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Agreement with a Formula Calculating “Actual Damages” Precludes Prejudgment Interest

October 18, 2011

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Last Month at the Federal Circuit - November 2011

Judges: Newman (dissenting-in-part), Schall, Moore (author)

[Appealed from: S.D.N.Y., Judge Stein]

In Sanofi-Aventis v. Apotex Inc., No. 11-1048 (Fed. Cir. Oct. 18, 2011), the Federal Circuit reversed the district court’s decision to award Sanofi-Aventis (“Sanofi”) prejudgment interest in addition to “actual damages” specified by its settlement agreement with Apotex Inc. and Apotex Corp. (collectively “Apotex”), and affirmed the district court’s holding that Apotex Inc. is jointly and severally liable for all damages, and the district court’s denial of Apotex’s motion for leave to file a supplemental answer, affirmative defenses, and counterclaims.

The dispute underlying this third appeal to the Federal Circuit began in November 2001 when Apotex filed an ANDA with the FDA seeking approval for the sale of generic clopidogrel bisulfate tablets, marketed by Sanofi under the brand name Plavix®, before the expiration of U.S. Patent No. 4,847,265 (“the ’265 patent”). Apotex’s ANDA included a paragraph IV certification asserting invalidity. In response, Sanofi filed suit in March 2002, alleging infringement under 35 U.S.C. § 271(e)(2). Apotex counterclaimed, seeking a declaration of invalidity and unenforceability. Apotex received final FDA approval in November 2006.

Prior to FDA approval, Sanofi and Apotex reached a tentative settlement agreement (“the March 2006 agreement”). Under the March 2006 agreement, Sanofi granted Apotex a future license under the ’265 patent to sell Apotex’s generic product before patent expiration. Sanofi also promised not to launch an authorized generic during the pendency of the license. As a result of prior litigation involving
Bristol-Myers Squibb Company (“BMS”), a holding company of one of the plaintiffs, the March 2006 agreement was subject to approval by the FTC and a consortium of state attorneys general. The FTC objected to the March 2006 agreement, including the provision precluding Sanofi’s launch of an authorized generic.

In response, Sanofi withdrew the March 2006 agreement and the parties negotiated a second agreement in May 2006 (“the May 2006 agreement”). The May 2006 agreement did not expressly include the limitation regarding authorized generics, but the BMS executive negotiating on behalf of Sanofi orally promised that Sanofi would not launch an authorized generic during the pendency of Apotex’s license. BMS submitted the May 2006 agreement with certification for FTC approval, but did not disclose its oral promise. Apotex, however, disclosed the oral promise to the FTC a week later. In response, the state attorneys general informed the parties that they would not approve the May 2006 agreement, but promised to reconsider following an investigation into the oral agreement. The government pursued charges against BMS for failing to disclose the oral agreement and false certification to the FTC, ultimately resulting in an admission of a violation by BMS and payment of a civil penalty.

In July 2006, Apotex invoked its right under the May 2006 agreement to declare a regulatory denial and launched its generic product eight days later, prior to expiration of the ’265 patent. Sanofi moved for a preliminary injunction, which the district court granted. The Federal Circuit affirmed the preliminary injunction in a first appeal. Following a bench trial on liability, the district court held the ’265 patent not invalid and not unenforceable. Infringement was not tried because Apotex admitted to infringement under § 271(e)(2) and Sanofi never amended its complaint to assert infringement under § 271(a)-(b) following Apotex’s generic product sales. The district court’s decision was affirmed in a second appeal to the Federal Circuit.

In May 2009, while litigating damages, Apotex sought leave to file (1) a supplemental answer, including allegations of patent misuse related to BMS’s failure to disclose its oral agreement to the FTC as part of the May 2006 agreement; (2) affirmative defenses; and (3) counterclaims, including a breach of contract claim alleging BMS breached its duty to use reasonable efforts to secure regulatory approval of the May 2006 agreement. The district court denied Apotex’s motion, finding that (1) the patent misuse claim would expand, complicate, and prolong discovery and the ultimate resolution of the case; (2) BMS’s actions likely did not constitute patent misuse; and (3) Apotex could separately file the breach of contract claim.

Sanofi moved for SJ on damages and the district court granted Sanofi’s motion, awarding 50% of Apotex’s net sales, per the May 2006 agreement, and prejudgment interest. In awarding prejudgment interest, the district court (1) rejected Apotex’s arguments that the May 2006 agreement precluded such an award and that prejudgment interest was not available as a remedy pursuant to § 271(e)(4)(c); and (2) held that Apotex Inc. and Apotex Corp. were jointly and severally liable for the damages. Apotex appealed.

The Federal Circuit first determined that the district court erred by awarding prejudgment interest in light of the May 2006 agreement. Specifically, the May 2006 agreement provided that “Sanofi agrees that its actual damages for any past infringement by Apotex, up to the date on which Apotex is enjoined, will be 50% of Apotex’s net sales of clopidogrel products . . . . Sanofi further agrees that it will not seek increased damages under 35 U.S.C. § 284.” Slip op. at 9 (alteration in original). The Court found that the parties intended the phrase “actual damages” to include “all damages necessary to compensate Sanofi for Apotex’s infringement.” Id. at 11. Further, because prejudgment interest is a form of compensatory damages, an additional award of prejudgment interest was not warranted.

The Court construed the May 2006 agreement as supporting its interpretation of “actual damages” by allowing Sanofi “actual damages” but expressly excluding increased damages under § 284, which the Court classified as punitive. Additionally, the Court noted that in another section of the May 2006 agreement, the parties expressly stated that prejudgment interest should be awarded and specified how to calculate such interest, but did not do so when discussing actual damages. The Federal Circuit rejected Sanofi’s argument that it did not need to preserve the right to prejudgment interest because it has a statutory right to interest under § 284. While acknowledging the “general rule awarding interest on damages in patent infringement actions” in the absence of an agreement to the contrary, the Court concluded that the May 2006 agreement was an agreement to the contrary. Id. at 14. Considering the May 2006 agreement as a whole and the principle that “[t]he law strongly favors the settlement of all litigation, including patent disputes,” the Federal Circuit held that “[b]y agreeing to a formula to calculate Sanofi’s ‘actual damages’ in the May 2006 agreement, Sanofi gave up any right to supplement its recovery with additional prejudgment interest.” Id. at 15.

On the issue of liability, the Federal Circuit rejected Apotex’s argument—that Apotex Inc. was not liable for damages under § 271(e)(4) because Apotex Corp. alone imported the drug and made the commercial sales in the United States. The Court agreed with the district court that the May 2006 agreement governed liability because (1) the agreement broadly defined “Apotex” as including “Apotex Inc.” and “Apotex Corp.”; (2) the Chairman and CEO of Apotex Inc. signed the agreement on behalf of both Apotex Inc. and Apotex Corp.; and (3) the parties stipulated that “the acts of Apotex Corp. with respect to the subject matter of this action were done at the direction of, with the authorization of and with the cooperation, participation and assistance of Apotex Inc.” Id. at 17 (citation omitted). Accordingly, the Court agreed that Apotex Inc. was jointly and severally liable for Sanofi’s damages.

The Federal Circuit also rejected Apotex’s challenge to the district court’s denial of its motion to amend. The district court properly rejected Apotex’s patent misuse defense as futile because BMS’s failure to disclose the oral agreement and false certification to the FTC did not broaden the scope of the ’265 patent grant, “the key inquiry under the patent misuse doctrine.” Id. at 19 (citation omitted). The Court, however, acknowledged that patent scope could have been broadened if the FTC had failed to discover BMS’s “nefarious conduct.” Id.

Finally, the Court concluded that the district court did not abuse its discretion by denying Apotex’s motion to add a counterclaim for breach of contract because a court “may deny a motion to amend where it would ‘significantly delay the resolution of the dispute.’” Id. at 20 (citation omitted). Additionally, Apotex was not prejudiced because it could, and later did, assert the breach of contract claim in a separate action.

Accordingly, the Federal Circuit reversed the district court’s grant of prejudgment interest, but affirmed its holding that Apotex Inc. is jointly and severally liable for all damages, and affirmed its denial of Apotex’s motion for leave.

Judge Newman dissented-in-part on the issue of prejudgment interest because she agreed with the district court that the May 2006 agreement did not alter the general rule that prejudgment interest is awarded on damages for patent infringement. In her view, if the parties had intended to preclude an award of prejudgment interest, they would have said so explicitly because an award of interest is the rule, not the exception.

Summary authored by Theresa M. Weisenberger, law clerk at Finnegan.