Case Briefing

Perrigo filed an Abbreviated New Drug Application (ANDA) with the FDA under 21 U.S.C. ' 355(j), seeking approval to market a generic version of Imodium(r) Advanced. Perrigo's certification under 21 U.S.C. ? 355(j)(2)(A)(vii)(IV) (ie, a “paragraph IV certification”), declaring that the McNeil patents were invalid and would not be infringed by Perrigo's marketing of its product. On March 7, 2001, McNeil filed suit against Perrigo under 35 U.S.C. ' 271(e)(2)(A), alleging that Perrigo's submission of its ANDA was an act of infringement of numerous claims of its patents. Following a bench trial, the district court concluded that the asserted claims of the patents were either obvious or would not be infringed by the Perrigo product. The court also awarded attorney fees to Perrigo, stating that McNeil's conduct during prosecution of the patents in suit was “careless, irresponsible, and, at the very least, tantamount to studied and deceptive ignorance.” According to the district court, “McNeil's repeated erroneous representations, failure to disclose relevant prior art, and overall persistence in prosecuting exceedingly obvious 'inventions' make this case exceptional.” The court accused McNeil of having engaged in “a scheme for extending the life of a drug about to go off patent … without the slightest regard for the intent and purposes of the patent laws,” and found that “McNeil's sole motive was to compromise [those] statutes and constitutional protections for the sake of profits.”

McNeil appealed both the substantive holdings and the award of attorney fees. The Federal Circuit upheld the district court's ruling that the patents were invalid. On the issue of attorney fees, McNeil argued that an award of such fees under ' 285 to an accused infringer may be based on only two grounds: 1) inequitable conduct in the PTO, and 2) bad faith litigation – neither of which, it asserted, applied in this case. McNeil also alleged that the district court erroneously buttressed its award of attorney fees by finding that McNeil had benefited by invoking the Hatch-Waxman Act's stay provisions codified at 21 U.S.C. ' 355(j)(5)(B)(i).

In siding with McNeil on this issue, the Federal Circuit stated, “We have not previously held any party liable for attorney fees for either vigorously prosecuting its patent application or enforcing a presumptively valid patent, even where that patent was later invalidated, in the absence of clear and convincing evidence of inequitable conduct or misconduct during litigation. We decline Perrigo's invitation to do so on these facts.” The court found that there was legitimate basis for dispute as to the patents' validity, so McNeil's actions in prosecuting the patents and in defending them from infringement were not without justifcation. The court concluded that while “it may be considered more socially desirable for companies to seek truly novel inventions for maladies not yet treatable, the patent laws set the standards of novelty, non-obviousness, and utility as the requirements for patentability, without making value judgments concerning the motives for making and attempting to patent new inventions of lesser medical value. Thus, as no inequitable conduct, or litigation or other misconduct, was found, the exceptional case finding of the district court cannot stand. Accordingly, we reverse the district court's grant of attorney fees to Perrigo.”

Suit for Unjust Enrichment Falls under ERISA

The U.S. District Court for the Eastern District of Texas, Beaumont Division, denied plaintiff's motion to remand this suit to state court, finding that the action for restitution due to defendants' unjust enrichment was governed by federal common law and “arose under” federal law for purposes of maintaining subject matter jurisdiction. Health Care Service Corp. v. Tap Pharmaceutical Products Inc., Civ. Action No. 1:03-CV-166, 2003 U.S. Dist. LEXIS 13556 (8/1/03).

Health Care Service Corp. (HCSC), an administrator of employer-sponsored benefits plans, intervened in a state court class action in which individuals were suing defendants TAP, Abbott and Takeda Chemical Industries for allegedly promoting unnecessary prescriptions and overcharging for a drug called Lupron. HCSC alleged that through its divisions (various Blue Cross and Blue Shield organizations), it was the third-party payor of many of the alleged unnecessary or inflated charges for Lupron. The state district court severed HCSC's claims, resulting in a new action with HCSC as the only plaintiff, and TAP, Abbott, and Takeda as defendants. HCSC alleged several state law claims. Later, defendants filed their notice of removal to federal district court, invoking federal jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA), '' 502, 514, 29 U.S.C. ?? 1132, 1144. HCSC moved to remand, asserting federal preemption did not apply and that the notice of removal was filed too late.

The court rejected plaintiff's claim that although it was a plan administrator, it was not an ERISA fiduciary, stating, “If HCSC's allegations are correct, defendants are deemed to be fiduciaries of the plans from which they improperly obtained funds and are equitably required to disgorge these funds. Accordingly, this is a case of complete preemption of a suit to obtain equitable redress for an alleged prohibited practice under ERISA.” Additionally, the court opined that if HCSC's allegations are true, potentially millions of dollars of overcharges on this single drug had been obtained from plans paid for by employers that were intended to benefit employees and their dependents. The national policy implications for employees, employers, and benefit plans might be multiplied if similar activity has occurred with other medications, and protection of plan assets for the benefit of participants and beneficiaries was a central goal of Congress in enacting ERISA. Hence, HCSC's motion to remand was denied.

District Court's Outrage At Profit Motivation Can't Justify Attorney-Fee Award

Because the U.S. District Court for the Eastern District of Pennsylvania correctly determined that the asserted patent claims for antidiarrheal medicine Imodium(R) Advanced were invalid, but clearly erred in finding this to be an exceptional case within the meaning of 35 U.S.C. ' 285 and awarding attorney fees to defendant, the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed in part. McNeil-PPC Inc. v. L. Perrigo Co., NO. 02-1516, 2003 U.S. App. LEXIS 15442 (Fed. Cir., 8/1/03).

In the late 1980s, facing the then-imminent expiration of its patent covering the best-selling antidiarrheal product Imodium R A-D, McNeil-PPC sought patentable improvements that would allow it to extend its position as market leader. McNeil scientists evaluated a combination of Imodium(R) A-D's active ingredient (2 mg loperamide) and 125 mg simethicone (an anti-gas drug), and allegedly found that the combination produced a synergistic effect. McNeil was granted two patents on the combination, as well as two patents for a method for increasing the drug's shelf life McNeil has sold the resulting tablets as Imodium(R) Advanced since 1997, pursuant to an approved New Drug Application (NDA).

Perrigo filed an Abbreviated New Drug Application (ANDA) with the FDA under 21 U.S.C. ' 355(j), seeking approval to market a generic version of Imodium(r) Advanced. Perrigo's certification under 21 U.S.C. ? 355(j)(2)(A)(vii)(IV) (ie, a “paragraph IV certification”), declaring that the McNeil patents were invalid and would not be infringed by Perrigo's marketing of its product. On March 7, 2001, McNeil filed suit against Perrigo under 35 U.S.C. ' 271(e)(2)(A), alleging that Perrigo's submission of its ANDA was an act of infringement of numerous claims of its patents. Following a bench trial, the district court concluded that the asserted claims of the patents were either obvious or would not be infringed by the Perrigo product. The court also awarded attorney fees to Perrigo, stating that McNeil's conduct during prosecution of the patents in suit was “careless, irresponsible, and, at the very least, tantamount to studied and deceptive ignorance.” According to the district court, “McNeil's repeated erroneous representations, failure to disclose relevant prior art, and overall persistence in prosecuting exceedingly obvious 'inventions' make this case exceptional.” The court accused McNeil of having engaged in “a scheme for extending the life of a drug about to go off patent … without the slightest regard for the intent and purposes of the patent laws,” and found that “McNeil's sole motive was to compromise [those] statutes and constitutional protections for the sake of profits.”

McNeil appealed both the substantive holdings and the award of attorney fees. The Federal Circuit upheld the district court's ruling that the patents were invalid. On the issue of attorney fees, McNeil argued that an award of such fees under ' 285 to an accused infringer may be based on only two grounds: 1) inequitable conduct in the PTO, and 2) bad faith litigation – neither of which, it asserted, applied in this case. McNeil also alleged that the district court erroneously buttressed its award of attorney fees by finding that McNeil had benefited by invoking the Hatch-Waxman Act's stay provisions codified at 21 U.S.C. ' 355(j)(5)(B)(i).

In siding with McNeil on this issue, the Federal Circuit stated, “We have not previously held any party liable for attorney fees for either vigorously prosecuting its patent application or enforcing a presumptively valid patent, even where that patent was later invalidated, in the absence of clear and convincing evidence of inequitable conduct or misconduct during litigation. We decline Perrigo's invitation to do so on these facts.” The court found that there was legitimate basis for dispute as to the patents' validity, so McNeil's actions in prosecuting the patents and in defending them from infringement were not without justifcation. The court concluded that while “it may be considered more socially desirable for companies to seek truly novel inventions for maladies not yet treatable, the patent laws set the standards of novelty, non-obviousness, and utility as the requirements for patentability, without making value judgments concerning the motives for making and attempting to patent new inventions of lesser medical value. Thus, as no inequitable conduct, or litigation or other misconduct, was found, the exceptional case finding of the district court cannot stand. Accordingly, we reverse the district court's grant of attorney fees to Perrigo.”

Suit for Unjust Enrichment Falls under ERISA

The U.S. District Court for the Eastern District of Texas, Beaumont Division, denied plaintiff's motion to remand this suit to state court, finding that the action for restitution due to defendants' unjust enrichment was governed by federal common law and “arose under” federal law for purposes of maintaining subject matter jurisdiction. Health Care Service Corp. v. Tap Pharmaceutical Products Inc., Civ. Action No. 1:03-CV-166, 2003 U.S. Dist. LEXIS 13556 (8/1/03).

Health Care Service Corp. (HCSC), an administrator of employer-sponsored benefits plans, intervened in a state court class action in which individuals were suing defendants TAP, Abbott and Takeda Chemical Industries for allegedly promoting unnecessary prescriptions and overcharging for a drug called Lupron. HCSC alleged that through its divisions (various Blue Cross and Blue Shield organizations), it was the third-party payor of many of the alleged unnecessary or inflated charges for Lupron. The state district court severed HCSC's claims, resulting in a new action with HCSC as the only plaintiff, and TAP, Abbott, and Takeda as defendants. HCSC alleged several state law claims. Later, defendants filed their notice of removal to federal district court, invoking federal jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA), '' 502, 514, 29 U.S.C. ?? 1132, 1144. HCSC moved to remand, asserting federal preemption did not apply and that the notice of removal was filed too late.

The court rejected plaintiff's claim that although it was a plan administrator, it was not an ERISA fiduciary, stating, “If HCSC's allegations are correct, defendants are deemed to be fiduciaries of the plans from which they improperly obtained funds and are equitably required to disgorge these funds. Accordingly, this is a case of complete preemption of a suit to obtain equitable redress for an alleged prohibited practice under ERISA.” Additionally, the court opined that if HCSC's allegations are true, potentially millions of dollars of overcharges on this single drug had been obtained from plans paid for by employers that were intended to benefit employees and their dependents. The national policy implications for employees, employers, and benefit plans might be multiplied if similar activity has occurred with other medications, and protection of plan assets for the benefit of participants and beneficiaries was a central goal of Congress in enacting ERISA. Hence, HCSC's motion to remand was denied.