Eli Lilly and Co. v. Premo Pharmaceutical Laboratories, Inc.

Citation630 F.2d 120,207 USPQ 719
Decision Date11 July 1980
Docket NumberNo. 79-1954,79-1954
PartiesELI LILLY AND COMPANY, v. PREMO PHARMACEUTICAL LABORATORIES, INC., Federal Pharmacal, Inc., Seymour N. Blackman, Steven Blackman, John Blackman, Appellants, v. Richard D. WOOD, C. Harvey Bradley, Jr., Earl B. Herr, Jr., Cornelius W. Pettinga, Eugene L. Step and Arthur R. Whale, Additional defendants on the Counterclaim.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Edward N. Sherry, New York City, for plaintiff-appellee Eli Lilly and Co.; Jack Kaufmann, J. Jay Rakow, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, D. Dennis Allegretti, Allegretti, Newitt, Witcoff & McAndrews, Chicago, Ill., Arthur R. Whale, Walter E. Buting, Indianapolis, Ind., of counsel.

David B. Kirschstein (argued), Kirschstein, Kirschstein, Ottinger & Cobrin, P. C., New York City, for defendants-appellants Premo Pharmaceutical Laboratories, Inc., et al.

Before ADAMS, VAN DUSEN and GARTH, Circuit Judges.

OPINION OF THE COURT

ADAMS, Circuit Judge.

On this appeal from an order granting preliminary injunctive relief in a patent case, we are presented inter alia with the provocative question whether, in determining that a new chemical compound was "nonobvious" in view of prior art, all of the properties of the drug may be considered, or whether the structural similarity between the new compound and the prior art constitutes a per se bar to patentability. Appellant also raises several other issues regarding the validity of the patent at issue here, and urges that the district court abused its discretion in granting the preliminary injunction. Inasmuch as we conclude that the "structural similary" of a new compound is not a bar to patentability, that the

district court did not err in applying the applicable law, and that the court did not abuse its discretion in granting injunctive relief, we affirm.

FACTUAL BACKGROUND
A. The Parties and Procedural Posture of the Case

Eli Lilly and Company is engaged in the business of research, development, manufacture, and sale of ethical pharmaceutical products. It invests approximately ten percent of its net sales revenue in research and development, in 1978 such expenditures exceeded $140 million. The company has acquired patents on many of its products which, it claims, are "a cornerstone of the research efforts that in turn have led to the development of new products." 1

Premo Pharmaceutical Laboratories, Inc. is engaged primarily in the manufacture and sale of generic pharmaceutical products that are duplicative of drugs developed and manufactured by research-oriented companies. Because Premo has only a small research and development budget, it is generally able to sell its products at prices lower than those offered by competitors that engage in more extensive research and development.

Eli Lilly owns patents for cephalexin, an oral antibiotic that is commonly used as a substitute for penicillin. 2 Upon learning that Premo had acquired a large quantity of cephalexin from Italy and was planning to sell the drug in the United States, Eli Lilly brought this action for declaratory judgment, preliminary and permanent injunctive relief, and damages. Following several months of discovery, Eli Lilly applied for a preliminary injunction by which it sought to enjoin Premo from selling cephalexin. The primary question presented in the district court was whether the patent is valid. 3

After conducting an extensive hearing, the trial court entered an order on July 24, 1979 preliminarily enjoining Premo from infringing the patent by "the manufacture, use, sale, offering for sale, or promoting or inducing the sale in the United States, its territories or possessions, of cephalexin." 4 In its opinion, the court held that (1) the creation of cephalexin was not merely an obvious extension of the prior art, because the drug yielded the unexpected property of being almost 100% absorbable into the bloodstream; (2) Eli Lilly adequately disclosed this characteristic in its patent application; (3) Eli Lilly established a sufficiently high probability that it would succeed on the merits of its claim to warrant the issuance of a preliminary injunction; and (4) Eli Lilly would be irreparably harmed if Premo were permitted, even temporarily, to sell cephalexin. 5 Premo filed a timely appeal. 6

B. The Development of Cephalexin

Cephalexin monohydrate is a member of the cephalosporin family of antibiotic drugs. Cephalosporins are derived from the fungus Cephalosporium acremonium and contain a nuclear ring structure not otherwise found in nature. The common structural characteristic of the cephalexin family is formed by a six-membered ring of 7-aminocephalosporanic acid (7-ACA). The various cephalosporins differ from one another in the number and type of side chains attached to the seven-position of the nucleus and the type of substituent attached to the three-position of the nucleus. 7 While all cephalosporins have approximately the same range of antibiotic activity and toxicity, the structural variations result in different pharmacological properties. That is, each cephalosporin reacts differently with the human body.

As a group, cephalosporins are uniquely effective antibiotics. Bacteria are commonly classified in two basic groups: those that take the so-called Gram stain are termed Gram-positive; those that reject the stain are termed Gram-negative. Penicillin is active only against Gram-positive bacteria. In contrast, cephalosporins are effective against both Gram-positive and Gram-negative bacterial strains. Cephalosporins also have low toxicity and allergenicity, and therefore produce relatively few adverse side effects and allergic reactions. As a consequence, cephalosporins are frequently used to treat individuals who are allergic to penicillin.

The parent compound of the cephalosporin family, Cephalosporin-C, was first isolated in the 1950's by two British scientists, Professor E. P. Abraham and Dr. G. G. F. Newton. 8 In the early 1960's, scientists discovered a method of isolating the 7-ACA nucleus and of appending various side chains and substituents in order to create a variety of cephalosporins more potent than Cephalosporin-C. The method of isolation was expensive, however, which made commercial production of cephalosporins infeasible at that time. Shortly thereafter, the National Research Development Corporation, a Crown agency of Great Britain founded to assist the commercialization of British inventions, began promoting cephalosporin research. The Corporation entered into agreements with a number of pharmaceutical companies under which the companies promised to participate in cephalosporin research and to make their findings available to the Corporation in exchange for access to the results of prior research and other assistance. Eli Lilly was a party to this accord.

Eli Lilly was the first company to develop a cost-efficient method of producing a 7-ACA nucleus, and by early 1962 its first cephalosporin antibiotic was ready for clinical testing. In 1964, it began marketing a form of cephalosporin, cephalothin, under the trademark "Keflin," and, in 1968, introduced cephaloridine under the brand name "Loridine." These drugs were effective antibiotics only when administered intravenously, however, because they were not sufficiently absorbed into the blood stream from the digestive tract to make oral administration feasible. Consequently, Eli Lilly began experimenting with the side chain attached to the 7-ACA cephalosporin nucleus in order to construct an orally effective form of cephalosporin. It achieved this goal by substituting a phenylglycine side chain at the 7-position. The company's research consultant, Edwin H. Flynn, who was extensively involved in the research, has stated that this result was surprising because identical experimentation with the penicillin nucleus had made that drug active against Gram-negative bacteria-a trait that cephalosporins already possessed. 9 The first orally administerable cephalosporin Cephaloglycin was found to be eighteen to twenty-two percent absorbed into the bloodstream, which is a sufficient percentage to be a satisfactory oral antibiotic. More than half of the cephaloglycin absorbed, however, underwent a chemical conversion that substantially diminished one of its most useful properties-effectiveness against Gram-negative bacteria.

was called cephaloglycin and was marketed in 1970 by Eli Lilly under the trademark "Kafocin."

In the course of the search for an orally administerable cephalosporin that also retained its activity against Gram-negative bacteria, two researchers at Eli Lilly, Dr. Robert E. Morin and Dr. Billy G. Jackson, discovered a novel chemical reaction by which various penicillins could be converted into a type of cephalosporin compound that contains a methyl group at the 3-position in place of the acetoxymethyl group that naturally exists at that position of the cephalosporin nucleus. Although the 3-methyl cephalosporin, unlike cephaloglycin, underwent no chemical changes upon absorption, and therefore remained completely active against Gram-negative bacteria, the scientists found that the drug displayed a markedly lower level of activity than corresponding cephalosporins that contain the natural acetoxymethyl group. As a result, Eli Lilly directed its research away from 3-methyl cephalosporin.

Following a series of unsuccessful experiments with other forms of cephalosporin, Drs. Morin and Jackson urged their colleagues to test once again 3-methyl cephalosporin. In 1965, the researchers subjected cephaloglycin to hydrogenolysis to form the 3-methyl cephalosporin that later came to be known as cephalexin. Cephalexin retained the 3-methyl cephalosporin characteristics of being completely active against Gram-negative bacteria and exhibiting a reduced level of activity. However, cephalexin yielded the unexpected property of being...

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