of validity and infringement as well as the significance of various decisions vary from country to country, so counsel in each jurisdiction where a patent case is pending should be consulted with respect to both the decision to disclose and content of any disclosure.