On December 3, 2013, District Judge Denise Cote granted plaintiff AstraZeneca over $76 million in damages for defendant Apotex’s infringement of formulation patents covering Astra’s drug product Prilosec® (omeprazole), a proton pump inhibitor (“PPI”). The court based the damages amount on a reasonable royalty that would have resulted from a hypothetical negotiation leading to a license, and determined that that reasonable royalty would equal 50% of Apotex’s profits from sales of its generic omeprazole product.

In determining that a reasonable royalty would be 50% of Apotex’s profits, the court awarded damages based on Apotex’s capsules as a whole, and declined to limit damages to the subcoating that Astra’s patents covered. Apotex’s capsules had previously been found to infringe Astra’s patents, in part, due to a subcoating. The court declined to award a lesser value based on the subcoating alone because the subcoating helped deliver the drug effectively, and in doing so created value for the product that could not be separated from value of the capsules as a whole.

The court also awarded Astra damages based on Apotex’s sales during the pediatric exclusivity period that the Food & Drug Administration (“FDA”) had granted Astra for Prilosec®, which extended for six months after the patents at issue expired. Apotex argued that the court should not award Astra damages during that period because Astra could not collect royalty payments on the patents during that period. The court reasoned that awarding damages for sales during the pediatric exclusivity period was appropriate because Astra could have collected “waiver payments” during the pediatric exclusivity period and Apotex offered “no compelling reason why it would have been less eager to obtain a license to sell the infringing formulation during the pediatric exclusivity period than during the period before the expiration of the patents.”

The court applied the Georgia-Pacific factors to the negotiating positions of both parties during a hypothetical negotiation at the time of infringement, and held that it was reasonable to conclude that Astra would not have licensed Apotex for anything less than 50% of Apotex’s profits. The court found that Astra would have tried to calculate whether the income stream from an Apotex license would offset potential damage. It noted that “[w]hile there are no perfect benchmarks for this licensing fee, a 50% licensing fee fits comfortably within the range of negotiations that occurred in connection with the patents-in-suit” including a previous royalty offers and settlement agreements that ranged from 35% to 70% of generic sales of omeprazole. In reaching that 50% number, the court found that Apotex would have been eager to take a license from Astra, while Astra would have been reluctant to license another generic competitor. The court found that Apotex would have been willing to pay a large share of its profits for the rights to use the patents because it expected to make substantial profit from its sales of omeprazole, and would not have had “any confidence that it could create a non-infringing product.”  At the same time, the court found that Astra would have demanded a high royalty rate because, even though it was not the first generic omeprazole product on the market, Apotex’s generic product would have caused a collapse of in Prilosec® sales, and forced Astra to increase of financial support to Astra’s other PPI, Nexium®.

Case: AstraZeneca AC v. Apotex Corp., No. 01 Civ. 9351 (DLC), 2013 BL 333777, (S.D.N.Y. December 3, 2013)