This The Hatch Waxman Act (the “Act”), with its Abbreviated New Drug Application (“ANDA”) scheme, was enacted to make drugs more affordable to American consumers. By providing incentives to generic manufacturers willing to challenge patents covering branded pharmaceuticals, the Act has hastened the approval of generic drugs, but also has made patent litigation a routine part of the generic drug development process.
The Act requires a generic company, when seeking FDA approval for a generic equivalent of a branded product claimed to be patent-protected, to notify the brand company of its application. The generic company also is required to provide the legal basis for its conclusion that the patents are not an impediment to FDA approval. If the brand company initiates a lawsuit for patent infringement within 45 days of the notice, the FDA is prevented from approving the generic’s ANDA for the earlier of 30 months or the final resolution of the lawsuit in favor of the generic manufacturer.
As a practical matter, brand companies have an incentive to initiate and prolong litigation because this prevents market competition for up to 30 months, irrespective of a lawsuit’s merit or ultimate outcome. Meanwhile, the brand drug continues to enjoy its marketing exclusivity. With blockbuster products this statutory delay can translate into hundreds of millions of dollars of revenue for the brand company.
In turn, while a first-to-file generic is rewarded with 180 days exclusivity with respect to later filing generics if it prevails, giving it a competitive advantage with substantial financial rewards, so long as the litigation continues, the generic company’s litigation expenses accrue and it is denied a return on its development costs. These differences in strategic goals often have led generic companies to accuse brand companies of deliberately employing litigation tactics to produce unnecessary and costly delays - an accusation equally routinely denied by the brand company plaintiffs.
In March 2010 one court took a brand company to task for initiating and then over-litigating such a dispute, awarding defense costs to the defendants for what the Court characterized as a frivolous lawsuit(1). In the case, involving the popular heartburn medication Prilosec OTC®, the Court ruled that the frivolous nature of the plaintiff’s patent infringement lawsuit justified the award of all attorneys’ fees to the defendants, including the generic’s costs of defending the brand company’s unsuccessful appeal to the Federal Circuit.
Citing earlier cases, the Court stated that grounds for awarding fees include misconduct during litigation, vexatious or unjustified litigation and frivolous suit. Noting that the case “was never even close to being close,” and critical of the tactics of the plaintiffs and its attorneys, the Court placed particular emphasis on the brand company’s bad behavior in accusing the generics of infringement. The Court rejected as unreasonable the brand company’s claim that it should not be sanctioned for demanding that the generics provide evidence to prove non-infringement. Rather, the Court held that the plaintiff had an affirmative obligation not to file a lawsuit unless it had some evidence of infringement.
The Court went further, stating that “[i]t was obvious from very early on that plaintiffs had brought and were maintaining this lawsuit in a desperate effort to keep any competing product from hitting the shelves - even if the competing product was not an infringing product. For choosing that bad faith business strategy, and for cluttering a busy court with work that should never have had to be done, [plaintiffs] should pay the full measure of the fees and expenses incurred by defendants in getting rid of [plaintiffs'] baseless lawsuit.” The Court added that it “[was] hard pressed to see why the act of filing this lawsuit did not violate federal court procedural rules regarding the bases for initiating litigations(2)."
This contrasts with another case relating to a generic version of Ritalin LA®. In that case, the generic filed a motion early in the litigation seeking sanctions against the plaintiff for failing to undertake any pre-litigation investigation of the defendant’s ANDA to determine if there was evidence to support the plaintiff’s allegation of patent infringement (3). Giving short shrift to the requirement that a Paragraph IV notice must offer confidential information for the purpose of determining if there is infringement, the Court asserted that it was not possible to conduct an investigation within the statutory 45 days following the generics’ Paragraph IV notice. Instead, the Court focused on the Act’s provision making the filing of a Paragraph IV certification itself a technical act of infringement for the purpose of conferring jurisdiction on the Court. It then concluded that “[the plaintiff] had no pre-filing obligation to investigate whether [defendant’s] drug actually infringed [plaintiff’s] patents.”
While no substitute for the lost time and opportunity costs, court-imposed sanctions can provide a means for generics to recoup some defense costs, especially in those cases which are “not even close” or which are plagued by persistent delaying tactics by the brand company plaintiff. Change may occur in patent infringement litigation if courts refuse to tolerate bad behavior from brand companies in initiating and prosecuting meritless disputes. In the meantime, generic companies appear more likely to succeed in reclaiming legal fees if they wait until the conclusion of a successfully defended patent case before making an application for an award of costs and attorneys’ fees.
1. AstraZeneca AB, et al. v. Dr. Reddy's Laboratories, Ltd., et al., 1-07-cv-06790 (SDNY March 30, 2010, Decision & Order).
2. Simply put, Rule 11 of the U.S. Federal Rules of Civil Procedure require a plaintiff – in this instance the branded company - to ascertain that there is a good faith legal and factual basis for its lawsuit before initiating litigation and provides for sanctions against those found to have violated the rule. With respect to patent law, this has been interpreted to require a plaintiff’s counsel to undertake an investigation to determine that there is sufficient evidence of infringement to proceed with a lawsuit.
3. Celgene, et. al. v. KV Pharm., No. 07-4819 (D.N.J. July 17, 2008 Unpublished Opinion).
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