Addressing damages issues in the Hatch-Waxman context, the U.S. Court of Appeals for the Federal Circuit provided important guidance regarding the application of the entire market value rule to pharmaceutical sales, and the non-availability of patent damages during the period of pediatric exclusivity. AstraZeneca AB, et al. v. Apotex Corp., et al., Case No. 14-1221 (Fed. Cir., Apr. 7, 2015) (Bryson, J.)

The patents at issue relate to pharmaceutical formulations containing omeprazole, the active ingredient in AstraZeneca’s prescription drug Prilosec. Beginning in 1997, eight generic manufacturers filed Abbreviated New Drug Applications (ANDAs) to market and sell generic versions of omeprazole, and AstraZeneca responded by filing lawsuits against all eight manufacturers. In November 2003, while the litigation was pending, Apotex began selling its generic omeprazole product. In 2007, the district court entered judgment of infringement and an injunction against Apotex, which the Federal Circuit affirmed. The district court then conducted a bench trial to determine the appropriate damages resulting from Apotex’ sales. The parties agreed that a reasonable royalty was an appropriate measure of damages, and that a hypothetical negotiation would have taken place in November 2003. After hearing the evidence, the district court determined that AstraZeneca was entitled to 50 percent of Apotex’ profits from sales of omeprazole during the period of infringement. Apotex appealed. 

At the Federal Circuit, Apotex challenged the damages ruling by claiming that (1) the 50 percent royalty rate was excessive in light of the record, (2) the district court improperly refused to apportion between the patented and unpatented features of the claims, and (3) the damages should have been discounted in light of available non-infringing alternatives. As to the first argument, Apotex claimed that the district court improperly discounted evidence that the market was “well on its way to genericization” by the time of Apotex’s entry, placed undue emphasis on AstraZeneca’s ability to keep Apotex off the market by failing to grant a license, and did not properly account for other AstraZeneca licenses with lower royalty rates. The Federal Circuit disagreed, concluding that the district court properly assessed the reasonable royalty based on what AstraZeneca would have insisted on as compensation, rather than taking a backward-looking assessment of what actually happened when Apotex launched at risk. 

Apotex’s second argument relied on the entire market value rule. Here, Apotex claimed that the district court should have apportioned the relative contribution of value between the non-patented and patented elements of the product. The Federal Circuit clarified that although the entire market value rule was not “per se” inapplicable in the pharmaceutical context, it was inapplicable to the present case. Specifically, the Court explained that the entire market value rule was “designed to account for the contribution of the patented feature to the entire product,” and noted that here AstraZeneca’s patents covered three key elements of the product: the drug core, the enteric coating and the subcoating. Because the combination of these elements constituted the entire product that is the subject of the claims at issue, there were no non-infringing features in the product, and the entire market value rule did not apply.

As for Apotex’s third argument, the Federal Circuit disagreed that non-infringing alternatives were available, finding that the district court did not err in inferring that a competitor’s alternative formulation was not “available” to Apotex because it was covered by that competitor’s patents.

The district court also awarded AstraZeneca damages for sales of Apotex’s generic omeprazole during the “pediatric exclusivity” period of the asserted patents. The “pediatric exclusivity” period bars the FDA from approving ANDAs filed by competing drug manufacturers for six months following the patent’s expiration date. Here, all of the patents expired by 2007. However, the Federal Circuit reversed the district court and held that AstraZeneca could not recover a royalty for Apotex’s sales during the period of “pediatric exclusivity.” Specifically, the Federal Circuit explained that damages in a patent case may only be awarded for patent infringement, and there can be no infringement after a patent expires. The pediatric exclusivity period is granted by the U.S. Food and Drug Administration and is not an extension of the patent term. The fact that a generic might agree to pay for a license during the pediatric exclusivity period was not relevant, because Apotex did not infringe AstraZeneca’s patent during that period.