Covenant not to sue removes jurisdiction despite lingering Hatch-Waxman exclusivity issues
September 15, 2008
In a recent decision, the Federal Circuit affirmed a district court's decision involving declaratory judgment jurisdiction in the context of abbreviated new drug applications (ANDAs) and a related covenant-not-to-sue involving one patent at issue. The court affirmed a covenant-not-to-sue coupled with a stipulation of validity and enforceability removed any case or controversy required for declaratory judgment jurisdiction.The Federal Circuit also provided in-depth analysis and explanation about the market exclusivity provisions of the Hatch-Waxman Act as well as the impact of the Medicare Prescription Drug, Improvement and Modernization Act (MMA) passed by Congress amending the Hatch-Waxman Act. These provisions create unique issues in the context of declaratory judgment actions by potential generic drug manufacturers.

More on Janssen Pharmaceutica, N.V. v. Apotex, Inc. after the jump.

This case arose based on Apotex's filing of an ANDA under the Hatch-Waxman Act governing the Food and Drug Administration's (FDA) approval of new generic drugs. The Act was established to both encourage research and development of new drugs as well as enable prompt filing and market availability of low-cost generic drugs. The Act allows a generic drug manufacturer to file an ANDA utilizing the research and data submitted by the brand name pharmaceutical manufacturer in the initial new drug application filed with the FDA. In an initial application by a drug manufacturer for a brand name drug, applicants must submit all patents covering the manufacture, use or sale of the drug. Such patents are then listed in the FDA's "Orange Book." Subsequently, when a generic manufacturer seeks to file an ANDA, the Act requires the ANDA applicant to list all patents in the Orange Book covering the brand name drug and identify whether: (I) any patent information has been filed with the FDA; (II) a patent has expired; (III) the patent will expire and therefore approval of the ANDA should be deferred until expiration; or (IV) the patent is invalid or would not be infringed by manufacture, use or sell of the generic drug. Filing a Paragraph IV certification in and of itself constitutes an act of patent infringement, and the brand name manufacturer has 45 days to bring an infringement suit to avoid having the FDA approve the ANDA. If a suit is brought, the FDA will then not approve the ANDA for a period of 30 months, unless a court has decided the patents-in-suit are either invalid or not infringed, and then the FDA may approve the ANDA at an earlier period. Generic manufacturers are rewarded for being first to file a paragraph IV certification by being provided a 180-day period of generic marketing exclusivity during which the FDA cannot approve other ANDAs. Such market exclusivity is only provided to the first Paragraph IV certification applicant regardless of whether the patents are held to be invalid or not infringed. The 180 day period is triggered by either (1) the ANDA filer's commercial marketing of the drug or (2) a court decision of non-infringement or invalidity. In 2003, when Congress passed the MMA, the Hatch-Waxman Act was amended to authorize a civil action under 28 U.S.C. § 2201 "for a declaratory judgment that the [listed] patent is invalid or will not be infringed for the drug for which the applicant seeks approval . . . ." This permits the ANDA filer to bring a declaratory judgment action for noninfringement or invalidity so long as the patentee has not brought an infringement action within the 45 day notice period. As a result of the MMA amendment to the Act, federal courts have jurisdiction over these ANDA declaratory judgment actions so long as an Article III case or controversy is present. In this case, Janssen is the brand-name drug manufacturer who filed a NDA for the oral solution of Risperdal®, used for anti-psychotic treatments. The Orange Book lists three patents in connection with the NDA and the oral solution. In a previous case, one of the patents was litigated and found to be infringed, valid, and enforceable. Although not a party to the previous suit, Apotex stipulated to the validity and enforceability of that patent.Notably, before the controversy between Janssen and Apotex, another generic pharmaceutical manufacturer, Teva Pharmaceuticals, filed an ANDA for the generic Risperidone oral solution citing a paragraph III certification for the patent that had been held valid; Janssen did not sue Teva for infringement of the other two patents. Because Teva was the first to file an ANDA, they were the party entitled to the 180 days of generic market exclusivity. Apotex filed an ANDA, filing paragraph IV certifications for the two remaining patents, but the FDA cannot approve Apotex's later filed Paragraph IV ANDA until after Teva's market exclusivity expired.In response to Apotex's ANDA filing, Janssen sued Apotex for infringing the patent that had been stipulated valid and enforceable. In response, Apotex sought declaratory judgment for non-infringement regarding the two remaining unasserted patents. Janssen moved to dismiss the counterclaims based on a lack of case or controversy. After filing the motion to dismiss, Janssen provided Apotex a covenant-not-to-sue with respect to the two counterclaimed patents. Apotex refused to dismiss its counterclaim requesting a declaratory judgment of non-infringement and invalidity, arguing that even though it had been granted a covenant not to sue, there was still a live controversy insofar as a favorable judgment would start Teva's exclusivity period, thereby allowing Apotex to enter the market sooner. The district court was not persuaded, and ruled in favor of Janssen finding no case or controversy existed regarding the two patents covered in the covenant-not-to-sue. Apotex appealed.On appeal, the Federal Circuit assessed the viability of the declaratory judgment jurisdiction under the MMA and Hatch-Waxman Act in the context of MedImmune decision, highlighting that a dispute "must be both definite and concrete, touching the legal relations of parties having adverse legal interests." Apotex presented evidence of its injury by alleging that it is unable to compete in the market with its generic product upon the expiration of Janssen's patents, its generic product being indefinitely delayed (should Teva not introduce its product when it is permitted), and that other parties allegedly not included in Janssen's covenant not to sue (customers, suppliers, and the like) face uncertainty. The Federal Circuit addressed each alleged harm in turn. Apotex's first alleged injury that in the absence of a declaratory judgment, it had no way to start Teva's 180-day exclusivity period, which prevented Apotex from bringing its generic product to the market upon expiration of the first patent. In a decision this April in Caraco Pharmaceutical v. Forest Laboratories, the Federal Circuit held a covenant not to sue was insufficient to defeat jurisdiction because of Hatch-Waxman issues, specifically the ability to start the first generic ANDA filer's exclusivity period. Here, however, Apotex has already stipulated to the validity of the patent that is preventing Teva from introducing its generic product. As a result, a favorable judgment would not start Teva's exclusivity period, removing the harm that was present in Caraco. Therefore, this alleged injury could not support jurisdiction.Apotex's second argument was that it faced a potentially indefinite delay, since Teva would not be forced to immediately launch its commercialized product at the expiration of Janssen's first patent. Given that Teva's exclusivity would not be triggered until it first marketed its product, Apotex argued it could potentially be delayed until expiration of the other two patents, even if its product was noninfringing or those patents were held invalid. The Federal Circuit quickly dismissed this argument by stating that such alleged harm is too speculative to create an actual controversy. Apotex failed to provide any sufficient evidence or basis to conclude that Teva will or is likely to delay bringing its generic product to the market (Teva has already taken steps to bring a generic to market), and thus this could not support jurisdiction either. Finally, the Federal Circuit addressed Apotex's statement that Janssen's covenant-not-to-sue was deficient to protect Apotex affiliates, suppliers and downstream customers. The covenant-not-to-sue that Apotex signed expressly gave Apotex protection from suit for "manufacture" of the claimed product. It also protected Apotex from "having manufactured" the product, which the court interpreted to expressly cover and protect suppliers and affiliates involved in the manufacturing process. Still further, it stated "Janssen would not sue or otherwise seek to hold Apotex's customers and distributors liable." As a result, the Federal Circuit found that Apotex's affiliates, suppliers and downstream customers were protected by the covenant not to sue, and it therefore did not provide a basis for jurisdiction.Accordingly, the Federal Circuit concluded that there was no jurisdiction for Apotex's declaratory judgment action given the covenant not to sue. As a result, the court affirmed the district court's dismissal for lack of jurisdiction. Interestingly, the patent that had been stipulated as valid and enforceable expired while the appeal was pending.To read the full decision in Janssen Pharmaceutica, N.V. v. Apotex, Inc., click here.
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