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An Article III Controversy Exists Where a Patent Holder Unilaterally Grants a Covenant Not to Sue to a Subsequent ANDA Filer and the Covenant Potentially Delays That Filer’s Market Entry

April 01, 2008

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Last Month at the Federal Circuit - May 2008

Judges: Gajarsa (author), Friedman (dissenting), Prost

[Appealed from: E.D. Mich., Chief Judge Friedman]

In Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories, Inc., No. 07-1404 (Fed. Cir. Apr. 1, 2008), the Federal Circuit reversed the district court’s dismissal for lack of Article III jurisdiction Caraco Pharmaceutical Laboratories, Ltd.’s (“Caraco”) DJ action, holding that an Article III controversy still existed between the parties despite Forest Laboratories, Inc.’s (“Forest”) unilateral grant to Caraco of a covenant not to sue for patent infringement.

Under the Hatch-Waxman Act, a pharmaceutical drug company intending to market a new drug must submit an New Drug Application (“NDA”) and provide a list of patents covering the drug. The FDA then lists this information in the “Orange Book.” Drug companies seeking to market a generic version of any listed drug must submit to the FDA an ANDA, along with at least one certification. One such certification is a “Paragraph IV,” which certifies that the listed patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug. Filing a Paragraph IV constitutes patent infringement under the Act.

 The first Paragraph IV ANDA filer receives a 180-day period of market exclusivity, wherein the FDA cannot approve any other ANDA covering the listed drug. An ANDA filer can start tolling of this period either by (1) initiating commercial marketing of its drug, or (2) obtaining a final judgment of noninfringement or invalidity of the Orange-Book-listed patents. Subsequent ANDA filers can also trigger tolling and thereby speed their own market entry, but only under the second option. Furthermore, NDA holders must commence suit against the ANDA filer within forty-five days. If not, the ANDA filer can sue for a DJ that the relevant Orange-Book-listed patents are invalid or not infringed.

Forest owns two patents, U.S. Patent Nos. Re. 34,712 (“the ’712 patent”) and 6,916,941 (“the ’941 patent”), listed in the Orange Book as covering escitalopram, the active ingredient of its drug Lexapro®. The ’712 patent expires in 2012 and the ’941 patent expires in 2023. Ivax Pharmaceuticals, Inc. (“Ivax”) filed the first Paragraph IV certification against Forest, certifying that both patents were invalid or not infringed. Forest sued Ivax for infringement of the ’712 patent only, and Ivax counterclaimed for invalidity. Forest prevailed both at the district court and on appeal, thereby preventing Ivax from triggering its 180-day exclusivity period prior to the ’712 patent’s expiration in 2012.

In May 2006, Caraco filed an ANDA for generic escitalopram that included a Paragraph IV certification for Forest’s ’712 and ’941 patents covering Lexapro®. Forest sued Caraco for infringement of the ’712 patent but not the ’941 patent. Caraco filed a separate action for DJ that the ’941 patent was invalid or not infringed by its generic product. Notably, Caraco could trigger Ivax’s exclusivity period and thereby hasten its own market entry only by (1) obtaining a judgment that the ’712 patent is invalid, or (2) prevailing in a suit that both the ’712 and ’941 patents are invalid or not infringed. Forest moved to dismiss Caraco’s DJ action as failing to present an Article III “case” or “controversy,” arguing that no “reasonable apprehension of suit” existed.

Forest filed its motion to dismiss before the issuance of Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330 (Fed. Cir. 2007). Under Novartis, the Federal Circuit held that a court asked to dismiss a DJ action must make a determination under “all the circumstances.” Moreover, an Article III controversy exists when a patentee lists patents in the Orange Book, the ANDA applicant files its ANDA certifying the listed patents under Paragraph IV, and the patentee brings an action against the submitted ANDA on at least one listed patent. After Novartis issued, Forest unilaterally granted Caraco an irrevocable covenant not to sue for infringement of the ’941 patent. Yet Forest refused to concede that the ’941 patent was invalid or not infringed by Caraco’s generic drug and hinged its entire argument on the covenant not to sue. The district court agreed with Forest and dismissed the action, without applying the rule stated in Novartis.

On appeal, the Federal Circuit found that Caraco’s DJ action satisfied the injury-in-fact, causation, and redressibility elements of standing. An injury-infact existed because Forest prevented the FDA from approving Caraco’s ANDA, a prerequisite for market entry, and Caraco had a right to enter because its product was noninfringing. Caraco’s injury was also fairly traceable to Forest. As noted before, the FDA could not approve Caraco’s ANDA unless Caraco first obtained a judgment that both the ’712 and ’941 patents were invalid or not infringed. Therefore, Forest’s listing of the ’712 and ’941 patents in the Orange Book as covering Lexapro® effectively created a barrier preventing the FDA from approving Caraco’s ANDA. Finally, Caraco’s injury-in-fact was redressible by a DJ that the ’941 patent was not infringed. If Caraco obtained a favorable judgment that its generic drug did not infringe Forest’s ’941 patent, then it would only need a judgment of invalidity or noninfringement on Forest’s ’712 patent to trigger Ivax’s exclusivity period and hasten its own market entry.

After determining that Caraco satisfied the Article III standing requirements, the Court held Caraco’s action consistent with the basic purpose of the DJ Act. “In claiming that it has been denied the right to sell non-infringing generic drugs, Caraco has alleged precisely the type of injury that the Declaratory Judgment Act is designed to remedy.” Slip op. at 23. In addition, Forest’s actions excluded Caraco from the market without ever subjecting Forest’s ’941 patent to a court determination of its scope or whether Caraco’s ANDA infringes it. Furthermore, the Court also noted that Caraco’s DJ action was consistent with the basic goal of the Hatch-Waxman Act. The Court then held the action ripe for judicial review. According to the Court, Caraco had a complete ANDA already submitted to the FDA for approval, and no additional facts were needed to determine if the product infringed the ’941 patent. Moreover, since Caraco’s drug did not infringe the ’941 patent, then delaying judicial consideration of Caraco’s corresponding DJ action would also delay possible approval of Caraco’s ANDA. This barrier created a potential for lost profits and, accordingly, the Court held Caraco’s action ripe for review.

Finally, the Court held that Caraco’s case was not mooted by Forest’s covenant not to sue. Under Hatch-Waxman, a drug company cannot enter the market without FDA approval, and an NDA holder’s covenant not to sue does not affect this process. As noted previously, where the first ANDA filer fails to trigger its own exclusivity period, subsequent ANDA filers can only enter the market prior to expiration of the relevant Orange-Book-listed patents by obtaining a judgment that they are invalid or not infringed. In this case, Forest listed two patents for the drug, and Caraco could not trigger tolling of Ivax’s exclusivity period absent a judgment on the merits that its product did not infringe both the ’712 and ’941 patents. Therefore, terminating the case without such a determination could delay this process and thereby exclude Caraco from the market. Accordingly, the Court held a controversy still existed between the parties regarding the ’914 patent, despite the existence of a covenant not to sue. As a result, the Court overturned the district court case and remanded it for further proceedings.

In a dissenting opinion, Judge Friedman noted that the covenant not to sue precluded Forest from subjecting Caraco to damages for infringement of the ’941 patent. Caraco’s concern, Judge Friedman wrote, was not that it may be sued for infringement if it marketed its generic version of the patented drug, but that its market entry may be delayed. Caraco’s argument that its market may be delayed, Judge Friedman said, “is highly speculative and conjectural, and involves uncertain legal issues that have not yet been resolved.” Friedman Dissent at 3. Considering all the circumstances, Judge Friedman would find that there was not a “substantial controversy, . . . of sufficient immediacy and reality to warrant the issuance of a declaratory judgment,” as required by MedImmune, Inc. v. Genentech, Inc., 549 U.S. __, 127 S. Ct. 764, 771 (2007). Friedman Dissent at 4.