February 27, 2012
LES Insights
By John C. Paul; D. Brian Kacedon; Christopher L. McDavid
Authored by D. Brian Kacedon, Christopher L. McDavid, and John C. Paul
Historically, a patent owner who proved infringement of a valid patent was virtually assured of obtaining a permanent injunction to prevent the infringer from continuing to make and sell infringing products. The threat of being put out of business by an injunction provided infringers with greater motivation to settle on terms more favorable to the patent owner. But the Supreme Court of the United States changed that dynamic with its 2007 decision in eBay Inc. v. MercExchange, L.L.C., which required courts to perform the same injunction analysis applied in non-patent cases. Under this analysis, to obtain a permanent injunction, plaintiffs must demonstrate (1) that they have suffered an irreparable injury; (2) that remedies at law, such as monetary damages, are inadequate to compensate for that injury; (3) that a remedy in equity is warranted when balancing the hardships between plaintiffs and defendants; and (4) that the public interest would not be disserved by a permanent injunction.
In patent cases between direct competitors, courts often have little trouble finding that these traditional principles of equity warrant permanent injunctive relief. In Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc., No. 07-cv-5855 (D.N.J. Sept. 9, 2011),1 the infringing competitor, Glenmark Pharmaceuticals, sought to avoid such an injunction based on the previous denial of a preliminary injunction as well as the fact that the exclusive licensee received a payment from the patent owner intended to compensate the exclusive licensee in the event of a launch of a generic product. The court, however, found that entry of an injunction was appropriate.
This case involved alleged infringement of U.S. Patent No. 5,721,244 ("the '244 patent"), owned by Sanofi-Aventis and directed to a pharmaceutical composition used to treat hypertension. Abbott Laboratories, Sanofi-Aventis's exclusive licensee, sold drug products covered by the '244 patent under the trademark Tarka®. The license agreement provided for a price reduction from the $290 million upfront payments made by Abbott to Sanofi-Aventis based on the date a generic product enters the marketplace.
Consistent with the provisions of the Hatch-Waxman Act, Sanofi-Aventis and Abbott sued Glenmark in the District of New Jersey after Glenmark filed a "Paragraph IV" certification asserting that the '244 patent was invalid.
Plaintiffs moved to preliminarily enjoin Glenmark from marketing a generic version of Tarka®. The court denied plaintiffs' motion, finding that Glenmark raised substantial questions about the '244 patent's validity and that plaintiffs' alleged irreparable harm did not favor the imposition of a preliminary injunction. Glenmark then launched its generic version of Tarka®.
After a trial, the jury found that the '244 patent was valid and that plaintiffs were entitled to damages for lost profits and price erosion. Plaintiffs later moved for a permanent injunction. Glenmark argued that Abbott did not suffer irreparable harm from sales of Glenmark's infringing generic drug because the patent owner and licensor, Sanofi-Aventis, was required to pay Abbott once a generic product achieved a 30% share of the patented drug's market. Furthermore, Glenmark argued that the balance of hardships did not favor the plaintiffs because it launched its generic drug only after the court denied plaintiffs' motion for a preliminary injunction.
The District of New Jersey applied the Supreme Court's analysis in eBay, requiring parties seeking a permanent injunction to show (1) that they have suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that, considering the balance of hardships, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. Before beginning this analysis, the court pointed out that injunctions often issue in cases between direct competitors.
Irreparable Harm. Noting that Abbott and Glenmark are direct competitors in the relevant marketplace, the court found that Abbott's lost sales, lost market share, price erosion, and loss of customer goodwill were sufficient evidence of irreparable harm. In opposition, Glenmark pointed to the license agreement between Sanofi-Aventis and Abbott, which required Sanofi-Aventis to pay Abbott once a generic product achieved a 30% share of the relevant market. Sanofi-Aventis paid $50 million to Abbott in 2010. Thus, Glenmark argued that Abbott did not suffer any harm and instead benefited from the entry of Glenmark's generic product into the market.
According to the court, Glenmark could not rely on Sanofi-Aventis's payment to offset the harm caused to Abbott. In rejecting Glenmark's argument, the court referenced a prior opinion, which stated that under the collateral-source rule, the payment from Sanofi-Aventis did not offset any damages from lost profits.
Inadequate Remedies at Law. In finding remedies at law inadequate, the court again highlighted the direct competition between the parties. The court found it most important that, without an injunction, plaintiffs would essentially be "forced into a compulsory licensing arrangement with a direct competitor, and effectively shut out of enforcing their patent rights." This determination, combined with plaintiffs' loss of market share, harm to reputation, and price erosion, convinced the court that monetary remedies were inadequate.
Balance of Hardships. Plaintiffs argued that they had suffered, and would continue to suffer, irreparable harm due to Glenmark's infringement, but, by contrast, any harm Glenmark might suffer due to an injunction was entirely of its own making. Countering plaintiffs' argument, Glenmark contended that it did not disregard plaintiffs' patent rights when launching its generic product because it launched only after the court denied plaintiffs' motion for a preliminary injunction.
In rejecting Glenmark's argument and in finding that the balance of hardships favored plaintiffs, the court emphasized that "the preliminary injunction was, by definition, preliminary and not a final ruling" on the '244 patent's validity. According to the court, refusing to enjoin Glenmark from launching its product meant only that it was not in violation of any court order. Thus, launching before a final ruling on validity remained a calculated business risk such that any harms Glenmark may suffer as a result of an injunction were of its own making.
Public Interest. Although the court acknowledged that a public interest exists in making lower-cost drugs available to consumers, it determined that this interest does not justify allowing continued infringement of a patent. Accordingly, the court found a greater public interest in protecting the patent rights of companies that invest significant resources to innovate new drugs with the expectation that they will be able to recoup their investment. Without such protection, "continued investment in costly drug development would disappear."
Having determined that each eBay factor weighed in favor of a permanent injunction, the court permanently enjoined Glenmark from manufacturing, using, offering to sell, or selling within the U.S. or importing into the U.S. generic forms of Tarka®.
According to the court's analysis in Sanofi-Aventis, patent owners and their exclusive licensees need not worry that price reductions in the form of return payments from the owner to the licensee will later hinder their ability to secure permanent injunctive relief. The value of an exclusive license depends on the length of time the licensee can maintain exclusive control over the market for the patented invention. Thus, it is important that patent owners and licensees are able to craft licenses to account for the effects of an infringing product entering the market. The court's decision allows patent owners and licensees to do so without fear that the terms of the license will be used to offset the harm caused by the infringer.
In addition, the court's decision prevents adjudged infringers from using the denial of a preliminary injunction as a shield to avoid permanent injunctive relief. Thus, accused infringers that launch products after the denial of a preliminary injunction do so at their own peril.
1 The Aventis decision may be found at:
http://docs.justia.com/cases/federal/district-courts/new-jersey/njdce/2:2007cv05855/209132/378/0.pdf
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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