By
Andrew Williams —

On
the first day of February, the Federal Circuit rejected Impax's efforts to get
out from under a preliminary injunction in a case captioned In re Cyclobenzaprine Hydrochloride
Extended-Release Capsule Patent Litigation.  The opinion wasn't released until February 14, 2013, however, because it
contained confidential information that needed to be redacted.  The Federal Circuit also interpreted the
settlement agreement between Impax and Cephalon (the patent holder), confirming
the lower court's decision that the ability of Impax to begin selling
generic AMRIX® under the agreement had not been triggered.  As a result, the discussion regarding the
preliminary injunction was somewhat irrelevant, because Impax was otherwise
precluded from marketing the drug.  The decision
in this Eurand, Inc. v. Impax Labs., Inc.
case is somewhat limited to the facts, because the injunction and settlement
agreement discussed by the Court were specific to this case.  Nevertheless, a review of the Court's
reasoning and analysis is relevant because other parties involved in
Hatch-Waxman litigation may find themselves in similar situations.

This
substantive issues related to validity for this case were discussed in detail
in a Federal Circuit opinion of the same name that was handed down last year,
as reported here.  The drug that was at issue in all of these cases
was an extended-release formation of the muscle relaxant cyclobenzaprine
hydrochloride, manufactured and sold under the tradename AMRIX® by
Cephalon.  Shortly after receiving the
NDA for this formation, Mylan Inc. and Mylan Pharmaceuticals, Inc. (collectively
"Mylan") filed an ANDA to market a generic version of the drug,
followed shortly by several other generic manufactures, including Impax.  The Federal Circuit ultimately found that the
patents-at-issue in the case were valid and infringed by the various parties.

Nevertheless,
Cephalon and Impax settled their dispute on the last day of trial.  In the settlement agreement, Cephalon granted
Impax a non-exclusive license to the patents-in-suit, the timing of which was
controlled by five different potential triggering events, the first (and
latest) of which was the date one year prior to the expiration of one of the patents
in suit.  The other events were tied to "Third-Party"
generic manufacturers entering the market, whether by authorization, by
launching "at risk," or by obtaining a final non-appealable judgment
of non-infringement, invalidity, or unenforceability.  The parties also entered a "Transfer
Price Agreement" ("TPA"), by which Impax agreed to market and
sell Cephalon's generic AMRIX®, and Cephalon began supplying its generic
product to Impax.

Cephalon
also entered a "Sales Agent Agreement" with another generic
manufacturer, Watson.  However, under
this agreement, Watson was only given authority to solicit orders for
Cephalon.  In fact, Cephalon maintained
title of the drugs at all times until the drugs were transferred to the final
customer.  Watson was foreclosed under
the agreement to market or sell any other version of the drug.

After
the bench trial, on May 12, 2011, the District Court issued its decision,
finding the asserted claim invalid as obvious.  Mylan launched "at-risk" the next day.  In response, Cephalon instructed Watson to
begin soliciting orders.  On May 24,
2011, the District Court enjoined both parties, along with all persons "acting
in active concert or participation" with them, from selling their
respective generic versions of the drug, in order to maintain the status quo
pending appeal.  On November 7, 2011,
Mylan asked the lower court to confirm that the injunction covered parties in privity
with Cephalon, because Mylan had become aware that other generic manufacturers
were planning to launch at the end of the 180-day marketing exclusivity
period.  As a result, the District Court
clarified its injunction by explicitly referencing that Impax was subject to
the injunction.  Incidentally, because
the lower court issued its May 2011 injunction after Mylan launched, Mylan lost
almost all of its exclusivity period.  This may have been a more contentious point, but for the fact that the Federal
Circuit overturned the lower court's validity decision.

Impax
moved to modify both the May and November 2011, injunctions, and to enforce
the settlement agreement by clarifying that Watson's launch was a triggering
event for its own ability to enter the market.  The lower court confirmed that the May 24 injunction, as clarified by
the November 8 order, was still in effect and that it prohibited Impax from
selling any generic product.  It also
concluded that Cephalon's use of Watson as a sales agent did not trigger Impax's
right to begin selling its supply of Cephalon's drugs under the settlement
agreement.  Impax appealed.

No
Jurisdiction to Review Injunction

The
Federal Circuit determined that Impax was subject to the May 2011 injunction,
and that because Impax did not object to that injunction within the requisite
30 days, it did not have jurisdiction to review the propriety of the
order.  The May 24, 2011 injunction
prevented Mylan, Cephalon, and all persons "acting in active concert or
participation" with these parties, from selling a generic version of
AMRIX®.  Impax had argued that it was not
subject to this injunction because it was not a party to the action when the District Court issued the injunction.  The Federal
Circuit pointed out, however, that Impax was a party that was "acting in
active concert or participation" with Cephalon.  Impax derived its right to sell generic
AMRIX® from the Cephalon-Impax Agreement, and it could have only entered the
market because of the settlement agreement.  Therefore, there was privity of contract between Impax and Cephalon,
because a settlement agreement is akin to a contract.  Also, if Impax had attempted to sell the
authorized generic product pursuant to the TPA, it would have been directly "acting
in concert" with Cephalon.  As the
Court pointed out, any alternative result would have allowed Cephalon to
circumvent the injunction by funneling its generic product to Impax.

Impax
also contended that the District Court's November 8, 2011 order modified the
May 24, 2011 injunction, and its appeal of this modification was timely.  However, because Impax was subject to the
earlier injunction, the Federal Circuit pointed out that the District Court's
clarification made no substantive changes.  Therefore, the November 8, 2011 order did not give rise to an
independent right to appeal.

In
a final attempt to modify the injunction, Impax argued that it timely appealed
the District Court's denial of its attempt to prospectively seek modification
of the injunction.  The Federal Circuit agreed
that it would have had jurisdiction over a modification of an injunction, or
denial thereof, citing 28 U.S.C. § 1292(a)(1).  However, such review would be limited to the propriety of the denial,
not the underlying injunction.  The Court
rejected Impax's assertions that the circumstances had changed since the May
24, 2011 order was issued.  First, Impax
asserted that it had been just recently added to the injunction, but the Federal
Circuit had already addressed this issue.  Second, Impax alleged that the injunction needed to be modified because
Mylan's exclusivity period had expired.  However,
the length of this exclusivity period was known at the time of the original
injunction, and therefore the predicted end of this period had no bearing on
Impax's rights.  Finally, Impax argued
that its receipt of authorized generic product from Cephalon somehow warranted
modification of the injunction.  However,
the May 24, 2011 order prohibited sale of these products, and Impax had
received them months before it sought to modify the order.  Therefore, the Court did not consider this to
be a "changed circumstance."  As a result, the Federal Circuit found no support for a modification of
the injunction.

Cephlon's
Appointment of Watson as Sale Agent Was Not A Trigger Event Under The Contract

The
Federal Circuit also addressed Impax's challenge to the lower court's
interpretation of the settlement agreement.  On its face, the Federal Circuit's decision should not extend beyond the
contract between Cephalon and Impax.  However, because Court reasoning is applicable to the interpretation of
other settlement agreements, it is worth reviewing.  Interestingly, for the present, this aspect
of the decision appears to be irrelevant, because according to the District Court's docket, Impax is still subject to the preliminary injunction (and
therefore couldn't sell any drugs anyway).  In other words, regardless of whether an event had triggered Impax's
ability to sell generic AMRIX® under the settlement agreement, Impax was still
barred from launching until the District Court lifts the injunction.

The
relevant section of the settlement agreement is Section 3.2, in which five
different "triggering events" dictate when Impax can enter the
generic market.  The "trigger"
in dispute is the third, which provides that Impax may enter the market on:

[T]he same entry
date that any Third Party which is not entitled to First to File Exclusivity is
licensed or authorized by [Cephalon] to begin selling Generic Equivalent
Product in the Territory.

Impax
alleged that Watson was such a "Third Party," but the Court
disagreed.  A "Third Party" was
defined in the agreement as a party that is not Anesta, Eurand, Cephalon,
Impax, nor any of their affiliates.  As
such, Cephalon's entry into the market was not defined to be a triggering
event.  And, because Watson was no more
than a sales agent for Cephalon, Watson was
Cephalon based on the agreement.

Important
in this determination was the fact that Cephalon was merely using Watson's
expertise and distribution channels.  Watson had not filed its own ANDA to the product.  In fact, Watson was only soliciting orders,
and was required to notify potential customers that it was only Cephalon's
sales agent.  Moreover, Cephalon retained
the right to set price floors, and retained title until the drugs were
transferred to the customer.  Because
Watson never obtained title to the product, it could not "sell" the
generic drugs within the meaning of § 3.2(c).  The Court pointed out that if Watson was, in fact, characterized as a "Third
Party," it would have meant that Cephalon would have needed to operate the
entire production and distribution chain of its own generic product to avoid
triggering Impax's ability to launch.  Otherwise, any party that would have aided Cephalon would have been
considered a "Third Party."  The Court pointed out that this was a nonsensical result.

The
Federal Circuit concluded by noting that this provision in the settlement
agreement was meant to act as a "most favored nation" clause.  In other words, it was protection for Impax
from losing market share from other generic manufacturer, whether they were
authorized or whether they launched at risk.  This should serve as a warning to any generic company (or branded
pharmaceutical company for that matter) to make sure any equivalent situations
are properly addressed in any settlement agreements — otherwise a similar
outcome is almost guaranteed.

In
re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litigation
(Fed. Cir. 2013)
Panel:
Circuit Judges Newman, O'Malley, and Reyna
Opinion
by Circuit Judge O'Malley