In a December 3, 2013 ruling, Judge Denise L. Cote entered a
damages award in the last of a long-running series of patent infringement
actions brought by Astrazeneca against generic drug manufacturers over the
active ingredient in Astrazeneca’s brand-name drug Prilosec for heartburn. Apotex Corporation, the largest generic drug
manufacturer in Canada, was the remaining defendant. The Court had previously found Apotex liable
for infringement, and the December 3 ruling concerns only the assessment of a
reasonable royalty as damages. After a lengthy
analysis, Judge Cote concluded that “the hypothetical licensing fee to which
[the parties] would have agreed would have been at least 50% of the Apotex
gross margin from its sales” of the infringing products, and ruled that
Astrazeneca “is entitled to damages in the amount of $76,021,994.50 plus
pre-judgment interest.”
In reaching that decision, the Court considered three
threshold issues. First, Judge Cote
analyzed whether the royalty should be applied to the full value of the
infringing product, or merely to the supposedly “minimal” value of the
infringing component. The Court noted
that “[w]here a product, typically an electronic product, is composed of many
different components, royalties for infringement are awarded ‘based not on the
entire product, but instead on the smallest salable patent-practicing unit.’” The Court further wrote, though, that under
the “entire market value” rule, “a patentee may assess damages based on the
market value of the entire product ‘where the patented feature creates the
basis for customer demand or substantially creates the value of the component
parts.’” The Court rejected the notion
that a rule developed for complex electronic products should be applied to
generic pharmaceutical products. The
Court further ruled that even applying the entire market value rule, the
patented component of the infringing generic drug did substantially create the
value for the finished products. So
Judge Cote concluded that the royalty rate should be applied to the value of
the generic pills sold by Apotex.
Second, the Court determined that Apotex owed royalties for
goods sold during the so-called six month “pediatric exclusivity period” that
is available for drugs coming off patent where the FDA asks a “patent holder
[to] perform pediatric studies of a drug.”
Apotex had argued that requiring the payment of royalties in this period
would be an unlawful extension of the patent monopoly, and based its contention
on Brulotte v. Thys, 379 U.S. 29
(1964). Judge Cote held that Brulotte predates the statute
establishing the “pediatric exclusivity period,” and “has been roundly criticized
for years, and does not support” the “sweeping generalization” urged by
Apotex. Judge Cote concluded that it “is
thus entirely proper for the damages calculation in this case to include
payments made for Apotex’s right to sell” infringing product “during the
pediatric exclusivity period.”
