Filewrapper®

Covenant not to sue insufficient to defeat DJ jursidiction because of Hatch-Waxman issues

April 21, 2008
Post by Blog Staff

In a recent decision, the Federal Circuit addressed the issue of declaratory judgment jurisdiction in the context of the Hatch-Waxman Act. The court found that a unilateral covenant not to sue on a patent does not defeat declaratory judgment jurisdiction because there is still a "restraint on the free exploitation of non-infringing goods."

This case had a somewhat peculiar factual scenario: the first generic company to file an ANDA, and therefore challenge a patent on a prescription drug, is rewarded with a 180-day exclusive marketing period after either (1) the patent is declared invalid or not infringed, or (2) the company begins marketing the drug (typically after the patent expires). The FDA is prohibited from approving subsequent ANDAs until the exclusivity period ends.

Here, the first company to file was unsuccessful in getting a court to declare one of the two relevant patents (that expires in 2012) invalid or not infringed. So, a subsequent ANDA filer attempted to trigger the first ANDA filer's exclusivity period by seeking to have the patents declared invalid or not infringed, so the subsequent filer could then begin marketing its generic before the patent expires. In response, the patent holder granted the subsequent filer a covenant not to sue under the patent, attempting to prevent a judicial determination that might permit a generic from being introduced before the patent's expiration. Based on the covenant not to sue, the district court dismissed the subsequent filer's declaratory judgment action as lacking a case or controversy under Article III.

The Federal Circuit reversed, finding that although the covenant not to sue removed any reasonable apprehension of suit, under the new "totality of the circumstances" test post-MedImmune, there was still a sufficient controversy to support Article III jurisdiction. Essentially, the court saw that the patentee was trying to prevent any other drug company from getting a generic to market before 2012, which allowed a finding of a sufficient continuing case or controversy. As a result, the court reversed the district court's holding that declaratory judgment jurisdiction and remanded the case for further proceedings.

More detail of Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc. after the jump.

The case involved the drug Lexapro®, manufactured by Forest which is used to treat depression and generalized anxiety disorder. At the time of FDA approval, Forest listed two patents in the FDA "Orange Book." The Orange Book is a listing of patents associated with approved drugs. Before a generic drug manufacturer can receive approval to manufacture a generic drug, they must file a declaration addressing each patent listed in the Orange Book for that particular drug. Filing an application for approval of the drug, with the attendant declarations that the patent(s) are either invalid or not infringed, is defined by statute to constitute an act of infringement which allows the patent holder to file suit.

In order to encourage generic manufacturers to challenge Orange Book patent validity, Congress provides a 180-day period of exclusivity to the first generic manufacturer who files an ANDA and successfully challenges or designs around the Orange Book patents for a drug (the period starts on the first day of commercial distribution of the generic or when the patents are held invalid or not infringed by a court).

As if this process were not complex enough, this case was further complicated by the actions of another drug manufacturer, Ivax Pharmaceuticals (now owned by Teva Pharmaceuticals). Ivax filed the appropriate declarations and Forrest chose to file an infringement suit on only one of the patents, which was held valid and infringed by Ivax's proposed generic. As a result, Ivax was prevented from beginning the 180-day exclusivity period until the expiration or invalidation of both of the Orange Book patents.

Caraco, another generic manufacturer, then decided to file an ANDA to manufacture generic Lexapro® which resulted in a technical violation of both of Forest's Orange Book patents. Again, Forest only sued on the first patent. This time, Forest granted a unilateral covenant not to sue on the remaining patent. Because Caraco needed to invalidate both patents in order to start the 180-day exclusivity period for Ivax (which needed to run before Caraco could receive permission to manufacture their generic formulation), Caraco filed this declaratory judgment action seeking a finding of invalidity of Forest's second patent. Forest argued that the covenant not to sue eliminated the controversy and rendered declaratory judgment jurisdiction improper. The district court agreed and dismissed the action regarding the second patent.

The Federal Circuit reversed. The court determined that the anticipated injury to Caraco was not the liability for infringement, rather the anticipated injury was the "restraint on the free exploitation of non-infringing goods" that resulted from the second patent. Looking at the case in this light, the court applied the three-factor test for Article III jurisdiction, which requires standing, ripeness, and that the case not be moot.

The court found standing because the restraint on Caraco's ability to manufacture and sell generic Lexapro® which from the second patent to be an injury to Caraco that was caused by Forest's action (failing to enforce the patent) could be redressed by the determination of the patent's validity. The controversy was ripe, as no further facts needed to be developed to adequately address the issue. Further, the controversy was not moot as there was continued harm to Caraco throughout the proceeding as Caraco was prevented from entering the market.

Based on these findings, the court found that there was a sufficient basis for declaratory judgment jurisdiction and remanded the case to the district court for further proceedings. The court made great effort to clarify that the outcome would have been different had the Hatch-Waxman act not prevented Caraco from entering the market as there would not have been the same "restraint on the free exploitation of non-infringing goods." As a result, the applicability of this case is likely limited to situations where the mere existence of a patent prevents a party from entering a market. In the more traditional case where the only issue is the looming threat of an infringement lawsuit, it is likely that a unilateral covenant may still be an option to defeat declaratory judgment jurisdiction.

For the full opinion in Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc., click here.

More coverage at Patent Baristas, the Orange Book Blog, Patent Prospector, and IP Biz.


Post Categories

Comments (0)
Post a Comment



Captcha Image
Return to the Filewrapper Blog

Search Posts

Purpose

The attorneys of McKee, Voorhees & Sease, P.L.C. designed this blog as an informational and educational resource about intellectual property law for our clients, other attorneys, and the public as a whole. Our goal is to provide cutting-edge information about recent developments in intellectual property law, including relevant case law updates, proposed legislation, and intellectual property law in the news.

Disclaimer

McKee, Voorhees & Sease, P.L.C. provides this blog for general informational purposes only. By using this blog, you agree that the information on this blog does not constitute legal or other professional advice and no attorney-client or other relationship is created between you and McKee, Voorhees & Sease, P.L.C. Do not consider this blog to be a substitute for obtaining legal advice from a qualified, licensed attorney. While we try to revise this blog on a regular basis, it may not reflect the most current legal developments. We consciously refrain from expressing opinions on this blog and instead, offer it as a form of information and education, however if there appears an expression of opinion, realize that those views are indicative of the individual and not of the firm as a whole.

Sign Up For Our Newsletter

Enter your name and email address to receive the latest news and updates from us and our attorneys.

Subscribe to: MVS Newsletter

Subscribe to: Filewrapper® Blog Updates

  I have read and agree to the terms and conditions of McKee, Vorhees & Sease, P.L.C.