Hoffmann-La Roche Inc. v. Invamed Inc., HOFFMANN-LA

• Decision Date: 23 May 2000
• Docket Number: HOFFMANN-LA
• Citation: 213 F.3d 1359,54 USPQ2d 1846
• Parties: (Fed. Cir. 2000) ROCHE INC. and SYNTEX (U.S.A.) INC.,Plaintiffs-Appellees, v. INVAMED INCORPORATED, DANBURY PHARMACAL INC., PUREPAC PHARMACEUTICAL COMPANY, WATSON PHARMACEUTICAL INC., MYLAN LABORATORIES, INC., GENPHARM, INC., and TEVA PHARMACEUTICAL USA, INC., Defendants, and TORPHARM, INC., Defendant-Appellant. 99-1466 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1359

213 F.3d 1359 (Fed. Cir. 2000)

HOFFMANN-LA ROCHE INC. and SYNTEX (U.S.A.) INC.,Plaintiffs-Appellees, v. INVAMED INCORPORATED, DANBURY PHARMACAL INC., PUREPAC PHARMACEUTICAL COMPANY, WATSON PHARMACEUTICAL INC., MYLAN LABORATORIES, INC., GENPHARM, INC. and TEVA PHARMACEUTICAL USA, INC., Defendants, and TORPHARM, INC., Defendant-Appellant.

99-1466

United States Court of Appeals for the Federal Circuit

DECIDED: MAY 23, 2000

Appealed from: United States District Court for the District of New Jersey Judge William H. Walls

John C. Vassil, Morgan & Finnegan, L.L.P., of New York, New York, argued for plaintiffs-appellees. With him on the brief were Tony V. Pezzano, Kathryn E. Diaz, and Sybil A. Lombillo.

Robert S. Silver, Caesar, Rivise, Bernstein, Cohen & Pokotilow, Ltd., of Philadelphia, Pennsylvania, argued for defendant-appellant. With him on the brief were Alan H. Bernstein, and William J. Castillo.

Before MAYER, Chief Judge, FRIEDMAN, Senior Circuit Judge, and GAJARSA, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

As part of a settlement of a patent infringement case, the plaintiffs dismissed their complaint. A defendant then moved the district court (1) to impose sanctions for the plaintiffs' alleged violation of Rule 11 of the Federal Rules of Civil Procedure by filing a baseless suit without a proper investigation and (2) to determine under 35 U.S.C. § 285 that the case was "exceptional" and to award the defendant attorney fees. The defendant also contended that the plaintiffs' in-house counsel had violated a state rule of professional conduct by discussing and reaching settlement directly with the defendant instead of dealing with the defendant through the its outside counsel, and that sanctions should be imposed for that alleged misconduct. The district court rejected all of these contentions. See Hoffmann-La Roche, Inc. v. Genpharm, Inc., 50 F.Supp.2d 367, 369 (D.N.J. June 8, 1999). We affirm.

I

A. The relevant facts, as stated by the district court and as shown by the record, are as follows:

The appellee Syntex (U.S.A.) Inc. ("Syntex") manufactures the drug ticlopidine hydrochloride, which it sells under the TICLID brand. The appellee Hoffmann-La Roche, Inc. ("Roche") is the exclusive distributor of the TICLID brand. Syntex and Roche are American corporations. Syntex has patents on the drug itself and on processes for manufacturing it. The appellant Torpharm, Inc., ("Torpharm"), a Canadian company, manufactures generic versions of drugs.

Torpharm and other manufacturers of generic drugs filed with the Food and Drug Administration Abbreviated New Drug Applications to market in the United States a generic form of ticlopidine hydrochloride. Roche and Syntex then filed suit, in the United States District Court for the District of New Jersey, against Torpharm and other generic drug manufacturers that had filed applications. They alleged that in manufacturing the generic product those companies used a process that infringed various Syntex patents.

In paragraphs 36 and 37 of their original and first amended complaint, the plaintiff set forth the basis for bringing the suit:

36. Roche, on behalf of Syntex, timely gave each defendant actual notice of the Syntex Patents and from that date has sought from each information that would assist Roche and Syntex in confirming whether each defendant's synthesis of ticlopidine hydrochloride is within the lawful scope of one or more claims of the Syntex Patents. No defendant has provided this information. No defendant has provided Roche or Syntex with sample quantities of the active ingredient ticlopidine hydrochloride used in their respective pharmaceutical preparation.

37. On information and belief, plaintiffs are presently not aware of any analytical technique which can be used to definitively establish that the ticlopidine hydrochloride manufactured by any of the defendants and used in their respective dosage form of pharmaceutical preparation was made by use of the invention of one or more claims of the Syntex Patents, and for that reason, has sought from each of them information as to its or its suppliers' process for the synthesis of that compound. In the absence of such information, plaintiffs resort to the judicial process and the aid of discovery to obtain under appropriate judicial safeguards such information as is required to confirm their belief and to present to the Court evidence that each and every defendant infringes one or more claims of the Syntex Patents.

The district court stated that Torpharm supplied Roche and Syntex with samples of its ticlopidine hydrochloride, but refused to provide

any information regarding the process of manufacture of the tablets because of a confidentiality agreement with the manufacturer of the ticlopidine hydrochloride. Plaintiffs then attempted to "reverse engineer" the Torpharm sample tablets to determine whether the process by which the tablets were made infringed upon the Syntex patents. However, plaintiffs could not ascertain the process and could not determine whether it infringed the Syntex process patents.

Hoffmann-La Roche, 50 F.Supp.2d at 372.

Johnson was Roche's Vice-President, Licensing and Corporate Development and its Chief Patent Counsel; Parise was a Roche Senior Counsel. After Torpharm had moved to dismiss the complaint for failure to state a claim upon which relief could be granted, Johnson and Parise telephoned Dr. Sherman, the Chairman of Torpharm. They introduced and identified themselves. Johnson stated that he wore "two hats" and was calling in his business capacity as a corporate officer to discuss resolution of the case to save further litigation costs. Johnson asked whether Dr. Sherman was willing to discuss resolution, and Dr. Sherman replied: "go ahead."

Johnson stated that if a confidential review of the process used to manufacture Torpharm's product showed that the process did not infringe the Syntex process patents, Roche would dismiss its suit. Parise asked whether a draft of a non-disclosure agreement should be sent to Dr. Sherman or to Torpharm's outside counsel; Dr. Sherman replied to send it to him. Johnson did so, and also sent a copy to Alan Bernstein, Torpharm's outside counsel in the case. Bernstein stated that when his office received the draft agreement, he was on vacation, and therefore could not review it before it was signed.

In returning one of the revised drafts of the non-disclosure agreement to Parise, Dr. Sherman added this handwritten note: "Question - shouldn't Roche pay Torpharm's legal costs?" Johnson and Parise called Dr. Sherman and told him that Roche would not do so, and that Torpharm had incurred those costs by refusing to cooperate with Roche's pre-filing inquiries.

After the non-disclosure agreement was executed--and it did not provide that Roche and Syntex would pay Torpharm's litigation expenses--Torpharm disclosed to Roche and Syntex the process by which its product was manufactured. Roche and Syntex concluded that the process did not infringe Syntex's process patents. In accordance with the agreement, they voluntarily dismissed their infringement suit.

B. After Roche and Syntex dismissed their case, Torpharm moved in the district court for the award of sanctions and attorney fees. Asserting that the suit was baseless and brought in bad faith, Torpharm asked the court to sanction Roche and Syntex for violation of Rule 11 of the Federal Rules of Civil Procedure and to award costs and attorney fees under 28 U.S.C. § 1927 and 35 U.S.C. § 285. They also contended that by dealing directly with Torpharm's chief executive in negotiating and effecting the settlement agreement, rather than dealing with the outside counsel who represented Torpharm in the case, Johnson and Parise violated New Jersey Rule of Professional Conduct 4.2, which deals with contacts between counsel representing a client and the opposing party.

The district court denied sanctions and attorney fees. See Hoffmann-La Roche, 50 F.Supp.2d at 369. The court denied Rule 11 sanctions because, although Roche's and Syntex's "pre-filing inquiry with respect to defendant Torpharm was unsuccessful, it was reasonable. At the end of the plaintiffs' pre-suit investigation it had neither evidence of infringement nor non-infringement. Although plaintiffs could have assumed noninfringement at that point, that they chose to file suit and engage in discovery instead does not subject them to sanctions." Id. at 374. The court refused to find that this was an "exceptional case" under 35 U.S.C. § 285--a finding that under the statute is necessary for the award of attorney fees in patent litigation--because Torpharm had not met its "burden of establishing that this is an exceptional case. . . . Even if plaintiffs' pre-suit investigation was unreasonable, an unreasonable investigation alone does not demonstrate that the ensuing litigation was vexatious, unjustified, or brought in bad faith." Id. at 373.

The court rejected Torpharm's claim for attorney fees under 28 U.S.C. § 1927, which permits the award of such fees against an attorney "who so multiplies the proceedings in any case unreasonably and vexatiously," id., "[b]ecause Torpharm has made no showing that the plaintiffs multiplied this litigation in bad faith." Hoffmann-La Roche, 50 F.Supp.2d at 373. In this appeal, Torpharm does not challenge that ruling.

Although the court summarized the parties' contentions on whether Johnson and Parise violated the New Jersey Rules of Professional Conduct, see id. at 371-72, it did not address the merits of the issue, but referred to it in passing in its ruling that attorney fees were not awardable under 28 U.S.C. § 1927, see id. at 373.

II Rule 11 of the Federal Rules of Civil Procedure

imposes a duty on attorneys to certify that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well grounded in fact, legally tenable, and "not...