The US District Court for the Northern District of Texas found that venue was not proper under 28 USC § 1400(b) because Teva Pharmaceuticals USA did not commit any act of infringement in the Northern District of Texas, nor did Teva USA have a regular and established place of business in the district. Galderma Laboratories, L.P., et al. v. Teva Pharmaceuticals USA, et al., Civil Action No. 3:17-cv-01076-M (ND Texas, Nov. 17, 2017) (Lynn, J).

Analysis

Venue in a patent infringement case is governed by a special patent venue statute, which provides that a patent infringement case may be brought in the judicial district where (1) the defendant resides, or (2) where the defendant has committed acts of infringement and has a regular and established place of business. 28 USC § 1400(b). In TC Heartland LLC v. Kraft Foods Grp. Brands LLC, the Supreme Court of the United States held that, for purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation. 137 S. Ct. 1514, 1519 (2017). Because Teva USA is a Delaware corporation, the question before the district court was: did Teva USA (1) commit acts of infringement in the district and (2) have a regular and established place of business in the district? The district court reasoned that if the answer was yes, venue would be proper in the Northern District of Texas.

Teva USA contended that venue was improper because the alleged act of infringement—the abbreviated new drug application (ANDA) submission—did not occur in the Northern District of Texas. Teva USA argued that the ANDA was prepared at its offices in New Jersey and electronically submitted to the US Food and Drug Administration (FDA) in Maryland. Galderma argued, on the other hand, that an act of infringement also occurs wherever an ANDA filer intends to market the accused generic product, and in this case, Teva USA intended to market the accused product in the Northern District of Texas. Thus, venue was proper in the district. Galderma further contended that Teva USA committed an act of infringement in the district when it sent a paragraph IV certification to Galderma, which is located in the district.

Acts of Infringement

The court began its analysis by recognizing the undisputed fact that, under the Hatch-Waxman Act, filing an ANDA containing a paragraph IV certification, such as Teva USA did with respect to its generic product, constitutes an act of infringement. 35 USC § 271(e)(2). The court recognized, however, that it was an open question whether an act of infringement also occurs wherever an ANDA filer intends to market the accused product. Only a single recent court decision in the District of Delaware addressed the issue. Bristol-Myers Squibb Co. v. Mylan Pharms. Inc., Case No. 2017 WL 3980155 (D Del., Sept. 11, 2017) (discussed further in this issue of ANDA Update). In Bristol-Myers, the court held:

An applicant’s submission of an ANDA, in conjunction with other acts the ANDA applicant non-speculatively intends to take if its ANDA receives final FDA approval, plus steps already taken by the applicant indicating its intent to market the ANDA product in [a particular] District, must all be considered for venue purposes, and can be sufficient to demonstrate that the ANDA-filing Defendant “has committed” “acts of infringement” in [the particular] District.

2017 WL 3980155, at *13.

Galderma urged the court to adopt the Delaware court’s reasoning and find that an act of infringement had occurred in the Northern District of Texas because Teva filed an ANDA and intended to market a generic product in the district. While noting that the Delaware court’s decision was very thorough, the court identified several issues with the decision that counseled away from adopting it and holding that an act of infringement occurs in any district where the ANDA filer intends to market the ANDA product after it receives FDA approval.

First, the court concluded that such a holding was at odds with the plain language of the patent venue statute, which provides that venue is proper “where the defendant has committed acts of infringement.” The court reasoned that there was an irreconcilable conflict between the backward-looking nature of the patent venue statute and the forward-looking nature of the Hatch-Waxman Act. In the Hatch-Waxman context, the only act of infringement that actually had occurred was the filing of the ANDA, not future sales of the ANDA product. Noting that the US Court of Appeals for the Federal Circuit had recently struck down a patent venue test crafted by a district court because the test “was not sufficiently tethered” to the statutory language (In re: Cray, Inc., Case No. 871 F.3d 1355, 1362 (Fed. Cir. 2017)), the district court concluded that relying on future sales of the ANDA product to establish venue is a liberal interpretation of the venue statute inconsistent with the Federal Circuit’s guidance.

Second, the Delaware court’s opinion borrowed heavily from the Federal Circuit’s analysis in Acorda Therapeutics Inc. v. Mylan Pharms. Inc., Case No. 817 F.3d 755 (Fed. Cir. 2016). The court, however, discounted the reliance on Acorda because it was a personal jurisdiction decision, not a venue decision. The district court cited the Federal Circuit’s warning in In re: Cray to “be careful not to conflate showings that may be sufficient for other purposes, e.g., personal jurisdiction or the general venue statute, with the necessary showing to establish proper venue in patent cases.” 871 F.3d at 1361.

Galderma also argued that its interpretation was not only consistent with the statute, but also required to give effect to the second part of Section 271(e)(2), which holds that the submission of an ANDA will be an act of infringement if the purpose of the submission is to obtain approval to engage in the commercial sale of a patented drug before patent expiration. The court disagreed, stating that the Hatch-Waxman Act itself recognizes the forward-looking nature of the litigation and identifies the ANDA submission as an artificial act of infringement on which a lawsuit can be based. The court reasoned that because commencement of the lawsuit effectuates the purpose of the Hatch-Waxman Act, it was not necessary to recognize additional speculative acts of infringement (future sales of the ANDA product) to give the statute effect.

After rejecting Galderma’s argument that venue was proper because Teva USA intended to sell its ANDA product in the district, the court looked to where the ANDA was prepared and submitted to determine where venue was proper. The court found that there was no evidence—much less an allegation—that Teva USA prepared or submitted its ANDA in or from the Northern District of Texas. Thus, the court concluded that venue was not proper in the Northern District of Texas because no act of infringement occurred there.

Regular and Established Place of Business

As an additional basis for granting Teva USA’s motion to dismiss, the court found that Galderma failed to show that Teva USA has a regular and established place of business in the district. After reviewing all the evidence, the court found that only two Teva USA employees worked and lived in the district. There was no evidence, however, that the employees kept any inventory at their homes or distributed Teva USA drugs directly to customers. In addition, there was no evidence that their employment was conditioned on residence in the district or that Teva USA owned, leased or rented any portion of the employees’ homes. Finally, the court rejected Galderma’s argument that because Teva USA had a network of authorized dealers throughout the district from which Teva USA derived economic benefit, Teva USA had a regular and established place of business in the district. Citing several cases, the court concluded that although Teva USA may derive revenue from sales activities in the district, this did not establish a physical place of business in the district, as required by the patent venue statute.

Delaware Court Applies Acorda “Acts of Infringement” Definition to Post-TC Heartland Venue Analysis

Addressing a motion to dismiss for improper venue following TC Heartland, a Delaware district court held that an abbreviated new drug application (ANDA) filer that intends to market an allegedly infringing drug in a certain jurisdiction “has committed acts of infringement” in that jurisdiction for purposes of the venue statute. Bristol-Myers Squibb Co. v. Mylan Pharms. Inc., Case No. 17-cv-379 (D Del., Sept. 11, 2017) (Stark, J). The court did not address the ultimate issue of venue, instead deciding that discovery was necessary regarding whether Mylan met the other requirements of the venue statute.

The dispute before the court arose out of a 12(b)(3) motion to dismiss Bristol-Myers’ case for improper venue following the Supreme Court of the United States’ decision in TC Heartland, which curtailed the appropriate venues available in patent cases. Post-TC Heartland venue is only proper in one of two places: (1) where the defendant resides, or (2) “where the defendant has committed acts of infringement, and has a regular and established place of business.” The court held that the first category was clearly not met and thus focused its analysis on the second.

The court determined that Mylan had committed acts of infringement in Delaware, although coming to that conclusion required extensive analysis. The main issue the court grappled with was how to determine what constituted an act of infringement under the venue statute in Hatch-Waxman litigation. As is often repeated, Hatch-Waxman litigation is predicated on “a highly artificial act of infringement,” the filing of an ANDA. The court did not limit acts of infringement to the filing of an ANDA for the purposes of venue, however. Instead, the court relied on Acorda to hold that future intended acts of infringement were relevant to the venue analysis because the purpose of the Hatch-Waxman statute was to accelerate what would otherwise be an ordinary infringement action. Thus, Mylan’s intention to market its allegedly infringing product in Delaware if it was approved would be a putative act of infringement in Delaware.

That was not the end of the court’s analysis, as it also had to determine whether Mylan had a regular and established place of business in Delaware. The court considered several previous cases to develop a framework for what would constitute a regular and established place of business. Specifically, a defendant has a regular and established place of business when it has a permanent and continuous presence in the district. Such presence does not require a formal office or store, but it does require a physical presence, not a mere website or registration to do business. Ultimately, the court was unable to come to a conclusion on this prong based on the record in front of it, and dismissed the motion without prejudice pending limited discovery on the issue.

Apotex Released from Infringement Finding After Claim Construction Appeal

The US Court of Appeals for the Federal Circuit found that the US District Court for the District of Delaware erred in its claim construction and consequently vacated the ruling that Apotex’s proposed abbreviated new drug application (ANDA) product infringed Aptalis/Ivax’s asserted patent claiming an extended release form of the muscle relaxant cyclobenzaprine hydrochloride. Aptalis Pharmatech, Inc. v. Apotex Inc., et al., Case No. 2017-1344 (Fed. Cir., Jan. 4, 2018) (Stoll, J).

Aptalis and Ivax own US Patent Nos. 7,790,199 and 7,829,121, which are Orange Book-listed for AMRIX®, approved for treating muscle spasms. Apotex filed an ANDA seeking to market a generic version of the product prior to patent expiry.

At the district court, Aptalis asserted three claims, each of which included “an extended release coating comprising a water soluble polymer membrane surrounding said [active] core.” The parties contested the meaning of “extended release coating,” which the court construed to be “a layer of any substance that is applied onto the surface of another, the purpose of which is to delay the release of drug in order to maintain the drug at therapeutically effective concentrations over an extended period of time.” Applying this construction, the district court concluded that Apotex infringed all asserted claims.

The Federal Circuit, applying de novo review, found that the district court erred in its construction of “extended release coating.” The Federal Circuit stated that this case “tiptoes [the] line” between “reading a claim in light of the specification, and reading a limitation into the claim from the specification.”

The Federal Circuit concluded that the construction of “extended release coating” should be “a continuous outer film applied onto the surface of the active-containing core.” This construction is narrower than that applied in the district court in two ways. First, the Federal Circuit’s construction specifies that the extended release coating be positioned onto the surface of the active-containing core, as opposed to in any position external to the active core. Second, the Federal Circuit’s construction specifies that the extended release coating be a continuous film.

The Federal Circuit began its analysis with the plain language of the claims, finding that the use of the word “surrounding” (which has a dictionary meaning of “to enclose on all sides”) connoted that the active core was continuously surrounded by this layer. Turning to the specification, the court found that “every embodiment . . . describes . . . the coating external to the core.” The court further observed that the while the inventors described the prior art as including non-continuous coatings, they did not describe or claim their coating as such. In fact, the court found that an expert declaration submitted during prosecution supported the interpretation of the claim element as referring to continuous films.

Aptalis argued that the Federal Circuit’s construction requiring the extended release coating to be placed “onto the surface of the active-containing core” excluded a preferred embodiment with an intervening seal coat layer. The court stated that the construction was not so limiting, nor did it limit the extended release coating to the outermost layer. Aptalis also argued that the addition of “continuous” imported a limitation not expressly stated in the claim language, and that such a limitation required the coating to be impermeable, which is contrary to the purpose of the invention. The Federal Circuit disagreed, stating that a continuous coating need not be impermeable. Finally, Aptalis argued that reliance on the expert’s statement in the file history was inappropriate because claim scope was not disavowed during prosecution. The Federal Circuit stated that precedent supports using the file history to inform one of skill as to the meaning of claim language, whether or not narrowing amendments or arguments were made.

To date, there is no activity on the district court docket following this decision.

Undisclosed Routine Details Insufficient to Distinguish Prior Art from Claimed Method

After reviewing a manufacturing patent related to the antibiotic ertapenem, the US Court of Appeals for the Federal Circuit determined that the claimed manufacturing process was obvious because the prior art disclosed everything except for details that would have been routinely implemented by a person of skill in the art. Merck Sharp & Dohme Corp. v. Hospira Inc., Case No. 874 F.3d 724 (Fed. Cir., Oct. 26, 2017) (Lourie, J) (Newman, J, dissenting).

In May 2014, Hospira filed an abbreviated new drug application (ANDA) seeking approval to market a generic version of Merck’s Invanz product—i.e., ertapenem. Merck sued Hospira for infringement of US Patent Nos. 5,952,323 and 6,486,150. Each patent claims a different method relevant to the production of a stable form of ertapenem. Merck created a stable form of ertapenem by forming a carbamate adduct by reacting ertapenem with a carbon dioxide source at a specific pH range of 6.0 to 9.0. The ‘323 patent describes and claims the carbamate adduct form of ertapenem. The ‘150 patent claims a process for making a formula with a generic chemical compound that encompasses the carbamate adduct of ertapenem using specific steps.

During a bench trial, the district court determined that (1) Hospira’s generic product infringed both patents, (2) the ‘323 patent was not anticipated or obvious, and (3) the ‘150 patent was obvious in view of the disclosure in the ‘323 patent. Merck appealed the finding that the ‘150 patent was obvious in view of the ‘323 patent.

The Federal Circuit affirmed the district court’s obviousness opinion. First, the Federal Circuit compared the prior art ‘323 patent to the claims of the ‘150 patent. The Federal Circuit acknowledged that the prior art did not disclose the specific order and detail of the manufacturing steps. However, the prior art taught the benefit and rationale for each of the manufacturing steps. For example, while the prior art did not teach the specifically claimed low temperature range, it did teach that low temperatures would decrease degradation of the carbamate adduct. In fact, the Federal Circuit found that the prior art disclosed all elements of the process except (1) the order of the steps, (2) the addition of a base at the same time as the ertapenem, (3) the specific temperature range and (4) the final moisture content of the product. These elements were experimental details that a person of skill in the art would have utilized via routine experimentation, however, and therefore the claimed process was obvious.

The Federal Circuit then evaluated secondary considerations and upheld the district court’s determination that the evidence of secondary considerations could not overcome the “strong showing of obviousness.”

Judge Newman dissented. She argued that the district court used the incorrect standard in evaluating obviousness, based primarily on the treatment of objective indicia of non-obviousness. Judge Newman criticized some of the Federal Circuit’s obviousness opinions as looking to determine whether the prior art established a prima facie case of obviousness, and only subsequently turning to “secondary considerations” to rebut that case. Judge Newman insisted that an evaluation of objective indicia of non-obviousness is one of the four Graham factors and should be included in the initial obviousness determination. Thus, Judge Newman remanded the case for a correct evaluation of obviousness including objective indicia in the first instance.

Practice Note: Given Judge Newman’s dissent in this case and Judge Reyna’s dissent in Intercontinental Great Brands LLC v. Kellogg N. Am. Co., Case No. 869 F.3d 1336 (Fed. Cir. 2017), it is clear that several Federal Circuit judges favor including an evaluation of objective indicia of non-obviousness in the underlying obviousness determination rather than treating them as “secondary considerations.”

Unpredictable Biology, Non-Analogous Art Go Against Reasonable Expectation of Success

Emphasizing the need for a reasonable expectation of success in finding a claim invalid based on obviousness, the US Court of Appeals for the Federal Circuit affirmed the lower court’s decision that Dr. Reddy’s Laboratories (DRL) failed to prove the asserted claim was invalid. Genzyme Corporation v. Dr. Reddy’s Laboratories, Ltd., Case No. 2017 WL 6418934 (Fed. Cir., Dec. 18, 2017) (Chen, J).

Asserted claim 19 of US Patent No. 7,897,590 is directed to “a method to obtain progenitor and/or stem cells” by (1) administering G-CSF to a subject; (2) administering plerixafor or a pharmaceutically acceptable salt thereof to the subject, in an amount effective to mobilize the progenitor and/or stem cells; and (3) harvesting the progenitor and/or stem cells.

Under normal conditions, stem cells are anchored to the bone marrow through a bond between CXCR-4 located on the stem cell and a protein (SDF-1) produced in the bone marrow. Plerixafor disrupts this bond, releasing the stem cell from the bone marrow into the bloodstream, so that the stem cells can then be collected from a patient’s blood.

DRL argued that claim 19 of the ’590 patent was obvious in view of either (1) Hendrix and US Patent No. 5,824,304, or (2) WO 00/45814 (WO ’814) and the ’304 patent.

Hendrix disclosed an increase in white blood cells (WBCs) in the peripheral blood of HIV patients after an administration of plerixafor and hypothesized that the binding of plerixafor to CXCR4 may inhibit the chemotactic effects of SDF-1 causing release of WBCs from the endothelium and/or stem cells from bone marrow. WO ’814 also disclosed that administration of plerixafor elevated WBC levels. The ’304 patent taught that administering an agent that inhibits binding between the VLA-4 receptor on stem cells and the VCAM-1 ligand found in the bone marrow could increase the number of stem cells in peripheral blood, and that G-CSF mobilized stem cells from the marrow to the peripheral blood by stimulating the production of stem cells.

DRL argued that the only difference between the claimed invention and the ’304 patent was the use of plerixafor, and that Hendrix and/or WO ’814 would have led a person of skill in the art to use plerixafor to mobilize stem cells, noting that Hendrix hypothesized that plerixafor could be used to mobilize stem cells from bone marrow.

The district court rejected DRL’s arguments. First, the court found that Hendrix (and WO ’814) and the ’304 patent were not analogous art—Hendrix and WO ’814 taught use of plerixafor for use in treatment of HIV, whereas the ‘304 patent was related to the field of mobilizing stem cells for harvest and transplantation—and that DRL failed to show that a person of skill in the art would have pursued CXCR-4 over other possible stem cell mobilizers. Second, the district court found that even if Hendrix were deemed analogous art, DRL failed to show that a person of ordinary skill would have had a reasonable expectation of success in achieving the claimed invention by combining the prior art, because of unpredictability in the art and a history of failure in the field of stem cell mobilization.

In affirming, the Federal Circuit noted that CXCR-4 is in a completely different receptor family than VLA-4, and there was no evidence or expectation that CSCR-4 and VLA-4 would behave similarly concerning mobilization. The Federal Circuit also found that the district court reasonably rejected DRL’s attempts to draw an analogy between the two results based on ample evidence showing that an increased WBC count did not necessarily correlate to stem cell mobilization. Finally, the Federal Circuit noted that the district court’s finding of a high degree of unpredictability in the art also ran counter to an expectation of success.

Allergan’s Infringement Positions Don’t Gel with Proper Claim Construction

Addressing non-infringement on a summary judgment motion, the US District Court for the Eastern District of Texas ruled that Mylan and Teva’s accused generic products did not infringe as a matter of law because water is not a “gelling agent” as required by the asserted claims. Allergan Sales, LLC v. Teva Pharmaceuticals USA, Inc., Case No. 2017 WL 4800734 (E.D. Tex., Sept. 28, 2017) (Payne, J); adopted by Allergan Sales, LLC v. Teva Pharmaceuticals USA, Inc., Case No. 2017 WL 4792543 (ED Tex., Oct. 24, 2017) (Gilstrap, J).

The infringement action arose from abbreviated new drug applications (ANDAs) filed by Teva and Mylan to market a generic version of Allergan’s ulcerative colitis drug sold under the brand name Delzicol. The dispute did not concern Delzicol itself, but rather the capsule that holds the drug and the patent covering that capsule (US Patent No. 6,649,180).

Mylan and Teva moved for summary judgment of non-infringement, each contending that their proposed generic products would not include at least one element of the asserted claims, because the accused capsules were not formed from a film composition comprising a “gelling agent” as the asserted claims required.

The ‘180 patent claimed a hard capsule formed of a film composition comprising a hydroxypropyl methyl cellulose (HPMC) base, a gelling agent, a gelling aid and optional additives. The gelling agents described in the specification were all hydrocolloid compounds.

The capsules used by Mylan and Teva’s generic products did not use a hydrocolloid-like gelling agent such as those described by the ‘180 patent. Instead, the accused capsules were manufactured using a thermogelation process that takes advantage of the intrinsic gelling properties of HPMC. When the aqueous solution of HPMC is heated, the water structure breaks down and the HPMC precipitates out of the water, forming a gel.

Parties disputed the construction of the term “gelling agent” and whether the water used in making their generic capsule would qualify as the “gelling agent” by itself. The court determined that the plain and ordinary meaning of “gelling agent” was a “substance that gels the film composition.” The court found that while the specification mentioned water 21 times, it was never mentioned in the context of being a gelling agent. Water was mentioned in the specification only in two contexts: (1) in terms of residual “water content” present in the capsule, and (2) as a solvent used to dissolve the HPMC, gelling agent, gelling aid and other optional additives during the capsule forming process.

Thus, the fact that the inventors contemplated the presence of water in the process but failed to call water out as a “gelling agent” indicated that water was not intended to be a gelling agent. The court held that under this clarifying construction, Mylan and Teva’s accused products could not, as a matter of law, be encompassed by the claims of the ‘180 patent because there is no dispute that the products do not contain any substance other than water that could be considered a “gelling agent.”

Ophthalmic Solution Claims Not Invalid, Not Infringed

In a patent infringement suit related to the generic version of the drug Combigan®, the US Court of Appeals for the Federal Circuit held that claims asserted by Allergan Sales, LLC, were not invalid but not infringed. Allergan Sales, LLC v. Sandoz, Inc., et al., Case Nos. 2017-1499; -1500; -1558; -1559 (Fed. Cir., Dec. 22, 2017) (Hughes, J).

Allergan holds the approved new drug application for Combigan®, an ophthalmic solution used to reduce eye pressure in glaucoma and ocular hypertension patients. Combigan® is a “fixed combination” solution consisting of 0.2 percent brimonidine tartrate and 0.68 percent timolol maleate. Allergan claimed that three of its patents protect the drug and its administration.

Generic drug manufacturers Sandoz, Inc.; Alcon Laboratories, Inc.; and Alcon Research, Ltd., (collectively, Sandoz) filed an abbreviated new drug application (ANDA) seeking approval to market generic versions of Combigan®. Allergan sued Sandoz for infringement of various claims of its patents under the Hatch-Waxman Act. In response, Sandoz argued that all asserted claims were invalid as obvious and that one asserted claim was invalid for lack of written description in the specification. The district court found the asserted claims not invalid and claims from one patent infringed.

On appeal, Sandoz argued that all the asserted claims merely recited the inherent results of administering an obvious combination. The Federal Circuit conceded that the concomitant administration of brimonidine and timolol ophthalmic composition twice daily was obvious in light of the prior art. The court found, however, that each asserted claim recited an additional efficacy limitation that restricted the claimed method and was not disclosed by any prior art reference in the record. The court also noted that these efficacy limitations were not inherent in the administration of the ophthalmic composition, a finding adequately supported by the record.

Sandoz also argued that one asserted claim was invalid for lack of written description because the claim encompassed hundreds of brimonidine and timolol combinations. The Federal Circuit disagreed. First, the court explained that a sufficient description of a genus requires the disclosure of either a representative number of species falling within the scope of the genus or structural features common to members of the genus so that a person of skill in the art could recognize the members. Here, the specification disclosed the sole embodiment of the claimed genus. The Federal Circuit also found that the district court correctly credited testimony from Allergan’s expert, who explained that the claim encompassed only six possible combinations of brimonidine and timolol. Therefore, the Federal Circuit affirmed the district court’s finding that the asserted claims were not invalid based on obviousness or lack of written description.

Finally, both Allergan and Sandoz appealed the district court’s infringement findings. Allergan asserted literal infringement of claims that recited administration of 0.5 percent timolol free base. However, both Combigan® and Sandoz’s proposed generic contained 0.68 percent timolol maleate, a compound distinct from 0.5 percent timolol free base. The district court relied on the equivalency of the two compounds in concluding that the proposed generic literally infringed. Because the Court determined that chemical equivalency was not sufficient for finding literal infringement, however, the district court erred.

The Federal Circuit also examined infringement under Section 271(e)(2)(A). The Hatch-Waxman Act provides for a technical infringement upon submission of an ANDA, but only for a drug claimed in a patent. Combigan® contains a solution composed of 0.2 percent brimonidine tartrate and 0.68 percent timolol maleate. The asserted claims expressly recited 0.5 percent timolol free base, however, not 0.68 percent timolol maleate. The Court found that since Combigan® was not the “drug claimed in” the asserted patent, Sandoz’s ANDA did not infringe, as a matter of law, under Section 271(e)(2)(A).

On cross-appeal, Allergan argued that the district court erred in finding that Sandoz’s proposed generic did not literally infringe Allergan’s remaining asserted claims. The claims recited 0.2 percent brimonidine, but Sandoz’s proposed generic contained 0.2 percent brimonidine titrate. The Federal Circuit found these two compounds distinct. Therefore, the Court concluded that the district court did not err in finding that Sandoz did not infringe the claims.

Accordingly, the Federal Circuit affirmed in part and reversed in part the district court’s infringement findings.

Possibility of Non-Infringing Use Insufficient to Negate Intent to Encourage Infringement

The US Court of Appeals for the Federal Circuit affirmed that inducement of infringement can be shown based on encouragement and inferred intent of infringing use from a drug label. Sanofi-Aventis U.S., LLC v. Watson Labs. Inc., et al., Case No. 875 F.3d 636 (Fed. Cir., Nov. 9, 2017) (Taranto, J).

The case was a Hatch-Waxman patent litigation over methods of reducing hospitalization by administering an antiarrhythmic drug, dronedarone, to patients having certain risk factors. Sanofi-Aventis sells the brand name drug Multaq® containing the active ingredient dronedarone. Watson and Sandoz sought permission from the US Food and Drug Administration (FDA) to market generic versions of Multaq®. Sanofi-Aventis sued Watson and Sandoz for patent infringement, and after a three-day bench trial, the district court ruled for Sanofi-Aventis, finding, among other things, that Watson and Sandoz had induced infringement of a patent at issue.

On appeal, the Federal Circuit affirmed the district court’s finding of inducement. Articulating the law for inducement of infringement—“liability for inducing infringement attaches only if the defendant knew of the patent and that ‘the induced acts constitute patent infringement’”—the Federal Circuit noted that neither of these two knowledge requirements was disputed. “If and when Watson and Sandoz receive FDA approval and market dronedarone with the label at issue, they will know of the ‘167 patent (they already do) and that a medical provider’s administration of the drug to the claimed class of patients is an act of infringement (which Watson and Sandoz do not dispute).”

The court further elaborated that to find induced infringement, “it must be established that the defendant possessed specific intent to encourage another’s infringement.” According to the Federal Circuit, “[w]hen proof of intent to encourage depends on the label accompanying the marketing of a drug, the label must encourage, recommend, or promote infringement.” Turning to the facts of the case, the court explained that considerable testimony indicated that the label to be used with the generic drugs “encourages—and would be known by Watson and Sandoz to encourage—administration of the drug to those patients [with the claimed risk factors], thereby causing infringement.”

Watson and Sandoz argued that the lower court could not permissibly find intent to encourage infringing use because the label permitted substantial non-infringing uses. The Federal Circuit rejected this argument for several reasons:

  • The statute addressing inducement of infringement does not contain a “substantial non-infringing use” restriction.
  • The Supreme Court of the United States has held the opposite, finding that a person can be liable for inducing an infringing use of a product even if the product has substantial non-infringing use.
  • “[T]here is no basis for a different inducement rule for drug labels.”

Instead, the Federal Circuit concluded that the “content of the label in this case permits the inference of specific intent to encourage the infringing use,” in particular “the label’s express statement of indications of use and the internally referred-to elaboration of those indications.”

Practice Note: Non-infringing uses not forbidden by proposed drug labels may be insufficient to negate intent to induce infringement.

District Court Denies Class Certification under Third Circuit’s New Impracticability Framework

A district court denied class certification for a relatively small class of plaintiffs after applying the US Court of Appeals for the Third Circuit’s impracticability framework as part of a Rule 23(a) numerosity analysis. King Drug Co. of Florence, Inc. v. Cephalon, Inc., Case No. 2:06-cv-1797 (ED Pa., Aug. 8, 2017) (Goldberg, J).

Direct purchaser plaintiffs filed a case against Cephalon, Inc., (the branded manufacturer of Provigil) and four generic pharmaceutical companies, alleging that Cephalon executed anticompetitive reverse-payment settlements with each of the generic pharmaceutical companies. In 2015, the US District Court for the Eastern District of Pennsylvania certified a class of direct purchasers, which consisted of 22 entities (i.e., drug wholesalers) that purchased Provigil directly from Cephalon during a six-year period. Retailers of pharmaceuticals were excluded from the class. To certify a class action, a plaintiff must demonstrate that the proposed class satisfies all of the requirements of Rule 23(a) and one of the subcategories in Rule 23(b) of the Federal Rules of Civil Procedure.

On appeal, the Third Circuit vacated the decision, noting that it had “not had occasion to list relevant factors that are appropriate for district court judges to consider” when analyzing whether a proposed class satisfies the numerosity requirement under Rule 23(a)(1) (i.e., determining whether joinder of all class members would be impracticable). The Third Circuit provided a framework for the numerosity analysis and remanded the decision to the district court.

In light of the small class, the Third Circuit instructed that “inquiry into impracticability should be particularly rigorous when the putative class consists of fewer than forty members.” The Third Circuit then set forth a non-exhaustive list of factors relevant to the impracticability analysis:

  • Judicial economy
  • The claimants’ ability and motivation to litigate as joined plaintiffs
  • The financial resources of the class
  • The geographic dispersion of class members
  • The ability to identify future claimants
  • Whether the claims are for injunctive relief or damages

Of primary importance to the analysis are judicial economy and the ability to litigate as joined parties.

After applying the Third Circuit’s impracticability framework, the district court determined that the direct purchasers’ proposed class did not satisfy the numerosity requirement and denied their supplemental motion for class certification. The district court found that the first four factors weighed against class certification, including the two most important factors.

As to the judicial economy factor, the court reasoned that the plaintiffs could easily engage in cost- and resource-sharing mechanisms, as well as joint motions practice, if the case proceeded by joinder. The court emphasized that judicial economy is concerned with docket control and should not account for the sunk costs of litigation or a potential delay in trial proceedings.

The second factor—class members’ ability and motivation to litigate as joint plaintiffs—considers the stakes at issue for individual claims and the complexity of litigation. This factor weighed against certification because members would likely share litigation costs, and plaintiffs’ legal representation was likely on a contingency basis. Citing a lack of evidence, the court refused to credit the plaintiffs’ argument that generic suppliers would retaliate against any customers that chose to litigate.

The third factor, financial resources of class members, weighed against certification because all but six members had annual revenues in excess of $100 million, and more than one-third had revenues between $2 billion and $482.1 billion. The fourth factor, geographic dispersion, also weighed against certification. While the class members were located in 13 states and Puerto Rico, the court reasoned that the members were sophisticated parties and many had litigated previously in Pennsylvania.

The fifth factor, ability to identify future claimants, was determined to have no effect on the ultimate conclusion. The sixth factor, type of claims, weighed in favor of class certification because the plaintiffs sought injunctive relief rather than damages.

Practice Note: Parties facing class certification should carefully consider the potential impact of the Third Circuit’s impracticability framework, especially where a proposed class consists of fewer than 40 members. Courts in the Third Circuit are likely to place significant weight on judicial economy and claimants’ ability and motivation to litigate as joined plaintiffs. Parties can expect less weight to be afforded to the litigation stage, including sunk costs, the risk of additional discovery or delay in trial.