SHIRE PHARMACEUTICAL DEVELOPMENT INC. et al v. AMNEAL PHARMACEUTICALS LLC et al
Filing
394
OPINION. Signed by Judge Robert B. Kugler on 10/11/2018. (dmr)
THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
______________________________________________ :
:
Shire Development LLC, Shire Pharmaceutical
:
Development Inc., Cosmo Technologies
:
Limited, and Nogra Pharma Limited.
:
:
Plaintiffs,
:
:
v.
:
:
Amneal Pharmaceuticals LLC, Amneal
:
Pharmaceuticals of New York, LLC, Amneal
:
Pharmaceuticals Co. (1) PVT. LTD., and
:
Amneal Life Sciences PVT. LTD.
:
:
Defendants.
:
1:15‐cv‐02865 (RBK/JS)
OPINION
______________________________________________ :
KUGLER, United States District Judge:
This matter comes before the Court on the motion [ECF Doc. 373] by defendants’
(collectively “Amneal” or “defendants”), seeking a declaration this case is “exceptional” under 35
U.S.C. § 2851 and an award of defendant’s attorneys’ fees after 31 August 2017, the date plaintiffs
(collectively “Shire” or “plaintiffs”) served their expert reports.
For the reasons discussed below, defendants’ motion is DENIED. An order accompanies.
1.0
Relevant Facts and Procedural History
On 22 April 2015, plaintiff Shire filed a patent infringement suit against defendants Amneal (“the
Amneal ANDA suit” or “this suit”) after Amneal sought approval in the form of an Abbreviated New Drug
Application (“ANDA”) from the Food and Drug Administration [“FDA”] for a generic form of the drug
Lialda®, covered by U.S. Patent Number 6,773,720 (“ ‘720 patent”).2 Claim 1 of the ‘720 patent recites a
controlled‐release oral pharmaceutical composition comprising the active ingredient 5‐amino‐salicylic
acid and having an inner lipophilic matrix and an outer hydrophilic matrix wherein the active ingredient is
dispersed in both the lipophilic matrix and hydrophilic matrix. The lipophilic matrix consists of substances
1 35 U.S.C.§285 reads in its entirety: The court in exceptional cases may award reasonable attorney fees to the prevailing party.
2 According to the Orange Book, the ‘720 patent expires 8 Jun 2020.
1
derived from fatty acids or cholesterol; the hydrophilic matrix consists of water soluble substances.
From 2012 through November 2015, in response to other ANDA applications before the FDA, Shire
filed similar patent infringement cases against these ANDA applicants: Zydus, Osmotica, Watson (now
Teva), Mylan, and Lupin (ECF Doc. No. 380‐3) [“the other ANDA cases”].
For plaintiff, neither this nor any other ANDA case involving the ’720 patent can be categorized as
an unqualified prevail. In particular: the Osmotica ANDA case has been dismissed. The Lupin ANDA case
has been stayed pending Lupin’s resubmission to the FDA. In the Zydus ANDA case, the District Court of
Delaware found non‐infringement, affirmed by the Federal Circuit. The Watson ANDA case had two
separate appeals to the Federal Circuit, each on the meaning of a different claim term, and both of which
were finally determined as non‐infringement. In the Mylan ANDA case, the Federal Circuit affirmed the
District Court’s finding of non‐infringement.
Not only have plaintiffs’ lawsuits meant all six ANDA applicants have had to navigate infringement
challenges but also that all applicants, including defendants Amneal, have had difficulty gaining approval
from the FDA for their proposed Lialda® generics. Only Zydus and Watson have gotten FDA approval and
launched generic products, and these only within the last year. Defendants’ s own regulatory struggles
include receipt, on 16 September 2016, of an FDA rejection for genotoxic impurities in the active
pharmaceutical ingredient of its generic product, and continued failure to obtain FDA approval to date.
Summarizing these ANDA cases, it can be seen that plaintiffs’ suits for Lialda® infringement are more
Sisyphean, while defendants’ efforts to get approved generics more Herculean.
In response to the complaint, defendants sought a declaratory judgment of non‐infringement of
its ANDA product as well as a determination of invalidity of the ‘720 patent claims. During a discovery
period marked by at least 8 amended scheduling orders and scheduling conferences in the 16 months
between September 2016 and January 2018 and several discovery disputes, plaintiffs served opening
expert reports on 31 August 2017, with expert depositions taking place over the fall of 2017. On 19 January
2018, this Court held the pretrial conference.
As background to this suit’s procedure, in the spring of 2017, the Zydus generic product, previously
adjudicated non‐infringing, entered the market, whereas by spring of 2018, the Watson generic products,
also adjudicated non‐infringing, entered as well. Further, in April 2018, the Federal Circuit affirmed a
finding of non‐infringement for Mylan’s proposed generic. Between spring 2017 and April 2018, plaintiffs
faced both Federal Circuit judgments of non‐infringement of its ‘720 patent and entry of generic products
in competition to Lialda®, which may have eroded its expectations of relying on the ‘720 patent for
marketplace exclusivity.
On 3 May 2018, at Shire’s initiative, the parties settled this ANDA suit by voluntarily dismissing
both the infringement claims and invalidity counterclaims with prejudice. On 7 Jun 2018, Amneal filed this
motion seeking a declaration this case is exceptional and $83,994 in attorneys’ fees from 31 August 2017 to
the date of dismissal.
2
Parties’ Contentions
Defendants’ core contention is, even though the Federal Circuit has rejected Shire’s infringement
theory on five separate occasions in three of the other ANDA cases, plaintiffs continued to advance that
very theory in this case when it served its expert reports on 31 August 2017. Defendants further asserts
that plaintiffs’ infringement theory is the distribution of an excipient in its claimed pharmaceutical
composition and titles this the “excipient distribution theory”. (ECF Doc.373:3‐4). Defendants state the
‘720 patent claims do not recite an excipient distributed throughout the composition, as plaintiffs advance,
but rather a composition having two macroscopically separate elements: an inner lipophilic matrix and an
outer hydrophilic matrix. Defendants assert the Federal Circuit made clear that an accused, generic
composition can infringe the ‘720 claims only if it has both recited structures and that infringement cannot
occur if the accused composition lacks these.
Defendants further contend plaintiffs knew their infringement theory was untenable when, on 31
August 2017, plaintiffs filed in this case its expert reports that advanced the excipient distribution theory
(ECF Doc.373:1), but nonetheless pressed forward with an infringement argument it knew it couldn’t win.
(ECF Doc. 373‐9‐10). Defendants argue such action is unconscionable in that it unnecessarily delayed
adjudication of a meritless case and needlessly racheted up its attorneys’ fees, thereby abusing the Hatch‐
Waxman litigation regime and justifying a declaration of “exceptional” here. (ECF Doc.373: 16‐19).
Plaintiffs contend defendant can prevail on this motion only if it shows plaintiff’s infringement
position was meritless as of 31 August 2017, the date when plaintiffs filed expert reports. Plaintiffs also
contend defendant’s labelling of plaintiffs’ infringement position as the “excipient distribution theory” is
incorrect, and that such mislabeling grounds a serious misrepresentation of the Federal Circuit’s decisions
in the other ANDA cases. Further, defendants are also incorrect in their interpretation of these Federal
Circuit decisions because none opined on an “excipient distribution” infringement theory.
In addition, both parties accuse each other of unwarranted litigation‐delaying tactics (ECF Doc.
373:11‐13; ECF Doc. 380:5‐6), which could ground a finding of the other’s unreasonable litigation conduct.
3.0
Legal Standards
To award attorneys’ fees in a patent infringement matter, a court must ascertain which is the
prevailing party and whether the case is exceptional, as mandated by 35 U.S.C. § 285. Octane Fitness
LLC v Icon Health & Fitness, Inc., 134 S.Ct. 1749, 1756 (2014).
3.1
Prevailing party
The Supreme Court has defined “prevailing party” in a series of decisions involving fee‐shifting
statutes other than35 U.S.C. §285, stating “prevailing party” is a term of art (Buckhannon Bd. & Care Home,
Inc. v. W. Virginia Dep't of Health & Human Res., 532 U.S. 598, 603 (2001)) and ultimately finding that, even
3
nominal relief counts, so long as one party is directly benefitted by judgement or settlement.3
Since the Supreme Court has not defined this term in a 35 U.S.C. §285 matter, this Court looks to
the Federal Circuit’s interpretation, which relies on and refines the Supreme Court’s: A “prevailing party”
under §285 “must receive at least some relief on the merits, which alters ... the legal relationship of the
parties” (Inland Steel Co. v. LTV Steel Co., 364 F.3d 1318, 1320 (Fed.Cir.2004) [citations omitted]) or success
on a jurisdictional issue. See Raniere v. Microsoft Corp., 887 F.3d 1298, 1304 (Fed.Cir. 2018) [citing CRST Van
Expedited, Inc. v. E.E.O.C., 136 S.Ct. 1642 (2016) for the Supreme Court’s proposition that change in the
parties’ legal relationship must be marked by “legal imprimatur.” Buckhannon, 532 at 604‐605.]
3.2
Exceptional
Recently, the Supreme Court made clear that an exceptional case “stands out from others” in
terms of the substantive strength of a party’s litigating position or the unreasonable manner in which
the case was litigated. Octane Fitness, 134 S.Ct. at 1756. An “exceptional” determination depends not
on a court’s application of a precise rule or formula but on the court’s discretion in considering the
totality of the circumstances of the individual case. Id. Important factors include “frivolousness,
motivation, objective unreasonableness ... and the need in particular circumstances to advance
considerations of compensation and deterrence.” Id. at 1756 n.6 citing Fogerty v. Fantasy, Inc., 510
U.S. 517, n. 19 (1994). The moving party shows entitlement to an exceptionality award of attorneys’
fees by a preponderance of the evidence. Octane, 134 S.Ct. at 1758.
In deciding whether a case is exceptional, this Court has primarily taken account of two
considerations. The first of which is the strength of the plaintiff’s litigation position‐‐that is, the
objective unreasonableness of plaintiffs’ infringement theory‐‐(Lugus IP, LLC. V. Volvo Car Corp, No.
12‐2906, 2015 WL1399175, at *4‐5 (D.N.J.26 March 2016); Roxane Laboratories, Inc. v. Camber
Pharmaceuticals, Inc. et al., No. 14‐4042, 2017 WL 1356324 (D.N.J. 12 April 2017)). Moreover, the
Federal Circuit has made clear that the focus on the party’s litigation position is not the correctness or
eventual success of that position, but on its substance, that is whether the position has some
reasonable basis. SFA Systems, LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015) [relying on
Octane Fitness to state a party’s position on issues of law ultimately need not be correct for these to
3 In an attorney fee shifting case under 42 U.S.C. §1988, the Supreme Court found” prevailing party” to be the one succeeding
on any significant issue in litigation that achieves some of the benefit the party sought in bringing suit. Hensley v. Eckerhart,
461 U.S. 424, 433, (1983). The Court refined this both by acknowledging relief need not be judicially decreed to justify a fee
award and by emphasizing there must be a settling of the dispute or some relief that affects the parties’ behavior. See Hewitt
v. Helms, 482 U.S. 755, 761, 107 S.Ct. 2672, 96 L.Ed.2d 654 (1987); Farrar v. Hobby, 506 U.S. 103, 111 (1992). The prevailing
party inquiry centers on the material alteration of the legal relationship of the parties (Id.) and that relief, regardless of kind or
quantum, even if nominal, must directly benefit the party at the time of judgment or settlement. Lefemine v. Wideman,
133S.Ct. 9, 10 (2012); see Buckhannon, 532 U.S. at 604, 121 S.Ct. 1835, [citing Farrar that a party must receive at least some
relief on the merits of the claim before he/she can be said to prevail].
4
not stand out or be found reasonable].
In determining exceptionality, this Court has also considered whether plaintiffs’ litigation
conduct was unreasonable. Iottie, Inc. et al. v. Merkury Innovations, No. 2:15‐cv‐6597, 2018 WL
3425732, at *2 (D.N.J.16 July 2018); Garfum.com Corporation v. Reflections by Ruth d/b/a
Bytephoto.com [“Garfum II”], No. 14‐5919, 2016 WL 7325467 at *2 (16 December 2016)) [overruling
Garfum.com Corporation v. Reflections by Ruth d/b/a Bytephoto.com [“Garfum I”], No. 14‐5919, 2016
WL 1242762 (30 March 2016)]. For a recent exceptionality determination in this Circuit on both
considerations, see also, Green Mountain Glass, LLC v. Saint‐Gobain Containers, Inc., 300 F.Supp. 3d
610 (D. Del. 2018).
4.0
Discussion
4.1
Jurisdiction
As a practical matter, this Court confirms its jurisdiction under the U.S. patent statute to decide
the motion even though the parties’ dismissal of the infringement action did not expressly retain this
Court’s continuing jurisdiction over subsequent matters related to the litigation.
In a situation akin to here, the Federal Circuit elucidated that a district court retains jurisdiction
over a motion for attorneys’ fees in a case terminated by the parties’ dismissal with prejudice under Fed. R.
Civ. P. 41(a)(2) because the post‐dismissal motion was filed under 35 U.S.C.§ 285 of the U.S. patent
statute. Highway Equipment Company, Inc. v. Feco, Ltd.et al., 469 F.3d 1027, 1032‐1033 (Fed. Cir. 2006).
The Federal Circuit also ruled that a dismissal with prejudice under Fed. R. Civ. P. 41(a)(2) does indeed bear
sufficient judicial imprimatur to effect a judicially‐sanctioned change in the legal relationship of the parties
as required by Buckhannon. Id. at 1035. Therefore, under Federal Circuit precedent, this Court exercises
proper jurisdiction over the motion.
4.2
Prevailing Party Determination
On 3 May 2018, plaintiffs submitted a unilateral “Stipulation of Non‐Infringement and Request for
Entry of Final Judgement and Dismissal with Prejudice” under Fed. R. Civ. P. 41(a)(2). The next day,
defendants filed their consent to the stipulation. On 8 May 2018, this Court unambiguously ordered final
judgment of non‐infringement be entered in favor of defendants and the action be dismissed with
prejudice. According to Buckhannon and reinforced by Highway Equipment, this Court’s order changed the
parties’ legal relationship and gave relief to defendants, which are determined the prevailing party here
under 35 U.S.C. §285.
5
4.3
Exceptional Determination
4.3.1 Strength of Plaintiff’s Litigation Position: Degree of Objectively Unreasonable
Infringement Theory
This Court in Lugus, 2015 WL 13999175 at **4‐5 confirmed that the strength of plaintiff’s
infringement position will be considered objectively unreasonable at least when the accused product
cannot possibly infringe. Defendants marshal a Lugus‐based argument; they assert plaintiffs knew the
litigation position advanced in their expert reports was objectively unreasonable because of two previous
Federal Circuit rulings on the ‘720 patent claims, which vitiated any “excipient distribution” theory.
Defendants argue the Federal Circuit reversed on two separate occasions District Court findings that
plaintiffs’ “excipient distribution” theory of infringement was correct (See Shire Development, LLC, et al. v.
Watson Pharmaceuticals, Inc. et al., 787 F.3d 1359 (2014) [“Watson I”]); and Shire Development, LLC, et al. v.
Watson Pharmaceuticals, Inc. et al., 848 F.3d 981 (2017) [“Watson II”]).
In Watson I, the Federal Circuit, on remand from the Supreme Court, again reversed the district
court’s finding of infringement because the district court had adopted an incorrect claim construction.
Watson I, 787 F.3d at 1365. The Federal Circuit construed the ‘720 patent claims to require two distinct
matrices having a defined spatial relationship to each other: the inner lipophilic4 matrix is separate from
and inside the outer hydrophilic one (also called extra‐granular space). Watson I, 787 F.3d at 1365‐66. Also,
the entire inner matrix must be lipophilic and composed entirely of lipophilic substances and likewise the
entire outer matrix must be hydrophilic and composed entirely of hydrophilic substances. Id. This
contrasted with the district court’s construction that the active ingredient, mesalamine, was dispersed in
both lipophilic and hydrophilic matrices because mesalamine was in both granules and spaces outside the
granules. Id. at 1364. Thus, the Watson I court required the recited composition to have a much more
distinctive architecture, primarily because of the court’s review of the claim language itself, of the effect of
the prosecution history and of the specification. Id. at 1366‐1367.
In Watson II, the Federal Circuit interpreted the recited transition term “consisting of” to mean that
each matrix in the ‘720 patent can contain only those substances listed in the recited Markush grouping. In
particular, the lipophilic matrix was recited to have only lipophilic substances; and the hydrophilic matrix
to have only lipophilic substances. Thus, the “consisting of” term dictated the recited composition of the
inner and the outer matrix. Because of this, the Court found that, by containing a strongly lipophilic
substance, magnesium stearate, in the extra‐granular space (hydrophilic matrix), Watson’s product
necessarily avoided infringement. By implication, Watson II reinforced the Watson I distinct architecture
of the recited composition described above.
Defendants assert plaintiffs’ “excipient distribution” theory of infringement is that the recited
4 Lipophilic means the ability for substances to dissolve in fats, oils, and lipids, which tend to be non‐polar; whereas hydrophilic
substances dissolve in water and tend to be polar. At heart, the invention of the ‘720 patent literally works due to the well‐
known chemical mechanism that oil and water do not mix.
6
inner lipophilic matrix can be a distribution of magnesium stearate; and the outer hydrophilic matrix
(extra‐granular space) can be a distribution of sodium carboxymethylcellulose (“CMC”). They imply this
“excipient distribution” theory was the only one by which defendants’ product could infringe, and that the
Federal Circuit ruled against that theory twice. Thus, the basis for defendant’s exceptionality argument is
that by pressing forward once again in the expert reports with a judicially lifeless infringement theory,
plaintiffs revealed a litigation position that could only be objectively unreasonable.
This Court does not agree with defendants’ arguments. Plaintiffs contend that their infringement
theory in this case was not based on an “excipient distribution” theory but on the observed and tested‐for
presence, at least to plaintiffs’ experts, that Amneal’s ANDA product contained both recited matrices. ECF
Doc. 380: 16‐17. Plaintiffs argue that the Federal Circuit rulings in Watson I and II were not relevant here.
Id. at 15, 18. In particular, plaintiffs argue the testing done by their experts of Amneal’s product showed it
had physical architecture akin to that claimed (and construed by the Federal Circuit). Specifically,
Amneal’s product appeared to have physical clusters, i.e., inner lipophilic matrices of magnesium stearate,
that could function to control the release of mesalamine. Moreover, plaintiffs argued that such
magnesium stearate clusters formed inner lipophilic matrices that appeared as “beyond just dispersed”.
Id. In other words, plaintiffs argue that the physical structure of the lipophilic matrices in defendants’
product appeared as continuous but was beyond appearing as dispersed and therefore directly infringed
the ‘720 patent claims.
The description by plaintiffs’ expert Dr. Little—that the lipophilic matrix of magnesium stearate
appeared as “beyond just dispersed” and made up a volume5 (Id. at 17)—may not be the strongest
scientific argument to counter defendants’ charge that plaintiffs relied on an “excipient distribution”
theory. But, plaintiffs need not set forth a strong argument to prevail in a determination of exceptional.
Their argument may be a weak and nonetheless still not invoke exceptionality. SFA Systems, 793 F.3d at
1348; and Garfum II, 2016 WL 7325467 at *3.
Moreover, a “mini‐trial” is not necessary here even if plaintiffs’ litigation position was losing from
the beginning. This is because plaintiffs’ arguments and their experts’ reports and tests demonstrate a
belief that the degree of qualitative difference between the claimed invention and the accused product
was chemically insignificant and indicated, at least to plaintiffs, infringement. See Deckers Outdoor Corp. v.
Romeo & Juliette, Inc., No. 15‐2812, 2016 WL5842187, at *3 (C.D. Cal. 5 Oct 2016) [recognizing that if a
party has set forth some good faith argument in favor of its position, it will not be found to have advanced
exceptionally meritless claims [citations omitted]].
Ultimately, determining the substantive strength of a plaintiff’s infringement position in this case
is a balancing act of the differences between what plaintiffs say their infringement theory is and what
defendants say plaintiffs’ theory is. To defendants, plaintiffs’ litigation position looked baseless as an
5
that is, had physical structure and was not a homogeneous distribution throughout.
7
“excipient distribution” theory. To plaintiffs, their position was based on showing and explaining granules
of magnesium stearate to constitute inner lipophilic matrices. Their position was also based on
differentiating, at least in plaintiffs’ view, that the infringement theory here was not the same theory as
adjudicated by the Federal Circuit.
Whether plaintiffs are correct about their theory is not the issue here; after all, the correctness of
their argument would have been decided at trial. Moreover, they do not have to show here that their
infringement theory would have been successful at trial. Rather, what plaintiffs did have to show is that
they had some theoretical and chemical back‐up to support what could very well be a substantively weak
infringement theory. Their scientific back‐up supports a finding that their infringement position was not
objectively unreasonable. In considering plaintiffs’ litigation position, this Court does not find this matter
exceptional under 35 U.S.C. §285.
4.3.2 Reasonableness of Plaintiffs’ Litigation Conduct
The analysis turns now to the manner in which the infringement case was litigated: unreasonable
conduct prompts a finding of exceptional. Defendants put forth an economic incentive theory why
plaintiffs employed delaying tactics and did not settle or resolve the litigation sooner. ECF Doc. 11‐13.
They imply that keeping the Amneal generic tied up in infringement litigation was a rational business
objective for plaintiffs as the ‘720 patent6 expires in 2020, and has but a few years left to keep generating
mega‐million dollar revenues as other FDA‐approved Lialda® generics acutely cut into these. Id. at 12.
Defendants cite as an example a discovery dispute from summer 2017 in which plaintiffs’
requested from Magistrate Judge Schneider that defendants provide greater specificity in their status
reports about FDA approval. ECF Doc. 252. The request was denied both because plaintiffs had canceled
a deposition of an Amneal C‐level employee, which could have resolved the dispute, and because such
cancellation indicated to Magistrate Judge Schneider that what plaintiffs ultimately wanted was to get the
case delayed until FDA approval of Amneal’s product. ECF Doc. 268: 2. In effect, defendants conflate their
argument about plaintiffs’ weak litigation position into their contention of unreasonable litigation
conduct. To wit, plaintiffs knew their infringement theory was untenable and should have settled earlier.
As almost every ANDA litigation case is hotly contested during discovery and in dispositive
motions and represents high‐stakes revenue maintenance or loss, finding unreasonable conduct during
such litigation is a balancing of the totality of litigation conduct. Green Mt. Glass, 300 F. Supp. at 631.
Bitter discovery disputes and strong economic reasons that de‐incentivize settlement, even coupled to a
weak infringement theory, are par for the course, and do not make this case “stand out from others”. Id.
This Court has found that “decisions granting fees after Octane Fitness have generally concerned
egregious litigation conduct”. Garfum II, 2016 WL 7325467, at *6. To the point, this Court does not find
6 Currently plaintiffs’ only U.S. patent covering Lialda®
8
egregious litigation conduct in this matter and consequently does not find exceptionality under 35 U.S.C.
§285.
5.0
Conclusion
Under neither consideration‐‐the objectively baseless litigation theory nor the unreasonable
litigation conduct‐‐does this Court find plaintiffs’ behavior exceptional under 35 U.S.C. §285 after the filing
date of their expert reports and denies defendants’ motion to award attorney fees from that date up to
settlement. An Order accompanies.
Date: 11 October 2018
s/ Robert B. Kugler
ROBERT B. KUGLER
United States District Judge
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?