Patent Law Weblog
D Young & Co will be offering its next European biotech patent law update on October 15, 2014. The 45-minute webinar will be offered at three times: 4:00 am, 7:00 am, and 12:00 pm (ET). D Young & Co European Patent Attorneys Simon O'Brien and Connor McConchie will provide an essential update and live Q&A on EPO biotechnology case law.
While there is no fee to participate, attendees must register in advance. Those wishing to register can do so here.
The American Intellectual Property Law Association (AIPLA) will be offering a webinar entitled "Reverse ANDA Settlements in the Wake of FTC v. Actavis" on October 8, 2014 from 12:30 – 2:00 pm (EDT). Paul Simboli of Depomed, Inc. will moderate a panel including Patty McDermott of the U.S. Federal Trade Commission Jennifer Tempesta of Baker Botts, LLP will address the judicial and administrative activity that has occurred since the Supreme Court's June 2013 decision in FTC v. Actavis, including insight from an FTC speaker concerning how the FTC has applied the decision to various settlements.
The registration fee for the program is $95 (AIPLA member rate) or $135 (non-member rate). Those interested in registering for the program, can do so here.
By Andrew Williams —
As we have been reporting, the U.S. Patent Office has requested comments on the trial proceedings under the America Invents Act. Out of the 17 issues outlined, the Office highlighted two for which it would especially appreciate public feedback: (1) the use of the broadest reasonable interpretation ("BRI") standard for claim construction, and (2) the perceived difficulty related to amending the claims. Next month, on November 3, 2014, the Federal Circuit will hear case 14-1301 — the first oral argument for the first appeal of an inter partes review ("IPR") final written decision for the first IPR ever filed (IPR2012-00001). The IPR case caption was Garmin USA, Inc. (Petitioner) v. Cuozzo Speed Technologies LLC (Patent Owner), but the appeal is fashioned as "In re Cuozzo Speed Technologies LLC" because Garmin withdrew from the appeal. According to the Stipulation of Withdrawal (D.I. 17), Garmin "agreed not to participate in any appeal of the final written decision" pursuant to a settlement agreement. The Office intervened to oppose Cuozzo's appeal.
We reported on this final written decision last year in a post that explained the technology involved (see "The First IPR Decision — A Win for the Patent Challenger"). Not surprisingly, one of the issues Cuozzo is appealing is technical in nature –- whether the Patent Trial and Appeal Board ("PTAB") erred in cancelling one of the claims as invalid under 35 U.S.C. § 103. The other three issues appealed are more directly focused on the implementation of the AIA post-issuance procedures, including the above-referenced two issues highlighted by the Office.
The first appealed issue was "whether the PTAB lacked authority to institute IPR for claims 10 and 14 on grounds of unpatentability not identified in the Petition." Garmin's petition contained seven grounds of unpatentability, including one 102(e) challenge of claim 10, and six 103 challenges of three claims in view of various prior art references. The Board did not think that claim 10 was anticipated based on its claim construction. Instead, it instituted the trial on a combination of cited references that were not specifically combined in the petition. Cuozzo argued that 35 U.S.C. § 314(a) prohibits the Board from doing so: "THRESHOLD.–The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition." The Office responded by alleging that 35 U.S.C. § 314(d) prohibits appeals as to the grounds of institution: "NO APPEAL.–The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable." Of course, on its face, this provision appears to be directed to the decision about whether or not to institute the IPR, not about how it is instituted. Correspondingly, Cuozzo, in reply, pointed out that under the Office's interpretation, a decision to institute an IPR under 35 U.S.C. § 101 would not be appealable, even though it is prohibited by the statute.
The patent community will be eagerly anticipating the outcome of the remaining two issues. The second issue identified by Cuozzo was "[w]hether the BRI standard applies to IPR, and whether the PTAB erred by construing the term 'integrally attached' as 'discrete parts physically joined together as a unit without each part losing its own separate identity' to exclude an embodiment of the invention." Then, the final issue raised by Cuozzo was "[w]hether the PTAB erred in denying Cuozzo's motion to amend the claims." The Federal Circuit usually makes an MP3 audio recording of the argument available within about 24-48 hours of the argument. And, of course, interested members of the patent community can attend the argument in person (subject to space limitations) in Courtroom 402, at the Howard T. Markey Federal Courts Building, 717 Madison Place, N.W. Washington D.C. We intend to report on the argument shortly after it occurs, and we hope to be able to predict which way the panel might lean on these important two issues.
By Andrew Williams —
As we have previously reported, the USPTO has been seeking feedback on the PTAB trial proceedings established by the Leahy-Smith America Invents Act. A Federal Register notice from June 27, 2014, contained a "Request for Comments on Trial Proceedings Under the America Invents Act Before the Patent Trial and Appeal Board." The deadline for submission was extended until October 16, 2014. Nevertheless, eleven comments were filed by the original deadline. These can roughly be divided up into three categories: (1) companies, (2) individuals, and (3) intellectual property associations. Last month, we reviewed the comments received from various companies (although, in the interim, comments were received from one more — IBM) (see "PTAB Update — A Review of the First Round of Comments (Part 1)"). This post will review the comments from the third subgroup — intellectual property associations.
The Patent Office received comments from four different associations: (1) the Intellectual Property Owners Association ("IPO"), (2) the New York Intellectual Property Law Association ("NYIPLA"); (3) the Houston Intellectual Property Law Association ("HIPLA"); and (4) the Japan Intellectual Property Association ("JIPA"). In the Federal Register notice, the USPTO outlined 17 issues, or questions, for which the Office is most interested in receiving public comments. As opposed to the companies and individual, whose comments generally focused on one or a few main topics, the associations (except the JIPA) addressed most or all of the 17 questions.
Even though these associations took the opportunity to answer many of the questions, their comments did contain distinct themes. For example, IPO was concerned with fairness with regard to the treatment of the patent owners and petitioners. For example, in response to the question whether new testimonial evidence should be permitted in a Patent Owner Preliminary Response, IPO argued that "[f]airness requires that the patent owner be allowed" to present such evidence. On the other hand, NYIPLA referred often to the PTAB roundtables that occurred last spring, including the one that they helped coordinate in New York. In response to many of the questions, NYIPLA began by citing the discussions that occurred at these roundtables. Finally, even though the JIPA responded to only 3 issues, it was distinctly from the point of view of companies outside the U.S. seeking to obtain patent protection in the U.S. Its goal was in providing recommendations to effectively implement the PTAB system in view of intellectual property systems in other countries.
In this post, we will group the comments regarding two of the most discussed issues since the formation of the PTAB — claim construction standards and motions to amend.
Claim Construction Standard
One of the most common complaints against Patent Office's regulations implementing the AIA's post-issuance review proceedings has been the adoption of the broadest reasonable interpretation ("BRI") standard for claim construction. The BRI standard is used during the prosecution of patent applications and in reexamination proceedings. The justification for the use of this standard is that the patent applicant or owner has the ability before the Office to amend the claims. Therefore, because it is theoretically possible to amend claims in PTAB proceedings, the Office adopted the same standard. Likely because there has been such criticism of this standard, the Patent Office's first question was "Under what circumstances, if any, should the Board decline to construe a claim in an unexpired patent in accordance with its broadest reasonable construction."
IPO was clearly against the use of BRI to construe the claims of an unexpired patent. The submitted comments pointed out that AIA trials are not patent examinations, but rather adjudicative proceedings like litigation. As such, they should have the same standard as that applied by the Federal courts – the standard as outlined in the Phillips case – "the ordinary and customary meaning . . . as understood by one of ordinary skill in the art, the prosecution history pertaining to the patent, and prior judicial determinations and stipulations relating to the patent." The problem arises that different standards can place the patent owner in the untenable situation where the validity of the claims is judged by a broad construction before the PTAB, but infringement is judged by a narrow construction in federal court. Moreover, IPO took issue with the rationale for BRI, because "[t]he patent owner's ability to amend . . . is very limited and, in practice, nearly illusory." In fact, the only motion to amend that has been granted was unopposed by the petitioner. IPO concluded that "[t]he PTAB may have exceeded its rulemaking authority in applying BRI to claim construction in AIA trial" because the rules do not consider the impact on the balance of rights between the patentees and accused infringers.
HIPLA included four different comments on the issue of the claim construction standard, although, in general, all four took to the position that the BRI standard should not be used for PTAB trials. HIPLA's comments 1, 3 and 4 pointed out the same concern expressed by IPO, that because the ability to amend claims is illusory, BRI should not be used. HIPLA comment 2 focused on the ability to file terminal disclaimers in unexpired patents, in which case the patent owner will not be able to amend its claims. The comment suggested that this route should only be available when (1) a terminal disclaimer is filed for the remaining patent term, and (2) it happens sufficiently early in the proceedings. This would be consistent with the Order in IPR2013-00242, in which the Board used BRI because the patent owner waited until all substantive briefing was completed before filing the disclaimer. The comment concluded by suggesting that the deadline for filing a terminal disclaimer should be at the same time as the deadline for filing a motion to amend the claims.
NYIPLA took the opposite position, suggesting that BRI was a reasonable standard. However, it did note that the Federal Circuit was considering the issue, and therefore it would be prudent to await that decision.
Motion to Amend
As suggested in the comments regarding the claim construction standard, the second hot-button topic related to PTAB trial proceedings is whether the ability to amend claims is real or illusory. Therefore, the Patent Office requested comments on the following question – "what modifications, if any, should be made to the Board's practice regarding motions to amend." All four associations responded to this question.
There is currently a 15-page limit for motions to amend, and this includes the claim listing. As such, even a one-for-one claim substitution of a small number of claims can still take up a substantial portion of the page count. Therefore, it was not surprising that the associations were unanimous in suggesting that the claim listing should not be included in the page count. However, the comments diverged on the issue of whether the page count should be increased.
HIPLA, comment 1, made the argument that claim listings should not be part of the page count because 35 U.S.C. § 316(d) permits a patent owner to file a motion to amend "for each challenged claim." Without a change, HIPLA argued, "[t]he practical effect is that patent owners are only able to propose a small number of proposed amended claims," contrary to the dictates of the statute. However, HIPLA believed that the 15-page limit (or something similar) should be otherwise maintained, because it helps limit the number of issues the patent owner can raise. Without this limit, the streamlined nature of the proceedings cannot be preserved, according to HIPLA.
NYIPLA agreed with HIPLA on the claim listing, but still argued for an increase in the number of pages for the motion. The current 15-page limit, NYIPLA argued, "is too austere to allow meaningful discussion of the motion and prior art references." The JIPA also provided a comment in which it expressed its hope that amended claim listings could be attached separately to the motion to amend. JIPA did not advocate for an increased page count, but suggested that the "proof of patentability" be limited to prior art already of record (as opposed to the prior art in general). This would have the practical effect of freeing up space in the motion.
IPO's comments also advocated for an increase in page limit, for example 40 pages, with the ability to list the claims in an appendix. In addition, IPO had several other substantive comments about the ability to amend claims. First, it argued that the burden of proof concerning patentability should remain with the petitioner, pointing to 35 U.S.C. §§ 316(e) and 326(e) ("the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.") This burden is especially impractical, according to IPO, in view of the 15-page limit and the "substantive requirements imposed by the PTAB," such as showing the patentability over the prior art in the IPR, prior art known by the patent owner, and prior art generally. Because the proposed claims must be narrower in scope, a patent owner should only be required to show a prima facie case of validity, according to the comment.
IPO also included an argument that the patent owner should not be limited to a one-for-one claim substitution. This position was based on the AIA language, which authorizes the filing of a "motion to amend the patent in 1 or more of the following ways: (A) Cancel any challenged patent claim. (B) For each challenged claim, propose a reasonable number of substitute claims." In order to give meaning to "1 or more," the patent owner must be able to maintain all claims (not cancel) and be allowed to propose one or more substitute claims. This is contrary to the Office's current one-for-one presumption of reasonableness. Finally, IPO commented that a patent owner should not be estopped from pursuing similar claims in a continuation application or any other such application, as provided for in 37 C.F.R. § 42.73(d)(3). This again goes to the fairness issue, as the IPO argued that this rule "is unfair to patent owners because it imposes an unwarranted burden that threatens entire portfolios." This, of course, is compounded by the illusory nature of the ability to amend.
Patent Docs will continue to monitor the PTAB website, and report on any additional and interesting comments submitted by the October 16, 2014 deadline.
By Donald Zuhn —
Last Friday, at the Biotechnology Industry Organization (BIO) IP & Diagnostics Symposium in Alexandria, VA, the U.S. Patent and Trademark Office provided additional information regarding changes that the Office plans to make to its controversial Myriad-Mayo Guidance. The Myriad-Mayo Guidance, which was issued on March 4, implemented a new procedure for determining the subject matter eligibility of claims under 35 U.S.C. § 101 in view of the Supreme Court's decisions in Association for Molecular Pathology v. Myriad Genetics, Inc. (2013), and Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012). In response to public feedback regarding the Guidance, the Office hinted at the BIO International Convention in June that changes to the Guidance might be forthcoming (see "Docs @ BIO: USPTO Provides Update on Myriad-Mayo Guidance"), and then provided a stronger indication that revised Guidance was imminent at the Office's first Bicoastal BCP (BCBCP) earlier this month (see "USPTO Expected to Issue Revised Myriad-Mayo Guidance in October").
Representing the USPTO once again was June Cohan, Legal Advisor with the USPTO's Office of Patent Legal Administration, who appeared on a panel that also featured Sherry Knowles of Knowles IP Strategies (former Senior Vice President and Chief Patent Counsel at GlaxoSmithKline) and Patent Docs author Kevin Noonan. Ms. Cohan had previously presented on the Guidance at the biotechnology/chemical/pharmaceutical (BCP) customer partnership meeting in April, a BIO Intellectual Property Counsels Committee (IPCC) workshop that same month, the BIO International Convention in June, and the BCBCP meeting on September 17. At the BCBCP meeting, Ms. Cohan indicated that the Office intended to release "revised" Guidance in about a month. She also briefly discussed what the Office had learned from the more than eighty comments the Office had received on the Myriad-Mayo Guidance.
At last week's BIO Symposium, Ms. Cohan began by dispensing the bad news first. Noting that there are different ways to interpret relevant Supreme Court decisions on subject matter eligibility, she noted that the revised Guidance would not be confined to DNA because the Court's Myriad decision "does not stand alone."
Moving on to the good news, Ms. Cohan listed four expected changes to the Guidance's initial iteration. First, she conceded that the Office had cast "too broad a net," pointing out that a subject matter eligibility analysis should focus on claims that are "directed" to a judicial exception rather than to claims "involving" or "reciting" a judicial exception.
With respect to showing whether a claim is directed to a product that is markedly different from a naturally occurring product, Ms. Cohan acknowledged that "we were a little narrow before," and that the Office needed to consider functional differences and "other things" (perhaps utility) as opposed to just structural differences. As Andrew Hirshfeld, USPTO Deputy Commissioner for Patent Examination Policy, first noted at the BIO International Convention, Ms. Cohan reiterated that the Guidance's "significantly different" standard was not a new legal standard, but rather was merely a "teaching tool" for examiners. In a somewhat surprising announcement, Ms. Cohan pledged that "you won't see this term again," suggesting that the teaching tool would be eliminated in the revised Guidance.
Also slated for elimination in the revised Guidance are the twelve factors that weigh towards or against eligibility. Ms. Cohan conceded that the twelve-factor test was too complex and needed to be simplified, adding that "you won't be seeing twelve factors again."
Finally, Ms. Cohan noted that a number of comments had provided examples and that the Office was "thinking of using many of them." She also noted that the Office was planning to clarify many of the inferences that should be drawn from the current examples.
Ms. Cohan concluded her presentation by providing a nice summary of several recent cases on subject matter eligibility, including Alice Corp. v. CLS Bank International (2014); In re Roslin Institute (Fed. Cir. 2014); SmartGene, Inc. v. Advanced Biological Laboratories, SA (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC (Fed. Cir. 2013); and the return of Myriad to the Federal Circuit (see "Federal Circuit Argument in Myriad Appeal Scheduled"). She also indicated that the timeline for the release of the revised Guidance was "late October" or shortly thereafter.
Patent Docs plans to provide a summary of the presentation Sherry Knowles gave at the IP & Diagnostics Symposium regarding the impact of the Guidance in a subsequent post.
By Andrew Williams —
The Supreme Court will begin its 2014-2015 term next Monday. Last year, the Court heard a record number of patent law cases, at least for recent history. Nevertheless, it is scheduled to hear another one on October 15. Teva Pharmaceuticals USA, Inc. v. Sandoz Inc. will address whether appellate courts should afford any deference to a trial court's claim construction determination. This issue stems from the holding of the Supreme Court's 1996 Markman decision, although the Court did not address the standard of review in that decision. And even though the Teva case is familiar to readers of this weblog, as it arose under the Hatch-Waxman statute of 35 U.S.C. § 271(e), any pronouncement by the Supreme Court will certainly have implications for nearly all patent cases. This post will preview the upcoming argument by providing an overview of the Teva decision and the cases leading up to it.
Teva at the District Court and the Federal Circuit
The Teva case arose from Sandoz's ANDA application to market and sell Teva's multiple sclerosis drug Copaxone®. However, unlike small molecule drug products, the active ingredient of Copaxone® is copolymer-1 (or glatiramer acetate) — a mixture of polypeptides molecules. Specifically, the copolymer-1 polypeptides contain four different amino acids (alanine, glutamic acid, lysine, and tyrosine), but vary in their arrangement and number. Because the composition is not uniform, it is often expressed in terms of "average molecular weight." The District Court was therefore required to construe the term "molecular weight."
Statistically speaking, there are at least three ways to calculate average molecular weight: peak average molecular weight (Mp), number average molecular weight (Mn), and weight average molecular weight (Mw). These three values can be determined from the common method for measuring "molecular weight" — Size Exclusion Chromatography ("SEC"). A simplistic way to think about SEC is as a technique that utilizes a column "sieve" that allows different size (or weight) molecules to leave (elute) the column at different times. After the column is calibrated, the size or weight of the molecules in question can be determined depending on when they elute from the column. The patents at issue contained an ambiguity with regard to which of the average molecular weight calculation was intended. The District Court listened to the testimony of Teva's expert, Dr. Grant, and reviewed the specification and prosecution history, and based on that evidence, construed the term as "peak average molecular weight (Mp)." Mp is the molecular weight of the most abundant molecule in the sample, which occurs as the highest peak in an elution profile. Correspondingly, because the Court found that the term was not insolubly ambiguous, it held that the claims containing the term were not invalid as indefinite.
The Federal Circuit did not agree. Specifically noting the standard of review, the Court held that "[o]n de novo review of the district court's indefiniteness holding, we conclude that Dr. Grant's testimony does not save [a particular subset of claims] from indefiniteness." Teva Pharmaceuticals USA, Inc. v. Sandoz Inc., 723 F.3d 1363, 1369 (Fed. Cir. 2013). Instead, the appellate court appeared to give more credibility to the testimony of Appellants' experts. Moreover, the Federal Circuit also reviewed the specification and prosecution history and found them not to be as clear as did the District Court. The Federal Circuit, however, gave no indication whether the outcome would have been different under a different standard of appellate review.
The Question Presented at the Supreme Court
The sole issue on appeal to the Supreme Court was encapsulated by the question presented:
Rule 52(a) of the Federal Rules of Civil Procedure provides that in matters tried to district court, the court's "[f]indings of fact … must not be set aside unless clearly erroneous."
The question presented is as follows:
Whether a district court's factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Rule 52(a) requires.
One wonders if the phrasing of the question presumes the answer. The grant of certiorari came on the heels of the Federal Circuit's en banc decision in Lighting Ballast Control LLC. v. Philips Electronics N.A. Corp. on February 21, 2014. That case reconsidered, and affirmed, the holding in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc), which itself established the standard of appellate review for claim construction decisions after the Supreme Court's Markman II decision. Therefore, to truly appreciate the issues in Teva, it is necessary to understand these cases as well.
Markman v. Westview Instruments (Markman II)
The Supreme Court, in its seminal case Markman II, held "that the construction of a patent, including terms of art within its claim, is exclusively within the province of the court." Markman v. Westview Instruments, Inc., 517 U.S. 370, 372 (1996). In so doing, it affirmed the Federal Circuit's determination that claim construction is an issue for the judge, not the jury, but was silent with regard to that court's determination that it should review a district court's construction de novo on appeal.
To resolve who has responsibility for construing claim terms, the Supreme Court analyzed Seventh Amendment jurisprudence to determine if it was proper to remove claim construction from the province of the jury. In so doing, it repeatedly noted the factual components involved. See, e.g., id. at 378 ("But the sounder course, when available, is to classify a mongrel practice (like construing a term of art following receipt of evidence) by using the historical method . . . ."); id. at 388 ("when an issue 'falls somewhere between a pristine legal standard and a simple historical fact, the fact/law distinction at times has turned on a determination that . . . one judicial actor is better positioned than another to decide the issue in question.'" (citing Miller v. Fenton, 474 U.S. 104 (1985)). Nevertheless, the Court found "sufficient reason to treat construction of terms of art like many other responsibilities that we cede to a judge in the normal course of trial, notwithstanding its evidentiary underpinnings." Id. at 390. The public policy of uniformity was an important consideration for the Court, because "treating interpretive issues as purely legal will promote (though it will not guarantee) interjurisdictional certainty through the application of stare decisis on those questions not yet subject to interjurisdictional uniformity under the authority of the single appeals court." Id. at 391.
Cybor Corporation v. FAS Technologies, Inc.
After the Supreme Court's pronouncement in Markman II, the Federal Circuit inconsistently applied different standards of appellate review for claim construction determinations. Therefore, the Court sua sponte ordered that the issue be decided en banc in the case that issued as Cybor Corporation v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998). The majority concluded that the proper standard is de novo review, "including any allegedly fact-based questions relating to claim construction." Id. at 1456. The Court relied heavily on the fact that the Supreme Court affirmed Markman I, which itself used the de novo standard of review.
Curiously, the outcome in the Cybor case was not affected by the standard of review — even under de novo review, the majority affirmed the lower court's claim construction determination. As such, the judges not joining the opinion filed concurrences-in-judgment, but a vocal minority expressed their disagreement with the articulated appellate review standard. Then-Chief Judge Mayer stressed that the Supreme Court stopped short of requiring de novo review of evidentiary disputes where the lower court did not commit clear error. Judge Rader pointed to the district court judges as being in a better position to make these evidentiary determinations. Finally, Judge Newman noted that the Supreme Court's goal of promoting stability in the application of patent law had already been diminished by the Federal Circuit's use of the de novo standard. She pointed to three areas that have disappointed expectations: (1) the Federal Circuit's refusal to accept certified questions related to claim construction, (2) the Court's creative claim interpretations in some cases, and (3) the failure of the Court to be bound by stare decisis with regard to the same claims. This last point was exemplified by the CVI/Beta Ventures, Inc. v. Tura LP, 112 F. 3d 1146 (Fed. Cir. 1997) case, in which the Court concluded that a lower court erred in claim construction, even though it relied on "the Federal Circuit's claim interpretation in a separate infringement action involving the same patent." Cybor, 138 F.3d at 1477 (Rader, J., dissenting in part, joining in part, and concurring in the judgment).
Lighting Ballast Control LLC v. Philips Electronics N.A. Corp.
Because of the continued criticisms of the Cybor decision, the Federal Circuit recently took up the issue of what standard of review was appropriate for claim construction determinations. The majority in the Lighting Ballast en banc case, this time authored by Judge Newman, applied the principals of stare decisis in affirming the standard articulated in Cybor. Otherwise, the majority opinion included very little analysis supporting the Cybor decision itself. Instead, the Court found that the reasons asserted for departing from fifteen years of the de novo review were not compelling.
The two other possible standards expressed by Lighting Ballast and amici curiae were that either the entire claim construction determination should be reviewed for clear error, or that review should be a hybrid of de novo and deferential review. With regard to the former, Lighting Ballast had argued that the Supreme Court's Markman decision was only concerned with whether claim construction could be heard by a jury or whether it was solely within the purview of the judge. In so doing, it made no pronouncement related to the standard of review. Because construing patent claims often involves expert testimony and documentary evidence, Lighting Ballast asserted that the deferential standard of clear error should apply. In contrast, several amici curiae advocated a hybrid approach, including most notably the United States. This approach would maintain the ultimate determination of claim construction as a "purely legal" matter, but would acknowledge that there are factual aspects to any determination.
A vigorous dissent was filed by Judge O'Malley, joined by three other judges including then-Chief Judge Rader. This dissent stressed the requirements of Federal Rule of Civil Procedure 52(a)(6), which requires that all "findings of fact . . . must not be set aside unless clearly erroneous." The dissent pointed repeatedly to Supreme Court's analysis in Markman II, in which it highlighted the factual nature of claim construction determinations. In criticizing the Lighting Ballast holding, the dissent pointed out that stare decisis is not an inexorable command. Rather, case law can be abrogated in at least three circumstances, when it was originally wrongly decided, when it is at odds with congressional directives, and when it have negative consequences. Not surprising, the dissent found all three to be present with regard to this issue. In support of the proposition that Cybor has resulted in negative consequences, the dissent pointed to the high reversal rate with respect to claim interpretation by district courts, coupled with the fact that entire trials are held premised on these constructions.
The Look Ahead
There remain some important questions to consider. First, in view of the fact that the Federal Circuit has been applying the de novo standard of review to claim construction determinations for over fifteen years, should the Supreme Court give any weight to the patent community's many years of experience with this standard? In fact, a close reading of Lighting Ballast suggests that the outcome might have been different if the Federal Circuit were considering the issue as one of first impression. And, of course, the Supreme Court is not limited by the same concerns of stare decisis. Another question involves the Supreme Court's articulated goal in Markman (II) of "interjurisdictional uniformity." Should the Supreme Court overlook the factual nature of claim construction determinations in order to further this goal? Increasingly, the same patent is being asserted against multiple defendants, often in different jurisdictions. If required to adopt a more deferential standard of appellate review, the Federal Circuit will likely be forced to affirm conflicting constructions of the same claim terms from the same patents. This, in turn, could lead to heightened forum shopping by patent owners. Finally, the Supreme Court's articulated "Question Presented" in the Teva appeal would appear to suggest that it will apply Rule 52(a) to the factual findings in support of the construction of patent claim terms. Should the Supreme Court adopt such a hybrid approach, and if so, what criteria should be used to differentiate issues of fact from issues of law?
Ten amicus briefs were filed in the Teva case. Only three of these represented the opinions of operating companies, but there were 20 companies represented: (1) Intel, EMC, Facebook, Red Hat, and Verizon; (2) Google, Dell, Hewlett-Packard, Salesforce.com, Twitter, Yahoo!, Acushnet, Ebay, Kaspersky Lab, Limelight Networks, Newegg, QVC, SAS, and Xilinx; and (3) Fresenius Kabi USA. Interestingly, each of these briefs advocated for maintaining the de novo standard. The United States also submitted a brief, and advocated for this hybrid deferential/de novo standard of review. We will provide some of the highlights of all of the briefing, including these amicus briefs, in the upcoming weeks.
By Sherri Oslick —
About Court Report: Each week we will report briefly on recently filed biotech and pharma cases.
Cadence Pharmaceuticals Inc. et al. v. InnoPharma Licensing LLC et al.
1:14-cv-01225; filed September 24, 2014 in the District Court of Delaware
• Plaintiffs: Cadence Pharmaceuticals Inc.; SCR Pharmatop; Mallinckrodt IP
• Defendants: InnoPharma Licensing LLC; InnoPharma Inc.
Infringement of U.S. Patent Nos. 6,028,222 ("Stable Liquid Paracetamol Compositions, and Method for Preparing the Same," issued February 22, 2000) and 6,992,218 ("Method for Obtaining Aqueous Formulations of Oxidation-Sensitive Active Principles," issued January 31, 2006), both licensed to Cadence, following a Paragraph IV certification as part of InnoPharma's filing of an NDA (under § 505(b)(2) of the Food, Drug and Cosmetic Act) to manufacture a generic version of Cadence's Ofirmev® (acetaminophen injection, used for the management of mild to moderate pain, the management of moderate to severe pain with adjunctive opioid analgesics, and the reduction of fevers). View the complaint here.
Purdue Pharma L.P. v. Watson Laboratories Inc. et al.
1:14-cv-01227; filed September 24, 2014 in the District Court of Delaware
• Plaintiff: Purdue Pharma L.P.
• Defendants: Watson Laboratories Inc.; Actavis Laboratories UT Inc.; Actavis plc
Infringement of U.S. Patent Nos. RE41,408 ("Method of Providing Sustained Analgesia with Buprenorphine," issued June 29, 2010), RE41,489 (same title, issued August 10, 2010), and RE41,571 (same title, issued August 24, 2010) following a Paragraph IV certification as part of Watson's filing of an ANDA to manufacture a generic version of Purdue Pharma's Butrans® (buprenorphine transdermal, used for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate). View the complaint here.
Genzyme Corp. et al. v. Emcure Pharmaceuticals USA, Inc. et al.
1:14-cv-05975; filed September 24, 2014 in the District Court of New Jersey
• Plaintiffs: Genzyme Corp.; Southern Research Institute; Sanofi-Aventis U.S. LLC
• Defendants: Emcure Pharmaceuticals USA, Inc.; Emcure Pharmaceuticals Ltd.
Infringement of U.S. Patent No. 5,661,136 ("2-Halo-2'-Fluoro ARA Adenosines as Antinoplastic Agents," issued August 26, 1997) following a Paragraph IV certification as part of Emcure's filing of an ANDA to manufacture a generic version of Genzyme's Clolar® (clofarabine injection, used to treat acute lymphoblastic leukemia). View the complaint here.
AstraZeneca Pharmaceuticals LP et al. v. Sagent Pharmaceuticals, Inc.
1:14-cv-07358; filed September 22, 2014 in the Northern District of Illinois
• Plaintiffs: AstraZeneca Pharmaceuticals LP; AstraZeneca UK Ltd.; AstraZeneca AB
• Defendant: Sagent Pharmaceuticals, Inc.
Infringement of U.S. Patent Nos. 6,774,122 ("Formulation," issued August 10, 2004), 7,456,160 (same title, issued November 25, 2008), 8,329,680 (same title, issued December 11, 2012), and 8,466,139 (same title, issued June 18, 2013) following a Paragraph IV certification as part of Sagent's filing of an ANDA to manufacture a generic version of AstraZeneca's Faslodex® (fulvestrant injection, used to treat hormone receptor positive metastatic breast cancer in postmenopausal women with disease progression following antiestrogen therapy). View the complaint here.
Reckitt Benckiser Pharmaceuticals, Inc. et al. v. BioDelivery Sciences International, Inc. et al.
3:14-cv-05892; filed September 22, 2014 in the District Court of New Jersey
• Plaintiffs: Reckitt Benckiser Pharmaceuticals, Inc.; Monosol Rx, LLC
• Defendants: Biodelivery Sciences International, Inc.; Quintiles Commercial US, Inc.
Infringement of U.S. Patent No. 8,765,167 ("Uniform Films for Rapid-dissolve Dosage Form Incorporating Anti-tacking Compositions," issued July 1, 2014), licensed to Reckitt Benckiser, based on BDSI's manufacture, use, sale, and offer for sale of its Bunavail® product (buprenorphine hydrochloride and naloxone hydrochloride dehydrate mucoadhesive buccal film). View the complaint here.
BioDelivery Sciences International, Inc. v. Reckitt Benckiser Pharmaceuticals, Inc. et al.
5:14-cv-00529; filed September 20, 2014 in the Eastern District of North Carolina
• Plaintiff: BioDelivery Sciences International, Inc.
• Defendants: Reckitt Benckiser Pharmaceuticals, Inc.; RB Pharmaceuticals Ltd.; MonoSol Rx, LLC
Declaratory judgment of non-infringement and invalidity of U.S. Patent Nos. 8,475,832 ("Sublingual and Buccal Film Compositions," issued July 2, 2013), 7,897,080 ("Polyethylene-Oxide Based Films and Drug Delivery Systems Made Therefrom," issued March 1, 2011), and 8,652,378 ("Uniform Films for Rapid Dissolve Dosage Form Incorporating Taste-Masking Compositions," issued February 18, 2014) based on BDSI's anticipated launch of its Bunavail® product (buprenorphine hydrochloride and naloxone hydrochloride dehydrate mucoadhesive buccal film). View the complaint here.
Otsuka Pharmaceutical Co., Ltd. v. Ajanta Pharma Ltd. et al.
1:14-cv-05876; filed September 19, 2014 in the District Court of New Jersey
• Plaintiff: Otsuka Pharmaceutical Co., Ltd.
• Defendants: Ajanta Pharma Ltd.; Ajanta Pharma USA Inc.
Infringement of U.S. Patent Nos. 8,017,615 ("Low Hygroscopic Aripiprazole Drug Substance and Process for the Preparation Thereof," issued September 13, 2011), 8,580,796 (same title, issued November 12, 2013), and 8,642,760 (same title, issued February 4, 2014) following a Paragraph IV certification as part of Ajanta's filing of an ANDA to manufacture a generic version of Otsuka's Abilify® (aripiprazole, used to treat bipolar disorder and schizophrenia). View the complaint here.
Otsuka Pharmaceutical Co., Ltd. v. Teva Pharmaceuticals USA, Inc. et al.
1:14-cv-05878; filed September 19, 2014 in the District Court of New Jersey
• Plaintiff: Otsuka Pharmaceutical Co., Ltd.
• Defendants: Teva Pharmaceuticals USA, Inc.; Teva Pharmaceutical Industries Ltd.
Infringement of U.S. Patent Nos. 8,580,796 (same title, issued November 12, 2013) and 8,642,760 (same title, issued February 4, 2014) following a Paragraph IV certification as part of Teva's filing of an ANDA to manufacture a generic version of Otsuka's Abilify® (aripiprazole, used to treat bipolar disorder and schizophrenia). View the complaint here.
Jazz Pharmaceuticals, Inc. v. Par Pharmaceutical, Inc.
2:14-cv-05824; filed September 18, 2014 in the District Court of New Jersey
Infringement of U.S. Patent No. 8,772,306 ("Method of Administration of Gamma Hydroxybutyrate with Monocarboxylate Transporters," issued July 8, 2014) following a Paragraph IV certification as part of Par's filing of an ANDA to manufacture a generic version of Jazz's Xyrem® (sodium oxybate, used to treat narcolepsy). View the complaint here.
September 30, 2014 – 2014 Intellectual Property Continuing Legal Education Seminar (DuPont and Widener University School of Law) – Wilmington, DE
September 30, 2014 – First Inventor to File America Invents Act Roadshow (U.S. Patent and Trademark Office) – Dallas, TX
September 30 – October 1, 2014 – Paragraph IV Disputes Master Symposium (American Conference Institute) – Chicago, IL
October 2, 2014 – "USPTO Guidance for Determining Subject Matter Eligibility In View of U.S. Supreme Court's Mayo and Myriad Decisions" (McDonnell Boehnen Hulbert & Berghoff LLP) – 10:00 to 11:15 am (CT)
October 2, 2014 – "Conflicts in Patent Prosecution: Minimizing Risks of Malpractice Liability and Ethics Sanctions" (Strafford) – 1:00 to 2:30 pm (EDT)
October 2, 2014 – First Inventor to File America Invents Act Roadshow (U.S. Patent and Trademark Office) – Denver, CO (webcast)
October 9, 2014 – First Inventor to File America Invents Act Roadshow (U.S. Patent and Trademark Office) – Atlanta, GA
October 16, 2014 – "Patent Licensing: Advanced Tactics for Licensees Post-AIA — Structuring Contractual Protections and Responding When Licensed Patents Are Challenged in Post-Grant Proceedings" (Strafford) – 1:00 to 2:30 pm (EDT)
October 21, 2014 – "Recent Judicial Decisions Impacting Technology Licensing" (McDonnell Boehnen Hulbert & Berghoff LLP) – 10:00 to 11:15 am (CT)
October 21, 2014 – "Patent Reissue: Strategic Use for Pre- and Post-AIA — Correcting Errors in Patents, Determining Whether and When to Pursue a Reissue Application, and Mastering the Recapture Rule" (Strafford) – 1:00 to 2:30 pm (EDT)
October 20-22, 2014 – Business of Biosimilars (Institute for International Research) – Boston, MA
October 29-30, 2014 - Congress on PIV Litigation (Momentum) – Philadelphia, PA
***Patent Docs is a media partner of this conference or CLE
By Kevin E. Noonan —
The Federal Circuit has scheduled oral argument in Myriad Genetics' appeal of denial earlier this year by the Utah District Court of its motion for preliminary injunction against Ambry Genetics (see "Utah Judge Denies Myriad's Preliminary Injunction Motion"). Designated case no. 14-1361, University of Utah Research v. Ambry Genetics Corp., argument is scheduled for 10:00 am on Monday, October 6th. Federal Circuit procedures should make in MP3 audio recording of the argument within about 24-48 hours of the argument. And, of course, interested members of the patent community can attend the argument in person (subject to space limitations) in Courtroom 402, at the Howard T. Markey Federal Courts Building, 717 Madison Place, N.W.
Washington D.C.
By Kevin E. Noonan —
In the lastest instance of a plaintiff attempting to extend the Supreme Court's holding in FTC v. Actavis that "reverse payment" settlement agreements in ANDA litigation could be anticompetitive and violate the antitrust laws, the District Court of New Jersey (P. Sheridan, J.) granted defendants' motion to dismiss under Fed. R. Civ. Pro. 12(b)(6) for failure to state a claim (Memorandum). While acknowledging that the Court's Actavis decision could apply to agreements where consideration other than money was exchanged between a branded drug company and its generic drug challenger, the District Court held that the quanta of alleged facts must be sufficient to support the antitrust allegations.
The lawsuit involved Pfizer's Lipitor® drug (atorvastatin calcium), which was so profitable at the time that Plaintiffs' alleged sales amounted to $ 1 billion per month. These plaintiffs were placed by the Court into four groups = (1) a proposed class of direct purchaser plaintiffs asserting claims under the Sherman Act ("Direct Purchaser Plaintiffs"); (2) several opt-out groups of direct purchaser plaintiffs asserting nearly identical claims to the direct purchaser class; (3) a proposed class of end-payor plaintiffs asserting claims under various states' laws; and (4) the RP Healthcare plaintiffs, a group of pharmacist plaintiffs, asserting claims under California law. This case only involved the "Direct Purchaser Plaintiffs," namely: Stephen L. LaFrance Holdings, Inc.; Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors; McKesson Corp., SAJ's assignor; Burlington Drug Co., Inc.; Value Drug Company; Professional Drug Company, Inc.; Rochester Drug Co-Operative, Inc.; American Sales Company LLC; and Cardinal Health, Inc., American Sales Company's assignor. Defendants were the parties to the ANDA settlement agreement: Pfizer, Inc., Pfizer Manufacturing Ireland (formerly known as Pfizer Ireland Pharmaceuticals and previously Warner Lambert Export, Ltd.), and Warner-Lambert Company, the branded drug companies; and generic drugmakers Ranbaxy Inc., Ranbaxy Pharmaceuticals, Inc., and Ranbaxy Laboratories Ltd.
This settlement agreement was highly complex, encompassing three separate ANDA litigations as well as more than two dozen other actions in foreign jurisdictions, and involving Pfizer drugs Accupril® and Caduet® as well as Lipitor®. The Lipitor® ANDA litigation involved seven patents: U.S. Patent No. 4,681,893 (the "'893 patent") and U.S. Patent No. 5,273,995 (the "'995 patent," reissued later as U.S. Reissue Patent No. 40,667), directed to the active pharmaceutical agent (API); U.S. Patent No. 6,126,971 (the "'971 patent"), U.S. Patent No. 5,686,104 (the "'104 patent"), directed to formulations (the "Formulation Patents"); U.S. Patent No. 6,087,511 (the "'511 patent"), and U.S. Patent No. 6,274,740 (the "'740 patent"), directed to specific processes of making amorphous atorvastatin calcium using crystalline Form I atorvastatin as a starting material (the "Process Patents"); and U.S. Patent No. 5,969,156 (the "'156 patent"), directed to the crystalline form of the API. The API patents and the Formulation Patents were listed in the Orange Book, while the Process Patents were ineligible for listing.
Ranbaxy was the first ANDA filer, and its Paragraph IV letter with regard to the '893, '995, '156, '971 and '104 patents asserted non-infringement based on its ANDA for sale of amorphous (not crystalline) Lipitor®. In the underlying ANDA case, Ranbaxy failed on all its validity and unenforceability challenges as to product patents, which the Federal Circuit affirmed as to the '893 patent and reversed as to validity of asserted claim 6 of '995 patent. Thereafter the District Court entered an injunction that kept Ranbaxy off the market until March 24, 2010, and Pfizer filed for and obtained reissue patent No. RE40,667 based on the '995 patent. (Pfizer also filed a declaratory judgment action as to the Process Patents which settled outside ANDA context and the settlement agreement at issue here.)
In the first Accupril® litigation (Accupril I), Teva was the first ANDA filer and Ranbaxy the second filer over U.S. Patent No. 4,743,450. In that action, Pfizer was awarded summary judgment against Teva, with the District Court rejecting all Teva's validity and unenforceability assertions. The second Accupril litigation (Accupril II) resulted from an exclusive "distribution and supply agreement" between Teva and Ranbaxy, in return for which Teva gave up its rights to the 180 day exclusivity period as first filer. Ranbaxy launched "at risk" based on structural distinctions between Pfizer's approved drug and its generic drug and the District Court granted Pfizer an injunction keeping Ranbaxy's generic Accupril off the market. This action was included in the settlement agreement at issue here.
In the Caduet® litigation, the accused generic drug was a combination of atorvastatin and amlodipine (and thus subject to infringement liability for the '893 patent); there was also a related declaratory judgment action involving the Process Patents and both actions were part of the settlement agreement before the Court.
That settlement agreement was a "non-monetary" reverse payment, that contained terms "absolving Ranbaxy of damages accrued from Accupril litigation" and "resolved and terminated patent litigation on the three drugs Lipitor®, Caduet® and Accupril®." Under the terms of the agreement, "the U.S. actions [falling under the scope of the settlement] were the Accupril II litigation, Lipitor Process litigation, Caduet ANDA litigation, and Caduet Process litigation" as well as all (26) foreign litigations between the companies. The agreement delayed generic entry into the Lipitor market until November 30, 2011 (a 20 month delay from the earlier District Court injunction) and contained a promise by Ranbaxy not to challenge the Process Patents (the '511 or the '740 patents). Generic entry of Caduet was also delayed until November 30, 2011 and also contained an agreement not to challenge the relevant patents. Regarding damages for the "at risk" Accupril® sales, Ranbaxy paid Pfizer $1M. Finally, Pfizer agreed to be Ranbaxy's API supplier for Lipitor, and Ranbaxy changed its formulation to (putatively infringing) crystalline atorvastatin calcium instead of the amorphous form.
The case was consolidated in the District of New Jersey by the Panel for Multidistrict Litigation, and defendants filed motions to dismiss by defendants under Fed. R. Civ. Proc. 12(b)(6), directed to the class of "Direct Purchaser Plaintiffs." Prior to these motions, the Court had dismissed "Walker Process" and sham litigation claims, as well as Sherman Act Section 2 allegations. Thereafter the only claim left against defendants was the reverse payment claim. The Court allowed limited discovery while this action was stayed awaiting the Actavis decision and permitted Plaintiffs to file an amended complaint after the Supreme Court rendered its decision in the Actavis case. That amended complaint asserted three causes of action: Count I alleged violation of Section 1 of the Sherman Act for an "[a]greement in restraint of trade against all defendants." Count II alleges violation of Section 2 of the Sherman Act for a "[c]onspiracy to monopolize against all defendants." Count III alleged a violation of "15 U.S.C. §§ 1 and 2," but plaintiffs acknowledged that "the Court dismissed this count" and that it was being "restated here for purposes of appellate rights." The Court thus addressed only the first two Counts in its decision.
The Court set forth the allegations made by Plaintiffs against defendants:
[T]he Plaintiffs contend that this Settlement Agreement was Pfizer and Ranbaxy's purposeful intent to restrain and monopolize trade by extending the Lipitor patent duration until November 30, 2011, when Ranbaxy's generic amorphous version would not have infringed the Lipitor process patents. Plaintiff allege that this was accomplished by Pfizer forgiving its claim for infringement damages by settling the Accupril claim for $1 million when the value of the Accupril claim was far higher; and allowing the defendants to market generic Lipitor in foreign markets. As a result, Ranbaxy agreed to delay entry of its generic until November 30, 2011.
In rendering its decision granting defendants' motions to dismiss, the Court discussed the Supreme Court's Actavis decision, which it said was based on the "atypical" posture of the reverse payment settlement agreement. The Court considered the Actavis decision to reject the approach taken by both the 3rd Circuit (the "quick look" rule of reason antitrust standard) and the appellate consensus "scope of the patent" standard, in favor of a "rule of reason" approach "in order to strike a balance 'between the lawful restraint on trade of the patent monopoly and the illegal restraint prohibited broadly by the Sherman Act.'" The Court then set forth the Supreme Court's "factors" for performing the "rule of reason" analysis for reverse payment settlement agreements of ANDA cases:
Sometimes there are types of settlements that do not fall within the Actavis rationale. The Supreme Court provided two types of 'commonplace forms' of settlement that are not subject to Actavis scrutiny. The first one is when A sues B for patent infringement and demands $100 million in damages; and then B pays A $40 million as settlement. Actavis, 133 S. Ct. at 2233. The "implicit net payment" or reduction in demand of $60 million by A does not trigger antitrust scrutiny. Id. The second situation occurs when B has a counterclaim for damages against A, the patentee, and A pays B to settle B's counterclaim. Id. Such settlements between a patentee and a generic manufacturer are permissible.
However, the Court also acknowledged that "[t]he Supreme Court left 'to the lower courts the structuring of the present rule-of-reason antitrust litigation.' Id. at 2238."
Having stated its understanding of the proper analysis of the substantive antitrust issues, the Court then discussed the standard for granting motions to dismiss enunciated by the Supreme Court in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). Simply put, these decisions require that a complaint must assert evidence supporting entitlement to the relief requested, and cannot be merely conclusory statements or bare recitation of the elements of the cause of action. In the Third Circuit, this precedent has been interpreted as a three part test:
[O]ur inquiry is normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged [citing Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011)].
The Court also noted that Twombly was itself an antitrust case and thus particularly relevant in its exhortation that a court determine whether a complaint has satisfied the requirement for factual pleadings as early in the litigation as possible to avoid wasted time for the court and expense for the parties (noting that it may take fewer facts to plausibly plead an auto accident than an antitrust or RICO claim).
The Court found that the five "backup" patents — "the '156 patent, the two Formulation Patents (the '971 and '104 patents), and the Process Patents (the '740 and '511 patents)" — were successfully designed around by Ranbaxy, based on, inter alia, Ranbaxy's Paragraph IV certification to the FDA. The facts were thus sufficiently plead according to the Court; the question was whether the antitrust allegations were as well. The Court identified "the heart of the issue" as being "whether there was a settlement agreement between Pfizer and Ranbaxy that constituted a [reverse settlement payment agreement] that warrants antitrust scrutiny." In considering this question, the Court cited the several pejorative characterizations contained in the complaint, including that the settlement agreement constituted a "'sweetheart' agreement to dismiss damages claims likely worth hundreds of millions of dollars in Accupril II litigation in exchange for a token 'pretextual' payment of $1 million"; and that settlement of the Process Patent infringement was included to "disguise the [Agreement's] true anticompetitive purpose" (the complaint does not make any allegations regarding settlement of the Caduet Process litigation and the Caduet ANDA litigation, or the twenty-three foreign actions pending at the time of the Settlement Agreement). The complaint also alleged that Ranbaxy did not "relinquish or selectively waive" its 180-day exclusivity term, creating a "bottleneck" having the effect of blocking generic entry by any other generic drugmaker.
The Court gave little weight to these characterizations, based on their lack of relevance to factual allegations. Rather, the Court invoked the Supreme Court's Actavis decision for the rubric that it must "examine[] whether the factual allegations are sufficient to make plausible that Pfizer made a large and unexplained reverse payment to Ranbaxy in support of antitrust activities."
Turning to the matter of the reverse payment, the Court in a masterful understatement explained that the Actavis decision "does not define payment or provide any clarity" regarding whether a "payment" that raises antitrust scrutiny can be anything other than a monetary payment. Citing Third Circuit precedent as well as cases from other jurisdictions and even Black's Law Dictionary, the Court concluded that a "payment" could be anything sufficient to discharge a debt or obligation and was not limited to cash payments. The Court found no consistent or persuasive authority for whether the Actavis decision required a payment of money between the parties. However, the Court found that there must be a way to "convert" whatever was exchanged between the parties into a monetary equivalent in order to apply the Supreme Court's Actavis precedent. The Court recognized that the Supreme Court's "general concern" enunciated in Actavis was whether there were "genuine adverse effects on competition" and that this was not limited to merely monetary arrangements. However, the Court also recognized that the factual requirements needed to satisfy Rule 12(b)(6) are more extensive for non-monetary consideration between the parties.
Citing Twombly and Iqbal, the Court noted that the "flexible standard" contained in those cases could be met if "the pleading [] demonstrate[s a] reliable foundation showing a reliable cash value of the non-monetary payment," but that the Plaintiffs would need more facts than had been plead to meet that standard here. Specifically, the Court asserted that Plaintiffs would need to establish a value for the non-monetary payments alleged in support of the complaint, consistent with its discussion earlier in the opinion. The Court made reference to Aaron Edlin, et al., Activating Actavis, 28 Antitrust 16, 18 (2013) in setting forth the following factors:
The payment prong involves the following steps: (a) valuing any consideration flowing from the patentee to the claimed infringer, which may be made over time and may take forms other than cash; (b) deducting from that payment the patent holder's avoided litigation costs; and (c) deducting from that payment the value of goods, services, or other consideration provided by the claimed infringer to the patent holder as part of the same transaction (or linked transactions).
The Court found that a "lack of any reliable foundation pervade[d] the entire Complaint." The purported nature of value of the settlement was in part contingent, because the court in the Accupril II case had not ruled on whether the patents-in-suit were valid and enforceable. In addition, the complaint alleged no facts relating to the amount of the damages Ranbaxy was at risk for incurring in the Accupril II case, and merely assumed these damages to be on the order of the $200 million bond Pfizer posted in support of its injunction for Ranbaxy's "at risk" sales or the difference in gross sales ($525 million vs. $70 million). The Court found neither of these assumptions to be plausible. Even if Plaintiffs had "relied on a reliable foundation (which Plaintiffs did not)," settlements must also be assessed with regard to the parties' own assessment of their risk, including for example "the branded company's perceived probability of winning the patent litigation; the branded company's monopoly profits and duopoly profits (if the generic were to enter the relevant market); the remaining lifetime of the patent at issue and the proposed market entry date for the generic manufacturer; and the branded company's litigation costs and the amount of payment from the brand to the generic." In addition, "Plaintiffs must allege a measure of damages accepted within the industry and a discussion of the settlement factors relating to the claim of damages settled at that time."
Turning to other factors, the Court found that there were close to no allegations relating to legal fees between the parties, which the Supreme Court stated should be deducted from any monetary compensation flowing from the branded pharmaceutical company to the generic drugmaker, because such compensation does not raise "the same concern that a patentee is using its monopoly profits to avoid the risk of patent infringement or a finding of noninfringement." In view of the number of actions settled (foreign and domestic) and the costs to the generic company of these litigations (estimated by the Court to be $117-$260 million), the Court found Plaintiffs' complaint to be implausible without any assertion of the relevance of these savings to Ranbaxy's decision to settle. The Court also noted that, while the Supreme Court did not define what was a "large" cash payment, "[o]ne way to measure the 'largeness' of a reverse payment is to assess whether the amount is larger than what the generic would gain in profits if it won the Paragraph IV litigation and entered the market," which can be "'strong evidence' of anticompetitive activity." The Court found no such allegations in Plaintiffs amended complaint. Finally, statements by Pfizer's former and current Chief Executive Officers did not rise to the level of probative evidence of antitrust intent, the Court said, because inter alia they were cited without context and were merely conclusory.
It is likely that Plaintiffs made the strategic decision not to address all of the aspects of the Settlement Agreement; if so this was a strategic error, because the Court also held that their complaint was not plausible because it did not evaluate the agreement as a whole as is necessary in applying the "rule of reason" to antitrust questions. Specifically:
In order to analyze whether an alleged RSPA occurred to delay entry of generic Lipitor, as plaintiffs allege, the terms of the entire Settlement Agreement must be analyzed to determine plausibility. To rely only on certain sections (Accupril) of the Settlement Agreement and disregard other sections (Caduet) is not a reasonable analysis. The Complaint does not plead the Settlement Agreement as a whole.
Accordingly, the Court granted Defendant's motions to dismiss with prejudice because "Plaintiffs have failed to plead their Amended Complaint with the plausibility required by the Federal Rules of Civil Procedure and the relevant case law" even after being given the opportunity to conform their pleadings to Actavis and other Supreme Court precedent.
The Court sets forth the rule, insofar as their can be one, succinctly as follows:
Pursuant to Twombly and Iqbal, the standard for considering a motion to dismiss a complaint is a based upon a flexible pleading benchmark. In this case, where Plaintiffs rely on a non-monetary reverse payment of an inchoate claim, they must plead plausible facts including an estimate the monetary value of same so the Actavis rationale can be applied. The Plaintiffs have failed to delineate any type of methodology to connect the claim to its monetary value. To meet this standard, Plaintiffs must stand in the shoes of the underlying parties at the time of the settlement, and determine an estimate of the monetary value of the settlement at that time.
This case illustrates the consequence of the Court's jurisprudential decision to permit the contours of its Actavis decision to be "worked out" in district and appellate courts below (much like the PTO and the courts will be working out the differences between the Federal Circuit's "insolubly ambiguous" and the Supreme Court's "reasonable certainty" standards for indefiniteness established in Nautilis v. Biosig). It also illustrates the consequences of the Supreme Court asserting its authority to be the final arbiter of patent law questions over the Federal Circuit, and changing a specialized court for a generalist one. While perfectly proper under the Constitution, this change has produced and will continue to produce uncertainties that can be expected to seriously harm competition and innovation, two of the supposed reasons why the Court decided to reenter the patent law arena with such vigor. Rarely has the Court's decisions had the potential for such harm to the American economy and global competitiveness.
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