Court Applies "Plausibility" Pleading Standard to Patent Invalidity Counterclaim

In a June 16, 2015 ruling, Judge Denise Cote ruled that the Twombly/Iqbal pleading standard applies to a patent invalidity counterclaim. The counterclaim plaintiff argued that the enhanced pleading standard was inconsistent with the Local Patent Rules, which provide for the early disclosure of invalidity contentions. The Court adopted Judge Engelmayer’s earlier decision on the issue that “‘[a]lthough some superfluity may result, the Local Patent Rules and the [Twombly/Iqbal] pleading standard are not inconsistent. And in the absence of any directive that claims of invalidity . . . should be measured under a different standard than almost all other claims in this Circuit are, the Court declines to do so.’”

Court Permits Withdrawal of Deemed Admitted Responses to Requests for Admission

 In an April 4, 2014 ruling, Judge Denise Cote granted the defendants’ motion to withdraw and amend their deemed admissions under Rule 36 in the plaintiffs’ trademark and copyright infringement action. The defendants did not respond to the plaintiffs’ RFA’s until more than a month after the responses were due, and offered only “inadvertence” as an excuse. The Court ruled:

Here, there is no question that permitting withdrawal and amendment of the deemed admissions would “promote the presentation of the merits of the action,” Fed. R. Civ. P. 36(b), as the deemed admissions go to the “ultimate issues” in this litigation and may well be dispositive of the action. . . . In particular, defendants are deemed to have admitted that the Accused Products are “counterfeit” and infringe plaintiffs’ trademarks and copyright, that defendants knew of this when selling them, and that any of defendants’ rights with respect to its Isis Cross Design were abandoned. No meaningful “presentation of the merits” of this action concerning infringement of intellectual property rights would be possible unless these admission are withdrawn and amended by the [deemed admitted responses].

Judge Cote rejected the plaintiffs’ claims of prejudice, noting that “plaintiffs requested so many admissions of ultimate liability in this case, despite knowing defendants had denied these requested admissions in their answers, underscores that plaintiffs’ RFAs were largely made “in the hope that [defendants] w[ould] simply concede essential elements” or would miss the 30-day deadline to respond.”

Court Denies Motion to Dismiss Inequitable Conduct Counterclaim and to Strike Affirmative Defenses

In a March 6, 2014 ruling, Judge Denise Cote denied plaintiff Keystone Global LLC’s motion to dismiss defendants’ counterclaim of inequitable conduct and certain patent-related affirmative defenses. The inequitable conduct counterclaim was based on the defendant’s assertion that it had invented the claimed invention more than a year before the plaintiff applied for the patents-in-suit, that the plaintiff bought one of the defendant’s devices using a pseudonym, and that the plaintiff failed to disclose the defendant’s device or its purchase of the plaintiff’s product during prosecution of the patents-in-suit. In considering the motion to dismiss the counterclaim, Judge Cote applied the Iqbal/Twombly plausibility standard, and further noted that the “Federal Circuit has . . . required a party alleging inequitable conduct on the basis that an applicant failed to disclose prior art to ‘identify the specific prior art that was allegedly know to the applicant and not disclosed.’” Since the counterclaim identified “the piece of prior art the applicants are alleged to have failed to disclose to the PTO and, in alleging that one of the applicants purchased the prior art using a pseudonym, suggests that the failure to disclose was willful,” the Court found the allegations sufficient, and denied the motion to dismiss.

As to the motion to strike, Judge Cote wrote that such motions are “‘not favored and will not be granted unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense.’” The Court ruled that the defendant’s “affirmative defenses, while not artfully pled, raise core issues in the patent litigation,’” and denied the motion.

Court Awards Reasonable Royalty of 50% of Gross Margin in Patent Infringement Action

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.

Damages Claim Goes Forward in Prilosec Patent Infringement Litigation

In an August 5, 2013 ruling, Judge Denise Cote denied defendant Andrx Pharmaceuticals, Inc.'s summary judgment motion in plaintiff Astra Aktiebolag's long-running patent infringement action over a generic version of Prilosec.  The action began with Andrx filing of an ANDA, before it had actually made any of the allegedly infringing drug.  During the course of the lengthy litigation, Andrx manufactured $41 million worth of "validation batches" of the drug.  After the Court found infringement, Astra supplemented its complaint to allege damages arising from this manufacture.  Andrx moved for summary judgment, contending it never sold any infringing goods, and its mere manufacture of goods without sale could not constitute "commercial manufacture" that could give rise to money damages under the Hatch-Waxman Act.  Judge Cote rejected the argument, ruling that "commercial manufacture" did not mean "commercial marketing" as Andrx asserted, and that if Congress had meant "commercial marketing," it would have used that term.  The Court also rejected Andrx's argument that the earlier entry of a final injunction prohibiting sale of the goods precluded an award of damages for the manufacture of those goods.  Judge Cote ruled that the fact that Andrx was "enjoined from infringing patents going forward does not render any damages award for past infringement 'double recovery,'" and allowed the damages claim to proceed.