On April 17, 2012, the United States Supreme Court ruled that the counterclaim provision of the Hatch-Waxman Act allows generic pharmaceutical manufacturers to seek judicial correction of an overly broad use code provided by a branded company for inclusion in the FDA’s Orange Book.  After the Supreme Court decision, Caraco will be able to pursue its claim seeking correction of the use code that Novo Nordisk provided for a patent related to the use of repaglinide (Prandin).  Allowing generics to challenge use codes submitted to the FDA may help to speed generic products to market.

Background

The FDA requires holders of New Drug Applications (NDAs) to provide a list of the patents that the NDA-holder believes cover the reference drug product.  The NDA-holder is also required to provide the expiration dates of the patents and a description of the scope of the patents, known as a use code.  The FDA takes this information at face value, assumes it is accurate, and lists it in the FDA’s Orange Book.  The FDA uses the information to determine whether an application to market a generic drug (an Abbreviated New Drug Application, or ANDA) would infringe any of the listed patents. Under provisions of the statute that govern approval of generic drugs (21 U.S.C. § 355), commonly known as the Hatch-Waxman Act, the FDA may not immediately approve an ANDA that would infringe a listed patent.

When submitting an application to market a generic drug, a generic manufacturer must certify that any listed patents will have expired before the generic product is marketed (see 21 U.S.C. §§ 355(j)(2)(A)(vii)(I)-(III)) or that the listed patent “is invalid or will not be infringed by the manufacture, use, or sale of the [generic] drug,” commonly referred to as a “paragraph IV certification.”  21 U.S.C. § 355(j)(2)(A)(vii)(IV).  Paragraph IV certification triggers litigation that is often protracted and expensive.  It also triggers an automatic 30-month stay of approval of the ANDA.  A generic manufacturer may also use a third option and submit a “section viii statement,” which asserts that the generic manufacturer will only market the drug for one or more methods of use not covered by the branded company’s listed patents.  See 21 U.S.C. §355(j)(2)(A)(viii). 

A generic manufacturer typically uses a section viii statement when the branded company’s patent on the drug compound has expired and the branded company holds patents covering only some approved methods of using the drug.  If the ANDA applicant follows this route, it will propose labeling for the generic drug product that “carves out” patented methods from those shown on the branded company’s approved drug label, reflecting on the label of the generic drug product only methods of use that are unpatented and thus avoid litigation alleging infringement of an Orange Book listed patent.  See 21 C.F.R. § 314.94(a)(8)(iv).  FDA acceptance of such carve-out labels allows generic manufacturers to market their products for a subset of approved uses—only those not subject to patent protection.  The FDA will not approve a generic manufacturer’s proposed carve-out label that overlaps at all with a branded company’s use codes. 

The Caraco opinion notes that the FDA’s failure to assess the veracity of the patent information provided by a branded company to the FDA has created an opportunity for branded companies to provide overly broad patent and use information.  This tactic has delayed entry of generic products into the market.  Faced with an overly broad use code, a generic manufacturer’s only option, to enable entry of a generic product into the market before expiration of all listed patents, is to file a Paragraph IV certification and litigate the validity of the listed patent.  During such litigation, the entry of the generic drug product will be delayed, by reason of the Hatch-Waxman Act’s automatic 30-month stay on FDA approval of ANDAs during the pendency of Paragraph IV litigation.  Slip Op. at 5-6.  Congress responded to these abuses by creating a legal counterclaim—available to a generic applicant sued for patent infringement—seeking an order to “correct or delete the patent information” submitted by the brand company that is improperly blocking the FDA’s approval of a generic product.  21 U.S.C. § 355(j)(5)(C)(ii)(I).  The Caraco opinion addresses the question whether the counterclaim provision of the Hatch-Waxman Act, as amended by Congress, is broad enough to allow counterclaims seeking correction of improperly listed use codes.   

The Supreme Court Decision

The parties in Caraco sell or seek to sell the diabetes drug repaglinide, brand name Prandin.  The FDA has approved three uses of repaglinide: (1) repaglinide alone, (2) repaglinide in combination with metformin, and (3) repaglinide in combination with thiazolidinediones.  Novo Nordisk’s patent, listed in the Orange Book, covers the use of repaglinide and metformin.  When the litigation triggered by Caraco’s ANDA began, the use code for Novo Nordisk’s patent was limited to the metformin combination therapy.  During the course of litigation, Caraco filed a section viii statement with proposed labeling carving out Novo Nordisk’s patented metformin therapy.  Before the FDA could act on the request, Novo Nordisk amended its use code in a way that covered all three approved uses of repaglinide.  Since Caraco’s proposed label now overlapped with Novo Nordisk’s use code, the FDA denied Caraco’s request for approval pursuant to section viii.

Caraco responded to this new, overly broad use code by bringing a counterclaim seeking an order to compel the FDA to correct the use code so that it would only describe the metformin combination therapy.  Such an order would allow the FDA to approve Caraco’s carve-out label and approve the company’s ANDA.  The district court entered summary judgment in Caraco’s favor.  The Federal Circuit reversed, finding that the statute required Caraco to prove that the Orange Book patent that Novo Nordisk listed did not cover any of the approved methods.  The Federal Circuit held that the counterclaim provision of the Hatch-Waxman Act is limited only to correction of an improperly listed patent number or patent expiration date.

The Supreme Court’s decision in Caraco reversed the Federal Circuit’s decision.  It found that the “text and context of the [counterclaim] provision demonstrate that a generic company can employ the counterclaim to challenge a brand’s overbroad use code.”  Slip Op. at 24.  The Supreme Court rejected Novo Nordisk’s argument that a counterclaim may be filed under the statutory provision only if the listed patent does not claim any approved method of using the drug.  Instead, the Supreme Court found that a counterclaim may be filed whenever the listed patent does not claim a method of use for which the ANDA applicant seeks to market the generic drug.  The Supreme Court relied in part on its observation that the statutory scheme—section viii, in particular—contemplates that one patented use will not prevent marketing a generic drug for other unpatented uses.  Slip Op. at 13-14.  In other words, construction of the counterclaim provision of the Hatch-Waxman Act to permit actions such as Caraco’s furthers the purposes of the Act “by facilitating the approval of non-infringing generic drugs under section viii.”  Slip Op. at 15.

Conclusion

Caraco is consistent with the purpose of the Hatch-Waxman Act, to enable more rapid entry of less expensive generic drugs in the market.  In Caraco, the Supreme Court recognized that providing overbroad use codes, related even to properly listed patents, thwarts the purposes of the Hatch-Waxman Act by delaying the approval of otherwise acceptable ANDAs.  The decision restores what Congress intended when it last amended the counterclaim provisions of the Hatch-Waxman Act, by allowing counterclaims to correct improper use code listings.  The decision may effect a reduction in the number of cases that must be brought under Paragraph IV certifications, but may increase the number of instances in which use codes are challenged either directly or indirectly.  Whether or not the decision in Caraco will reduce litigation costs is uncertain, but the character of some litigation under the Hatch-Waxman Act will undoubtedly change.