The U.S. Supreme Court has now addressed for the first time the scope of a statutory provision authorizing generic drug companies to counterclaim in Hatch-Waxman litigation against a branded company to correct or delete patent information submitted to the U.S. Food and Drug Administration (FDA) and listed in the Orange Book. The Supreme Court unanimously held that a generic drug company has the statutory right to counterclaim against a branded company to force correction of a “use code” provided to the FDA that inaccurately describes the brand’s patent as covering a particular method of using a drug. Caraco Pharmaceutical Laboratories v. Novo Nordisk, Case No. 10-844 (Supr. Ct., April 17, 2012) (Kagan, J.) (Sotomayor, J., concurring).

By way of background, as part of the branded company receiving approval to market its drug, it must list in the FDA’s Orange Book its composition and method of using patents that it contends cover the drug and its uses approved for sale by the FDA. The branded company is required to identify the patents by their number and dates of expiration and to provide to the FDA a short description of the subject matter that a method of use patent covers. This short description is known as a “use code,” and the FDA does not attempt to ascertain their accuracy.

Under the Hatch Waxman Act, a generic drug company may submit an Abbreviated New Drug Application (ANDA) seeking approval to market a generic version of a branded company’s approved drug before a patent expires. It may do so in two ways. First, it may certify that it will market a drug for uses not covered by the brand’s patents, see 21 U.S.C. § 355(j)(2)(A)(viii), and propose a product label that will “carve out” any still patented method of use. (This approach is called a “skinny label.”) Second, a generic drug company may directly challenge the patent under a “Paragraph IV” certification by stating that its intended label does not infringe the Orange Book listed patents and/or such patents are invalid.

The FDA is prohibited from approving a drug for a use that would infringe a method-of-use claim and relies on the use code description to assess whether the generic’s proposed label would overlap in someway with the use code. If so, FDA will not approve the application. Thus, the breadth of the use code may determine whether the FDA approves or not an ANDA for a particular use(s).

In this case, Novo Nordisk had received FDA approval for three uses of its branded diabetes drug repaglinide. Novo’s method patent, however, covered only one use of the drug, namely to treat diabetes in combination with metformin. Caraco originally submitted a Paragraph IV certification to sell its generic version of repaglinide for all approved uses, and Novo filed suit. Caraco then submitted a “skinny label” under Paragraph viii and proposed a label carving out Novo’s patented use of repaglinide with metformin. Novo then changed its use code consistent with a change in its label to indicate that it held a patent on all three approved uses of repaglinide. As a result, FDA would not grant Caraco the right to market its generic version of repaglinide for the two non-patented uses because the proposed skinny label overlapped with the now-broader use code.

Caraco filed a statutory counterclaim under 21 U.S.C. § 355(j)(C)(ii)(I). Congress had enacted the counterclaim provision in 2003 in response to apparent evidence that some branded companies were exploiting the statutory scheme to prevent or delay the marketing of generic drugs. This included one case where a branded company had listed a patent in the Orange Book that covered neither the compound nor the use of the drug.

Construing the statue, the district court granted summary judgment to Caraco, enjoining Novo from correcting its overbroad use code description as it relates to its method patent. Caraco appealed to the U.S. Court of Appeals for the Federal Circuit, which reversed, finding that the statute did not authorize the counterclaim, because at least one use described in the use code was in fact patented. (See IP Update, Vol. 13, No. 5; Vol. 13, No. 8.)

The Supreme Court has now reversed. Writing for the Court, Justice Kagan found that two provisions in the statute required construction. First, the Court was required to construe when “a patent does not claim . . . an approved method of using” a drug. Second, the Court was required to decide whether the submission of the use code information constituted the “content of patent information submitted” pursuant to the Orange Book listing requirements.

Addressing the first issue, the Court reasoned that “context matters.” Determinative, the Court found, were the 2004 Hatch-Waxman Amendments to authorize FDA to approve a generic drug for unpatented uses. “The statutory scheme, in other words, contemplates that one patented use will not foreclose marketing a generic drug for other unpatented ones.” Thus, a company “may bring a counterclaim to show that a method of use is unpatented because establishing that fact allows the FDA to authorize a generic drug via section viii.”

Having resolved the first question against Novo, the Court went on to address whether a branded company’s use code did constitute “patent information” submitted by the brand “under” § 355 to the FDA. The Court read “under” broadly and found that use codes are “pivotal” to the FDA’s implementation of the Hatch-Waxman Amendments, because the FDA relies on the use codes to assess whether any patent covers a particular method of use.

Finally, the Court rejected Novo’s argument that Congress established the counterclaim only to address the specific problem of when a branded company improperly lists a patent in the Orange Book and remanded the case for further proceedings consistent with the opinion.

Practice Note: The Caraco decision is significant because it broadly confirms the statutory counterclaim right of a generic drug manufacturer to seek correction of a branded company’s patent information submitted as part of the Orange Book listing process. Also, if a branded company were to submit an overbroad use code, that potentially may trigger antitrust issues as well. Nonetheless, the facts of the decision are somewhat unique, and it is unclear whether this decision will trigger significant counterclaim litigation over use codes. Certainly, it will be good practice for a branded company to carefully consider the use code language it submits as part of the patent information supplied to FDA.