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Precedential Patent Cases From the Federal Circuit in ‎the Past Week ‎

April 13, 2015

Overview

Astrazeneca – The Circuit affirms most of a $76 million patent infringement judgment against Apotex based on half of the Apotex profits being awarded. The two patents in suit cover Prilosec, Astrazeneca's highly successful indigestion drug. The Circuit does not apply the entire market value rule but refuses to say it would never be appropriate to do so in a pharmaceutical case. The panel reverses the part of the award for sales made during a "pediatric exclusivity" period since those sales are not infringing sales.

Oplus – Applying the former standard of "exceptional case" from Brooks Furniture, the district ‎court ‎denied an award of attorney fees despite finding the actions of Oplus and its counsel, Niro, ‎Haller & Niro, to be ‎reprehensible. Citing the new standard of proof for "exceptional case" in Octane, ‎‎the Circuit vacates the denial of attorneys' fees ‎and remands the case. Readers may recall that the Niro firm has been ‎found liable for potentially several million dollars in a separate case for filing documents the court determined the firm knew were false.‎

Automated Merchandising Systems – AMS petitioned the PTO to terminate pre-AIA inter partes reexaminations of four AMS patents that had been the subject of litigation which had settled with a consent judgment dismissal stating that the parties stipulated to validity. The PTO denied AMS's petition and the Circuit affirms, holding that AMS's challenge to the PTO's refusal to terminate the reexaminations cannot proceed because the refusal is not a "final agency action."

Insite – In a fairly routine obviousness analysis, the Circuit finds that the district court did not err in framing the obviousness inquiry broadly rather than narrowly as argued by defendant. The narrow framing would have couched the issue as simply whether it would have been obvious to use azithromycin to treat conjunctivitis. The Circuit agreed with the broader inquiry used by the district court because there were options beyond azithromycin that were available to a formulator when considering topical ophthalmic treatments that would not spread of conjunctival infections to the cornea and would not present a problem as to solubility and stability in water.

Astrazeneca AB v. Apotex Corp. , Fed. Cir. Case 2014-1221 (April 7, 2015)

The two Astrazeneca ("Astra") patents in suit relate to formulations containing omeprazole, the active ingredient in Prilosec. Eight different generic drug manufacturers, including Apotex, filed ANDAs with the FDA, seeking permission to manufacture and sell omeprazole. Astra sued all eight companies, and the lawsuits were divided into two groups, each with four defendants.

In the "first wave" litigation, the court found that the patents were not invalid and that all of those defendants, except the KUDCo defendants, infringed the patents. During the "second wave" litigation, the court held that the Mylan and Lek products did not infringe but that Apotex's did. The Circuit affirmed the Mylan and Apotex judgments.

Apotex started selling its generic product in November 2003, during the pendency of the second wave litigation. It continued selling until 2007, when the district court held that Apotex's formulation infringed Astra's patents. After the Circuit affirmed the judgment of liability against Apotex, the court held a bench trial to determine Astra's damages.

The Calculation of Damages by the District Court

The court sought to determine the reasonable royalty by analyzing the royalty that would have been reached through a hypothetical negotiation between the parties in November 2003, when Apotex began to infringe. Following the bench trial, the court held that Astra was entitled to 50 percent of Apotex's gross margin from its sales of omeprazole between 2003 and 2007.

After making detailed findings, the court found that, as Apotex prepared to enter the market, it expected to experience roughly $581 million in sales during the first five years, and in the first year it expected to earn profits of $27 million at a profit margin of 92.5 percent. Moreover, Apotex knew that sales of its omeprazole product would help sell its other pharmaceutical products. Accordingly, the court found that because Apotex expected to (and did) make substantial profits from its sale of omeprazole, it would have been willing to pay a large share of those profits for the right to use Astra's patents in 2003.

The district court then set about to determine what royalty rate Astra and Apotex would have agreed to if they had negotiated a license in November 2003. In doing so, the court employed the so-called Georgia-Pacific factors. The court concluded that the parties would have settled on a royalty rate of 50 percent of Apotex's gross margin, which calculated to $76 million plus prejudgment interest. This appeal followed.

The Circuit Rejects Apotex Arguments that 50% of its Margin is Excessive

Apotex first contends that the district court overcompensated Astra because it "lost sight of the essential purpose of the exercise: to compensate Astra for harm actually suffered." According to the panel, Apotex's focus on what it refers to as "the harm that Astra actually suffered" is more suited to a case involving lost profits. The reasonable royalty theory of damages seeks to compensate the patentee not for lost sales caused by the infringement, but for its lost opportunity to obtain a reasonable royalty that the infringer would have been willing to pay if it had been barred from infringing.

Apotex also argues that the court failed to give enough consideration to Astra's 23 percent license to P&G for the rights to sell Prilosec OTC. But this license had an economic impact on Astra very different from the impact a license to a generic manufacturer such as Apotex would have had. The over-the-counter drug market is largely distinct from the prescription drug market, and Astra expected sales of Prilosec OTC to be helpful to it by promoting Nexium as a more effective drug for patients who had not obtained satisfactory results with Prilosec.

Apotex next complains that the court gave too much weight to a settlement and offer of settlement between Astra and two other generic manufacturers, Andrx and Teva. The court found that the amount of Astra's settlement with Teva represented 54 percent of Teva's profits on its omeprazole sales, and that the offer of settlement by Andrx was for 70 percent of Andrx's profits on the 40mg dosage and 50 percent of its profits on lower dosages. Astra did not accept Andrx's offer.

Apotex contends that the fact that the Teva and Andrx transactions occurred in the midst of litigation makes them irrelevant for purposes of determining a reasonable royalty rate. While the fact that a settlement or settlement offer comes in the midst of litigation may affect the relevance of the settlement or offer, there is no per se rule barring reference to settlements simply because they arise from litigation.

In this case, Teva's settlement and Andrx's offer both arose only after the district court had held the patents valid and had made a finding of infringement as to both defendants. The setting in which those events took place was therefore similar to the setting of a hypothetical negotiation in which infringement and patent validity are assumed. Andrx's willingness to take a license for between 50 and 70 percent of its profits, and Teva's agreement to settle the infringement action for 54 percent of its net sales, constitute persuasive evidence that a royalty rate in the neighborhood of 50 percent of net sales for a similarly situated party would be reasonable.

The Panel Finds the Entire Market Value Rule Inapplicable

Apotex contends that the court improperly based its damages calculation on the value of the omeprazole product as a whole. According to Apotex, because the active ingredient patents had expired at the time of the infringement, and the active ingredient had thus become a "conventional element," the court should have calculated damages by apportioning the relative contribution of value between the active ingredient and the "inventive element" of the patents, i.e., the subcoating.

The Circuit has held that when small elements of multi-component products are accused of infringement, a patentee may "assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts." Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011). We recently reiterated that principle, holding that even when the accused infringing product is "the smallest salable unit," the patentee "must do more to estimate what portion of the value of that product is attributable to the patented technology" if the accused unit is "a multicomponent product containing several non-infringing features with no relation to the patented feature." VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014). Thus, the entire market value rule applies when the accused product consists of both a patented feature and unpatented features; the rule is designed to account for the contribution of the patented feature to the entire product.

This case does not fit the pattern in which the entire market value rule applies. Astra's patents claim three key elements—the drug core, the enteric coating and the subcoating and the combination constitutes the complete omeprazole product that is the subject of the claims. Thus, Astra's patents cover the infringing product as a whole, not a single component of a multi-component product. There is no unpatented or non-infringing feature in the product.

The district court noted that there is little reason to import the entire market value rule for multi-component products like machines into the generic pharmaceutical context. While we do not hold that the entire market value rule is per se inapplicable in the pharmaceutical context, we concur with the district court that the rule is inapplicable to the present case.

Nonetheless, when a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee's invention in comparison to the value of the conventional elements recited in the claim, standing alone. Several of the factors set forth in Georgia-Pacific bear directly on this issue. Georgia-Pacific factors nine and ten refer to "the utility and advantages of the patent property over any old modes or devices that had been used" and "the nature of the patented invention, its character in the commercial embodiment owned and produced by the licensor, and the benefits to those who used it," respectively. Factor thirteen, which refers to the "portion of the realizable profit that should be credited to the invention," embodies the same principle. Thus, the Georgia-Pacific reasonable royalty analysis takes account of the importance of the inventive contribution in determining the royalty rate that would have emerged from the hypothetical negotiation.

The district court did not clearly err in concluding that the subcoating is so important to the viability of the commercial omeprazole product that it was substantially responsible for the value of the product. A commercially viable omeprazole drug requires both storage stability and gastric acid resistance. Without the subcoating, storage stability and acid resistance are irreconcilable, and by inventing a structure in which a subcoating separates the drug core, Astra was able to achieve both storage stability and acid resistance.

The Circuit Reverses the Damage Award for the Pediatric Exclusivity Period

Finally, Apotex objects to the district court's decision to award damages for sales of its generic omeprazole during the "pediatric exclusivity" period of the asserted patents. Under 21 U.S.C. § 355a, the FDA is authorized to make a written request to the holder of an approved New Drug Application ("NDA") for the holder to perform pediatric studies. If the NDA holder agrees to the request and performs the pediatric studies, and if the FDA considers the results of the studies acceptable, the statute extends the period during which the FDA is barred from approving ANDAs filed by competing drug manufacturers for six months beyond the patent's expiration date. That six-month extension is known as the pediatric exclusivity period.

Astra obtained the right to a six-month pediatric exclusivity before the district court's liability decision. Thus, although the asserted patents expired on April 20, 2007, the district court ordered that the effective date of Apotex's ANDA approval be set six months later, on October 20, 2007. The district court allowed Astra to recover a reasonable royalty on those sales, even though the sales had occurred after the expiration date of the patents.

We have long held that "there can be no infringement once the patent expires," because "the rights flowing from a patent exist only for the term of the patent." For that reason, Apotex did not infringe Astra's patents during the exclusivity period, and this portion of the district court's award is reversed.

Oplus Technologies, Ltd. v. Vizio, Inc., Fed. Cir Case 2014-1297 (April 10, 2015

Oplus originally filed suit in the N. D. of Illinois against Vizio and Sears. The district court granted defendants' motion to transfer the case to the C. D. of California. After the case was transferred, Oplus moved to transfer the case back to Illinois and consolidate it with other cases Oplus had filed against Sears and other companies. The Multidistrict Panel denied Oplus's motion.

The District Court's Findings

The case concluded on the merits when the C. D. of California granted summary judgment of noninfringement. Vizio moved to recover attorney and expert witness fees pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927, and the court's inherent power. The court found that from the start, Oplus delayed the litigation by amending its claims to manufacture venue, and, in doing so, flouted the standards of appropriate conduct and professional behavior. Oplus provided only the most tenuous basis in its initial complaint for bringing suit in Illinois, and its first amended complaint stepped over the boundaries of professionalism because the amendment rendered its allegations against Sears prima facie inadequate. The district court chastised Oplus for ignoring well-settled law by asking the Panel to return the case to Illinois after it lost the motion to transfer to California.

The district court found that Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled. Oplus implemented an abusive discovery strategy that involved avoiding its own litigation and discovery obligations while forcing its opponent to provide information about Vizio's products, sales, and finances. Oplus blatantly misinterpreted its own prior discovery requests in an attempt to obtain the same information the court had previously refused to compel. Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support. Oplus consistently twisted the court's instructions and decisions and attempted to mislead the court. When Oplus had no evidence of infringement of one element of a claim, it simply ignored that element and argued another. Oplus regularly cited to exhibits that failed to support the propositions for which they were cited, and its malleable expert testimony and infringement contentions left Vizio in a frustrating game of Whac-A-Mole throughout the litigation.

Based on the foregoing, the district court found the case exceptional under 35 U.S.C. § 285 and that Oplus and its counsel were vexatious litigants, engaged in litigation misconduct. Despite this finding, the district court denied Vizio's request for fees. It noted that even though Oplus's behavior was inappropriate, unprofessional, and vexatious, an award of fees must take the particular misconduct into account. It then stated, without further explanation, that the case has been fraught with delays and avoidance tactics to some degree on both sides. It noted that each instance of motion practice occurred according to normal litigation practice and that there is little reason to believe that significantly more attorney or expert fees have been incurred than would have been in the absence of Oplus's vexatious behavior.

The district court also denied fees under § 1927, reasoning that there is no evidence suggesting that Oplus's behavior stemmed from bad faith or a sufficient intent to harass, even though there is ample evidence of Oplus's litigation misconduct. It denied fees under its inherent power, reasoning that it would be a mistake for the court to use its inherent power to grant fees because other tools for sanctioning behavior exist and apply to misconduct.

Applying Octane, the Panel Questions the Denial of Attorney Fees

Under Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744 (2014), a district court's determination under 35 U.S.C. § 285 is reviewed for abuse of discretion.

When the district court issued its opinion, the Circuit had required that patent litigants establish entitlement to fees under § 285 by clear and convincing evidence. Brooks Furniture Mfg., Inc. v. Dutailier Ina Inc., 393 F.3d 1378 (Fed. Cir. 2005). Since the district court issued its opinion in this case, the Supreme Court rejected this requirement, holding that "nothing in § 285 justifies such a high standard of proof." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). In light of this change in the law, the panel vacates and remands the case for the district court to reconsider the propriety of awarding fees.

The district court opinion details an egregious pattern of misconduct. Although an award of fees is within the discretion of the district court, nothing in the opinion or in the record substantiates the court's decision not to award fees. Given that the district court found counsel's behavior "inappropriate," "unprofessional," "vexatious," and "harassing," it is difficult to imagine how Vizio had not incurred additional expenses defending against such filings.

After detailing the serious misconduct and concluding that the case was exceptional, the explanation the court gave for denying fees was that the case has been fraught with delays and avoidance tactics on both sides. The court did not specify the delays or tactics and, at oral argument, counsel for Oplus was unable to identify such delays, let alone actions that would warrant the court's denial.

Although the award of fees is clearly within the discretion of the district court, when, as here, a court finds litigation misconduct and that a case is exceptional, the court must articulate the reasons for its fee decision. In light of the court's fact findings regarding the extent of harassing, unprofessional, and vexatious litigation, the change in legal standard by the Supreme Court, and the lack of sufficient basis to deny fees under § 285, the panel vacates and remands for the district court to consider whether and the extent to which fees are warranted.

Comment: The opinion cites to ‎ Octane's ruling that nothing in § 285 justifies the clear and convincing standard of proof required by Brooks Furniture. The opinion notes that this "change in the law lowers considerably the standard for awarding fees" but never mentions the biggest change in the law made by Octane. Brooks Furniture and other Circuit decisions required either litigation-related misconduct of an independently sanctionable magnitude or that the ‎litigation was brought in bad faith. ‎In Octane, the Supreme Court found that the first basis was not an appropriate benchmark, and eliminated the bad faith requirement. In order to justify an award of attorney fees, Octane simply requires that the case stands out from others with respect to the substantive strength of a party's litigating ‎position or the unreasonable manner in which the case was litigated. ‎Referencing this language from Octane would not have changed the result in this case but would have provided clearer instructions to district courts reading the opinion as to the biggest change in the law made by Octane.

Automated Merchandising Systems, Inc. v. Michelle K. Lee, Fed. Cir. Case 2014-1728
(April 10, 2015)

AMS sued Crane for infringement of four patents. In early 2011, years into the litigation, Crane requested an inter partes reexamination of each patent. Finding that Crane had raised substantial new questions of patentability as to all four patents, the PTO initiated four inter partes reexaminations.

While the reexaminations were underway, AMS and Crane settled their lawsuit and, pursuant to the settlement, the district court issued a consent judgment stating that the parties stipulate that the four patents are valid, that all claims are dismissed with prejudice, and that this judgment is final. AMS then asked the PTO, to terminate the reexaminations under 35 U.S.C. § 317(b), which reads, in relevant part, as follows:

Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .

The PTO refused to terminate the reexaminations, noting that with respect to one of the patents, it found no "decision" by the district court that Crane had not sustained its burden of proving the invalidity. AMS then filed suit in the E. D. of Virginia, invoking the court's jurisdiction under 28 U.S.C. §§ 1331, 1338, 1346, and also relying on the Administrative Procedures Act ("APA"), the Declaratory Judgment Act, and mandamus authority. The district court rejected AMS's position, holding that § 317(b)'s prohibition on maintaining a reexamination does not apply unless there has been "an actual adjudication on the merits."

The Panel Agrees to Consider the "Final Agency Action" Argument even though it was not Raised Below

Although the PTO did not raise the issue below, it argues now that its refusal to terminate the reexaminations was not a "final agency action" subject to judicial review under 5 U.S.C. § 704. The panel first looked to see whether it should consider this argument that had not been made in the district court. Considerations relevant to overlooking a failure to preserve an issue include whether

(i) the issue involves a pure question of law and refusal to consider it would result in a miscarriage of justice; (ii) the proper resolution is beyond any doubt; (iii) the appellant had no opportunity to raise the objection at the district court level; (iv) the issue presents significant questions of general impact or of great public concern; or (v) the interest of substantial justice is at stake.

According to the panel, several criteria for discretionary disregard of forfeiture combine to justify consideration of the APA issue here. Proper resolution of the issue—which is a matter of law and which does not involve the merits of the § 317(b) challenge to the PTO's decision—is beyond doubt. Moreover, whether a refusal to terminate ongoing PTO proceedings is immediately reviewable presents a significant question of continuing public concern, affecting a range of PTO proceedings in the regular operation of the agency. For those reasons the panel agreed to consider the issue.

The Circuit Rules that there was no "Final Agency Action"

Under the APA, "agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action." 5 U.S.C. § 704. It is undisputed that no statute makes the challenged refusal to terminate the inter partes reexaminations immediately reviewable. Accordingly, the refusal is not reviewable unless it is a "final agency action for which there is no other adequate remedy in a court."

Generally, two requirements must be met for an agency action to be final. First, the action must mark the consummation of the agency's decision making process—it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which rights or obligations have been determined, or from which 'legal consequences will flow.

The PTO's refusal was anything but the "consummation of the PTO's decision making process;" it was, instead, interlocutory" in nature. An analogy is apt: the PTO's refusal to stop the proceedings here was as interlocutory, as far from final, as the run-of-the-mill district-court denial of a motion to dismiss. An ultimate merits determination regarding the validity of any of the patent claims at issue has not yet been reached in any of the reexamination proceedings. The reexaminations could end with decisions in AMS's favor, which would moot any controversy over how to interpret § 317(b). The PTO's refusal to terminate simply permits each reexamination to reach such a final disposition—nothing more.

If AMS receives an adverse ruling from the PTO in any of the reexaminations, AMS will at that time have an "adequate remedy in a court." 5 U.S.C. § 704. Under the APA, the "intermediate" agency action of refusing to stop the reexaminations, not elsewhere declared to be unreviewable, "is subject to review on the review of the final agency action." The PTO has conceded that, under 35 U.S.C. § 315(a)(1) (2006), "AMS can appeal any adverse final determination of patentability" to this court for "consideration of whether the reexamination proceedings should have been terminated under § 317(b)."

Mandamus and the Declaratory Judgment Act are also foreclosed. Mandamus relief under 28 U.S.C. §§ 1361, 1651 is unavailable because AMS has an adequate remedy and its only present harm is the burden of participating in the proceedings at issue. The Declaratory Judgment Act provides a discretionary remedy that courts traditionally have been reluctant to apply to administrative determinations that are not final or otherwise ripe for review. A declaratory judgment action should not be used to circumvent the usual progression of administrative determination and judicial review.

Because the PTO's refusal to terminate the proceedings at issue was not a final agency action, the district court did not err in granting summary judgment in favor of the PTO.

Comment: This decision simply means that AMS must continue to participate in the reexaminations to preserve its interests. If any of the claims of its patents are held invalid, it can then appeal that invalidation as well as the PTO's denial of its motion to dismiss, which, at that time, should constitute a final agency action.

Insite Vision Inc. v. Sandoz, Inc. , Fed. Cir. Case 2014-1065, (April 9, 2015)

The patents at issue include one patent disclosing methods of treating eye infections by the topical administration of azithromycin to the eye (the "411 patent") and three patents disclosing various formulations and methods of using topical azithromycin as a gel eyedrop for treating eye infections (the "ISV patents").

Validity of the ‘411 Patent

The district court did not err in framing the obviousness question with respect to the ‘411 patent as whether it would have been obvious to develop a topical ophthalmic formulation containing azithromycin. Although Sandoz argued for a narrower question—whether it would have been obvious that topical azithromycin could be used to treat conjunctivitis, the district court found no reason to limit the question to conjunctivitis and to azithromycin because there were options beyond just azithromycin that were available to a formulator when considering topical ophthalmic treatments, and persons of ordinary skill in the art would not have developed formulations that only treated conjunctivitis and not corneal infections, given concerns about the spread of conjunctival infections to the cornea.

The district court did not clearly err in finding that: there were innumerable options for ophthalmic treatments, including fluoroquinolones, known to be a better option than azithromycin, because they could act on a broad range of bacteria and were known to penetrate ocular tissue; those of skill in the art would have been concerned that azithromycin might not penetrate ocular tissue based on its high molecular weight, charge and insolubility in water; and a person of ordinary skill in the art would not assume that delivering high concentrations of a drug to the eye topically would ensure that the drug would penetrate the ocular tissue simply because the drug was successful when administered systemically.

For the above reasons, the Circuit concludes that Sandoz has not met its clear and convincing burden and therefore affirms the determination that the asserted claims of the '411 patent are not invalid.

Validity of the ISV Patents

The ISV patents disclose various formulations and methods of using topical azithromycin as a gel eyedrop for treating eye infections. The claims call for azalide (azithromycin) in a polymeric suspending agent for topical ophthalmic use. The district court concluded that none of the asserted claims of the ISV patents would have been obvious based on its finding that persons of ordinary skill in the art would not have been motivated to use the water-based polymeric solutions of the prior art in an azithromycin formulation because azithromycin was considered insoluble and unstable in water. In addition, it found that were one to make a topical, water-based azithromycin formulation, one of ordinary skill would not use polycarbophil, a gelling polymer, but would instead use a colloidal system. The court also found that many of the other limitations present in the claims were separately not obvious. Finally, the court found that secondary considerations of unexpected results and long-felt need support patentability.

The panel agrees with the district court that Sandoz has not clearly and convincingly shown that the asserted claims of the ISV patents would have been obvious. Although the '535 patent, which mentions the possibility that erythromycin could be combined with polycarbophil, the '535 patent discloses a "laundry list of active ingredients" and does not mention azithromycin. Thus, the skilled artisan would still need to modify that combination by changing erythromycin to azithromycin. Moreover, as noted above, those of skill in the art would have been concerned about azithromycin's solubility and stability in water, so the modification from erythromycin to azithromycin would be even less obvious.

The district court did not clearly err in finding support for patentability in the secondary considerations of long-felt need and unexpected success (a 60-fold increase in the concentration of azithromycin when dosed topically as opposed to orally).

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