By Kevin E. Noonan —

The Federal Circuit has been redefining its declaratory judgment jurisdiction jurisprudence ever since the Supreme Court’s Medimmune, Inc. v. Genentech, Inc. decision.  These cases have included SanDisk Corp. v. STMicroelectronics, Inc., Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., Benitec Australia, Ltd. v. Nucleonics, Inc., Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc., and just last week, Prasco LLC v. Medicis Pharmaceutical Corp.  The trend continues, albeit in a nonprecedential opinion, in Merck & Co. v. Apotex Inc.  In a per curiam decision from a panel made up of CAFC Judges Mayer and Linn and Judge Susan Illston, district court judge from the Northern District of California, sitting by designation, the Federal Circuit affirmed dismissal of invalidity and non-infringement counterclaims against Orange Book patents that had been disclaimed by the patentee prior to a lawsuit triggered by Apotex’s ANDA filing.  However, in making its determination the Court did not fully and definitively address whether disclaimer of the patents would preclude such an action from raising a "case or controversy" that admits of "specific relief through a decree of a conclusive character" sufficient for proper exercise of the district court’s jurisdiction under Article III of the U.S. Constitution.

The patent dispute concerned generic market entry in competition with Merck’s branded Trusopt® and Cosopt® glaucoma medications.  Merck, the NDA holder for these medications, had listed three patents — U.S. Patent Nos. 4,797,413, 6,248,735, and 6,316,443 — in the FDA’s Orange Book.  Hi-Tech Pharmacal Co. was the first generic company to file an ANDA for these products, along with a Paragraph IV certification that the patents were invalid or would not be infringed by its generic drug, in accordance with the provisions of the Hatch-Waxman Act (35 U.S.C. §§ 156, 271, and 282).  Merck filed suit, pursuant to the provisions of 35 U.S.C. § 271(e)(2), asserting just the ‘413 patent; Merck, shortly after filing suit, disclaimed the ‘735 and ‘443 patents as provided in 35 U.S.C. § 253.  Merck prevailed against Hi-Tech, and the FDA barred allowance of Hi-Tech’s ANDA until six months after expiration of the ‘413 patent, in accordance with Merck’s six-month pediatric market exclusivity extension.  (Pursuant to 21 U.S.C. § 355(a), the FDA has the authority to request than an NDA holder perform pediatric studies on the effect of an approved drug.  If the NDA holder performs such studies, the Agency can extend the term of a patent-holder’s exclusivity for an additional six months after Orange Book patents have expired.  In this case, that date was October 28, 2008).  Because it did not prevail, Hi-Tech lost its 180-day market exclusivity for being the first ANDA filer as to the ‘413 patent.  But because Merck chose to disclaim the other two Orange Book listed patents, Hi-Tech "prevailed" as to those patents and was thus entitled to market exclusivity as the only approved generic provider of Trusopt® and Cosopt®.  This exclusivity period would commence once Merck’s extended market exclusivity period expires on October 28th.

However, the regulatory scheme embodied in the Hatch-Waxman Act was amended by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (21 U.S.C.§ 355(j()(5)(D)(i)) to provide for forfeiture of the 180 day market exclusivity period for a first ANDA filer who does not timely launch after all legal impediments have been cleared (see 21 U.S.C.§ 355(j()(5)(D)(i)(I)(aa) and (bb)).  Apotex filed its ANDA about 6 months after Hi-Tech filed its own, with its own Paragraph IV certification, and Merck filed suit under the statute.  Even though Merck based its lawsuit on assertion of the ‘413 patent alone, Apotex included counterclaims of non-infringement and invalidity for the ‘735 and ‘443 patents that Merck had already disclaimed.  Apotex also agreed to be bound by the final judgment in the Merck v. Hi-Tech action over the ‘413 patent, and thus is equally barred from launching its generic products until October 28, 2008.  In addition, provided Hi-Tech does not forfeit, Apotex will be prohibited from market entry for an additional 180 days in view of Hi-Tech’s status as the first ANDA filer.

Apotex’s strategy, according to the CAFC’s opinion, was to provoke a forfeiture by Hi-Tech.  The forfeiture-triggering event would be a decision in Apotex’s favor that the ‘735 and ‘443 patents are invalid and not infringed, and Hi-Tech’s failure to launch (being precluded by FDA’s court-mandated stay on regulatory approval until the pediatric extension of market exclusivity expires).  If Apotex prevailed, Hi-Tech would have only 75 days to market its generic products or lose exclusivity.  The critical date for this scenario to work was August 14, 2008.

The Federal Circuit upheld the District Court’s dismissal of Apotex’s counterclaims directed towards the ‘735 and ‘443 patents on both jurisdictional and practical grounds.  "As a practical matter," opined the Court, they were not in a position to provide "realistic relief."  In view of the timing of the appeal, and the necessity for the District Court to act in response to the CAFC’s decisions, the Federal Circuit said that "[e]ven with prompt action, the final judgment sought by Apotex cannot be provided in time to be meaningful."  This practical limitation on the Court’s ability to act in sufficient time to effect Apotex’s strategy had as a jurisdictional consequence that there no longer remained a justiciable controversy between the parties that could be provide "specific relief through a decree of a conclusive character."  Thus, the judgment of dismissal was affirmed.

It is interesting to note that the Court did not address whether the disclaimer was by itself sufficient to destroy Article III justiciability over the case.  Presumably, this is because deciding whether the disclaimed patents were invalid or not infringed was still part of a "case or controversy" — the problem, of course, is that it was not a controversy between the parties to the lawsuit, but between one party and a third-party competitor.  The Court did not have the inclination to hear this objection, and maybe it was never argued.  But it seems clear that the disclaimer here destroyed any case or controversy between either Merck and Hi-Tech or Merck and Apotex, and that the only remaining dispute was between the two defendants.

Merck & Co. v. Apotex, Inc. (Fed. Cir. 2008)
Nonprecedential disposition
Panel: Circuit Judges Mayer and Linn, and District Judge Illston
Per curiam

    By Kevin E. Noonan —

The Supreme Court has spent the past few years issuing decision after decision circumscribing the Federal Circuit’s Congressionally-mandated authority over U.S. patent law, pursuant to its plenary powers under Article III of the Constitution.  Among these decisions (including KSR Int’l Co. v. Teleflex Inc., eBay Inc. v. MercExchange, LLC, Quanta Computer, Inc. v. LG Electronics, Inc., Merck KGAA v. Integra Lifesciences I, Ltd., Microsoft Corp. v. AT&T Corp., Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Dickinson v. Zurko), perhaps the one that provoked the most extreme reaction from the Federal Circuit was Medimmune, Inc. v. Genentech, Inc.  With a mere footnote, the Supreme Court motivated the Federal Circuit to completely abandon 25 years of its declaratory judgment jurisprudence, specifically its "reasonable apprehension of suit" test for declaratory judgment actions (see "Is it time for the Supreme Court to stop flogging the Federal Circuit?").  Ever since, the Federal Circuit has been fashioning the contours of its new approach to declaratory judgment jurisdiction, in cases including SanDisk Corp. v. STMicroelectronics, Inc., Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., Benitec Australia, Ltd. v. Nucleonics, Inc., and Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc.  The Court’s efforts continue with its decision in Prasco LLC v. Medicis Pharmaceutical Corp., issued on Friday.

Defendant Medicis Pharmaceutical Corp. is the owner of U.S. Patent No. 5,648,389, and Defendant Imaginative Research Associates is owner of U.S. Patent Nos. 5,254,334; 5,409,706; and 5,632,996; these patents were licensed to Medicis.  Medicis markets a skin cleansing product containing benzoyl peroxide (TRIAZ®).  Declaratory Plaintiff Prasco makes a benzoyl peroxide skin cleanser (OSCION®), but prior to filing suit had not marketed the product.  According to the record, Prasco had made "substantial efforts" in development and marketing of its future product.  Because Prasco had not entered the marketplace prior to filing suit, Defendants were not aware of Prasco’s proposed product until served with the declaratory judgment complaint.

Prasco asserted two bases in support of Article III jurisdiction:  first, that Medicis marked its TRIAZ® product with the four patent numbers, pursuant to the public notice requirements of 35 U.S.C. § 287, and second, there had been a prior lawsuit between the parties on a different patent and over a different product.  When faced with Defendants’ motion to dismiss, Prasco supplied them with a sample of its product and a request for a covenant not to sue (which was refused).  This prompted Prasco to file an amended complaint that included these facts in support for the District Court’s exercise of its declaratory judgment jurisdiction.  At that time Prasco also began marketing its OSCION® product.

The District Court granted Defendants’ motion to dismiss after the Supreme Court’s Medimmune decision, applying the "reasonable apprehension of suit" test (which the District Court did not understand to be overturned by this decision); recognizing the questionable vitality of the test, however, the District Court also based its decision on there being "no definite and concrete dispute that touches the legal relations of these parties."  Prasco moved for reconsideration once the Federal Circuit abrogated its test in Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., but the District Court refused to change its decision.

The Federal Circuit affirmed, in a unanimous decision by Judge Gajarsa joined by Judges Clevenger and Moore.  The decision was grounded firmly in the Supreme Court’s rubrics from Medimmune, starting with the requirement that "the dispute must be ‘definite and concrete, touching the legal relations of parties having adverse legal interests,’ ‘real and substantial,’ and ‘admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts,’" citing MedImmune, 127 S. Ct. at 771.  Also citing the Medimmune decision, the opinion states that there is no bright line rule for deciding whether a case or controversy exists, thereby neatly setting out the Federal Circuit’s task of defining the scope of declaratory judgment jurisdiction under the "totality of the circumstances" (and referencing its own decision in Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc. as an apt application of the test).

The decision also notes that the related doctrines of standing, ripeness, and a "lack of mootness" were "rooted in the same Article III inquiry," and thus can be used by a court to decide whether a party has asserted a sufficient case or controversy for the court to be able to exercise jurisdiction.  The CAFC characterized these doctrines as representing "the absolute constitutional minimum for a justiciable controversy" in justifying its explication of these considerations in this case.  And in an interesting twist, the decision also opined that the Supreme Court’s Medimmune decision "did not completely do away with the relevance of a reasonable apprehension of suit."  In making this statement, the Federal Circuit for the first time since SanDisk Corp. v. STMicroelectronics, Inc., acknowledged that the reasonable apprehension of suit test was "one of multiple ways that a declaratory judgment plaintiff can satisfy the more general all-the-circumstances test" to establish the existence of an Article III case or controversy.

The decision also clarified a minor procedural matter concerning the status of what the parties and the District Court characterized as the "amended complaint."  As explicated in the decision, the second-filed complaint was not an amended complaint but rather a "supplemental complaint," pursuant to Fed. R. Civ. Pro. 15(d).  Filing such a complaint is appropriate, according to the decision, to "cure" defects in an initial complaint, including  jurisdictional deficiencies (citing Matthews v. Diaz, 426 U.S. 67, 75 (1976)).  The significance of this distinction is that the Federal Circuit considered all the interactions between the parties, including Prasco’s marketing of its possibly infringing product and Medicis’ refusal to agree to Prasco’s proposed covenant not to sue, when reviewing dismissal of Prasco’s declaratory judgment complaint.

Even considering these additional facts alleged in the supplemental complaint, the Federal Circuit affirmed dismissal because Prasco did not allege "a controversy of sufficient ‘immediacy and reality’ to create a justiciable controversy."  (As the decision discusses in a footnote, these considerations also implicate the ripeness requirement.)  In its analysis, the Court resorted to the "lens of standing," saying that the complaint failed to allege a sufficient injury-in-fact "fairly traceable to the patentee."  "The mere existence of a potentially adverse party does not [by itself] cause an injury or create an imminent risk of injury" absent affirmative action by the patentee.  At best, Prasco is only a "potential competitor . . . legally free to market its product in the face of an adversely-held patent," citing Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330, 1345 (Fed. Cir. 2007).  The Court rejected Prasco’s allegation that the "paralyzing uncertainty" produced from its fear of Medicis alleging that Prasco’s product infringed any of the patents-in-suit supported jurisdiction.  The Court noted instead that Prasco’s behavior had not evinced paralysis, having performed "extensive" development and marketing preparation for entering the market, and indeed actually marketing its potentially infringing product.  The Court also characterized any such fear as being completely subjective and thus insufficient for supporting declaratory judgment jurisdiction:

Although MedImmune clarified that an injury-in-fact sufficient to create an actual controversy can exist even when there is no apprehension of suit, it did not change the bedrock rule that a case or controversy must be based on a real and immediate injury or threat of future injury that is caused by the defendants – an objective standard that cannot be met by a purely subjective or speculative fear of future harm.

Finally, the Court discussed ways in which a patentee could cause injury sufficient to support an allegation of a justiciable controversy.  These included creating a reasonable apprehension of suit, demanding royalty payments (Medimmune), and creating a regulatory barrier to required regulatory approval (Caraco).  Prasco alleged none of these actions by Defendants, and thus failed to satisfy the constitutional requirements for Article III court jurisdiction.

Turning to the specifics of the case, the Federal Circuit found that mere patent marking of Defendant Medicis’ product was insufficient, because failure to mark does not prevent a patentee from demanding a license or obtaining patent damages after actual notice of its patent rights to an alleged infringer.  On the contrary, mere marking "provides little, if any, evidence" that a patentee will ever choose to enforce a patent.  Although prior litigious conduct is a circumstance the court says deserves to be considered in assessing the totality of the circumstances, by itself one prior suit between the parties on an unrelated patent and unrelated products was not enough to create the required real and immediate controversy; indeed, the Court held that this conduct was entitled to "only minimal weight" in making its determination.  And the Defendants’ refusal to enter into a covenant not to sue Prasco was not dispositive according to the Court, refusing to require a patentee to face the alternatives of testing Prasco’s product to determine whether it infringed or foreswearing ever filing a patent infringement suit in the future.  Again, while this behavior is a relevant consideration in the totality of the circumstances a court should consider, here the CAFC held that some "affirmative action by the defendant" was also required.  In summary:

Here, where Prasco has suffered no actual present injury traceable to the defendants, and the defendants have not asserted any rights against Prasco related to the patents nor taken any affirmative actions concerning Prasco’s current product, one prior suit concerning unrelated patents and products and the defendants’ failure to sign a covenant not to sue are simply not sufficient to establish that Prasco is at risk of imminent harm from the defendants and that there is an actual controversy between the parties of sufficient immediacy and reality to warrant declaratory judgment jurisdiction.  Although we understand Prasco’s desire to have a definitive answer on whether its products infringe defendants’ patents, were the district court to reach the merits of this case, it would merely be providing an advisory opinion.  This is impermissible under the Article III (sic).

And proving that the Federal Circuit knows a thing or two itself about footnotes, the decision in a final footnote disclaims any interpretation of its decision as applied to a declaratory judgment action that conceded infringement but contested patent validity, presumably based in part on the public interest represented by such a validity challenge.

Prasco, LLC v. Medicis Pharmaceutical Corp. (Fed. Cir. 2008)
Panel: Circuit Judge Gajarsa, Senior Circuit Judge Clevenger, and Circuit Judge Moore
Opinion by Circuit Judge Gajarsa