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Award of Costs Attributed to Joint Discovery Remanded for Apportionment to Prevent Double Recovery

June 10, 2009

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Last Month at the Federal Circuit - July 2009

Judges: Mayer, Dyk (author), Moore

[Appealed from: N.D. W. Va., Judge Keeley]

In Ortho-McNeil Pharmaceutical, Inc. v. Mylan Laboratories Inc., No. 08-1600 (Fed. Cir. June 10, 2009), the Federal Circuit affirmed-in-part and vacated-in-part an order awarding costs to Plaintiff-Appellee Daiichi Pharmaceutical Co. (“Daiichi”) and remanded for an apportionment determination to prevent double recovery of costs incurred in two separate actions.

Daiichi owns U.S. Patent No. 5,053,407 (“the ’407 patent”), which is directed to an antibiotic compound known as levofloxacin. Defendants-Appellants Mylan Laboratories Inc. and Mylan Pharmaceuticals Inc. (collectively “Mylan”) submitted an ANDA to the FDA seeking approval to manufacture and sell levofloxacin tablets, together with a Paragraph IV certification contending that the ’407 patent was invalid. In response, Daiichi brought a Hatch-Waxman infringement suit against Mylan. Mylan, in turn, asserted that the ’407 patent was invalid or unenforceable on several grounds.

The district court concluded that Mylan failed to prove any of its invalidity or unenforceability contentions, and the Federal Circuit affirmed. As the prevailing party, Daiichi submitted a bill of costs to the district court pursuant to Fed. R. Civ. P. 54(d) and 28 U.S.C. § 1920 seeking approximately $2.2 million from Mylan. Mylan objected to Daiichi’s bill of costs on several grounds, including that certain discovery had been conducted jointly in this and a separate action against Teva Pharmaceuticals, Inc. (“Teva”) in a different court, and that costs of the joint discovery should be apportioned between the two actions. The district court awarded costs to Daiichi and rejected Mylan’s argument that costs attributed to the joint discovery should be apportioned between its case and the Teva action.

On appeal, the Federal Circuit reviewed the award of costs for abuse of discretion under Fourth Circuit law, in which Rule 54(d) “creates the presumption that costs are to be awarded to the prevailing party.” Slip op. at 4. The Court found no basis to disturb the judgment of the district court, with the exception of the joint discovery costs, which the Court considered more fully. The Federal Circuit found that the Teva action settled and the district court, in its order dismissing it, stated that the parties would bear their own costs and attorneys’ fees. Daiichi contended that, because it did not in fact receive its costs at the conclusion of the Teva action, it was appropriate for the district court here to award all of the shared discovery costs without reduction. In response, Mylan argued that Daiichi effectively received half of the shared costs when it settled with Teva because Daiichi agreed to forgo payment of its costs in exchange for Teva agreeing not to appeal. Mylan further argued that to prevent double recovery, the district court was required to either deny costs altogether or to reduce the award of the discovery costs by fifty percent.

Finding no Fourth Circuit precedent governing whether costs must be apportioned in such circumstances, the Federal Circuit relied on general principles of law from other circuits. The Court first noted that in multiparty proceedings before a single judge, a district court generally has discretion to either apportion payment of jointly incurred costs among the losing parties or to invoke the default rule that the losing parties are jointly and severally liable for costs. The Court reminded, however, that “[a]ny . . . award, whether apportioned or awarded jointly and severally, is subject to the usual limitation that the prevailing party may receive only one satisfaction of costs . . . .” Id. at 7. The Federal Circuit noted, however, that in a case of joint discovery conducted in multiple actions pending in different district courts, “there is no single judge who can make an overarching determination concerning the award of jointly-incurred costs at the conclusion of the cases.” Id. Accordingly, the Court found that, in such circumstances, there is a risk of impermissible double recovery.

Applying these principles to the settlement at issue, the Federal Circuit concluded that Daiichi had, in effect, already recovered some costs through its settlement agreement with Teva when Daiichi agreed not to seek actual payment of costs as consideration for Teva forgoing its appeal. The Court further concluded that Daiichi could not recover more than its total entitlement by obtaining the same costs from Mylan. Accordingly, the Court vacated the judgment of the district court with respect to the award of costs attributed to the joint discovery and remanded to the district court to apportion the disputed costs.

Summary authored by John P. Davis, student associate at Finnegan.