Takeda v. Mylan: High-Cost Generic Drugs from Baseless Paragraph IV Certifications

The Hatch-Waxman Act has established a process by which a drugmaker can obtain FDA approval to market a generic drug prior to expiration of patents directed to the corresponding brand drug. In accordance with this process, the generic drugmaker files an Abbreviated New Drug Application (“ANDA”) under 21 U.S.C. ' 355(j). The generic drugmaker must include a certification under 21 U.S.C. ' 355(j)(2)(A)(vii) (“Paragraph IV certification”) with respect to each patent listed by the brand drugmaker in the FDA's Orange Book that will not have expired prior to generic market entry. Specifically, the generic drugmaker must provide a legal and factual basis as to why each claim of each such patent will not be infringed or is invalid. The generic drugmaker must also notify the brand drugmaker of the filing. Under 35 U.S.C. ' 271(e)(2), the act of filing an ANDA that includes a Paragraph IV certification constitutes an act of infringement of the relevant listed patents on which the brand drugmaker may file suit.

The Hatch-Waxman Act provides trial courts with discretion to award attorney fees in exceptional cases involving patent infringement based on ANDA filings. Specifically, ” 271(e)(4) and 285, taken together, provide that reasonable attorney fees may be awarded to the prevailing party in exceptional cases regarding infringement based on filing a Paragraph IV certification. In addition, trial courts may invoke their inherent powers to award additional amounts, such as expert fees. Whether a case is exceptional is an issue of fact requiring clear and convincing evidence, subject to review for clear error, whereas an award of attorney and expert fees in an exceptional case is at a court's discretion, subject to review for abuse of discretion.

The Federal Circuit has previously affirmed a trial court's award of attorney fees where a generic drugmaker was found to have filed and litigated a baseless Paragraph IV certification. Specifically, in Yamanouchi v. Danbury, the Federal Circuit indicated that under the Hatch-Waxman Act an ANDA applicant certifying under Paragraph IV must exercise “due care” with regard to notifying a patentee of the legal and factual basis for invalidity of a patent, and that a particular ANDA applicant failed to meet its duty by filing a baseless certification and subsequently advocating the arguments therein in litigation, thereby committing misconduct. 231 F.3d 1339 (Fed. Cir. 2000). The Yamanouchi opinion provided a useful base line regarding factual circumstances that might support an award of attorney fees, but left several issues unresolved. First, the opinion may have created some ambiguity regarding whether its “due care” language implied the existence of a negligence standard with respect to filing of a certification by an ANDA applicant. Second, the opinion left unaddressed the question of whether an ANDA applicant might avoid a finding of an exceptional case by essentially abandoning, at the start of litigation, arguments of a baseless certification, thereby limiting fact-finding about the substance of the certification. Third, the issue of what circumstances might support an award of expert fees was also left unaddressed.

In Takeda v. Mylan, the Federal Circuit revisited attorney fees in the context of an ANDA application. In doing so, the court provided additional guidance regarding factual circumstances that may support such awards and addressed several of the unanswered questions from the Yamanouchi opinion set forth above. 549 F.3d 1381 (Fed. Cir. 2008).

The District Court Decisions and Previous Appeals

Takeda markets an anti-diabetic drug, ACTOS' brand pioglitazone, which it identifies as being covered by U.S. Pat. No. 4,687,777 (“the '777 patent”). Alphapharm and Mylan sought to market generic versions of pioglitazone under the Hatch-Waxman Act and specifically filed ANDAs including Paragraph IV certifications that the '777 patent is invalid based on obviousness. Takeda sued Alphapharm and Mylan for infringement. Alphapharm and Mylan litigated vigorously, advancing new obviousness arguments and also arguing unenforceability based on inequitable conduct during prosecution.

The district court held, in a non-jury trial, that Takeda's '777 patent is not invalid and is enforceable. 417 F. Supp. 2d 341 (S.D.N.Y. 2006). Takeda prevailed in two separate appeals, post-KSR. 492 F.3d 1350 (Fed. Cir. 2007); No. 06-1364, 2007 U.S. App. LEXIS 15883 (Fed. Cir. June 28, 2007). Takeda then moved for an award of attorney fees against both Alphapharm and Mylan, arguing that this had been an exceptional case. The district court agreed, characterizing Alphapharm's certification as baseless and its pursuit of a shifting theory of obviousness at trial as litigation misconduct, and similarly characterizing Mylan's certification as having been filed in bad faith and its inequitable conduct claims as frivolous and unsupported. 459 F. Supp. 2d 227 (S.D.N.Y. 2006). The lower court ultimately awarded Takeda a total of $16.8 million for attorney and expert fees from Alphapharm and Mylan. Nos. 03 CIV. 8253(DLC), 04 CIV. 1966 (DLC), 2007 WL 840368 (S.D.N.Y. Mar. 21 2007). Alphapharm and Mylan appealed.

The Federal Circuit Decision

The Federal Circuit concluded that the district court's finding of an exceptional case was not clearly erroneous and that the award of attorney fees had been within the district court's discretion, and thus affirmed. 549 F.3d at 1384.

The Federal Circuit panel, like the trial court judge, seems to have viewed the circumstances of the case as having established that the ANDA applicants had filed and litigated baseless Paragraph IV certifications. In reviewing the trial court's findings of fact, the Federal Circuit noted, for example, that Alphapharm had neglected to indicate in its certification why a particular compound should have been considered a lead compound, and thus had failed to establish a prima facie case of obviousness. Id. at 1386. The Federal Circuit pointed out that Mylan's Rule 30(b)(6) designee had contradicted the substance of Mylan's own Paragraph IV certification. Id. at 1389. The court also indicated that Alphapharm, during litigation, had abandoned its initial theory in favor of shifting theories of invalidity for obviousness, none of which had been plausible, and that Mylan, in its late assertion of a claim of inequitable conduct, had failed to present any evidence that Takeda had hidden or misrepresented any information with regard to the USPTO. Id. at 1387, 1389.

The Federal Circuit clarified the substance of an ANDA applicant's duty under ” 271 and 285 regarding filing a Paragraph IV certification and specifically addressed the “due care” language of the Yamanouchi opinion. According to the Federal Circuit, the trial court had been correct in finding that Alphapharm's ANDA filing would “amount to litigation misconduct supporting an exceptional case finding if it were 'baseless' and if it 'fail[ed] to present even a prima facie case of invalidity in filing the Paragraph IV certification'” Id. at 1388. The appellate court further noted that the trial court had also found misconduct during litigation. Id. The Federal Circuit rejected the appellants' argument that prior case law had established alternative and conflicting standards of simple negligence and gross negligence and indicated that neither standard is applicable. Id.

The Federal Circuit addressed and rejected a highly technical argument for avoiding an award of attorney fees. Id. at 1389. Specifically, Mylan argued that the case could not be found to have been exceptional because the merits of the arguments that Mylan had made in its Paragraph IV certification had not been sufficiently tested at trial to provide the clear and convincing evidence necessary for finding a case exceptional. Id. at 1388. In response, the Federal Circuit indicated that
“[i]n light of the scientific errors present in Mylan's certification letter, the fact that the court was unmoved by Mylan's decision not to pursue the obviousness claim at trial can hardly be deemed clear error.” Id. at 1389. Of note, the Federal Circuit may have signaled that an ANDA applicant potentially could prevail in an appeal of an award of attorney fees, despite having filed a baseless certification, if the applicant were to develop a prima facie case of invalidity during litigation. Specifically, the Federal Circuit stated that it was clear that the district court had not limited Alphapharm or Mylan to the arguments made in their certification letters, perhaps suggesting that if Alphapharm and Mylan had ultimately been able to establish a prima facie case of invalidity during litigation that they might have avoided the award of attorney fees. Id. at 1389-90.

The Federal Circuit also addressed the issue of the amount of the award of attorney and expert fees. Regarding attorney fees, the Federal Circuit indicated that the trial court's decision to award the full amount requested by the patentee was unusual but not apparently unjustified. Id. at 1390. Regarding expert fees, the majority indicated that “[t]he use of this inherent power is reserved for cases with 'a finding of fraud or abuse of the judicial process,'” and that based on an abuse of judicial process here that the award of expert fees was not apparently unjustified. Id. at 1391.

Think Twice

The Takeda opinion should give potential ANDA applicants good reason to think twice before filing and litigating baseless certifications under Paragraph IV. Establishing chemical obviousness remains challenging, even post-KSR, and the cost of aggressive posturing and miscalculation can be high.

Gregory M. York, Ph.D. is an associate at Pearne & Gordon LLP in Cleveland, OH. The views expressed in this article are his and not necessarily those of Pearne & Gordon LLP or its clients.

The Hatch-Waxman Act has established a process by which a drugmaker can obtain FDA approval to market a generic drug prior to expiration of patents directed to the corresponding brand drug. In accordance with this process, the generic drugmaker files an Abbreviated New Drug Application (“ANDA”) under 21 U.S.C. ' 355(j). The generic drugmaker must include a certification under 21 U.S.C. ' 355(j)(2)(A)(vii) (“Paragraph IV certification”) with respect to each patent listed by the brand drugmaker in the FDA's Orange Book that will not have expired prior to generic market entry. Specifically, the generic drugmaker must provide a legal and factual basis as to why each claim of each such patent will not be infringed or is invalid. The generic drugmaker must also notify the brand drugmaker of the filing. Under 35 U.S.C. ' 271(e)(2), the act of filing an ANDA that includes a Paragraph IV certification constitutes an act of infringement of the relevant listed patents on which the brand drugmaker may file suit.

The Hatch-Waxman Act provides trial courts with discretion to award attorney fees in exceptional cases involving patent infringement based on ANDA filings. Specifically, ” 271(e)(4) and 285, taken together, provide that reasonable attorney fees may be awarded to the prevailing party in exceptional cases regarding infringement based on filing a Paragraph IV certification. In addition, trial courts may invoke their inherent powers to award additional amounts, such as expert fees. Whether a case is exceptional is an issue of fact requiring clear and convincing evidence, subject to review for clear error, whereas an award of attorney and expert fees in an exceptional case is at a court's discretion, subject to review for abuse of discretion.

The Federal Circuit has previously affirmed a trial court's award of attorney fees where a generic drugmaker was found to have filed and litigated a baseless Paragraph IV certification. Specifically, in Yamanouchi v. Danbury, the Federal Circuit indicated that under the Hatch-Waxman Act an ANDA applicant certifying under Paragraph IV must exercise “due care” with regard to notifying a patentee of the legal and factual basis for invalidity of a patent, and that a particular ANDA applicant failed to meet its duty by filing a baseless certification and subsequently advocating the arguments therein in litigation, thereby committing misconduct. 231 F.3d 1339 (Fed. Cir. 2000). The Yamanouchi opinion provided a useful base line regarding factual circumstances that might support an award of attorney fees, but left several issues unresolved. First, the opinion may have created some ambiguity regarding whether its “due care” language implied the existence of a negligence standard with respect to filing of a certification by an ANDA applicant. Second, the opinion left unaddressed the question of whether an ANDA applicant might avoid a finding of an exceptional case by essentially abandoning, at the start of litigation, arguments of a baseless certification, thereby limiting fact-finding about the substance of the certification. Third, the issue of what circumstances might support an award of expert fees was also left unaddressed.

In Takeda v. Mylan, the Federal Circuit revisited attorney fees in the context of an ANDA application. In doing so, the court provided additional guidance regarding factual circumstances that may support such awards and addressed several of the unanswered questions from the Yamanouchi opinion set forth above. 549 F.3d 1381 (Fed. Cir. 2008).

The District Court Decisions and Previous Appeals

Takeda markets an anti-diabetic drug, ACTOS' brand pioglitazone, which it identifies as being covered by U.S. Pat. No. 4,687,777 (“the '777 patent”). Alphapharm and Mylan sought to market generic versions of pioglitazone under the Hatch-Waxman Act and specifically filed ANDAs including Paragraph IV certifications that the '777 patent is invalid based on obviousness. Takeda sued Alphapharm and Mylan for infringement. Alphapharm and Mylan litigated vigorously, advancing new obviousness arguments and also arguing unenforceability based on inequitable conduct during prosecution.

The district court held, in a non-jury trial, that Takeda's '777 patent is not invalid and is enforceable. 417 F. Supp. 2d 341 (S.D.N.Y. 2006). Takeda prevailed in two separate appeals, post-KSR. 492 F.3d 1350 (Fed. Cir. 2007); No. 06-1364, 2007 U.S. App. LEXIS 15883 (Fed. Cir. June 28, 2007). Takeda then moved for an award of attorney fees against both Alphapharm and Mylan, arguing that this had been an exceptional case. The district court agreed, characterizing Alphapharm's certification as baseless and its pursuit of a shifting theory of obviousness at trial as litigation misconduct, and similarly characterizing Mylan's certification as having been filed in bad faith and its inequitable conduct claims as frivolous and unsupported. 459 F. Supp. 2d 227 (S.D.N.Y. 2006). The lower court ultimately awarded Takeda a total of $16.8 million for attorney and expert fees from Alphapharm and Mylan. Nos. 03 CIV. 8253(DLC), 04 CIV. 1966 (DLC), 2007 WL 840368 (S.D.N.Y. Mar. 21 2007). Alphapharm and Mylan appealed.

The Federal Circuit Decision

The Federal Circuit concluded that the district court's finding of an exceptional case was not clearly erroneous and that the award of attorney fees had been within the district court's discretion, and thus affirmed. 549 F.3d at 1384.

The Federal Circuit panel, like the trial court judge, seems to have viewed the circumstances of the case as having established that the ANDA applicants had filed and litigated baseless Paragraph IV certifications. In reviewing the trial court's findings of fact, the Federal Circuit noted, for example, that Alphapharm had neglected to indicate in its certification why a particular compound should have been considered a lead compound, and thus had failed to establish a prima facie case of obviousness. Id. at 1386. The Federal Circuit pointed out that Mylan's Rule 30(b)(6) designee had contradicted the substance of Mylan's own Paragraph IV certification. Id. at 1389. The court also indicated that Alphapharm, during litigation, had abandoned its initial theory in favor of shifting theories of invalidity for obviousness, none of which had been plausible, and that Mylan, in its late assertion of a claim of inequitable conduct, had failed to present any evidence that Takeda had hidden or misrepresented any information with regard to the USPTO. Id. at 1387, 1389.

The Federal Circuit clarified the substance of an ANDA applicant's duty under ” 271 and 285 regarding filing a Paragraph IV certification and specifically addressed the “due care” language of the Yamanouchi opinion. According to the Federal Circuit, the trial court had been correct in finding that Alphapharm's ANDA filing would “amount to litigation misconduct supporting an exceptional case finding if it were 'baseless' and if it 'fail[ed] to present even a prima facie case of invalidity in filing the Paragraph IV certification'” Id. at 1388. The appellate court further noted that the trial court had also found misconduct during litigation. Id. The Federal Circuit rejected the appellants' argument that prior case law had established alternative and conflicting standards of simple negligence and gross negligence and indicated that neither standard is applicable. Id.

The Federal Circuit addressed and rejected a highly technical argument for avoiding an award of attorney fees. Id. at 1389. Specifically, Mylan argued that the case could not be found to have been exceptional because the merits of the arguments that Mylan had made in its Paragraph IV certification had not been sufficiently tested at trial to provide the clear and convincing evidence necessary for finding a case exceptional. Id. at 1388. In response, the Federal Circuit indicated that
“[i]n light of the scientific errors present in Mylan's certification letter, the fact that the court was unmoved by Mylan's decision not to pursue the obviousness claim at trial can hardly be deemed clear error.” Id. at 1389. Of note, the Federal Circuit may have signaled that an ANDA applicant potentially could prevail in an appeal of an award of attorney fees, despite having filed a baseless certification, if the applicant were to develop a prima facie case of invalidity during litigation. Specifically, the Federal Circuit stated that it was clear that the district court had not limited Alphapharm or Mylan to the arguments made in their certification letters, perhaps suggesting that if Alphapharm and Mylan had ultimately been able to establish a prima facie case of invalidity during litigation that they might have avoided the award of attorney fees. Id. at 1389-90.

The Federal Circuit also addressed the issue of the amount of the award of attorney and expert fees. Regarding attorney fees, the Federal Circuit indicated that the trial court's decision to award the full amount requested by the patentee was unusual but not apparently unjustified. Id. at 1390. Regarding expert fees, the majority indicated that “[t]he use of this inherent power is reserved for cases with 'a finding of fraud or abuse of the judicial process,'” and that based on an abuse of judicial process here that the award of expert fees was not apparently unjustified. Id. at 1391.

Think Twice

The Takeda opinion should give potential ANDA applicants good reason to think twice before filing and litigating baseless certifications under Paragraph IV. Establishing chemical obviousness remains challenging, even post-KSR, and the cost of aggressive posturing and miscalculation can be high.

Gregory M. York, Ph.D. is an associate at Pearne & Gordon LLP in Cleveland, OH. The views expressed in this article are his and not necessarily those of Pearne & Gordon LLP or its clients.