AstraZeneca AB v. Apotex Corp.

• Decision Date: 07 April 2015
• Docket Number: No. 2014–1221.,2014–1221.
• Citation: 782 F.3d 1324,114 U.S.P.Q.2d 1416
• Parties: ASTRAZENECA AB, aka Astra Zenica AB, Aktiebolaget Hassle, KBI–E Inc., KBI Inc., Astrazeneca LP, Plaintiffs–Appellees v. APOTEX CORP., Apotex Inc., TorPharm Inc., Defendants–Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

782 F.3d 1324

114 U.S.P.Q.2d 1416

ASTRAZENECA AB, aka Astra Zenica AB, Aktiebolaget Hassle, KBI–E Inc., KBI Inc., Astrazeneca LP, Plaintiffs–Appellees

v.APOTEX CORP., Apotex Inc., TorPharm Inc., Defendants–Appellants.

No. 2014–1221.

United States Court of Appeals, Federal Circuit.

April 7, 2015.

Constantine L. Trela, Jr., Sidley Austin, LLP, Chicago, IL, argued for plaintiffs-appellees. Also represented by John W. Treece, David C. Giardina ; Joshua Eugene Anderson, Los Angeles, CA; Paul Zegger, Washington, DC.

James F. Hurst, Winston & Strawn LLP, Chicago, IL, Steffen Nathanael Johnson, Eimeric Reig–Plessis, Christopher Ernest Mills, Washington, DC.

Before O'MALLEY, CLEVENGER, and BRYSON, Circuit Judges.

Opinion

BRYSON, Circuit Judge.

Apotex Corp., Apotex Inc., and TorPharm Inc., (collectively, “Apotex”) appeal from a final judgment entered against them by the United States District Court for the Southern District of New York. We previously affirmed the district court's decision in an earlier phase of the same litigation holding that Apotex had infringed certain patents held by AstraZeneca AB and related parties (collectively, “Astra”). In re Omeprazole Patent Litig., 536 F.3d 1361 (Fed.Cir.2008). In the portion of the proceeding now under review, the district court awarded damages to Astra on a reasonable royalty theory of recovery. We affirm in part, reverse in part, and remand.

I

A

The patents at issue in this case are U.S. Patent No. 4,786,505 (“the '505 patent”) and U.S. Patent No. 4,853,230 (“the '230 patent”). The two patents relate to pharmaceutical formulations containing omeprazole, the active ingredient in Astra's highly successful prescription drug, Prilosec.

Omeprazole is a “proton pump inhibitor” (“PPI”). It inhibits gastric acid secretion and for that reason is effective in treating acid-related gastrointestinal disorders. However, the omeprazole molecule can be unstable in certain environments. In particular, it is susceptible to degradation in acidic and neutral media. Its stability is also affected by moisture and organic solvents.

To protect the omeprazole in a pharmaceutical dosage from gastric acid in the stomach, formulators have tried covering the omeprazole with an enteric coating. Enteric coatings, however, contain acidic compounds, which can cause the omeprazole in the drug core to decompose while the dosage is in storage, resulting in discoloration and decreasing omeprazole content in the dosage over time. To enhance the storage stability of a pharmaceutical dosage, alkaline reacting compounds (“ARCs”) must be added to the drug core. The addition of ARCs, however, can compromise a conventional enteric coating. Ordinarily, an enteric coating allows for some diffusion of water from gastric juices into the drug core. But when water enters the drug core, it dissolves parts of the core and produces an alkaline solution near the enteric coating. The alkaline solution in turn can cause the enteric coating to dissolve.

The inventors of the '505 and '230 patents solved that problem by adding a water-soluble, inert subcoating that separates the drug core, and thus the alkaline material, from the enteric coating. The resulting formulation, consisting of an active ingredient core with ARCs, a water-soluble subcoating, and an enteric coating, provides a dosage form of omeprazole that has both good storage stability and sufficient gastric acid resistance to prevent the active ingredient from degrading in the stomach. Once the dosage reaches the small intestine, where the drug can be effectively absorbed, the solubility of the subcoating allows for rapid release of the omeprazole in the drug core.

Astra held patents on both the active ingredient, omeprazole, and the formulation for delivering it. The active ingredient patents expired in 2001, but several patents covering the formulation, including the patents at issue in this case, did not expire until April 20, 2007.

Starting in 1997, anticipating the expiration of the active ingredient patents, eight generic drug manufacturers, including Apotex, filed Abbreviated New Drug Applications (“ANDAs”) with the Food and Drug Administration (“FDA”), seeking permission to manufacture and sell omeprazole. Those applications were accompanied by what are known as “Paragraph IV certifications,” in which the generic drug manufacturers asserted that their formulations did not infringe the '505 and '230 patents and that the patents were invalid. See 21 U.S.C. § 355(j)(2)(A)(vii)(IV). Astra subsequently sued all eight generic drug companies in the same district court. The lawsuits were divided into two groups, each involving four defendants.

In the “first wave” litigation, the district court found that the '505 and ' 230 patents were not invalid and that three of the first wave defendants—all except Kremers Urban Development Co. and Schwarz Pharma, Inc. (collectively, “KUDCo”)—infringed the patents. We affirmed the district court's decision in In re Omeprazole Patent Litig., 84 Fed.Appx. 76 (Fed.Cir.2003) (“Omeprazole I ”), and In re Omeprazole Patent Litig., 483 F.3d 1364 (Fed.Cir.2007) (“Omeprazole II ”).

On May 31, 2007, during the “second wave” litigation, the district court issued an opinion holding that the generic version of omeprazole manufactured by Mylan Laboratories, Inc., and Mylan Pharmaceuticals, Inc., (collectively, “Mylan”) did not infringe the patents. The district court also held that the generic version of omeprazole manufactured by Lek Pharmaceutical and Chemical Company D.D. and Lek USA, Inc., (collectively, “Lek”) did not infringe Astra's patents. The court, however, entered judgment of infringement against Apotex. We affirmed the judgment in favor of Mylan in In re Omeprazole Patent Litig., 281 Fed.Appx. 974 (Fed.Cir.2008) (“Omeprazole III ”). We affirmed the judgment of infringement against Apotex in In re Omeprazole Patent Litig., 536 F.3d 1361 (Fed.Cir.2008) (“Omeprazole IV ”).

Apotex started selling its generic omeprazole product in November 2003, during the pendency of the second wave litigation. It continued selling its generic product until 2007, when the district court held that Apotex's formulation infringed Astra's patents. After we affirmed the district court's judgment of liability against Apotex, the district court held a bench trial to determine Astra's damages.

B

Upon a finding of infringement, the patentee is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284. The two “alternative categories of infringement compensation” under section 284 are “the patentee's lost profits and the reasonable royalty he would have received through arms-length bargaining.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed.Cir.2009).

The parties in this case agreed that damages were to be assessed based on a reasonable royalty theory. The district court sought to determine the reasonable royalty by analyzing the royalty that would have been reached through a hypothetical negotiation between the parties in November 2003, when Apotex began to infringe. Following the bench trial, the court held that Astra was entitled to 50 percent of Apotex's gross margin from its sales of omeprazole between 2003 and 2007.

In the course of its analysis, the court made detailed findings of fact. In summary, the court's findings were as follows:

Three generic companies launched their generic omeprazole products after the district court's first wave opinion in 2002 and before Apotex launched its generic product. KUDCo, whose formulation had been found to be non-infringing, was first on the market, but it did not have the manufacturing capacity to supply the full needs of the market immediately, and it kept the price of its omeprazole product high. Lek and Mylan were second wave defendants, and at that time the district court had not yet ruled on Astra's infringement claims against them. Nonetheless, they made the decision to launch their products in August 2003, knowing that they were at risk of later being held to infringe. In light of the risk that they might be held to be infringing Astra's patents, Mylan and Lek did not cut their prices aggressively.

The district court found that after those generic manufacturers entered the market, the price of generic omeprazole declined, but not significantly. However, the court found that the sales of Prilosec, Astra's prescription PPI drug, declined precipitously, both before 2002, when Prilosec was being replaced by Astra's newer prescription PPI drug, Nexium, and after 2002, when the generic manufacturers entered the market. Nonetheless, Astra continued to reap substantial revenues from Prilosec, which had net sales of $865 million in 2003, and $361 million in 2004.

After surveying the relevant data, the district court concluded that the price of generic omeprazole remained “relatively and uncharacteristically high” as of November 2003, due to the fact that only KUDCo was operating “freely and without the threat of litigation hanging over it.” The district court therefore concluded that if Apotex had obtained a license from Astra in November 2003, it would have had “a golden opportunity to take significant market share away from both other generic manufacturers and perhaps even branded PPIs by launching at a lower price.”

The district court found that Astra had anticipated the expiration of its patent on omeprazole, and that before the omeprazole patent expired, it had introduced Nexium, which it hoped would take the place of Prilosec over time. Nexium quickly developed into a highly successful drug. In 2003, Astra's net sales of Nexium totaled $2.5 billion.

Astra's strategy was to extend the period of market dominance for Prilosec through the strategic use of its patents and to attempt to transitionPrilosec patients to Nexium, which was marketed as a superior drug that would offer relief to some patients...