Victory for Amgen in District Court Decision - Part II

    By Kevin E. Noonan --

On October 2nd, District Court Judge William G. Young (D. Mass) issued a decision on post-trial motions and a permanent injunction in Amgen Inc. v. Hoffmann-LaRoche, Amgen's patent infringement suit over Roche's Mircera® drug product.  In a 150-page opinion, Judge Young handed Amgen nothing less than a complete victory.

Amgen procured a jury judgment on October 23, 2007 that Mircera® infringed several Amgen patents, including U.S. Patent Nos. 5,547,933; 5,441,868; and 5,618,698.  In addition, the jury found these and two other patents (U.S. Patent Nos. 5,955,422 and 5,756,349) not to be invalid (see "Amgen Survives Another EPO Challenge").  The District Court entered a preliminary injunction on February 28, 2008, which prevented Roche from launching Mircera® (the FDA approved Mircera® in November 2007).  In entering the preliminary injunction, Judge Young assessed whether Amgen was entitled to an injunction using the four-factor test set forth by the Supreme Court in eBay Inc. v. MercExchange, L.L.C.  Judge Young found that Amgen satisfied all the eBay requirements except the public interest prong.  The District Court expressly did not enter any findings on the fourth prong, but left open the possibility that the injunction could be modified under four conditions.  Roche agreed to the Court's conditions (see "Roche Agrees to Court's Conditions for Modifying Preliminary Injunction"), but Amgen did not, and the Court appointed a special master to consider the question of how dosing and pricing of Amgen's and Roche's products should be compared (see "Court Still Cannot Decide on Amgen's Permanent Injunction").  Roche responded by filing its notice of appeal to the Federal Circuit on April 11, 2008 (see "Hoffmann-LaRoche Can't Wait, Files Notice of Appeal to the Federal Circuit"); that appeal was scheduled to be argued today (October 8).

In last Thursday's ruling, the District Court ruled in Amgen's favor on all issues.  An earlier post discussed the Court's reasoning on its decision that the claims are not invalid under the judicially-created doctrine of obviousness-type double patenting (ODP) (see "Victory for Amgen in District Court Decision - Part I").  This post will discuss the Court's reasons for granting a permanent injunction to Amgen (subject to Roche's appeal of the preliminary injunction, or a consolidated appeal that Roche may file in response to this decision).  The remaining grounds for the Court's decision will be addressed in future posts.

The Court first reiterated its earlier opinion that Amgen fulfilled the first three of the four equitable considerations enunciated by the Supreme Court in eBay:  Amgen's asserted claims were infringed and not invalid; Amgen's injury would not be adequately compensated merely with money damages; and the balance of the hardships weighed in favor of granting the injunction.  The District Court opined that while eBay has made it easier to deny an injunction to a non-practicing entity (aka a "patent troll"), in the Court's view eBay "changed little where a prevailing plaintiff seeks an injunction to keep an infringing competitor out of the market."  (The Court stated that, with but two exceptions, district courts have granted permanent injunctions in 26 cases where infringement was found between direct competitors.)  The Court also opined that the Supreme Court "does not appear to have intended eBay to be pathbreaking precedent," calling the decision  a "barebones majority opinion" that did "little more than remind court[s] that they must exercise discretion in accordance with the framework Congress approved" (i.e., that a court "may" enter an injunction "in accordance with the principles of equity," see 35 U.S.C. § 283).

The District Court then discussed the factors it considered in determining whether the public interest would favor granting Amgen a permanent injunction.  Judge Young conceded that, initially, he was inclined to decide in Roche's favor, on the grounds that introducing Mircera® would increase competition in the pharmaceutical market place and reduce prices accordingly.  The Court was not willing to rest on this initial assumption, however, but held "extensive evidentiary hearings" on the effects of permitting Roche to introduce Mircera®, as well as appointing both a special master and a technical advisor to help the Court understand the economics of the pharmaceutical industry.  The result was that "[t]he Court's initial impression [did] . . . not withstand a reflective and detailed analysis."

In coming to its decision, the Court identified three factors it balanced in considering the public interest:  patient health, Medicare savings, and "the public's interest in a robust patent system."  With regard to patient health, the Court found no compelling evidence that the more limited dosing Roche asserted for its Mircera® produce would greatly increase benefits to patients.  The Court's conclusion was based to some extent on how erythropoiesis stimulating agents (ESAs) like Mircera® are administered:  kidney dialysis patents, for example, receive dialysis three times a week, so more frequent administration of an ESA has no effect on the patient (albeit perhaps incurring additional ancillary administrative costs).  The Court also credited expert testimony that more frequent dosing may have beneficial effects in titrating the effect of the drug, leading to more stable and consistent red blood cell levels.  The Court also considered the benefits of reducing the "vulnerability" to patients from manufacturing problems stemming from a sole source of approved ESAs, as well as "expanding the armamentarium" available to physicians to treat anemia.

On the other hand, the Court considered testimony that the longer dosing intervals achieved with Mircera® were associated with greater variability in blood hemoglobin levels, and with some evidence from clinical trials that there was a greater mortality rate for patients treated with pegylated erythropoietin.  The Court appreciated that the parties' experts would disagree on the relative patient benefits of their respective products.  The Court took a slightly longer view of the question, however, in terms of the risks associated with introducing a new product into a treatment regimen:

[O]ne set of facts is clear and warrants particularly strong consideration.  Although clinical studies in support of a Biologics License Application at the United States Food and Drug Administration or at the European Medicinal Evaluation Agency frequently involve several thousand patients, it often takes many years before the medical community learns how new therapies are to be used safely and effectively, for what patients and at what doses, and conditions under which their use is not advised.  As physician/patient experience accumulates and scientific evidence evolves, the benefit/risk calculation underlying treatment often shifts as well.

The Court noted that even for Amgen's erythropoietin products (Aranesp® and Epogen®) the FDA was continuing to evaluate risks and changing labeling requirements and treatment guidelines (see "FDA Makes Changes in Erythropoietin Labeling"), despite their longevity as approved drugs (Epogen® was launched in 1989 and Aranesp® in 2001).

The Court concluded that:

Given that both the FDA and the European Medicines Agency have approved MIRCERA as safe and effective for the treatment of anemia in patients with chronic renal failure, it seems likely that some patients might well benefit from MIRCERA being on the market as an additional element in the physicians' armamentarium due to clinical, convenience, and quality-of-life concerns.  Nevertheless, with major changes in recommended treatment modalities still occurring many years after the initial product launch for currently available ESAs, it is also plausible that, were MIRCERA allowed to be marketed in the United States, information and consensus on its risk/benefit profile relative to those of EPOGEN, Procrit, and Aranesp would also evolve and change, perhaps substantially.  . . .  Hence, it is difficult if not impossible to predict with any reasonable level of confidence what the net clinical, convenience, and quality-of-life benefits of Mircera will be relative to those of the existing ESAs.

Turning to the second consideration, Medicare savings, the Court set forth a detailed "primer" on drug pricing under Medicare.  This factor was an important consideration for the Court because "government purchasers comprised approximately 80% of EPOGEN sales," with 75 of that 80% being incurred under the Medicare Part B program.  The Court acknowledged the assistance of "Ernest Berndt, an applied economics professor at the Massachusetts Institute of Technology Sloan School of Business," a court-appointed special master and technical advisor on these matters.  (A detailed explication of this analysis would overly burden this post and risk introducing inaccuracies into the Court's careful analysis; thus, only a brief synopsis of the Court's conclusions is provided here.)  Simply put, under the complex scheme for calculating reimbursements to drug providers and physicians, the Court found that introducing a new drug into an established market was likely to have the paradoxical effect of causing drug prices to increase.  In this case, such increases could arise from Roche charging at least as great a price for Mircera® as Amgen charges for Aranesp® or Epogen®.  The Court was clear to acknowledge that this outcome was the result of Medicare's method for calculating reimbursement rates, which provided an incentive to keep ESA prices high.  The Court also noted that Amgen's expert testified that there were at least three differences between "textbook" or "plain vanilla" competition and competition between drug providers caused by Medicare reimbursement policies:  first, that under Medicare it is the physician rather than the patient that makes drug choice decisions; second, that end-users (i.e., patients) pay only a small fraction of the drug costs, thereby reducing patient incentive for cheaper drugs; and third, "perhaps most important," "providers are drawn to the drugs that offer the largest difference between the amount the provider is reimbursed  . . . under Medicare . . . and that the provider actually paid for the drug," a difference the Court said is called "cost recovery" in the industry.

The result of this economic analysis convinced the Court that Roche was "likely to enter the market at a price higher than that of Amgen's products and to maintain high prices over time."  This conclusion was supported by testimony from Roche witnesses that cost recovery was "a major factor" in developing Roche's pricing strategy for Mircera®.  The Court also recognized that Roche's pricing behavior would be dependent, in part, on Amgen's reaction to Mircera® entering the market.  And on top of these uncertainties, the Court also recognized that Congress and administrative agencies could alter the Medicare drug reimbursement calculation at any time and in unpredictable ways.  On balance, the Court concluded that Mircera® market entry was unlikely to reduce Medicare costs for ESA products, saying that "[i]t is simply impossible to predict with certainty the effect that MIRCERA's entry would have on prices and, accordingly, on Medicare expenditures."

Finally, the Court opined that "[p]ermitting Roche to enter the [ESA] market would undermine the incentives for innovation" provided by patenting.  The Court relied on testimony from Amgen's CEO on the importance of patents in protecting pharmaceutical innovation, citing statistics on the cost of bringing a successful drug to market, and more importantly, the costs associated with the very many more failures incurred for every successful drug product.

The Court synopsized these considerations, and its ultimate determination, as follows:

If the Court allowed Roche to introduce MIRCERA into the market, perhaps a few patients would benefit, and maybe Medicare would save a few dollars.  These arguments, however, could be made for almost any infringing drug.  Were courts to refuse injunctions on the basis of such speculation, then pharmaceutical patents would be worth far less than they are today because they would no longer include a right to exclude infringers from the market.  The diminishing returns would disincentivize research and development for pathbreaking drugs by lowering the expected value of discovery.  By contrast, granting injunctions encourages companies to devote their energies toward developing drugs that
will satisfy unmet medical needs.

As for the equities, as to Roche:

At bottom, Roche attached a sugar to a patented protein.  As the jury concluded, this was not innovation.  Of course, Roche's efforts to modify Amgen's patented product will not go entirely unrewarded.  As it stands, European companies such as Roche can profit from building upon American discoveries by producing and selling infringing products in Europe and throughout the rest of the world.  Nevertheless, the fact that Roche "built up its manufacturing facility in [Europe] and prepared to market its product was simply a risk it took with eyes open to the" possibility that it would not be permitted to market MIRCERA in the United States.

And as to Amgen:

The Court has relinquished any notion that the long-suffering or terminally ill among our number may rely upon "the benevolence of" pharmaceutical companies.  Companies like Amgen invest in risky research and development to discover drugs like EPO because such drugs are worth tens of billions of dollars, period.  If America is to continue to be an engine of medical innovation it will be because we protect the right of inventors to exploit the limited monopoly granted in the Patent Clause.

Accordingly:

[T]he Court cannot conclude with any certainty that MIRCERA will save lives or money.  Failure to enter a permanent injunction, however, would risk undermining the incentives for innovation that have produced, and hopefully will continue to produce, medical advances that extend and enhance the value of life.  The Court therefore concludes that the public interest will not be disserved by a permanent injunction.

Injunction granted.

For additional information regarding this topic, please see:

• "Victory for Amgen in District Court Decision - Part I," October 6, 2008
• "BIO Submits Amicus Brief in Amgen v. Hoffman-LaRoche," July 7, 2008
• "Glasses Half-full or Half-empty: Hoffman-LaRoche's Different Interpretation of Pfizer v. Teva," April 15, 2008
• "Hoffmann-LaRoche Can't Wait, Files Notice of Appeal to the Federal Circuit," April 11, 2008
• "Will the Federal Circuit's Pfizer v. Teva Decision Spell the End of Amgen's Patent Rights to Recombinant Human Erythropoietin?" March 31, 2008
• "Court Still Cannot Decide on Amgen's Permanent Injunction," March 26, 2008
• "Amgen Inc. v. International Trade Commission (Fed. Cir. 2008)," March 20, 2008
• "Roche Agrees to Court's Conditions for Modifying Preliminary Injunction," March 20, 2008
• "Roche's Mircera® Remains Off the Market (For Now)," March 2, 2008
• "Amgen Survives Another EPO Challenge," October 28, 2007

Comments

[Just an ordinary inventor(TM)]

What an excellent phrase!, “barebones majority opinion,” to describe the Supremes’ eBay opinion. Another apt phrase is to describe their eBay opinion is “Constitutionally unlawful” because it relied on a faulty argument which is found on page 3 of their opinion:

“… Indeed, the Patent Act itself indicates that patents shall have the attributes of personal property ‘[s]ubject to the provisions of this title,’ 35 U. S. C. §261, including, PRESUMABLY, the provision that injunctive relief ‘may’ issue only “in accordance with the principles of equity,” §283.” (emphasis added)

Well, the Supremes presumed wrong!; in their eBay opinion, they made the mistake to rely, essentially solely, on 283!, and 35 USC 283 is in conflict with our Constitution’s “Patent Clause”:

Article I, §8 Clause 8: “The several courts … may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.”

35 USC 283 would cede discretion to courts to diminish the Power the Constitution gave Congress. You could, of course, make this change by formal amendment in accord with Article V, but certainly not by mere statute. When such conflict exists, the Supremacy Clause, Article VI, says there is no contest -- the Constitution wins – therefore, 35 USC 283 should be ignored until it is withdrawn; the same goes for the Supremes’ eBay opinion.

More can be found here (and elsewhere on Patently-O):
http://www.patentlyo.com/patent/2007/07/mercexchange-v-.html#comment-77957956
And, at the bottom of this lengthy comment is another link.

Also, I had a dialogue more than once with “Jim H.” on the subject; for example, please see:
http://www.patentlyo.com/patent/2008/08/patently-o-bi-2.html

[Silence Dogood]

Nice write-up! Just one thing: Judge Young entered neither final judgment nor did he grant a permanent injunction. Instead, the case is "administratively closed;" sending the defendant running to notice its appeal with nothing to appeal from, and throwing the already-ongoing interlocutory appeal in the Federal Circuit into a state of discombobulation that was most entertaining to watch during yesterday's oral arguments. As Judge Plager said: "this is [Judge Young's] masterpiece."

[Kevin E,. Noonan]

Dear Just:

The problem with your analysis is that both the Constitution and the statute are permissive, not mandatory. Indeed, Congress has the power to grant patents, but no obligation to. Similarly, courts have the equitable power to grant injunctions, but are not obliged to. Although I agree that the patent right is severely diminished without the injunctive remedy, Congress has not (and nothing the Court can say will change it) made the injunctive remedy obligatory. I'm not sure Congress could - courts have to have greater discretion with equitable remedies since they are extraordinary - money damages are presumed to be adequate.

Thanks for the comment.

[Kevin E,. Noonan]

Dear Silence:

Thanks for the clarification. We have altered the posts accordingly, especially in view of the pains with which the Federal Circuit went to limit the issues in oral argument over Roche's appeal to the preliminary injunction.

Thanks for the comment.