Bone Care International LLC et al v. Pentech Pharmaceuticals, Inc.
Filing
651
MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 3/29/2012. Mailed notice(tbk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BONE CARE INTERNATIONAL, LLC
and GENZYME CORPORATION,
Plaintiffs,
v.
PENTECH PHARMACEUTICALS, INC.,
and COBREK PHARMACEUTICALS, INC.,
Defendants.
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Case No. 08-cv-1083
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendants’ motion for summary judgment for
attorneys fees based on frivolous suit [641], Defendants’ motion to deem admitted certain of
Defendants’ statements and counter-statements of material facts [642], and Plaintiffs’ crossmotion for summary judgment of no exceptional case [259]. For the reasons set forth below, the
Court denies all three motions [259, 641, and 642]. This case is set for further status on May 4,
2012, at 9:00 a.m.
I.
Background
A.
Defendants’ Motion to Deem Admitted Certain Fact Statements
When ruling on summary judgment motions, the Court takes all relevant facts from the
parties’ local rule (“L.R.”) 56.1 statements. L.R. 56.1 requires that statements of fact contain
allegations of material fact, and that the factual allegations be supported by admissible record
evidence. See L.R. 56.1; Malec v. Sanford, 191 F.R.D. 581, 583–85 (N.D. Ill. 2000). The
Seventh Circuit teaches that a district court has broad discretion to require strict compliance with
L.R. 56.1. See, e.g., Koszola v. Bd. of Educ. of the City of Chicago, 385 F.3d 1104, 1109 (7th
Cir.2004); Curran v. Kwon, 153 F.3d 481, 486 (7th Cir.1998) (citing Midwest Imports, Ltd. v.
Coval, 71 F.3d 1311, 1317 (7th Cir.1995) (collecting cases)). Where a party has offered a legal
conclusion or a statement of fact without offering proper evidentiary support, the Court will not
consider the statement. See, e.g., Malec, 191 F.R.D. at 583. Additionally, where a party
improperly denies a statement of fact by failing to provide adequate or proper record support for
the denial, the Court deems admitted that statement of fact. See L.R. 56.1(a), (b)(3) (B); see also
Malec, 191 F.R.D. at 584. The requirements for a response under Local Rule 56.1 are “not
satisfied by evasive denials that do not fairly meet the substance of the material facts asserted.”
Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 528 (7th Cir. 2000). In addition, the
Court disregards any additional statements of fact contained in a party’s response brief but not in
its L.R. 56.1(b)(3)(B) statement of additional facts. See, e.g., Malec, 191 F.R.D. at 584 (citing
Midwest Imports, 71 F.3d at 1317). Similarly, the Court disregards a denial that, although
supported by admissible record evidence, does more than negate its opponent’s fact statement—
that is, it is improper for a party to smuggle new facts into its response to a party’s 56.1
statements of fact. See, e.g., Ciomber v. Coop. Plus, Inc., 527 F.3d 635, 643 (7th Cir. 2008).
With these principles in mind, the Court denies Defendants’ motion to deem admitted
certain of Defendants’ statements and counter-statements of material facts. The Court is well
aware of what it may consider on summary judgment. In fact, on the Court’s web page (see
http://www.ilnd.uscourts.gov/home/JudgeInfo.aspx), the Court included among its Case
Management Procedures a link for Summary Judgment Local Rule 56.1 Submissions. That link
contains the following statement: “Motions to strike all or portions of an opposing party’s Local
Rule 56.1 submission are disfavored. Under ordinary circumstances, if a party contends that its
opponent has included inadmissible evidence, improper argument, or other objectionable
2
material in a Rule 56.1 submission, the party’s argument that the offending material should not
be considered should be included in its response or reply brief, not in a separate motion to
strike.” Defendants have in essence asked the Court to strike Plaintiffs’ responses and deem
their facts admitted. As with motions to strike, the relief Defendants that have asked for should
have been included in its reply brief. The separate motion is unnecessary.
In any event, the Court is capable of disregarding unfounded assertions of fact found in
Defendants’ statements or Plaintiffs’ denials. Any statements or responses that contain legal
conclusions or argument, are evasive, contain hearsay or are not based on personal knowledge,
are irrelevant, or are not supported by evidence in the record will not be considered by the Court
in ruling on Defendants’ motion for summary judgment. Consistent with its obligations under
the federal and local rules, the Court will rely only on material statements of fact which are both
admissible and supported by the record compiled at the summary judgment stage. See Fed. R.
Civ. P. 56(e); L.R. 56.1; see also Davis v. Elec. Ins. Trs., 519 F. Supp. 2d 834, 836 (N.D. Ill.
2007); Lawrence v. Bd. of Election Com’rs of City of Chicago, 524 F. Supp. 2d 1011, 1014 (N.D.
Ill. 2007). To the extent that Plaintiffs’ denials are evasive and Defendants’ statements are
supported by admissible evidence, those statements will be admitted.
And to the extent
Defendants have put forth legal conclusions in their statements, the Court will disregard the legal
conclusions. Defendants’ motion to deem facts admitted [642] is denied.
B.
Facts
Although a lengthy history exists between the parties in this litigation, the Court sets
forth only the facts relevant to the disposition of the cross motions for summary judgment. This
case arises under the Hatch-Waxman Act which governs the Food and Drug Administration’s
approval of new and generic drugs. Plaintiffs Bone Care International, LLC and Genzyme
3
Corporation (collectively “Plaintiffs”), hold approved New Drug Application (“NDA”) No. 021027 for Hectorol® injectable, which contains the active ingredient doxercalciferol. Plaintiffs
have ownership in United States Patent Nos. 6,903,083 (“‘083 patent”) and 5,602,116 (“‘116
patent”).
Defendants Pentech Pharmaceuticals, Inc. and Cobrek Pharmaceuticals, Inc.
(collectively “Defendants”) sought approval of a generic drug by filing Abbreviated New Drug
Application (“ANDA”) No. 90-040. The ANDA included Paragraph IV certifications that, in
Defendants’ opinion, the ‘083 patent and ‘116 patent are invalid or will not be infringed by the
manufacture, use, or sale of its generic drug. See 21 U.S.C. § 355(j)(2)(A)(vii). The filing of
Defendants’ Paragraph IV certifications constitutes an act of patent infringement (see 35 U.S.C.
§ 271(e)(2)(A)), and Plaintiffs subsequently filed the instant action alleging infringement of both
patents. Defendants filed an answer and included counterclaims seeking, inter alia, a declaratory
judgment that they did not infringe the ‘083 patent and that the ‘083 patent is invalid.
U.S. Patent No. 6,903,083 (the “‘083 patent”), assigned to Plaintiff Bone Care
International LLC’s (and subsequently sold to Genzyme Corporation), has an effective filing
date of July 18, 2000. The parties agree that under 35 U.S.C. § 102(b), the one-year statutory bar
date for the ‘083 patent is July 18, 1999.1 The ‘083 patent covers a stabilized form of 1αhydroxyvitamin D2 (“vitamin D2”). One of the named inventors of the ‘083 patent, Dr. Charles
Bishop (“Bishop”) was Bone Care’s President, CEO, and a director) as of July 18, 1999.
Before March 1999, Bone Care acquired twelve lots2 of vitamin D2 from Hauser, Inc.
(“Hauser”).3 Dr. Bishop admitted under oath that the Hauser lots embodied the claims of the
1
Although this is a conclusion of law, the Court includes it in the factual background because the parties
agreed to the statement and it helps clarify the issues raised in the current motions.
2
A “lot” is a batch of product that is made in a single production run.
4
subsequently-filed ‘083 patent. Dr. Joyce C. Knutson, a co-inventor of the ‘083 patent, testified
that Hauser synthesized the vitamin D2 material of Example 2 of the ‘083 patent. Example 2 of
the ‘083 patent is a compound within the claims of the ‘083 patented invention. According to
Dr. Bishop, Bone Care was “stockpiling lots” of vitamin D2 made by Hauser “for the purposes of
commercialization after FDA approval of Bone Care’s first NDA.” The last five of those nine
lots are designated as Lot Nos. K52-K56. As set forth in invoices for Lot Nos. K52-K56, Hauser
charged Bone Care $78,100 per lot. Transfers of all five of those lots occurred between October
of 1998 and February of 1999, prior to the July 18, 1999 date at issue. Lot Nos. K52-K56
cumulatively contained 33.395 grams of vitamin D2. The largest single dose of HECTOROL®
contains 2.5 µg (micrograms - i.e., 2.5 millionths of a gram) of vitamin D2.
By way of
deduction, this would mean that Lot Nos. K52-K56 cumulatively contained several million doses
of vitamin D2.4
3
Plaintiffs maintain that Hauser did not “sell” lots of vitamin D2 to Bone Care. Rather, Plaintiffs
contend that “title to the lots was never transferred, but instead vested in and remained with Bone Care,
and these transactions therefore do not constitute ‘sales’ under 35 U.S.C. § 102(b).” In support of this
position, Bone Care points to its November 10, 1998 contract with Hauser—aptly named the “Supply
Agreement,” as it goes on to set forth the terms for the exchange of goods and consideration—which
states:
All of the products, exact copies of laboratory notebook pages and supportive data, ideas,
information and the like, resulting from services specified in or performed by Hauser
pursuant to this Agreement, or prepared for or submitted to [Bone Care] by Hauser under
this Agreement shall belong exclusively to [Bone Care] and shall be deemed to be works
made for hire.
As set forth in the Analysis section, the Court concludes that this position—which skirts the fact that the
“Supply Agreement” was a contract for stated quantities of vitamin D2 at stated prices—borders on
frivolous (and lacks common sense); however, for purposes of setting forth the relevant facts, the Court
takes into account Plaintiffs’ characterization of how Bone Care acquired vitamin D2 from Hauser.
4
Since the cumulative amount of vitamin D2 in Lot Nos. K52-K56 was 33.395 grams, and the largest
single dose of HECTOROL® contains 2.5µg, these lots cumulatively contained the equivalent of
13,358,000 vitamin D2 doses.
5
In a letter dated February 10, 1999, Hauser offered5 Bone Care five additional lots of
vitamin D2 for $99,000 per lot.6 The offer was for vitamin D2 having the same specifications as
the vitamin D2 lots in K52-K56. Andrew Morgan, Plaintiffs’ Federal Rule of Civil Procedure
30(b)(6) deposition witness, conceded that the letter (specifically, the offer to transfer additional
lots at $99,000 per run) constituted an “agreement in principle.” Dr. Bishop was copied on the
letter from Hauser offering five additional lots. The February 1999 Hauser release control
specifications reads identically to the compositional limits of claim 1 of the ‘083 patent.7 Dr.
Bishop testified that his recollection was that vitamin D2 embodying the claims of the ‘083 patent
was reduced to practice during the first half of 1998.
The FDA approved Bone Care’s NDA No. 20-862 for an oral dosage form of the vitamin
D2 product on June 9, 1999. In October 1999, Bone Care began commercially selling vitamin D2
under the name HECTOROL®, which contained the vitamin D2 manufactured by Hauser and
acquired by Bone Care prior to July 18, 1999. Bishop admitted that he knew of Bone Care’s
payments to Hauser (and Hauser’s invoices) at the time they were made. Bishop also testified
that he knew the potential ramifications of such “transfers,” i.e., that they could bar patentability.
He further testified that Bone Care’s patent attorneys were made aware of the potential
ramifications. The Patent Office was never informed of the Hauser transactions.
5
Again, Plaintiffs dispute that the letter constituted an “offer to sell.”
6
That would have made a total of 17 commercial-scale lots of the claimed 1α-hydroxyvitamin D2 that
Hauser sold and/or offered to sell to Bone Care.
7
Despite the fact that Plaintiffs’ dispute this fact, the Court concludes that no other reasonable inference
can be drawn from the statements set forth in the February 1999 offer letter.
6
The ‘083 patent issued on June 7, 2005. In July 2005, Genzyme Corporation acquired8
Bone Care International, Inc. (and all of its intellectual property, including the ‘083 patent) for
$600 million.9 Following the acquisition of Bone Care International, Inc. by Genzyme, Bone
Care underwent a change of corporate form to become Bone Care International LLC.
Thomas DesRosier, Genzyme’s Senior Vice President and General Counsel, made the
decision to sue Defendants on the ‘083 patent.
Prior to the acquisition of Bone Care by
Genzyme, DesRosier was part of a team that investigated the validity of the ‘083 patent.
Genzyme received a letter in January 2008 from Pentech Pharmaceuticals, Inc. (“Pentech”),
notifying Genzyme of the submission of its abbreviated new drug application (“ANDA”) seeking
the Food and Drug Administration’s approval to make a generic version of Genzyme’s
Hectorol® (doxercalciferol) and purporting to set forth “a detailed statement of the factual and
legal bases of Pentech’s patent certification regarding the invalidity, unenforceability and/or noninfringement of the claims of the ‘116, ‘980 and ‘083 patents.” Pentech’s January 8, 2008 letter
to Genzyme Corporation did not include any statements regarding the invalidity of the ‘083
patent and did not mention the Hauser transactions.10
Plaintiffs maintain that prior to the commencement of document review and production in
this litigation, no officer or decision-maker at Genzyme or Bone Care who was responsible for
8
The parties quibble over whether Genzyme acquired or merged with Bone Care. The publicly
available documents reflect that Genzyme created a wholly owned merger subsidiary, Macbeth, which
merged with Bone Care and Bone Care became the sole surviving and continuing legal entity after the
merger. For present purposes, whether it was a merger or an acquisition does not affect the disposition of
the pending motions.
9
Dr. Bishop resigned as President and CEO of Bone Care in July 2001, but he was an officer of the
company—namely, executive vice president and chief scientific officer of research and development—
when Bone Care was acquired by Genzyme.
10
Defendants point out that they could not have known the identity of Bone Care’s manufacturer, as that
information at that time was not publicly available.
7
this litigation was aware of any issues under 35 U.S.C. § 102(b) concerning the Hauser
transactions. According to Plaintiffs, DesRosier first became aware of the documents concerning
the Hauser transactions on or around November 2008, as a result of the document collection and
review efforts of Fitzpatrick, Cella, Harper & Scinto, which included a review of approximately
two million pages of documents and a production of over half a million pages of documents.
Defendants contend that, at a minimum, officers and decision-makers at Genzyme and Bone
Care possessed constructive knowledge by virtue of Bishop’s knowledge. In any event, the
parties agree that Plaintiffs have possessed documents relating to Bone Care’s transactions with
Hauser since Genzyme’s acquisition of Bone Care.
Defendants served Plaintiffs with requests for admissions on March 13, 2009, at which
time Plaintiffs denied that the Hauser lots embodied claims of the ‘083 patent or that the Hauser
lots were sold or offered for sale prior to the critical date. Because of those denials, Defendants
moved for summary judgment as to the validity of the ‘083 patent on July 23, 2009. However,
prior to Defendants filing for summary judgment, on March 13, 2009, Plaintiffs provided
Defendants with a covenant not to sue with respect of the ‘083 patent. Then, on April 28, 2009,
the parties executed a consent judgment with respect to Plaintiffs’ claims of infringement of the
‘083 patent in accordance with Plaintiffs’ March 13, 2009 covenant not to sue. The consent
judgment read as follows: “The parties stipulate that judgment should be entered for Defendants
with respect to Plaintiffs’ claim of infringement of U.S. Patent No. 6, 903,083 in accordance with
the Plaintiffs’ March 13, 2009 Covenant Not To Sue on that patent in relation to Defendants’
ANDA 90-040.” At that time, Plaintiffs did not disclaim the patent or pay attorneys fees as
Defendants requested. The Court entered the consent judgment on May 12, 2009. Plaintiffs then
disclaimed the ‘083 patent on August 3, 2009, two days before the Court entertained argument
8
on Defendants’ July 23, 2009 motion. Plaintiffs’ disclaimer came only four years into the
patent’s enforceable term.11
According to Plaintiffs, Mr. DesRosier decided that the cost of
continuing to assert the ‘083 patent was unsupportable in view of the introduction of a generic
competitor to doxercalciferol beginning no later than 2014, and possibly as early as mid-2011.12
II.
Legal Standard
Summary judgment is proper if “the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). On cross-motions for summary judgment, the Court construes all facts and inferences “in
favor of the party against whom the motion under consideration is made.” In re United Air
Lines, Inc., 453 F.3d 463, 468 (7th Cir. 2006) (quoting Kort v. Diversified Collection Servs., Inc.,
394 F.3d 530, 536 (7th Cir. 2005)); see also Gross v. PPG Industries, Inc., 636 F.3d 884, 888
(7th Cir. 2011); Foley v. City of Lafayette, Ind., 359 F.3d 925, 928 (7th Cir. 2004). To avoid
summary judgment, the opposing party must go beyond the pleadings and “set forth specific
facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986) (internal quotation marks and citation omitted).
A genuine issue of material fact exists if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Id. at 248. The party seeking summary
judgment has the burden of establishing the lack of any genuine issue of material fact. See
11
The ‘083 patent issued on June 7, 2005.
12
At the time of filing this lawsuit, Plaintiffs faced generic competition from a drug known as “calcitriol.”
Furthermore, on November 20, 2008, Abbott Laboratories and the Wisconsin Alumni Research
Foundation (“WARF”) sued Teva Pharmaceuticals USA, Inc. and Teva Pharmaceuticals Industries Ltd.
(collectively, “Teva”) in the Northern District of Illinois based upon Teva’s submission of an ANDA
seeking to market a generic version of Abbott’s Zemplar® (paricalcitol). Zemplar® is a competitor to
Hectorol® in the market for secondary hyperparathyroidism treatments. According to the pleadings filed
in the matter of Abbott Labs. v. Teva Pharms. USA, Inc., Civ. No. 08-6659 (N.D. Ill.), Abbott’s and
WARF’s patents and exclusivities covering paricalcitol will expire in 2014.
9
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is proper against “a
party who fails to make a showing sufficient to establish the existence of an element essential to
that party’s case, and on which that party will bear the burden of proof at trial.” Id. at 322. The
non-moving party “must do more than simply show that there is some metaphysical doubt as to
the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986). “The mere existence of a scintilla of evidence in support of the [non-movant’s] position
will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmovant].” Anderson, 477 U.S. at 252. “Summary judgment is as appropriate in a patent case as
it is in any other case.” C.R. Bard, Inc. v. Advanced Cardiovascular Sys., Inc., 911 F.2d 670,
672 (Fed. Cir. 1990).
III.
Analysis
A patent is invalid if, prior to the critical date, the invention was ready for patenting and
was the subject of a commercial sale or offer for sale. Defendants contend that the 1998-1999
transactions involving the Hauser lots described in the factual background constitute commercial
sales or offers for sale of the invention claimed in the ‘083 patent—a vitamin D analog known as
doxercalciferol or 1α-hydroxyvitamin D2 that meets particular purity specifications. Defendants
further contend that Plaintiff Bone Care and its officer-inventors knew of these sales yet asserted
the ‘083 patent against Defendants anyway. According to Defendants, this renders Plaintiffs’
lawsuit against Defendants for infringement of the ‘083 patent frivolous, justifying an award of
attorneys’ fees under 35 U.S.C. § 285.
In response, Plaintiffs dispute that the 1998-1999 transactions involving the Hauser lots
constitute commercial sales or offers for sale. Plaintiffs also contend that Defendants lack clear
and convincing evidence of Plaintiffs’ bad faith or gross negligence in suing Defendants on the
10
‘083 patent and instead that the record contains substantial evidence of Plaintiffs’ good-faith
belief that the ‘083 patent was valid. Plaintiffs also contend that it would not be grossly unjust
for Defendants to bear their own attorneys’ fees; rather, it would be unjust for Plaintiffs to bear
those fees. The Court first addresses whether the transactions between Bone Care and Hauser
constituted commercial sales or offers for sale and then addresses whether Defendants have met
their burden in demonstrating that an award of attorneys’ fees is appropriate in these
circumstances.
A.
The Transactions between Bone Care and Hauser
The “on sale” bar provision of 35 U.S.C. § 102(b) precludes an inventor from
commercializing his invention for more than a year before he files his application.13 In re
Caveney, 761 F.2d 671, 676 (Fed. Cir. 1985). A patent is invalid under the § 102(b) on-sale bar
if, prior to the critical date, the invention was ready for patenting and was the subject of a
commercial sale or offer for sale. See In re Cygnus Telecommunications Technology, LLC,
Patent Litigation, 536 F.3d 1343, 1353 (Fed. Cir. 2008) (citing Pfaff v. Wells Elec., Inc., 525
U.S. 55, 67 (1998)). “An invention can be found to be ‘ready for patenting’ in at least the
following ways: by proof that it was reduced to practice, or by proof that the inventor had
prepared drawings or other descriptions of the invention that were sufficiently specific to enable
a person skilled in the art to practice the invention.” Cargill, Inc. v. Canbra Foods, Ltd., 476
F.3d 1359, 1368 (Fed. Cir. 2007); see also Plumtree Software, Inc. v. Datamize, LLC, 473 F.3d
1152, 1161 (Fed. Cir. 2006) (noting that an invention is ready for patenting if, among other
13
The “on sale” bar has the following underlying policies: (1) a policy against removing inventions from
the public domain which the public justifiably comes to believe are freely available due to
commercialization; (2) a policy favoring prompt and widespread disclosure of inventions to the public;
and (3) a policy of giving the inventor a reasonable amount of time following sales activity to determine
whether a patent is worthwhile. See General Electric Co. v. United States, 654 F.2d 55, 61 (Ct. Cl.
1981).
11
things, there is “proof of reduction to practice before the critical date.”). Further, the transaction
at issue must be a “sale” in a commercial law sense. Allen Eng'g Corp. v. Bartell Indus., Inc.,
299 F.3d 1336, 1352 (Fed. Cir. 2002). “[A] sale is a contract between parties to give and to pass
rights of property for consideration which the buyer pays or promises to pay the seller for the
thing bought or sold.” In re Caveney, 761 F.2d 671, 676 (Fed. Cir. 1985); see also Trading
Technologies Intern., Inc. v. eSpeed, Inc., 595 F.3d 1340, 1361 (Fed. Cir. 2010). “Once a
defendant demonstrates a prima facie case of on-sale * * * the patent holder must come forward
with convincing evidence to counter that showing.”
U.S. Environmental Products Inc. v.
Westall, 911 F.2d 713, 716 (Fed. Cir. 1990) (internal quotations omitted).
Plaintiffs dispute that the Hauser transactions were, in fact, “sales” under 35 U.S.C. §
102(b). Plaintiffs contend that, based on ¶ 12.1 of the Supply Agreement, legal title to the
vitamin D2 that Hauser produced for Bone Care vested in Bone Care, not Hauser. As a result,
when Hauser delivered vitamin D2 lots to Bone Care in exchange for hundreds of thousands of
dollars, that transaction was not a “sale” under U.C.C. § 2-106(1), because there was no “passing
of title from the seller to the buyer for a price.”
Plaintiffs’ argument fails to get out of the gate.14 The Supply Agreement between the
parties clearly was a “contract between parties to give and to pass rights of property for
consideration which the buyer pays or promises to pay the seller for the thing bought or sold.” In
re Caveney, 761 F.2d at 676. The aptly named “Supply Agreement” was for the sale of vitamin
D2 lots to Bone Care (which did not have the capability to manufacture those lots itself) in
exchange for hundreds of thousands of dollars. It was not for services rendered (cf. Trading
14
A fine line exists between “creative” arguments made in the face of a dearth of case law or in light of
unique set of facts (neither of which exists here) and those arguments that a party should know defy
common sense and lack any merit in light of the relevant legal standards. In the Court’s view, Plaintiffs’
argument that the Hauser transactions were not sales toes that line.
12
Technologies Intern., Inc., 595 F.3d at 1361) but explicitly set forth terms related to the sale of
goods. The contract was for millions of doses of vitamin D2, which, as one of the inventors of
the ‘083 patent admitted in his deposition, Bone Care was stockpiling “for the purposes of
commercialization after FDA approval of Bone Care’s first NDA.” The transaction clearly was a
“sale” in a commercial law sense.
Plaintiffs admit that the Hauser matters were “transactions,” and there is no dispute that
the vitamin D2 lots delivered by Hauser to Bone Care were “goods” within the meaning of
U.C.C. § 2-103(k). Plaintiffs’ contention that “title to the physical [vitamin D2] product vested
immediately” in Bone Care does not mean that a sale did not take place. To “vest” means “[t]o
confer ownership of (property) upon a person.” BLACK’S LAW DICTIONARY 1157 (Bryan A.
Garner ed., 7th ed., West 1999). Even under Plaintiffs’ interpretation of the Supply Agreement,
Bone Care did not have vested title to the vitamin D2 until the Supply Agreement was signed, the
goods and invoices were delivered, and Bone Care paid for the goods. If title “vested” in Bone
Care, it was only after the sale was consummated.
Plaintiffs’ only support for their position is ¶ 12.1 of the Supply Agreement. Paragraph
12.1 is the first paragraph under the heading, “12.0 PROPRIETARY RIGHTS,” and is entitled
“The Company’s [i.e., Bone Care’s] Rights in Data.” These headings suggest that ¶ 12.1 relates
to ownership of intellectual property and data. This interpretation is bolstered by the complete
text of ¶ 12.1, which provides:
All of the products, exact copies of laboratory notebook pages and supportive
data, ideas, information, and the like, resulting from services specified in or
performed by Hauser pursuant to this Agreement, or prepared for or submitted to
[Bone Care] by Hauser under this Agreement, shall belong exclusively to [Bone
Care] and shall be deemed to be works made for hire. In the event that such
works are deemed not to be works made for hire, Hauser hereby irrevocably
assigns to [Bone Care], in perpetuity, all right, title, and interest in such works,
including, without limitation, copyrights, without further consideration. [Bone
13
Care] shall have sole and exclusive right to obtain and hold in its own name all
copyrights, patents, registrations, and similar protection which may be available
in or with respect to said Final Products, items, etc., and Hauser agrees to give
[Bone Care] or its designees all assistance reasonably required to perfect any such
rights (including, if requested, execution or separate instruments of assignments
and/or patent applications and the like).
Such provisions are commonly found in supply agreements. Bone Care obviously had an
interest in owning data, laboratory notebook copies, and other information generated by Hauser
pursuant to Hauser’s contractual obligations. Moreover, Bone Care had an interest in being
legally unencumbered in its ability to reproduce such data/notebooks/information as necessary.
Paragraph 12.1 made Bone Care the owner of copyrights in such data/notebooks/information,
thereby ensuring that Bone Care had the right to reproduce and publicly distribute those
materials. See 17 U.S.C. § 106. This clearly is the intent behind, and effect of, ¶ 12.1. The fact
that ¶ 12.1 of the Supply Agreement grants Bone Care ownership rights in “all copyrights,
patents, registrations, and similar protection which may be available in or with respect to said
Final Products,” says nothing about whether there was a sale for purposes of 35 U.S.C. § 102(b).
The official comment to U.C.C. § 2-101 (“Sales”) casts further doubt on Plaintiffs’
position:
The arrangement of the present Article is in terms of contract for sale and the
various steps of its performance. The legal consequences are stated as following
directly from the contract and action taken under it without resorting to the idea of
when property or title passed or was to pass as being the determining factor. The
purpose is to avoid making practical issues between practical men turn upon the
location of an intangible something [i.e. title] , the passing of which no man can
prove by evidence and to substitute for such abstractions proof of words and
actions of a tangible character.
The “tangible character” of the actions taken by Hauser and Bone Care under their Supply
Agreement is that Bone Care “purchased” vitamin D2 for a price and then stockpiled that vitamin
D2 for the purposes of commercialization after the FDA approved Bone Care’s first NDA.
14
Plaintiffs’ questionable attempt to spin the transaction another way (in order to avoid a clear
finding of invalidity) is unavailing.
Although not necessary to the disposition of whether the 1998-1999 transactions
involving the Hauser lots constitute commercial sales or offers for sale of the invention claimed
in the ‘083 patent—as previously indicated, common sense is really all that is necessary—it is
worth noting that years before this litigation commenced, Bone Care admitted that it
“purchase[d]” vitamin D2 from outside manufacturers before the critical date. In Bone Care’s
Form 10-K S.E.C. filing for the fiscal year ending June 30, 1999 (i.e., before the ‘083 patent
critical date), Bone Care admitted:
We have no internal manufacturing capabilities. We have contracted and intend
to contract with others for the production of active pharmaceutical ingredients and
for the subsequent manufacturing and packaging of finished drug products. We
purchase Hectorol15 from an FDA-inspected and approved supplier.
(footnote and emphasis added). Incidentally, the choice of the word “purchase” in Bone Care’s
S.E.C. filing was approved by the ‘083 patent inventors and Bone Care officers Mazess and
Bishop, who signed and attested to the report.
As evidenced by invoices for sales of the last five Hauser lots (Lot Nos. K52-K56), each
of which was sold for $78,100, these sales were made between October of 1998 and February of
1999, prior to the July 18, 1999 ‘083 patent critical date. Each lot was commercial in scale and
intended for commercial resale. In fact, at least some of the Hauser lots ultimately were used in
Plaintiffs’ HECTOROL®, purchased by patients after FDA approval. Accordingly, the sales of
Lot Nos. 52-56 were anticipating sales within the meaning of § 102(b). Any one of these sales
renders the ‘083 patent invalid. In short, Defendants have demonstrated a prima facie case that
the Hauser sales anticipated the ‘083 patent. The only “evidence” that Plaintiffs offer in rebuttal
15
“Hectorol” was the trademark adopted by Bone Care for vitamin D2. (C.F.S. No. 3).
15
is an implausible interpretation of ¶ 12.1 of the Supply Agreement between Hauser and Bone
Care. Plaintiffs submit no other “facts” to support their position that title to the vitamin D2
vested immediately from Hauser to Bone Care upon signing, such that the transactions were not
“sales” under 35 U.S.C. § 102(b).
Accordingly, the Court concludes that the Hauser
“transactions” were sales invalidating the ‘083 patent as a matter of law.16
Plaintiffs also contend that there are disputed issues of fact regarding Hauser’s offer to
sell five additional lots of vitamin D2 to Bone Care, as embodied in a February 10, 1999 letter.
In support of their position, Plaintiffs point out that the terms “sell” or “sale” are not used in the
offer letter and that the letter does not set forth the purity specifications for the vitamin D2 that is
the subject of the offer letter. Thus, Plaintiffs claim that there could not have been a formal offer
for the sale of the later-patented vitamin D2. This argument also fails. The English language is
capable of expressing “sale” in many other ways. Synonymous terms, such as “price” and
“supply,” are used in the offer letter. The offer letter also sets a price of $99,000 for each of the
five additional production lots of vitamin D2. The relevant question is whether Hauser’s offer
letter evinces a “manifestation of willingness to enter into a bargain, so made as to justify [Bone
Care] in understanding that [its] assent to that bargain is invited and will conclude it.” Linear
Technology Corp. v. Micrel, Inc., 275 F.3d 1040, 1050 (Fed. Cir. 2001) (quoting Restatement
16
For the sake of completeness, the Court also notes that the Federal Circuit does not recognize a
“supplier” exception to the on-sale bar “that * * * allow[s] inventors to stockpile commercial
embodiments * * * via commercial contracts with suppliers more than a year before they file their patent
application.” Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1354 (Fed. Cir. 2001). In Special
Devices, the court explained that “it does not matter who places the invention ‘on sale’; it only matters
that someone—inventor, supplier or other third party—placed it on sale.” Id. at 1355 (patent-in-suit
invalid because patented invention was subject of three commercial scale sales from a supplier to the
patentee before the critical date). Thus, it does not matter that the Hauser sales were between a supplier
(Hauser) and the patentee (Bone Care). Id.; see also Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 182
F.3d 888 (Fed. Cir. 1999) (invalidating patent-in-suit based on pre-critical date sales from supplier to
patentee); Zacharin v. U.S., 213 F.3d 1366 (Fed. Cir. 2000) (same).
16
(Second) of Contracts § 24 (1981)). Under that standard, the offer letter represents a pre-critical
date commercial offer for the sale of vitamin D2 and Plaintiffs have provided no reasonable
inference to the contrary. Thus, Hauser’s February 1999 offer to sell Bone Care five additional
lots of the claimed vitamin D2 at $99,000 per lot is an invalidating offer for sale.
B.
Attorneys’ Fees in Frivolous Suits
A district court has discretion to award reasonable attorney fees to a prevailing party in a
patent case if the court determines that the case is “exceptional.” 35 U.S.C. § 285. However,
this discretion is not unbridled. MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907, 91516 (Fed. Cir. 2012); Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 543 (Fed. Cir.
2011) (citing Wedgetail, Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009)).
Given the “substantial economic and reputational impact” of an award of attorney fees, an award
of attorneys’ fees is the exception, not the rule. Id. (quoting Medtronic Navigation, Inc. v.
BrainLAB Medizinische Computersysteme GmbH, 603 F.3d 943, 953 (Fed. Cir. 2010)); see also
Wedgetail, 576 F.3d at 1304. Deciding whether to award attorney fees under § 285 requires a
two-step inquiry. First, the court must determine whether the prevailing party has proved by
clear and convincing evidence that the case is exceptional. Forest Labs., Inc. v. Abbott Labs., 339
F.3d 1324, 1327 (Fed. Cir. 2003); see also Aspex Eyewear Inc. v. Clariti Eyewear, Inc., 605 F.3d
1305, 1314 (Fed. Cir. 2010) (“The party seeking attorney fees under § 285 must establish, by
clear and convincing evidence, that the case is exceptional.”). If a court finds that the case is
exceptional, it must then determine whether an award of attorney fees is justified. Cybor Corp.
v. FAS Techs. Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc).
A case may be deemed exceptional under § 285 where there has been a frivolous suit or
willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during
17
litigation, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil
Procedure 11, or like infractions. Serio–US Indus., Inc. v. Plastic Recovery Techs. Corp., 459
F.3d 1311, 1321–22 (Fed. Cir. 2006); see also Forest Labs, Inc., 339 F.3d at 1329. Where, as
here, the alleged infringer prevails in the underlying action (in this instance, by way of a consent
judgment), factors relevant to determining whether a case is exceptional include “the closeness
of the question, pre-filing investigation and discussions with the defendant, and litigation
behavior.” Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1379 (Fed. Cir. 2008).
Where a patentee “prolongs litigation in bad faith, an exceptional finding may be warranted.” Id.
A frivolous infringement suit is “one which the patentee knew or, on reasonable
investigation, should have known, was baseless.” Haynes Intern., Inc. v. Jessop Steel Co., 8 F.3d
1573, 1579 (Fed. Cir. 1993). Defendants contend that the ‘083 patent suit was frivolous because
Bone Care knew, and Genzyme at least should have known, of the ‘083 patent’s invalidity. In
turn, Plaintiffs allege that they could not have known of the patent’s invalidity because (1) the
actors involved in the Hauser sales left Bone Care before this law suit; (2) Bone Care’s
management changed; and (3) Bone Care underwent a “change of corporate form.”
Plaintiffs contend that they were entitled to rely upon the statutory presumption under 35
U.S.C. § 282 that the ‘083 patent was valid, absent any actual knowledge of its invalidity at the
time that they sued Defendants. See Q-Pharma Inc. v. Andrew Jergens Co., 360 F.3d 1295,
1303-04 (Fed. Cir. 2004); McNeil-PPC, Inc. v. L. Perrigo Co., 337 F.3d 1362, 1372-73 (Fed.
Cir. 2003) (in light of patent’s presumed validity, and absence of bad faith by the patentee, there
was no basis for deeming the infringement action exceptional); Brooks Furniture Mfg., Inc. v.
Dutailier Int’l Inc., 393 F.3d 1378, 1382 (Fed. Cir. 2005) (once the PTO has issued a patent,
“[t]here is a presumption that the assertion of infringement of a duly granted patent is made in
18
good faith”). Unfortunately, what was known to Plaintiffs at the time they sued Defendants is
murky at best.17
What is obvious is that Dr. Bishop understood generally that commercial sales or offers
for sale may bar patentability under 35 U.S.C. § 102(b) and that he had concerns about the
Hauser transactions. Plaintiffs contend that Dr. Bishop nevertheless believed that the Hauser
transactions did not constitute such potentially invalidating commercial sales or offers for sale,
but the Court is not persuaded that the record reflects that view. Rather, the Court’s review of
Dr. Bishop’s deposition testimony suggests that he was aware of the problem and alerted Bone
Care’s attorneys to the potential ramifications. In an effort to distance themselves from Dr.
Bishop’s concessions, Plaintiffs highlight that Dr. Bishop resigned as President and CEO of
Bone Care in July 2001. What Plaintiffs sidestep is that Dr. Bishop was an officer of the
company—namely, executive vice president and chief scientific officer of research and
development—when Bone Care was acquired by Genzyme.
Plaintiffs also point out that Genzyme Corporation conducted due diligence on the ‘083
patent and purchased the ‘083 patent, along with BCI’s other intellectual property, for multiple
millions of dollars.
Plaintiffs suggest that this evidence militates against any finding that
Plaintiffs possessed sufficient knowledge to question the validity of the ‘083 patent. However,
the evidence just as easily cuts the other way. The Court has difficulty imagining that a
corporation as sophisticated as Genzyme could have documents in its possession that would lead
even a novice patent lawyer to question the validity of the ‘083 patent and yet no cause for
concern was raised prior to consummating a $600 million transaction. At a minimum, given the
17
At a fairly early stage of this case, the parties – with the Court’s consent – concentrated this litigation
on the issues relating to the ‘116 patent. The Court’s consideration of this long-deferred motion brings
back into focus the relatively underdeveloped state of the record concerning the ‘083 patent, at least as it
relates to the matters for decision by the Court.
19
money at stake, it would have seemed prudent for those charged with Genzyme’s due diligence
to have read Bone Care’s annual reports to the S.E.C., where, among other things, Bone Care
admitted that before June 30, 1999, it had been purchasing vitamin D2 from a manufacturer
because Bone Care did not have manufacturing facilities of its own. That same annual report
shows a large increase in “inventory” from a year earlier—seemingly another red flag for
Genzyme’s due diligence team. Even without looking at the internal Bone Care documents that
relate to Bone Care’s transactions with Hauser—which Plaintiffs have had in their possession
since Genzyme’s acquisition of Bone Care—these red flags belie Plaintiffs’ assertions that they
simply had no idea of the invalidating sales.
Mr. DesRosier’s explanation for why Plaintiffs wanted to withdraw the ‘083 patent from
this suit also raises concerns. Mr. DesRosier claims that because generic competition from
another product would come in 2014 and because the ‘116 patent in this suit would expire in the
same year, it was not financially worthwhile to continue suit on the ‘083 patent after early 2009.
Plaintiffs’ justification fails to account for a few variables that existed at the time suit was filed.
First, Plaintiffs already faced generic competition from a drug known as calcitriol at the time suit
was filed. Plaintiffs also must have known about the 2014 dates prior to filing suit, as those
dates were public information. Mr. DesRosier does not explain what changed after suit was filed
in February 2008 to lead him to conclude a few months later that asserting the ‘083 patent was
no longer a worthy endeavor. If 2014 were a critical date, then Genzyme could have disclaimed
only that portion of the ‘083 patent that extended beyond that time.
The more plausible
explanation relates to the Hauser sales, of which Mr. DesRosier claims he first learned in
November 2008.
20
Furthermore, what knowledge Bishop possessed of the Hauser sales, as well as Bone
Care’s corporate records memorializing those sales, generally can be imputed to Bone Care and
its directors. See In re Hellenic Inc., 252 F.3d 391, 395 (5th Cir. 2001) (noting that “courts
generally agree that the knowledge of directors or key officers, such as the president and vice
president, is imputed to the corporation”); United States v. One Parcel of Land Located at 7326
Highway 45 N., 965 F.2d 311, 316 (7th Cir. 1992) (under Illinois common law, the knowledge of
an officer, director, or agent is imputed to the corporation if the person with knowledge is acting
within the scope of his employment at the time and “at least in part with the intent to benefit the
corporation.”); see also Cement-Lock v. Gas Technology Institute, 618 F.Supp.2d 856, 891 (N.D.
Ill. 2009) (same).
Thus, Plaintiffs’ claim that Bishop’s resignation as President and CEO of
Bone Care in 2001 occurred “long before Plaintiffs decided to sue Defendants” not only fails
legally, but it also is factually inaccurate because, as noted above, Bishop was an officer of Bone
Care in 2005 when Genzyme acquired the company. Furthermore, in addition to Bishop’s
personal knowledge, the Hauser sales are part of Bone Care’s corporate history and are
evidenced by company records that did not disappear with Bone Care’s alleged management
changes or transition from a corporation to an LLC.
The concerns addressed above are only bolstered by Plaintiffs’ litigation conduct.
Instead of disclaiming the ‘083 patent immediately and calling a halt to a massive document
production, they produced more than 500,000 documents, the vast majority of which related to
the ‘083 patent, and forced Defendants to produce approximately 86,000 documents of their
own. Saddling Defendants with so many documents that Plaintiffs knew at the time of document
production would become clearly irrelevant when the ‘083 patent was withdrawn weighs heavily
21
against a finding of good faith on the part of Plaintiffs. Plaintiffs’ counsel has handled many
large patent cases and obviously knows how expensive document review can be.
Plaintiffs’ attempt to portray themselves as victims of Defendants’ refusal to regard the
‘083 patent as water under the bridge also paints them in a bad light. Notwithstanding Plaintiffs’
underwhelming arguments regarding whether the Hauser sales were actually “sales,” the Hauser
sales clearly were invalidating. Mr. DesRosier knew this upon learning of those sales, allegedly
as late as November of 2008, even though he should have known about them (by his own due
diligence standards) in 2005. It then took him until August of 2009 to disclaim the ‘083 patent,
only after the avalanche of discovery served on Defendants. If Plaintiffs had come clean in
November of 2008, and disclaimed the ‘083 patent at that time and relieved both parties of an
enormous document production and discovery effort, the attorneys’ fees issue may have been
avoided. Instead, Plaintiffs’ kept the ‘083 patent case alive by delivering more than half-amillion production documents to Defendants and demanding over 86,000 documents while
refusing to admit to the invalidity of the ‘083 patent in light of clear evidence to the contrary. In
fact, they still maintain that the ‘083 patent is not invalid, on the basis of an untenable argument.
At this stage, inference upon inference favors Defendants. However, Defendants also
face a steep burden in proving that they are entitled to attorneys’ fees in a patent suit. Plaintiffs
contend that Bishop’s appreciation of the significance of the Hauser sales is an unresolved issue
of fact. The Court agrees, but only because the burden on Defendants in demonstrating an
exceptional case is so high. Bishop testified that, at the time of the Hauser sales, he was aware of
the on-sale bar concept and that he knew that the Hauser sales occurred more than one year
before the ‘083 patent’s filing date. He also regarded the Hauser sales as important enough to
inform Bone Care’s patent counsel about them. At a minimum, Defendants should be given
22
leave to explore through further discovery exactly what Bishop knew and when and to whom he
conveyed the information. Defendants also should be allowed to explore the questions left
answered by Mr. DesRosier’s affidavit. While his affidavit casts some doubt on Defendants’
assertions of bad faith, his reasoning is too convenient—and too simplistic given what was at
stake—to accept without further exploration.
Given the sophistication of the parties at issue in this lawsuit and the hundreds of millions
of dollars at stake in acquiring and holding on to patents and the additional money at stake in
acquiring or merging with other companies, it may well be the case that Plaintiffs either knew
that the ‘083 patent was invalid at the time they filed suit (and certainly shortly after they filed
suit but before they disclaimed the patent) or they should have known but for their own gross
negligence. Unfortunately, at this time, the Court cannot conclude one way or another whether
Defendants have presented clear and convincing evidence as to Plaintiffs’ knowledge or
conduct. Thus, the Court concludes that summary judgment is not appropriate for either side at
this juncture in view of (1) the underdeveloped state of the record and (2) the heightened
standard of proof that applies to the matter in dispute.
Litigation regarding the ‘083 patent was pushed to the side so that the parties could focus
on the ‘116 patent. The Court now has resolved the issues related to the ‘116 patent and had
hoped to resolve the remaining issues presented by the ‘083 patent. Unfortunately, there simply
are too many holes to do so. To the extent that the parties desire to attempt to settle the issues
related to attorneys fees on the ‘083 patent, the Court will make its resources available toward
that end. Otherwise, the Court believes additional discovery will be necessary—particularly with
respect to what Dr. Bishop and Mr. DesRosier knew about the ‘083 patent and prior invalidating
sales and when they knew it, and perhaps with respect to what other officers and directors of
23
Plaintiffs knew and when. After that information is elicited, the parties may again present (at
summary judgment or trial) the issue of whether this is an exceptional case warranting an award
of attorneys’ fees.
IV.
Conclusion
For the reasons set forth above, the Court denies Defendants’ motion for summary
judgment for attorneys fees based on frivolous suit [641], Defendants’ motion to deem admitted
certain of Defendants’ statements and counter-statements of material facts [642], and Plaintiffs’
cross-motion for summary judgment of no exceptional case [259]. This case is set for further
status hearing on May 4, 2012 at 9:00 a.m.
Dated: March 29, 2012
____________________________________
Robert M. Dow, Jr.
United States District Judge
24
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