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A District Court Has Subject Matter Jurisdiction to Conduct Contempt Proceedings in an ANDA Litigation, but Filing of a Second ANDA Does Not Violate an Injunction Where the Injunction Does Not Prohibit Such a Filing

October 11, 2007

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Last Month at the Federal Circuit - November 2007

Judges: Michel (author), Dyk, (concurring-in-part and dissenting-in-part), Otero (District Judge sitting by designation)

[Appealed from: N.D. Ill., Judge Posner]

In Abbott Laboratories v. TorPharm, Inc., No. 07-1019 (Fed. Cir. Oct. 11, 2007), the Federal Circuit upheld the district court’s decision to hold a contempt proceeding on whether Nu-Pharm, Inc.’s (“Nu-Pharm”) filing of an ANDA violated an injunction against TorPharm, Inc., Apotex, Inc., and Apotex Corporation (collectively “Apotex”), but it reversed the district court’s finding of contempt because the injunction contained no “explicit notice” to Apotex that the filing of a new ANDA, by itself or a straw party, was forbidden.

Abbott Laboratories (“Abbott”) owns two patents, U.S. Patent Nos. 4,988,731 and 5,212,326 (collectively “the Abbott patents”), directed to divalproex sodium, an active ingredient in Abbott’s drug Depakote®, an antiseizure medication. In 1997, Apotex filed an ANDA seeking FDA approval to manufacture and sell a generic version of Depakote®. In response, Abbott sued Apotex for infringement of the Abbott patents. The district court granted SJ in favor of Abbott on both validity and infringement. Apotex appealed. The Federal Circuit affirmed with respect to validity, but remanded for a trial on infringement. On remand, Judge Posner of the United States Court of Appeals for the Seventh Circuit (sitting by designation in the U.S. District Court for the Northern District of Illinois) conducted a bench trial and held that Apotex’s filing of the ANDA infringed the claims of the Abbott patents. The district court also issued an injunction. Apotex again appealed, but the Federal Circuit affirmed.

Apotex then attempted to design around the Abbott patents and allegedly developed divalproex sodium in the form of a polymer. Rather than file a new ANDA itself, however, Apotex entered into an agreement with Nu-Pharm, whereby Apotex would pay for costs associated with preparation of a new ANDA filing. In March 2005, Nu-Pharm filed an ANDA and certified under paragraph IV that the Abbott patents were not infringed. Abbott then filed suit against Nu-Pharm for patent infringement. In March 2006, Nu-Pharm filed an amended ANDA and shortly thereafter, Abbott filed a second suit, this time against both Nu-Pharm and Apotex, who Abbott apparently had just learned were acting in concert. Both of these new cases were eventually assigned to Judge Pallmeyer.

In August 2006, Abbott filed a “Motion to Enforce Its Injunction Order” before Judge Posner. Judge Posner found Apotex in contempt for violating the injunction and extended the injunction to include the Nu-Pharm ANDA. Apotex appealed.

On appeal, the Federal Circuit addressed initially the issue of whether the district court had subject matter jurisdiction to conduct the contempt proceedings. Apotex argued that a contempt proceeding is unlawful in the context of a Hatch-Waxman suit because such a lawsuit is filed before the accused infringer has engaged in any “classically infringing” activity—i.e., making, using, selling or offering to sell, or importing into the United States the patented drug. It argued that, because it did not engage in any of these activities but merely filed a second ANDA, it had at most committed an act of “artificial infringement” and could not have violated the injunction. In rejecting this argument and concluding that the district court has jurisdiction, the Federal Circuit noted that Apotex’s characterization of “classically infringing” activity was legally meaningless. It observed that it has held numerous times that the filing of a paragraph IV certification is itself an act of infringement if the purpose of the ANDA submission is to obtain the FDA’s approval to engage in the commercial manufacture, use, or sale of a patented drug. The Court reasoned that Apotex had failed to provide any authority suggesting that suits commenced under the Hatch-Waxman Act were to be treated any differently than patent infringement suits under 35 U.S.C. § 271(a) and that it had previously held that a district court’s infringement analysis in such a suit is no different than that in any other infringement suit.

The Federal Circuit reasoned that well-settled principles of equity govern injunctions in patent disputes just as in disputes in other areas of law. It added that the Hatch-Waxman Act does not counsel otherwise and is simply silent regarding a district court’s contempt authority. It noted that “[b]ecause . . . Congress’s familiarity with general principles of law when enacting a statute [is assumed], Congress must have intended for the courts to maintain their inherent authority to enforce their own injunctions under the well-established principles of equity.” Slip op. at 8.

Apotex also argued that the district court abused its discretion in holding a contempt proceeding because resolving the infringement issue requires “scientific testing, expert opinions, and a host of credibility determinations.” Id. In rejecting this argument, the Federal Circuit reasoned that although it has counseled against contempt proceedings of a summary nature, it has done so in the context of an infringer who has made a good-faith effort to modify the adjudged or admitted infringing device. It noted that the district court found that “Apotex’s choice of Nu-Pharm to file the ANDA was a subterfuge intended to give Apotex a crack at another  district judge” who might find that Nu-Pharm ANDA drug noninfringing, a finding that the Federal Circuit did not disturb. Id.

In addition, the Federal Circuit observed that it has held that before entering a judgment of contempt of an injunction in a patent infringement case, a district court must address two separate questions. It noted that the district court must first address whether a contempt hearing is an appropriate forum for adjudging whether an allegedly redesigned product is infringing and that, in doing so, the district court must compare the accused product with the original infringing product. The Court noted that if there is “more than a colorable difference” between the accused product and the adjudged infringing product such that “substantial open issues with respect to infringement” exist, contempt proceedings are not appropriate. Id. at 9.

If contempt proceedings are appropriate, noted the Court, the district court must then address whether the accused product infringes the claims of the asserted patent. The Court observed that to show infringement, the patentee must prove by clear and convincing evidence that the modified device falls within the admitted or adjudicated scope of the claims.

Applying these principles, the Federal Circuit held that the district court did not abuse its discretion in holding contempt proceedings. It found that the district court carefully reviewed the evidence and that clear and convincing evidence supported the district court’s finding that there was no more than a colorable difference, if any, between the Apotex ANDA drug and the Nu-Pharm ANDA drug. It added that “[w]here, as here, a party files a second ANDA to a drug having no more than a colorable difference from the first, the district court is well within its discretion to entertain contempt proceedings.” Id. at 11. Moreover, the Federal Circuit held that the district court did not clearly err in finding that Abbott proved by clear and convincing evidence that the Nu-Pharm ANDA drug infringed the claims of the Abbott patents. It noted that in reaching this conclusion, the district court considered all the evidence, including the documentary and expert evidence.

The Federal Circuit further held that it was within the discretion of the district court to issue an order expanding the original injunction. The Court noted that the original injunction clearly prohibited the FDA from approving the Apotex application and “any other application . . . which the Court has found to be infringing.” Id. at 12. The Court observed that because the Nu-Pharm ANDA drug would infringe the claims of the Abbott patents, the district court did not abuse its discretion in extending the injunction to prohibit the FDA from approving the Nu-Pharm ANDA. The Court therefore declined to vacate the revised injunction, as Apotex requested.

Finally, the Federal Circuit reviewed the finding of contempt. It held that the district court made an error of law in interpreting the original injunction to preclude the conduct of which Abbott complains, namely, the filing of the Nu-Pharm ANDA, and thereby abused its discretion in holding Apotex in contempt. It noted that while it agreed with the district court that Apotex could not manufacture generic divalproex sodium in the United States, there was no evidence here that Apotex actually did so and rather, it was undisputed that Apotex’s actions in attempting to design around the Abbott patents occurred outside the United States. Accordingly, the Court held that Apotex did not violate the injunction.

The Court also noted that while it agreed that Apotex’s filing of the Nu-Pharm ANDA was an act of infringement, it could not agree that Apotex’s actions actually violated the original injunction. In that regard, observed the Court, the district court impermissibly interpreted the original injunction as prohibiting acts beyond its plain terms in violation of Fed. R. Civ. P. 65(d), which provides that “[e]very order granting an injunction . . . shall be specific in terms [and] shall describe in reasonable detail . . . the act or acts sought to be restrained.” Id. at 13-14 (alterations in original). The Court noted that Rule 65(d) was designed to prevent, inter alia, uncertainty and confusion on the part of those facing an injunction. These concerns, observed the Court, have led courts to construe injunctions narrowly where, as here, they fail to give adequate notice that particular conduct was enjoined. The Court noted that the injunction contained no “explicit notice” to Apotex that the filing of a new ANDA, by itself or a straw party, was forbidden. Accordingly, the Federal Circuit reversed the district court’s judgment of contempt.

Judge Dyk concurred-in-part and dissented-in-part. He agreed with the majority that the original injunction did not bar Apotex from filing a new ANDA and that the district court did not properly find Apotex in contempt. He dissented, however, from the majority’s conclusion that the contempt proceedings were appropriate. He reasoned that the “[p]rocess of contempt is a severe remedy, and should not be resorted to where there is fair ground of doubt as to the wrongfulness of the defendant’s conduct.” Dyk op. at 1 (alteration in original). In his view, given the majority’s decision that the original injunction did not preclude the conduct of which Abbott complained, namely, the filing of the Nu-Pharm ANDA, there was clearly a “fair ground of doubt” as to whether Apotex’s conduct was wrongful under the injunction and that summary contempt proceedings were therefore inappropriate. He added that if he is correct that contempt proceedings were improper, then it necessarily follows that any decision made in the course of those proceedings must be vacated. Thus, in his opinion, the finding of infringement and the extension of the injunction should be vacated.