Damages Award Improperly Compensated for Infringement Occurring During Pediatric Exclusivity Period: Federal Circuit | Practical Law

Damages Award Improperly Compensated for Infringement Occurring During Pediatric Exclusivity Period: Federal Circuit | Practical Law

In AstraZeneca AB v. Apotex Corp., the US Court of Appeals for the Federal Circuit largely affirmed a $76 million dollar reasonable royalty award. However, the court reversed part of the damages award and held that the patent owner's pediatric exclusivity period does not allow for the recovery of damages for infringements occurring after the asserted patents' expiration.

Damages Award Improperly Compensated for Infringement Occurring During Pediatric Exclusivity Period: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 09 Apr 2015 • USA (National/Federal)
In AstraZeneca AB v. Apotex Corp., the US Court of Appeals for the Federal Circuit largely affirmed a $76 million dollar reasonable royalty award. However, the court reversed part of the damages award and held that the patent owner's pediatric exclusivity period does not allow for the recovery of damages for infringements occurring after the asserted patents' expiration.
On April 7, 2015, in AstraZeneca AB v. Apotex Corp., the US Court of Appeals for the Federal Circuit affirmed in part and reversed in part a $76 million dollar award for infringement of two patents covering pharmaceutical omeprazole formulations. The Federal Circuit rejected the infringers' argument that the US District Court for the Southern District of New York overcompensated the patent owner by assessing a reasonable royalty of 50% of the infringers' profits. However, the Federal Circuit reversed the part of the damages award based on sales made after the asserted patents' expiration, holding that the patent owner's six month pediatric exclusivity period does not allow it to recover damages for post-expiration infringements (No. 2014-1221, (Fed. Cir. Apr. 7, 2015)).

Background

Apotex Corp., Apotex Inc. and TorPharm Inc. (Apotex) began selling a generic omeprazole product in November 2003. Apotex continued selling its product until 2007, when the district court held that it infringed two patents owned by AstraZeneca AB and related parties (Astra) that covered an omeprazole formulation with improved stability and delivery of the active ingredient. The patents achieved these results using a novel subcoating that separated the drug core from the outer coating. In 2008, the Federal Circuit affirmed the district court's infringement decision (In re Omeprazole Patent Litig., 536 F.3d 1361 (Fed. Cir. 2008)).
On remand, the district court held a bench trial to determine Astra's damages, which the parties agreed should be a reasonable royalty. The district court determined that the parties would have agreed to a royalty rate of 50% of Apotex's gross margin from the sales of its generic omeprazole product if they had negotiated a patent license in November 2003. Accordingly, the court entered final judgment against Apotex in the amount of $76,021,994.50 plus prejudgment interest. Apotex appealed.

Outcome

The Federal Circuit considered and rejected Apotex's challenges to the district court's reasonable royalty rate. It also considered and rejected Apotex's challenges based on the entire market value rule, apportionment and the availability of non-infringing alternatives. However, the Federal Circuit reversed and remanded the portion of the award based on Apotex's sales occurring after expiration of the asserted patents.

Royalty Rate

The Federal Circuit affirmed the district court's 50% royalty rate because:
  • It represented a rate Astra could have required as compensation for a license to Apotex at the beginning of Apotex’s infringement. The court explained that:
    • even after a 50% royalty payment, Apotex's profit margin would be similar to its earnings on other products at the time; and
    • granting a license would have put two of Astra's omeprazole products at risk of losing market share and profitability.
  • Apotex would have faced substantial technical and practical obstacles to marketing a non-infringing omeprazole formulation.
  • Astra's other licensing and settlement negotiations in similar circumstances supported the rate.

Entire Market Value and Apportionment

The Federal Circuit then rejected Apotex's argument that the district court improperly awarded damages for the entire value of the accused omeprazole product. Apotex argued that the district court violated the entire market value rule because it failed to apportion the value between the patents' inventive element (the subcoating) and the patents' well-known elements (the active ingredient). The Federal Circuit held that the entire market rule did not apply because the asserted patent claims cover the entire omeprazole product, and therefore the accused product lacks an unpatented or non-infringing feature.
While the entire market value rule did not apply, the Federal Circuit still analyzed apportionment of the damages award because the patent claims include well-known conventional elements. Because many inventions are improvements that use well-known components, the court analyzed how much new value was created by Astra's novel formulation, beyond the value of the conventional elements alone. The Federal Circuit affirmed the district court's decision not to reduce the damages award because the improved stability and drug delivery provided by the inventive subcoating were substantially responsible for the product's commercial value.

Non-infringing Alternatives

The Federal Circuit also rejected Apotex's argument that the damages award should be reduced because non-infringing alternative formulations existed at the beginning of Apotex's infringement in November 2003, noting that:
  • Apotex had not developed a non-infringing formulation at that time.
  • Another company's non-infringing formulation was patented and Apotex did not show how it could use this formulation without infringement.
  • The formulations of two other generic manufacturers could not have been viewed as non-infringing alternatives in November 2003 because:
    • the generics launched their products at risk in 2003; and
    • the products were not found to be non-infringing until 2007.

Post-expiration Damages for the Pediatric Exclusivity Period

The Federal Circuit reversed the district court's decision to award damages for sales of Apotex's generic product after the asserted patents' expiration during the six month pediatric exclusivity period. Before the district court determined that Apotex infringed the asserted patents, Astra obtained a six-month pediatric exclusivity prohibiting the Food and Drug Administration (FDA) from approving an abbreviated new drug application (ANDA) for six months after the expiration of the asserted patents on April 20, 2007. Apotex made sales between April 20, 2007, when Astra's patents expired, and June 28, 2007, when the FDA revoked its earlier approval of Apotex's ANDA. Although the asserted patents had expired, the district court allowed Astra to recover damages for sales during this period because they occurred during Astra's pediatric exclusivity.
The Federal Circuit held that the district court erred when it awarded damages for post-expiration infringements under 35 U.S.C. §§ 271(e)(4)(C) and 284, explaining that:
  • The pediatric exclusivity period is not an extension of the patent term.
  • The royalty base for reasonable royalty damages cannot include non-infringing activities.
  • Patent damages are limited to those adequate to compensate for infringement.
  • Apotex's sales during the exclusivity period could not infringe Astra's patents because they had expired.