Supreme Court Holds Good Faith Belief of Patent Invalidity is Not a Defense to Induced Infringement
Pharmaceutical patents commonly include claims directed to methods of treatment using a purportedly novel compound, formulation or treatment regimen. In Hatch-Waxman litigations, branded pharmaceutical patent holders frequently assert allegations of infringement of such method claims against generic pharmaceutical manufacturers, using theories of indirect infringement. Patent holders allege that clinicians are induced to practice the method claims when generic manufacturers sell generic pharmaceutical products with labeling including indications of use and directions for administration. In response, generic manufacturers commonly counterclaim with defenses of non-infringement and/or patent invalidity of the asserted method claims.
On May 26, 2015, the Supreme Court of the United States held that “a defendant’s belief regarding patent validity is not a defense to an induced infringement claim”—it is only a defense to liability. Commil USA, LLC v. Cisco Systems, Inc., Case No. 13-896, 575 U.S. ___ (S.Ct. May 26, 2015). The Court reached this holding in a long-running patent infringement dispute relating to “method[s] of implementing short-range wireless networks.” Although this was not a Hatch-Waxman case, the Supreme Court’s decision may have a significant impact in abbreviated new drug application (ANDA) litigation involving claims of induced infringement.
Following a first trial in the U.S. District Court for the Eastern District of Texas, a jury found wireless equipment provider Cisco liable for direct, but not induced, infringement. Commil sought a new trial on the issue of inducement, and during a second trial, Cisco raised a good faith belief of patent invalidity as a defense to Commil’s induced infringement allegations. Cisco’s evidence on this issue was excluded at trial, without express explanation by the court, and Cisco was found liable for indirect infringement.
Cisco appealed to the U.S. Court of Appeals for the Federal Circuit on bases including the preclusion of evidence, as well as Commil’s jury instruction, which improperly articulated the standard of proof for induced infringement as including negligence, rather than the required showing of intent—that the alleged inducer knew of the patent in question and knew the induced acts were infringing. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. __ (2011). The Federal Circuit panel determined that the lower court erred in both 1) instructing the jury on inducement using a negligence standard and 2) precluding Cisco from presenting evidence of its good faith belief of patent invalidity in its defense. Commil USA, LLC v. Cisco Systems, Inc., 720 F.3d 1361 (2013). On the second point, the Federal Circuit stated that it was “axiomatic that one cannot infringe an invalid patent,” and concluded, “Evidence of an accused inducer’s good faith belief of invalidity may negate the requisite intent for induced infringement.” Id. at 1368. Although the Federal Circuit denied the parties’ request for a hearing en banc, the Supreme Court granted certiorari to address the question relating to the invalidity defense to induced infringement. The Court vacated the Federal Circuit’s decision.
Writing for the majority, Justice Anthony Kennedy (joined by Ginsburg, Alito, Sotomayor and Kagan and, in part, by Thomas, with Breyer abstaining) framed this issue as one of first impression: In view of the intent requirement for proving induced infringement “whether defendant’s belief regarding patent validity is a defense to a claim of induced infringement.” Simply stated, the Court concluded, “[I]t is not”—“Infringement and invalidity are separate matters under patent law.” Applying similar logic to that stated in the dissenting opinion of Judge Pauline Newman of the Federal Circuit, the Court concluded, “The scienter element of induced infringement concerns infringement; that is a different issue than validity . . . And because infringement and validity are separate issues under the Act, belief regarding validity cannot negate the scienter required under §271(b).” The Court explained that non-infringement and invalidity have been historically viewed as alternative defenses, and that the structure of the Patent Act separates validity and infringement in Parts II and III, respectively. Furthermore, permitting an invalidity defense to the scienter requirement of induced infringement would impact the burdens and order of evidence; undercut the long-standing presumption of patent validity; and the clear-and-convincing standard required to prove patent invalidity. The Court commented that practitioners improperly conflate the alternative defenses when saying, “An invalid patent cannot be infringed . . . because invalidity is not a defense to infringement, it is a defense to liability.”
The Court opined that a belief in invalidity defense to induced infringement is not necessary, because alternate paths to obtaining a ruling on invalidity (including a traditional defense of invalidity, a declaratory judgement proceeding on invalidity, and U.S. Patent and Trademark Office procedures of inter partes review and ex parte re-examination), and a belief in invalidity defense may complicate litigation. Finally, in dicta, the Court noted that some patent holders pursue frivolous patent claims. While “[n]o issue of frivolity has been raised by the parties in this case . . . district courts have the authority and responsibility to ensure frivolous cases are dissuaded” using Rule 11 sanctions and §285 attorney’s fee awards.
In dissent, Justices Antonin Scalia and John Roberts disagreed with the majority’s view that infringement and invalidity as entirely independent issues. They note that, “To infringe a patent is to invade the patentee’s right of exclusivity. An invalid patent confers no such right.” Further, “Because only valid patents can be infringed, anyone with a good faith belief in a patent’s invalidity necessarily believes the patent cannot be infringed.” Therefore, good faith belief of invalidity is a defense to infringement. The dissenting opinion briefly responds to the remaining arguments set forth by the majority: 1) The Patent Act’s separate treatment of validity and infringement is irrelevant, as these issues are necessarily intertwined for the reasons stated above; 2) the statutory presumption of invalidity would not be undermined as the burden of proving invalidity by clear and convincing evidence remains; and 3) the practical reasons not to create an invalidity defense to induced infringement are not the concern of the Court; the Court is to interpret the Patent Act. Finally, the dissent notes that it if were the Court’s province to consider the practical implications of the ruling, the majority holding “increases the in terrorem power of patent trolls,” which is not preferred.
Federal Court Affirms Invalidity of Sterile Budesonide Claims
The U.S. Court of Appeals for the Federal Circuit recently affirmed the obviousness of claims directed to sterile, pharmaceutically effective budesonide compositions. AstraZeneca LP v. Breath Ltd., 2015 WL 2112951 (Fed. Cir. May 7, 2015). The court had previously reversed and remanded the U.S. District Court for the District of New Jersey’s non-infringement findings based on erroneous claim construction.
The asserted claims cover Pulmicort Respules®, a sterile, nebulized budesonide suspension used for treating asthma in children. Budesonide is a corticosteroid; non-sterile budesonide compositions, sterile compositions of other corticosteroids, and at least five sterilization techniques were known in the art. AstraZeneca conceded that a skilled artisan would have been motivated to prepare sterile budesonide compositions, thus the obviousness analysis focused on whether a skilled artisan had a reasonable expectation of success in using the known techniques to create sterile budesonide compositions. The district court concluded that there would have been a reasonable expectation of success and the Federal Circuit affirmed.
The Federal Circuit rejected AstraZeneca’s argument that none of the prior art references disclosed processes that would yield a sterile product of sufficient purity and pharmaceutical acceptability. The court re-iterated that, to meet the standard for obviousness, “only a reasonable expectation of success, not a guarantee, is needed,” and noted that the defendants, in fact, used two of the prior art methods to create sterile budesonide compositions.
With respect to secondary considerations, the district court found insufficient evidence of a nexus between the sterility of Pulmicort Respules and commercial success—the Federal Circuit affirmed. The court noted that sterility was an U.S. Food and Drug Administration (FDA) requirement; it did not drive demand for Pulmicort Respules. Further, the long-felt, yet unmet, need in the art was the nebulized delivery system—not the sterility of the product. The court also agreed with the district court’s discounting of the evidence on industry skepticism, failure of others, and AstraZeneca’s own failures during product development.
Federal Circuit Relaxes Limits of Safe Harbor for Post-Approval Studies
Affirming the U.S. District Court for the District of Maryland, the U.S. Court of Appeals for the Federal Circuit recently held the “safe harbor” provision of 35 U.S.C. § 271(e)(1) exempted infringement of Elan Pharmaceuticals’ post-approval clinical study and supplemental new drug application (sNDA) for its muscle relaxant, Skelaxin® (metaxalone). Classen Immunotherapies, Inc. v. Elan Pharms., Inc., 2015 WL 2216154 (Fed. Cir. May 13, 2015)
Classen sued Elan for infringement of U.S. Patent 6,584,472 (the ‘472 patent), which claims a method for accessing and analyzing data on a commercially available drug to identify a new use of that drug, and then commercializing that use. Elan conducted a post-approval bioavailability (BA) study on the food effects of Skelaxin. The results of the study showed the BA of Skelaxin increased when taken with food. Elan submitted a citizen petition asking the U.S. Food and Drug Administration (FDA) to require abbreviated new drug application (ANDA) filers to show both fed and fasting data and, at the same time, submitted an sNDA requesting a revision to Skelaxin’s label.
Classen attempted to expand its earlier victory at the Federal Circuit arguing that under Classen Immunotherapies, Inc. v. Biogen IDEC, 659 F.3d 1057 (Fed. Cir. 2011) Elan’s BA study, and subsequent FDA submission, fell outside the scope of § 271(e)(1)’s safe harbor, because Elan’s studies were “merely routine post-approval reporting to the FDA.” The Federal Circuit disagreed. The court reasoned that, after initial approval of a drug, a manufacturer may perform additional studies to support FDA approval of labeling changes for its approved products. In this case, Elan initiated its own clinical trials in response to the FDA proposal to re-designate metaxalone from “non-bioproblem” to “bioproblem.” Elan then submitted its results to support its proposed revision to the Skelaxin label. The Federal Circuit analogized these post-approval studies to pre-approval studies conducted to gain initial approval. In these circumstances, the court held that post-approval studies were exempt from infringement liability, because these activities “were anything but routine post-approval reporting,” but rather “necessary” for the approval of Skelaxin.
Classen next argued that Elan infringed the ‘472 patent when the company used the BA study data to file patent applications and sold Skelaxin with that data in the revised label. The Federal Circuit rejected the broader proposition, holding that subsequent disclosure or use of information obtained from an exempt post-approval clinical study, even if not used for regulatory approval, does not cause the clinical study to lose its exemption, provided that “the subsequent disclosure or use is itself not an act of infringement.”
The Federal Circuit remanded, because the specific questions of whether infringement occurred when Elan 1) filed patent applications and 2) sold Skelaxin with the revised labels that included the new BA data were not addressed by the district court. In dicta, the court set forth a specific and detailed road map, effectively guiding the district court to reject Classen’s infringement arguments. First, the court stated that filing a patent application is generally not an infringement, because it is not the making, using, offering to sell, selling or importing of an invention. Second, the court stated that placing information which has been submitted to the FDA on a product label after FDA approval is generally not infringement, because the information obtained from exempt activities does not cease to be exempt after approval of the sNDA. The court did note, however, that pharmaceutical patents claiming methods of treatment might still be infringed by information from exempt activities appearing on a product label. However, because the ‘472 patent is not directed to a pharmaceutical method of treatment, the court did not need to resolve that question.
Obviousness Inquiry for Ocular Patents Not Mis-Framed
Affirming the finding by the U.S. District Court for the District of New Jersey that defendant failed to prove Plaintiffs’ patents directed to methods of treating ocular infections with azithromycin are invalid, the U.S. Court of Appeals for the Federal Circuit determined Sandoz Inc. did not show by clear and convincing evidence that it would have been obvious to one of ordinary skill in the art to use azithromycin to topically treat ocular infections. The court also upheld the district court’s refusal to admit into evidence a late-proffered file history of a European counterpart patent. InSite Vision Inc. v. Sandoz, Inc., 783 F.3d 853 (Fed. Cir. April 9, 2015) (J. Linn).
This case involves U.S. Patent Nos. 6,861,411, 6,239,113, 6,569,443 and 7,056,893 covering InSite Vision’s topical azithromycin solution, Azasite® (azithromycin ophthalmic solution). Sandoz stipulated to infringement but contested the validity of the asserted claims based on obviousness. At issue was whether the district court “mis-framed” the obviousness inquiry by adopting InSite Vision’s broader characterization of the problem at the time of the invention of “improved topical treatments for ocular infections” as opposed to the more narrow problem proposed by Sandoz of “topically administering azithromycin to treat conjunctivitis.”
The Federal Circuit determined that the district court did not clearly err in framing the obviousness inquiry finding that persons of ordinary skill in the art would not have developed formulations that only treated conjunctivitis and not corneal infections given the concerns of conjunctival infections spreading to the cornea. When considering motivation in an obviousness analysis, the court explained, the proper inquiry is not the specific problem solved by the invention. Defining the problem in terms of the solution results in an improper hindsight selection of relevant prior art. The court noted that Sandoz’s overly narrow approach reflected hindsight in defining the problem. The proper inquiry, it explained, is whether a person skilled in the art “would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and…would have had a reasonable success in doing so.”
On the merits of the obviousness determination, the Federal Circuit noted that, although azithromycin was known to treat bacterial infections, it was considered a poor choice for treating topical ocular infections based its molecular weight, charge and insolubility in water—which raised concerns of whether it could penetrate the ocular tissue. The court also determined that the evidence presented did not demonstrate a correlation between oral and topical ophthalmic drug penetration. Thus, the fact that azithromycin was successful when administered systemically did not ensure that topical administration would penetrate the eye tissue.
The court also upheld the district court’s decision refusing Sandoz’s request to amend its exhibit list to introduce into evidence the file history of a European counterpart patent of one of the asserted patents. Sandoz sought to amend its exhibit list after the pre-trial conference and following briefing on various motions in limine. The file history purportedly chronicled the dates and contents of a meeting relevant to Sandoz’s obviousness case. Relying on law from the U.S. Court of Appeals for the Third Circuit, the court concluded that the district court did not abuse its discretion in excluding the file history into evidence as untimely. The court agreed with the district court that admitting the European Patent Office (EPO) file history into evidence on the eve of trial would be prejudicial in requiring InSite Vision to prepare arguments explaining the differences between European and U.S. patent law and the significance of the statements in the prior proceedings.
Suspected Off-Label Infringing Uses Do Not Equal Inducement
On May 6, 2015, the U.S. Court of Appeals for the Federal Circuit issued its full opinion affirming the U.S. District Court for the District of Delaware’s denial of Takeda Pharmaceutical’s motion for preliminary injunction seeking to enjoin the launch of Mitigare® (colchicine), a gout treatment drug. Takeda Pharmaceuticals v. West-Ward Pharmaceutical Corp., et al., 785 F.3d 625 (Fed. Cir. 2015).
Colchicine itself has been used as a medication for centuries, in many cultures and civilizations, and is not covered by Takeda’s patents. Takeda’s patents are directed toward methods of treating acute gout flares and methods of administering colchicine for prophylaxis of gout in patients also taking certain drug inhibitors.
In 2010, Hikma Pharmaceuticals submitted an new drug application (NDA) under § 505(b)(2) of the Hatch-Waxman Act, seeking U.S. Food and Drug Administration (FDA) approval to market a colchicine product for prophylaxis of gout flares. Hikma received approval and launched Mitigare on October 3, 2014, and planned to release an authorized generic as early as October 10, 2014.
On October 3, 2014, Takeda sued West-Ward Pharmaceutical and Hikma, alleging induced infringement based on the Mitigare label. On October 9, 2014, the Delaware district court granted Takeda a temporary restraining order (TRO) restraining Hikma from selling Mitigare and launching its planned generic. On November 4, 2014, the district court denied Takeda’s motion for a preliminary injunction. The court held that Takeda had not shown a likelihood of succeeding on its induced infringement claims. The court also found Takeda had not demonstrated that it would be irreparably harmed if Hikma launched Mitigare and the authorized generic. The court also ordered that, if Takeda took an immediate appeal, the court would extend the TRO pending the appeal. Takeda appealed. Following oral argument on January 9, 2015, the Federal Circuit affirmed the district court’s denial of the preliminary injunction and vacated the TRO; the Federal Circuit noted in its decision that an opinion would be forthcoming.
ANDAs and Paper NDAs May be Granted for Un-patented Uses
Pursuant to the Hatch-Waxman Act, an abbreviated new drug application (ANDA) or paper NDA filer must submit one of several kinds of patent certifications, including a Paragraph IV certification of non-infringement and/or patent invalidity. Hikma filed a paper NDA pursuant to 21 U.S.C. § 355(b)(2). Hikma did not file a Paragraph IV certification, because it relied on prior FDA findings of safety and efficacy concerning colchicine and did not seek FDA approval for a use covered by Takeda’s patents. The Federal Circuit confirmed that a “single drug could have more than one indication and yet that an ANDA applicant could seek approval for less than all those indications.”
Mere Knowledge of Possible Off-Label Uses Is Not Inducement
Hikma did not seek FDA approval to market Mitigare for treatment of acute gout flares. Its label stated that Mitigare was “indicated for prophylaxis” and that “the safety and effectiveness of it for acute treatment of gout flares during prophylaxis has not been studied.” The label also stated “if you have a gout flare while taking [Mitigare], tell your healthcare provider.” Takeda argued that the last statement induced infringement because the physician prescribing Mitigare as a prophylaxis would likely tell the patient to use Mitigare to treat the acute flare. The Federal Circuit rejected Takeda’s argument.
The court found that for a drug label to induce infringement, it “must encourage, recommend or promote infringement. The mere existence of direct infringement by physicians, while necessary to find liability for induced infringement, is not sufficient for inducement.” The court also noted that “it is well-established that mere knowledge of possible infringement by others does not amount to inducement; specific intent and action to induce infringement must be proven.” The court went on to find that the requirement of inducing acts is “particularly important in the Hatch-Waxman context because the statute was designed to enable the sale of drugs for non-patented uses even though this would result in some off-label infringing uses.”
The Federal Circuit rejected Takeda’s argument that Mitigare’s label instruction (to tell your health care provider if you have gout flares) would inevitably lead physicians contacted about gout flare to simply increase the patient’s dose of Mitigare to treat the flare. The court found that “vague label language cannot be combined with speculation about how physicians may act to find inducement.” The court also found that, despite its physician affidavits, Takeda had not presented sufficient evidence that the Mitigare label would necessarily lead doctors to prescribe an off-label use of the drug to treat gout flares.
Takeda Failed to Show Direct Infringement of the Drug Inhibitor Patents
With respect to the drug inhibitor patents, the Federal Circuit similarly upheld the district court’s finding that Takeda had not shown a likelihood of succeeding on its direct infringement claims. The Mitigare label warns patients that co-administration of colchicine and certain inhibitors “have been reported to lead to colchicine toxicity” and that, if co-administration is necessary, “the dose of Mitigare should be reduced and the patient should be monitored carefully for colchicine toxicity.” The court rejected Takeda’s argument that the label language constituted inducement as a doctor would need to determine whether co-administration was necessary and then would follow the patented methods if they determined it was necessary. The court affirmed the district court’s finding that Takeda failed to provide sufficient evidence that any doctor had actually practiced the methods of the drug inhibitor patent, a prerequisite for indirect infringement. The court also affirmed the district court findings that the label instructions for controlling against toxicity would not have instructed doctors to practice the patented methods.
Judge Newman Dissented
Judge Pauline Newman dissented, arguing that the majority erred in “ruling that the provider of a known drug product, with knowledge that it is likely to be used in direct infringement, can never be liable for induced infringement.” She pointed out that the issues in the case were fact specific and not amenable to final disposition at a preliminary injunction hearing. Judge Newman charged that the panel opinion “presents an incomplete picture of the facts and the law and ignores the public interest in the development of improved methods of treatment.” She argued that the majority decision stated a general rule “that provides easy avoidance of patents on new uses and improvements” by allowing drug developers to simply omit patented methods of treatment from its label.
Judge Newman disagreed with the majority’s interpretation of Hatch-Waxman as allowing the sale of drugs for non-patented uses even if some off-label infringing use was likely; “[t]he Hatch-Waxman Act is not designed to enable off-label uses, whether or not they are infringing.” She argued that the trier of fact must have the opportunity to evaluate the evidence concerning doctor’s likely response to the Hikma label’s instruction to inform the prescribing physician of an acute gout flare. This type of evidence is “highly relevant to whether infringement is deemed induced.” Purposefully avoiding a patented use on the label where a manufacturer knows doctors will prescribe the drug for an off-label-infringing use may lead to a determination of inducement.
Branded Company's Patent Infringement Suit 'KO'd' by Judgment on the Pleadings Based on the Disclosure-Dedication Rule
Not often is a patent infringement lawsuit filed pursuant to the Hatch-Waxman Act dismissed as a result of a judgment on the pleadings. However, precisely that happened recently in In Re Bendamustine Consolidated Cases, C.A. No. 13-2046, 2015 WL 1951399 (April 29, 2015) (Sleet, J). Generally, a motion for judgment on the pleadings is a party’s request to the court to rule in their favor based only on the pleadings on file, without accepting evidence. Due to the fact-intensive nature of patent infringement, this procedural device is rarely invoked in patent cases and even more rarely granted.
The plaintiff, Cephalon, Inc. filed patent infringement lawsuits pursuant to the Hatch-Waxman Act against several generic companies; Cephalon alleged the companies’ abbreviated new drug applications (ANDA) infringed (under the doctrine of equivalents) two patents claiming compositions and preparations that contain tertiary-butyl alcohol; however the defendants’ ANDA products do not contain tertiary-butyl alcohol. The defendants filed motions for judgment on the pleadings seeking dismissal of the infringement charges, because the doctrine of equivalents was barred under the “disclosure-dedication rule.”
In its first line of defense, Cephalon argued that the U.S. District Court for the District of Delaware could not properly entertain and grant a motion for judgment on the pleadings if it considered matters outside of the pleadings, such as content from the defendants’ respective ANDAs. If the court chose to rely on such extraneous matter, Cephalon argued, it must consider the motions under the summary judgment standard. Not so, Judge Gregory Sleet retorted, if the extraneous matter is “integral to or explicitly relied upon in the complaint.” The court concluded that the two asserted patents, their file histories and the defendants’ ANDAs were properly before the court, because the patent infringement claims in Cephalon’s complaint were based, in part, on these extrinsic documents.
Finding no procedural flaw in the generic defendants’ motions, the district court turned to the merits of the “disclosure-dedication rule.” The rule states that, when a patent drafter discloses in the patent specification, but declines to claim subject matter, he or she thereafter dedicates the disclosed but unclaimed subject matter to the public. Application of the doctrine of equivalents to recapture subject matter deliberately left unclaimed conflicts with the primacy of the claims in defining the proper scope of the patentee’s exclusive rights under the patent. But in order for the “disclosure-dedication rule” to trump the doctrine of equivalents, the disclosure must be of such specificity that skilled artisans could identify the subject matter that was disclosed but not claimed. This poses a question of law.
The patents at issue disclosed a lengthy list of possible organic solvents, which included tertiary-butyl alcohol as the most preferred solvent. The claims of the patents, however, were directed to compositions or preparations containing only tertiary-butyl alcohol; the other solvents listed in the specification were not explicitly claimed. As the court explained, “The question therefore becomes whether the moving defendants ANDA products contain one or more solvents that are disclosed but not claimed in the  patents. The ANDA filings confirm that they do.” Therefore, Judge Sleet concluded that the “disclosure-dedication rule” barred Cephalon from arguing infringement of the patents on a doctrine of equivalents theory. “A patentee cannot narrowly claim an invention to avoid prosecution scrutiny by the [Patent and Trademark Office], and then, after patent issuance, use the doctrine of equivalents to establish infringement because the specification discloses equivalents.” By narrowly claiming only tertiary-butyl alcohol from the list of disclosed organic solvents, Cephalon was not permitted to employ the doctrine of equivalents to expand the scope of the asserted claims to ensnare the defendants’ ANDA products that used other solvents listed in the patent specifications.
Cephalon then argued that application of the “disclosure-dedication rule” was not appropriate in the context of this case because Cephalon “did not decline” to claim the additional solvents, but had attempted, unsuccessfully, to include other solvents in the claims during prosecution of the patents. In fact, Cephalon later succeeded in claiming the additional solvents in a later continuation patent. The district court rejected this argument, stating that “Federal Circuit law is well settled that intent is not relevant to the “disclosure-dedication rule.” Accordingly, the court applied the rule, and, in a rare occurrence, entered judgment on the pleadings dismissing Cephalon’s patent infringement claims under the doctrine of equivalents. This case demonstrates that defendants can short-circuit protracted and expensive ANDA litigation under the right circumstances, such as when application of the “disclosure-dedication rule” would trump infringement claims under the doctrine of equivalents.
Generic Labels Can Omit Orphan Drug Indications to Avoid Brand Exclusivity Rights
Two hours after the U.S. Food and Drug Administration (FDA) approved generic versions of Abilify® (aripiprazole) (excluding pediatric indications and dosage information), the U.S. District Court for the District of Maryland held a hearing on Plaintiff Otsuka Pharmaceutical’s motion for a temporary restraining order (TRO) seeking to enjoin the FDA from granting further approvals and the generic companies from launching their generic products. Since the FDA had recently approved a pediatric indication for Abilify that is protected by orphan drug exclusivity, Otsuka argued that the FDA could not approve any generic form of Abilify within its seven-year period of orphan drug market exclusivity. The district court held, however, that the Food, Drug and Cosmetics Act (FDCA) likely did not support such a position and, as a result, denied Otsuka’s request for emergency injunctive relief. Otsuka Pharmaceutical Co., Ltd. v. Burwell, Case No. 15‑852, 2015 WL 1962240 (D. Md. April 29, 2015).
In considering Otsuka’s motion for a TRO, the court performed the standard four-part TRO analysis, evaluating (1) the likelihood that Otsuka would succeed on the merits; (2) the likelihood that Otsuka would suffer irreparable harm in the absence of preliminary relief; (3) whether the balance of the equities tip in Otsuka’s favor; and (4) whether injunctive relief is in the public’s interest.
Likelihood of Success on the Merits
Otsuka argued that, in general, where a specific pediatric indication exists, that pediatric indication must be described under the “indications and usage” section of a drug label. In addition, the “dosage and administration” section of the label must include any appropriate pediatric dosage information. Moreover, Otsuka argued that, under 21 U.S.C. § 355(j)(2)(A)(V), generic labels must contain the same information as the label of the respective brand-name drug. Thus, because the label for Abilify included a pediatric indication, and pediatric dosage information, Otsuka argued that any label for a generic version of Abilify must contain that same information. However, the pediatric indication for use of Abilify fell within Otsuka’s orphan drug market exclusivity, so no generic could be approved for this indication until 2021. Contrary to Otsuka’s view of the FDCA, however, the FDA approved the generic applications that omitted pediatric indications and dosage information to avoid Otsuka’s orphan drug exclusivity for pediatric indications.
Otsuka objected to the FDA’s approval of the generic version of Abilify without pediatric indications and dosage information, arguing that Section 505A(o) of the FDCA permitted approval of generic drugs with labels omitting such information in only two circumstances: (1) When the information was protected by a patent; and (2) when that information was protected by three-year new clinical study exclusivity. Otsuka maintained that neither of those circumstances existed here, and as a result, the FDA was prohibited from approving the generic labels. In response, the FDA argued that, while 505A(o) limits the ability to deny approval of generic drugs with labels omitting pediatric information in those two circumstances, it does not limit the ability to grant approval in other circumstances, such as where a pediatric indication falls within a period of orphan drug exclusivity.
Observing that the arguments presented turned on the FDA’s construction of the FDCA—a statute which the FDA administers—the district court explained that it was required to apply the two-step Chevron analysis to address the scope of Section 505A(o).
Chevron Analysis Step One: Did Congress Directly Address This Question?
First, the court considered whether Congress had directly spoken on the precise question at issue and whether the intent of Congress was clear. The court looked to the explicit language of 505A(o), which states that an application for approval of a generic drug may not be denied because it omits pediatric indications when the pediatric indications are protected by a patent or subject to a three-year new clinical study exclusivity.
Otsuka argued that, because 505A(o) did not limit the FDA’s ability to reject applications omitting pediatric information, 505A(o) effectively requires the FDA to reject such applications. The court noted that Otsuka was imprudently relying on a principle of statutory construction known as expressio unius esi exclusion alterius (i.e., the expression of one thing is the exclusion of another). The court did not agree that such a principle should be applied here, because no evidence suggested that Congress considered other exclusions (such as orphan drug exclusivity), but intended to exclude them by silence. Nevertheless, the court conceded that the intent of Congress was not sufficiently clear. Accordingly, the court was required to consider step two of the Chevron analysis.
Chevron Analysis Step Two: Was the Agency’s Action Based on a Permissible Construction of the Statute?
Under step two of the Chevron analysis, the district court considered whether the FDA’s approval of generic Abilify was based on a permissible construction of 505A(o). In performing this analysis, the court recognized that it could overturn the FDA’s interpretation only ifthe statute unambiguously foreclosed the particular construction. Believing that the statute itself, relevant case law, and FDA regulations all supported the FDA’s construction, the court concluded that it would likely find that the FDA’s interpretation of 505A(o) was permissible. Thus, since it was unlikely that the court would depart from the FDA’s interpretation of 505A(o), the court concluded it was unlikely that Otsuka would succeed on the merits. As a result, the court held that Otsuka was not entitled to the requested TRO.
Remaining Factors for TRO and Preliminary Injunction
Even though the district court concluded that Otsuka was not entitled to a TRO, the court nevertheless considered the remaining three prongs of the TRO inquiry for the sake of completeness.
On the issue of irreparable harm, Otsuka argued that it would suffer irreparable harm if a TRO was not granted, because the release of generic Abilify would result in price erosion, loss of market share, loss of profits, layoffs and loss of goodwill. Otsuka maintained that, because it could not recover monetary damages from the FDA, the potential damages were irretrievable and irreparable. The court rebuffed Otsuka’s arguments and suggested that courts typically find irreparable harm where the monetary losses are so severe that they “threaten the very existence of the company.” In this case, the court noted that Otsuka had been preparing for the entry of generic Abilify, and had even been releasing other products to compensate for the anticipated loss of exclusivity. Accordingly, the court concluded that the release of generic Abilify would not constitute a catastrophic event or “sound the death knell” for Otsuka. As a result, the court concluded that Otsuka would not suffer irreparable harm.
In addressing the balance of the hardships, the court relied heavily on a prior decision by Judge Jerome Simandle on a related TRO motion brought by Otsuka in the U.S. District Court for the District of Delaware. The court merely echoed Judge Simandle’s opinion that a TRO would be devastating to a generic that has undertaken extensive and costly steps to enter a market, particularly where Otsuka’s likelihood of success was low. Accordingly, the court concluded that the balance of the hardships tipped away from Otsuka.
Finally, on the issue of public interest, the court concluded that a TRO would not serve the public interest. Indeed, the court concluded that Otsuka had enjoyed 12 years of exclusivity, and made over $100 billion in revenue over that time period. Thus, Otsuka’s desire for additional exclusivity should yield to the public’s interest in having access to low-cost generic versions of Abilify.
Reverse Payment Settlements Subject to Antitrust Challenge
In a class action case assessing the implications of antitrust law in a patent infringement and validity settlement agreement, the Supreme Court of California held that reverse payment settlements are not immune from antitrust scrutiny under state law. In re Cipro Cases I & II, No. S198616, 2015 WL 2125291 (Cal. May 7, 2015). The California Supreme Court held that parties that engage in these reverse payment settlements without legitimate justification illegally restrain trade under California law.
Bayer owns a patent on the active ingredient ciprofloxacin hydrochloride in the antibiotic Cipro®. It subsequently obtained approval from the U.S. Food and Drug Administration (FDA) to market the drug in the United States. In 1991, 12 years before the expiration of the patent, defendant Barr Laboratories applied to market a generic version of Cipro. In its abbreviated new drug application (ANDA), Barr made a Paragraph IV certification that Bayer’s patent is invalid or will not be infringed. In its certification, Barr contended that the patent was invalid double patent, was the product of inequitable conduct, and was obvious in light of prior art. Bayer responded with a patent infringement suit, and Barr counterclaimed for a declaratory judgment of patent invalidity.
In 1997, Bayer and Barr settled. As part of the settlement, Barr agreed to postpone marketing the generic version of Cipro until the patent expired and to a consent judgment affirming the patent’s validity. In return, Bayer agreed to pay significant sums to Barr and to supply Cipro for licensed resale six months before the patent expired. From 1997 to 2003, Bayer paid Barr $398.1 million. Bayer’s profits from Cipro exceed $1 billion.
The settlement sparked numerous state and federal antitrust suits. The plaintiffs here—buyers of the drug—alleged that the settlement violated the Cartwright Act, unfair competition law and common-law prohibition against monopolies. The California Court of Appeals affirmed the trial court’s grant of summary judgment in favor of Bayer. Since the settlement restrained Barr only within the “scope of the patent,” and the suit for its enforcement was not objectively baseless, the district court and Court of Appeals held the settlement lawful. This “scope of the patent” test presumes a patent’s validity unless it was procured by fraud. So long as an agreement does not extend the patentee’s monopoly beyond what the patent grants, the court concluded, the agreement survives antitrust scrutiny.
In reversing the lower courts’ holding, the California Supreme Court relied on the Supreme Court of the United States’ decision in Federal Trade Commission v. Actavis, Inc. In Actavis, the Supreme Court rejected the “scope of the patent” test under federal law. While a valid patent allows the patentee to exclude others, “an invalidated patent carries with it no such right.” Thus, a settlement which cuts short the resolution of a patent’s validity should not establish that patent’s legitimacy. The Supreme Court concluded in Actavis that, even if the terms of the reverse payment settlement falls within the patent’s potential exclusionary scope, the settlement is not immune from antitrust attack.
While Actavis is not dispositive on state law matters, “patent law is federal law.” The Supreme Court is the “final arbiter” of patent law matters and the extent to which antitrust law interpretations and patent law requirements co-exist. Accordingly, the California Supreme Court applied Actavis to similarly reject the “scope of the patent” test under state law. The court also extended principles of the Cartwright Act to the patent arena, explaining “purchasing freedom from the possibility of competition, whether done by a patentee or anyone else, is illegal.”
The court adopted the “quick look rule of reason analysis” to assess reverse payment settlements. To establish a prima facie case that a reverse payment patent settlement is anti-competitive under California law, a plaintiff must show four elements: (1) The settlement includes a limit on the settling generic challenger’s entry into the market; (2) the settlement includes cash or equivalent financial consideration flowing from the brand to the generic challenger; and the consideration exceeds (3) the value of goods and services other than any delay in market entry provided by the generic challenger to the brand, as well as (4) the brand’s expected remaining litigation costs absent settlement. The burden then shifts to the defendant to offer legitimate justifications that the settlement is pro-competitive. If the plaintiff can dispel each justification, then the settlement is “condemned by the Cartwright Act” and is “an unlawful restraint of trade.”