Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc. (Fed. Cir. 2008)

    By Kevin E. Noonan --

The echoes of the Supreme Court's recent spate of reversing the Federal Circuit continue to reverberate, and perhaps nowhere so loudly as in the Federal Circuit's developing declaratory judgment jurisprudence.  Or perhaps it would be more accurate to say in the total collapse of that jurisprudence:  in a series of decisions since the Supreme Court's famous "footnote 11" calling the Federal Circuit's declaratory calculus into question in MedImmune, Inc. v. Genentech, Inc., the Federal Circuit has not just reversed its direction but has created the impression that there are no set of operative facts that would convince the Court that it should deny jurisdiction to a declaratory judgment plaintiff.

Caraco Pharmaceutical Laboratories is the latest decision to turn the law of declaratory judgment on its head.  The declaratory judgment defendants, Forest Laboratories, gave Caraco a covenant not to sue, which should have vitiated any application of Justice Scalia's rationale for disfavoring the Federal Circuit's previous "reasonable apprehension of suit" test -- that a party should not have to "bet the farm" on its business in order to avoid paying a royalty for a license to an invalid patent.  Despite the covenant, however, the Federal Circuit (in a judgment written by Judge Gajarsa and joined by Judge Proust, Senior Judge Friedman dissenting) found that there was an Article III "case or controversy" between the parties and that the District Court had jurisdiction to hear Caraco's suit and should not have granted Forest's motion to dismiss under Fed. R. Civ. P. 12(b)(1).

The suit involved U.S. Patent No. 6,916,941, which Forest listed in the Orange Book in support of its FDA-approved Lexapro® drug product for treating depression, pursuant to the provisions of the Hatch-Waxman Act (21 U.S.C. § 355(b)(1), (c)(2)).  The '941 patent covers crystalline particles of the active drug product, escitalopram oxalate, having a particular size range; dosage forms containing particles in this size range; and methods of manufacturing particles in this size range.  Importantly, the '941 patent expires in 2023, extending Forest's "right to exclude" generic competitors by 11 years (Forest has another Orange Book-listed patent, U.S. Patent No. RE34,712 directed to the active drug product per se, that expires in 2012).

The opinion relies on the Federal Circuit's previous decision in Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp.:

A justiciable declaratory judgment controversy arises for an ANDA filer when a patentee lists patents in the Orange Book, the ANDA applicant files its ANDA certifying the listed patents under paragraph IV, and the patentee brings an action against the submitted ANDA on one or more of the patents.  The combination of these three circumstances is dispositive in establishing an actual declaratory judgment controversy as to all the paragraph IV certified patents, whether the patentee has sued on all or only some of the paragraph IV certified patents.

Here, Forest maintained its action against Caraco on the '712 patent.  Also relevant to the CAFC's decision is that Caraco was not the first ANDA filer; Ivax, the earlier filer, had lost the action brought by Forest on the '712 patent and thus the 180-day exclusivity right would only be triggered if both the '712 and '941 patents were invalidated or expired.  Moreover, Ivax's status as the first ANDA filer prevented Caraco (or any other later ANDA filer) from entering the market before Ivax.

As a consequence:

where the first Paragraph IV ANDA filer fails to trigger its own exclusivity period, a subsequent Paragraph IV ANDA filer can only obtain FDA approval before the relevant Orange-Book-listed patents expire by obtaining a judgment that those patents are invalid or not infringed.  Such a judgment is required to trigger the first Paragraph IV ANDA filer's exclusivity period and thus allow the FDA to approve the subsequent Paragraph IV ANDA 181 days after the triggering event.

Only by obtaining a judgment of noninfringement on both the '712 and '941 patents can Caraco trigger Ivax's 180-day exclusivity period, which currently prevents the FDA from approving Caraco's ANDA.  Without a judgment of noninfringement on the '941 patent, even if Caraco prevailed against Forest in the separate infringement action on the '712 patent, Caraco would not be able to activate Ivax's exclusivity period via the court-judgment trigger of 21 U.S.C. § 355(j)(5)(B)(iv)(II) (2000).  Moreover, until Ivax's exclusivity period expires, the FDA cannot approve Caraco's ANDA.  See 21 U.S.C. § 355(j)(5)(B)(iv) (2000).  Thus, terminating this action without a judgment with respect to infringement on the '941 patent could delay FDA approval of Caraco's ANDA and thereby exclude Caraco from the drug market, even if its generic drug does not infringe the '941 patent.  In these circumstances, Forest's covenant not to sue Caraco does not eliminate the controversy between the parties.

The Federal Circuit also assessed whether Caraco satisfied the other requirements for "case or controversy" between the parties under the Supreme Court's three-part test: "(1) the plaintiff has standing, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), (2) the issues presented are ripe for judicial review, Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967), and (3) the case is not rendered moot at any stage of the litigation, United States Parole Comm'n. v. Geraghty, 445 U.S. 388, 397 (1980)."  With regard to standing, the CAFC found that Caraco had established "injury-in-fact" traceable to Forest, insofar as Forest's unilateral decision to grant Caraco the covenant not to sue prevents Caraco's ANDA from being approved by the FDA, and judgment would resolve the issue.  The issues between the parties are ripe for decision, because there are no additional facts would affect the court's capacity to decide the issues between the parties, and delay would adversely affect Caraco.  Finally, the controversy has not been rendered moot.

The Federal Circuit also noted the distinction between a covenant not to sue in a typical infringement context (where the recipient of the covenant from the licensee would be able to enter the market as a result) and here, where the ANDA regulatory scheme changes the result:  unless Caraco can challenge the validity of the '941 patent, Ivax's 180-day exclusivity period will not begin and FDA will not approve Caraco's ANDA.

It is clear that the CAFC recognized a potential for abuse in this situation, where an NDA filer can list more than one patent in the Orange Book, and if successful against a first ANDA challenger, can effectively forestall generic competition until its Orange Book listed patents expire, so long as it can prevent at least one of the Orange Book-listed patents from being challenged by granting a covenant not to sue to a subsequent ANDA filer.  However, in trying to avoid this outcome, the Federal Circuit has significantly expanded (yet again) declaratory judgment jurisdiction.  And there is an argument that this outcome was contemplated by Congress but not adopted:  from the legislative history:

We fully expect that, in almost all situations where a generic applicant has challenged a patent [by filing an ANDA with a Paragraph IV certification] and not been sued for patent infringement, a claim by the generic applicant seeking declaratory judgment on the patent will give rise to a justiciable "case or controversy" under the Constitution.  We believe that the only circumstance in which a case or controversy might not exist would arise in the rare circumstance in which the patent owner and brand drug company have given the generic applicant a covenant not to sue, or otherwise formally acknowledge that the generic applicant's drug does not infringe.

(emphasis in original).  Remarkably, the Federal Circuit interprets these statements (by Senator Kennedy) as supporting its result:

Given this background, Senator Kennedy's comments only emphasize Congress's intent that the jurisdiction of federal courts to resolve CAPCs [civil action to obtain patent certainty; See 21 U.S.C. § 355(j)(5)(C)] would extend to the limits of the Constitution.  35 U.S.C. § 271(e)(5).  Moreover, it is ultimately the province and duty of the judicial department, not Congress, to discern the limits of Article III jurisdiction.  See Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803).

And the CAFC seems solicitous of the consequences of it decision on Forest (ironically, in a footnote 11 of its own):

Although we do not so decide, it appears that if Forest would submit to a consent decree that the drug described in Caraco's ANDA does not infringe the '941 patent, such a decree would redress Caraco's alleged injury-in-fact just as well as any other court judgment.  Thus, if Forest's objective in granting the covenant not to sue on the '941 patent was to avoid costly litigation with Caraco, this might be the best approach to resolve the controversy between the parties.

It is possible (but not likely) that the Supreme Court intended to reduce the barriers to declaratory judgment jurisdiction by, on the one hand voicing its disapproval of the Federal Circuit's "apprehension of imminent suit" test, while espousing a "totality of the circumstances" test that provided little firm guidance besides judicial platitudes like:

whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.

MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 771 (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).  However, it is a fair question to ask whether the Federal Circuit's response (effectively reducing whatever barriers the "totality of the circumstances" test might leave standing) is either proportionate to the Supreme Court's suggestions or counter to the Constitutional mandate that Article III courts must use caution when exercising jurisdiction.

The dissent raises the additional issues that the ills the majority seeks to remedy are speculative:  there is "no basis to conclude that the first-filing generic manufacturer will, or is likely to, delay bringing its product to market after the '712 patent expires."  Moreover, any such delay would imperil the first-filing generic manufacturer's market exclusivity term.  Finally, the dissent accuses the majority of assuming that Caraco will prevail (although the majority calls into question the soundness of the latter charge).

Innovator drug companies are facing a host of legal and economic challenges, at home and abroad.  These include the fallout from the Medimmune decision, which raised the possibility for a licensee at any time to challenge a licensed patent.  After Caraco, even agreeing not to sue a generic manufacturer will not be enough to prevent continued challenges to their exclusive positions.

Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc. (Fed. Cir. 2008)
Panel: Circuit Judge Gajarsa, Senior Circuit Judge Friedman, and Circuit Judge Prost
Opinion by Circuit Judge Gajarsa; dissenting opinion by Circuit Judge Friedman

Additional information regarding this case can be found at the Orange Book Blog .

Comments

[Derek Freyberg]

"After Caraco, even agreeing not to sue a generic manufacturer will not be enough to prevent continued challenges to their exclusive positions."
But the whole point of the CAFC decision, as I read it, is that Forest was determined to have its cake and eat it too. By not suing, it kept Caraco off the market (because of IVAX's exclusivity): if it had sued, it would have risked Caraco entering the market (if Caraco had prevailed on either noninfringement or invalidity/unenforceability). It's certainly good sense to allow Caraco to attack both patents, rather than let Forest keep the 941 patent as a block precisely by not enforcing it.

[Bryan]

I'm going to have to read this again more carefully, but it seems that a distinguishing feature between this case and the legislative history is that, here, there is more than one patent involved. I understand your citation to the history, but I don't know that it completely addresses the situation.

"We fully expect that, in almost all situations where A generic applicant has challenged A patent and not been sued for patent infringement, a claim by THE generic applicant seeking declaratory judgment on THE patent will give rise to a justiciable "case or controversy" under the Constitution. We believe that the only circumstance in which a case or controversy might not exist would arise in the rare circumstance in which the patent owner and brand drug company have given THE generic applicant a covenant not to sue, or otherwise formally acknowledge that the generic applicant's drug does not infringe [THE patent]."

In other words, the history seems to suggest that there would be no DJ when the only obstacle to production is a single patent, and only a single generic producer. Here, however, it looks like there are multiple patents and multiple prospective producers. In this case, a "blocking" situation seems possible, and the only way out of the "block" is the filing of a DJ action by one who (in this case) is also covered by a covenant not to sue.

Anyway, first impressions. I'll need to read this again when I'm not supposed to be working on other things.

[Sean]

I agree, Derek. The case was rightly decided, in order to discourage patentees from gaming the system. I believe the majority is in line with the flexibility that the S/Ct espouses.

The dissent's application would have been too "rigid" for the S/Ct. In fact, there are parts of the dissenting opinion that could lead to the conclusion that Judge Friedman really didn't "get it" here. He seems to have confused certain aspects of H-W, which points to a lack of understanding of what is going on.

In short, one policy of H-W is to eliminate any inappropriate patent barriers to market entry, in the quickest manner possible. Forest's actions provided a barrier to market entry, which was only due to the H-W regime. (In any other context, a covenant not to sue would allow the recipient to enter the market; here, it has the opposite effect.)

The CAFC decision reinforces the H-W policy, instead of encouraging Forest's actions by a "wooden" application of the CAFC's old jurisprudence. I believe the S/Ct would approve.

[Alan]

Consistent with the logic of this decision, Caraco should be able to sue for a DJ that IVAX's ANDA didn't infringe. If the sole objective is obtaining a "decision of non-infringement" then who cares which ANDA the DJ addresses.

Soon you'll have consumers filing DJ's to invalidate patents in order to trigger ANDA approvals.

For example, as a consumer of Lipitor, why should't I be able to sue Pfizer for a DJ to invalidate their Lipitor patents in order to trigger Ranbaxy's ANDA approval?

This may set-up a whole new paradigm of lawsuits.

This ruling is plainly wrong, because the parties do not have "adverse legal interests", rather they have "adverse economic interests". Each party stands at the other end of a faulty H-W provision which requires a "judgement" to trigger the exclusivity period and thus second-filer ANDA approval. But is that "adverse legal interests"? Is there anything to adjudicate here?

This decision makes little sense. But its equally clear that this kind of unfair stalemate calls into question the constitutionality of the H-W Act, especailly the provisions regarding how the 180-day execlusivity period is triggered.

[Kevin E. Noonan]

All:

While I see the policy piece of the decision (and why most of you think this is the "correct" result), the question is whether this is the Federal Circuit's version of judicial activism, and whether the question is best left to Congress to address. The Supreme Court has ruled in this area that Congress must be taken at its word, even when the Federal Circuit had a legitimate and compelling policy argument (supported expressly by the legislative history) to support its decision (see Merck v. Integra). Here, I think the Federal Circuit is on much less firm ground in letting jurisdiction stand (which may be why they hinted to Forest that there was a way out of the procedural problem by stipulating Caraco didn't infringe the '941 patent).

The Court's decision makes sense, but it may be an improper use of the Court's power. We will see what thw Supreme Court thinks if it gets the opportunity to decide.

Thanks for the comments.

[Bryan]

Kevin,
I think the CAFC would respond to your "let Congress do it" concerns with its footnote 2, where it noted that Congress saw this problem in the language of the Act and has now fixed it. Unfortunately for Caraco, the Act had an effective date after Ivax filed its ANDA, and Ivax was not grandfathered in. Thus, the CAFC would argue (I think correctly) that its decision is supported by the new language in the Act and, thus, follows the language of the current law.

[Sean]

Alan, have you personally filed an ANDA for a generic Lipitor? If so, perhaps you should press your new legal theory. After all, under H-W, "any person" may file an ANDA.

Until then, you don't have a legal interest in invalidating the patent, only an economic one. (And to address that, you could always stop buying Lipitor.)

If you need to see a "legal interest" for Caraco, how about this -- in the absence of the covenant, they (probably) had the right to bring a DJ action. Therefore, the unsolicited actions of Forest deprived them of a legal right.

H-W comes at least under Congress' constitutional power to regulate commerce, so good luck with that argument.

[Alan]

Sean,

I am not sure why you think Caraco does have a "legal interest" in invalidating the patent. After all, Forest has agreed never to sue Caraco over this patent (probably because they agree that Caraco does not infringe). The "only" reason Caraco wants to maintain the DJ is in order to obtain a judgement that would ultimately trigger an early approval of their ANDA (by bringing forward IVAX's 180 day exclusivity period). The parties have no "adverse legal interests". There's nothing to adjudicate here. Their only dispute is whether a judgment should be entered, because they stand at different economic ends, depending on whether a judgment is entered or not. But if an economic interest is enough to warrant entry of a judgment, then as a buyer of Lipitor, I should have the same standing.

I fail to see your distinction.

[Kevin E. Noonan]

Bryan:

I don't think so. The text of footnote 2:

In 2003, Congress replaced the provisions governing the commencement of the 180-day exclusivity period with a new regime under which the first Paragraph IV ANDA filer can forfeit its exclusivity period if it fails to market its drug within a certain time. See 21 U.S.C. § 355(j)(5)(D); see also Pfizer, 395 F.3d at 1329. The amendment was part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2066 (2003) (“Medicare Modernization Act” or “MMA”), which was enacted on December 8, 2003. Pfizer, 395 F.3d at 1328-29. Despite these changes, the MMA contained a grandfather provision specifying that the amendments do not apply to Paragraph IV ANDAs filed before the date of enactment of the MMA. See MMA § 1102(b). The amendments also do not apply if another generic drug company had filed a Paragraph IV ANDA for the same listed drug before the date of enactment of the MMA. Id. In this case, a generic drug company, namely Ivax Pharmaceuticals, Inc., filed a Paragraph IV ANDA in August 2003, before the December 2003 enactment of the MMA. Thus, the MMA amendments to the provisions governing the commencement of 180-day exclusivity period are inapplicable to this case.

was about delay caused by the first ANDA filer; I don't think that delay is occasioned by a court determining the first ANDA filer infringes. For example, in the omeparzole litigations one party, Kudco, was found not to infringe, but because they were not the first ANDA filer they had to obtain a license from the first, infringing ANDA filer. If the first filer had refused the license, then I think the provisions the court references in footnote 2 would have applied.

Here, it's about jurisdiction, and I think Congress still needs to address the issue (at least, Congress in the first instance should be the branch to address the issue).

Thanks for the comment

[Sean]

Alan,

1) you haven't filed an ANDA, so you have no legal relationship to Pfizer. Caraco filed an ANDA, and the statute creates a legal relationship.

2) Pfizer didn't deprive you of any rights by giving you an unsolicited covenant. Forest gave Caraco a covenant, an action Forest took of its own volition, and that action deprived Caraco of a legal right.

[Alan]

Sean,

You write: "Pfizer didn't deprive you of any rights by giving you an unsolicited covenant. Forest gave Caraco a covenant, an action Forest took of its own volition, and that action deprived Caraco of a legal right."

Is this a joke? Are you suggsting that Caraco was deprived of the "right to be sued by Forest"???! You are probably the first person to argue that every ANDA has a "right to be sued" by the NDA holder. The NDA is not required to sue anyone, and especially parties that they consent do not infringe on their partent.

I think you are just a bit confused.

[Sean]

Alan, H-W provides the ANDA filer the right to bring a DJ action (under certain circumstances) if not sued by the NDA holder. Forest was attempting to deprive Caraco of that right.

It has nothing to do with a right to be sued, but a right to bring an action.