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INTERMEDICS, INC. v. VENTRITEX

September 12, 1991

INTERMEDICS, INC., a Texas corporation, Plaintiff,
v.
VENTRITEX, INC., a California corporation; MICHAEL SWEENEY, an individual; and BENJAMIN PLESS, an individual, Defendants


Wayne D. Brazil, United States Magistrate.


The opinion of the court was delivered by: BRAZIL

WAYNE D. BRAZIL, UNITED STATES MAGISTRATE

 Plaintiff's second amended complaint alleges that defendants are liable for patent infringement, misappropriation of trade secrets, and a variety of other unfair business practices in connection with defendants' development of the Cadence, an implantable defibrillator.

 Both parties have filed motions *fn1" concerning defendants' entitlement to assert the affirmative defense provided for at 35 U.S.C. § 271(e)(1). Having considered the parties' written and oral submissions, the court hereby enters the following ORDERS:

 I. INTRODUCTION.

 35 U.S.C. § 271(e)(1) provides: "It shall not be an act of patent infringement to make, use or sell a patented invention solely for uses reasonably related to the development and submission of information under a federal law which regulates the manufacture, use, or sale of drugs." The U.S. Supreme Court has held that the clinical trial exemption in § 271(e)(1) also applies to medical devices which are subject to FDA approval. Eli Lilly and Co. v. Medtronic, Inc., 110 S. Ct. 2683, 110 L. Ed. 2d 605, 15 U.S.P.Q.2D (BNA) 1121 (1990).

 § 271(e)(1), enacted under the Drug Price Competition and Patent term restoration Act of 1984, overruled the Federal Circuit's 1984 decision in Roche Products, Inc., v. Bolar Pharmaceutical Co., 733 F.2d 858, 221 U.S.P.Q. (BNA) 937 (Fed. Cir. 1984). The defendant in Roche had obtained from a foreign manufacturer a generic drug covered by a domestic patent in order to conduct bioequivalency tests necessary for FDA approval. The Federal Circuit held this use to be infringing, despite the fact that it was limited to "testing and investigation" strictly related to FDA approval. Id. at 861.

 The 1984 Act, enacted after the Roche decision, established a streamlined procedure for FDA approval of generic drugs to hasten their introduction into the market place. Specifically, the Act was designed to respond to two unintended distortions of the 17-year patent term produced by the requirement that certain products receive pre-market regulatory approval.

 First, as a practical matter, the holder of a patent related to a device or drug that is subject to regulatory approval could not reap financial rewards during the early term of a patent because the patented product was kept out of the market place until substantial testing and regulatory approval was completed. Section 201 of the 1984 Act sought to eliminate this distortion by establishing a patent term extension for patents related to certain products that were subject to lengthy regulatory delays and that could not be marketed prior to regulatory approval. Eli Lilly, 110 S. Ct. at 2688.

 The motions pending before the court raise difficult questions about the scope and applicability of the § 271(e)(1) clinical trial exemption. Plaintiff's first motion for summary judgment requires the court to consider whether the § 271(e)(1) exemption would be lost on a showing that defendants intend to commercialize their product before the expiration of the allegedly infringed patents. Defendants' motion to dismiss and plaintiff's accompanying cross-motion for summary judgment raise directly the issue of whether defendants' otherwise infringing activities have been "solely for uses reasonably related to the development and submission of information under a federal law which regulates the manufacture, use, or sale of drugs" as required by § 271(e)(1).

 II. PLAINTIFF'S FIRST MOTION FOR SUMMARY JUDGMENT REGARDING DEFENDANTS' ENTITLEMENT TO ASSERT § 271(e)(1) DEFENSE.

 Plaintiff contends that § 271(e)(1) does not exempt the making, selling, or using of an infringing device in connection with supplying data to the FDA if the manufacturer intends to commercialize the device before the expiration of the allegedly infringed patents. Rather, plaintiff argues that Congress intended the statute to apply only when the allegedly infringing manufacturer is preparing to commercialize the device after expiration of the patent-in-suit.

 In support of this interpretation, plaintiff presents two related arguments. The first focuses on alleged differences between the "purposes" for which defendants seek to utilize the exemption provided by § 271(e)(1) and the purposes for which Congress passed this statute. Plaintiff's second argument focuses on the possible effects of granting the § 271(e)(1) exemption to a defendant who intends to market its device before the expiration of the allegedly infringed patents.

 In support of its first line of argument, plaintiff correctly notes that a reason Congress passed § 271(e)(1) was to prevent a patent holder from obtaining the de facto extension of its patent-monopoly which could otherwise occur if the alleged infringing manufacturer had to wait until the expiration of the patents-in-issue to start the investigations necessary to secure FDA approval. Plaintiff argues that, given this purpose, the only type of permissible use anticipated by Congress must be that use which results in the alleged infringer entering the market place after the patent-in-issue has expired.

 One difficulty (not the most serious) with plaintiff's argument is that it builds from a particular characterization of Congress' purpose in enacting the exemption that we believe is misfocused. Congress' primary concern in enacting § 271(e)(1) was not with the de facto length of patent holders' rights; rather, it's primary concern was to create a legal environment that would enable new, medically beneficial, cost-competitive products to reach the general marketplace in meaningful volume just as soon as the undistorted operation of the patent laws would permit (i.e., as soon as the 17-year life of relevant patents expired). *fn2"

 There are additional, arguably more telling difficulties with plaintiff's position. We note first that Congress explicitly rejected an effort by Representative Moorehead to limit the availability of the exemption to the last year of the term of any relevant patent. (See Legislative History at 2692). Thus, it is clear that the issue of limiting the availability of the exemption was squarely considered by the legislative Branch. Yet that branch did not even remotely intimate in the statute that it enacted that it wanted any such limitation imposed. This fact should make the judiciary extremely reluctant to superimpose a substantial reduction in the scope of the statute that has no basis in statutory language.

 We also have grave concerns about the feasibility of judicial implementation of the limitation that plaintiff would have us read into the statute. Plaintiff has urged the we put the "intent" of the party that claims to be engaged in activity protected by the exemption at the center of the judicial inquiry.

 We are not sure what "intent" means here. One possibility is that plaintiff is suggesting that the ultimate target of the inquiry should be a subjective state of mind. If so, we are troubled by the prospect of having to search for such a thing in a corporate body or other business organization. Even with respect to natural persons, ascertaining subjective intent can be an elusive and labor intensive exercise. It also is the kind of exercise that almost always would have to be undertaken through a trial; disposing of issues of subjective intent by way of summary judgment is extremely difficult.

 We also fail to understand why the subjective state of mind of a party should be significant in this setting. Surely Congress was not concerned about clearing certain "unacceptable" thoughts or hopes or visions out of certain persons' minds.

 Nor does the concept of "intent" become substantially more attractive in this setting if it is "objectively" addressed. There would remain serious difficulties even if the test were something like the following: "Is it more probable than not that a rational person who had engaged in the conduct proved by plaintiff would intend to enter the marketplace before the expiration of plaintiff's patent rights?" To apply any such test it would be necessary to make guesses about when FDA approval was likely to be forthcoming. Yet the process of securing FDA approval for a new medical product can be torturously extended and riddled with unpredictabilities. (See, Gibbs declaration accompanying defendants' opposition to plaintiff's first motion for summary judgment at 4-14).

 For reasons set forth in the discussion of plaintiff's alternative motion for summary judgment, we also reject plaintiff's second argument that because defendants have indicated that they intend to market the Cadence as soon as they secure FDA approval, even if it is before plaintiff's patent expires, defendants' clinical testing cannot, by definition, be "solely for uses reasonably related" to developing and submitting data to the FDA. As we explain in the next section, the availability of the exemption turns on actual uses, not on the "purposes" of the party doing the using.

 Nor are we persuaded that the limitation that plaintiff wants us to read into the statute is necessary to avoid incursions on the economic interests of patent holders that would be larger than Congress intended to allow when it enacted the § 271(e)(1) exemption. The simple response to this line of argument is that the courts will vigorously protect patent holders from any "uses" of patented material that are outside the umbrella of the exemption. The courts stand ready to issue injunctions and to order payment of full damages for all conduct by defendants that Congress elected not to protect. Thus, it simply is not necessary to read into the statute that additional, artificial, and conceptually elusive limitation urged by plaintiff.

 Finally, plaintiff has suggested that construing § 271(e)(1) to include defendants who may intend to market their allegedly infringing devices before the patents-in-issue expire places the constitutionality of the statute in jeopardy because it permits an improper "taking" without just compensation. Congress extensively considered whether the interferences with a patent holder's rights contemplated by the statute would amount to an unconstitutional taking. The committee assigned to consider this question determined that the law did not amount to an unconstitutional taking. (See, Legislative History at 2711-2714). Subsequently, the Supreme Court considered whether the inclusion of medical devices along with drugs within the scope of the statute would create a taking. The Court concluded that it would not, noting along the way that the competitive injury resulting from the exemption statute would be de minimis in some cases although "surely it is substantial in others." Eli Lilly and Co. v. Medtronic, Inc., 110 S. Ct. 2683, 2692, n.5, 2693, n.7, 110 L. Ed. 2d 605, 15 U.S.P.Q.2D (BNA) 1121 .

 We are not persuaded that by allowing defendants the protections of the statute we place its constitutionality in any greater jeopardy than before. Because courts remain ready to vigorously protect patent holders from any conduct by the defendants that is not covered by the statute and thus, will maintain the patent holders' rights to exclude others (including defendants) from the general commercial marketplace, the harms that a patent holder may suffer because of a competitors' use of § 271(e)(1) are substantially the same regardless of when the defendant hopes to conclude testing.

 For all of the above reasons, Plaintiff's first motion for summary judgment is DENIED.

 III. DEFENDANTS' MOTION TO DISMISS AND PLAINTIFF'S CROSS-MOTION FOR SUMMARY JUDGMENT RE DEFENDANTS' ENTITLEMENT TO § 271(e)(1) DEFENSE.

 Defendants have moved this court for an order dismissing the complaint, or, in the alterative, for entry of summary judgment, on the ground that defendants are immunized from suit by 35 U.S.C. § 271(e)(1). *fn3"

 § 271(e)(1) exempts from claims of patent infringement otherwise infringing activity that is "solely for uses reasonably related" to obtaining FDA approval. Defendants' implantable defibrillator, the Cadence, is a Class III device which must be approved by the FDA before it can be commercially distributed.

 Section 515(a) of the Food, Drug and Cosmetic Act (21 U.S.C. § 360e(a)) requires that an application for a pre-market approval (PMA) be filed and granted by the FDA for all Class III devices. To make the necessary showing of safety and efficacy, a manufacturer of a Class III device typically conducts a clinical investigation of the device, during the course of which the device is implanted in human subjects by investigators at various institutions. The investigators will then, on behalf of the manufacturer, monitor the patients and gather data, which in turn is submitted to the FDA as part of the PMA application.

 In order to be able to conduct the clinical investigation, the manufacturer is required to apply for and obtain an investigational device exemption (IDE) from the FDA. Upon the FDA's approval of the IDE application, the manufacturer may proceed with the clinical investigation and eventually submit its application for a PMA. After receiving a PMA the manufacturer is authorized by the FDA to commercially distribute the device. Pursuant to an IDE granted by the FDA, defendants are currently engaged in clinical trials of the Cadence. The data gathered in these trials has been prepared for submission to the FDA.

 Defendants argue that because the Cadence is currently involved in the clinical trials described above they are exempt from claims of patent infringement under § 271(e)(1). Plaintiff argues that defendants also have engaged in a variety of activities unrelated to obtaining FDA approval. According to plaintiff, these activities demonstrate that defendants' allegedly infringing use of the Cadence is not "solely for uses reasonably related" to FDA approval.

 B. THE OPERATION OF § 271(e)(1)

 1. History and Purposes of § 271(e)(1)

 To reason reliably about the issues raised by these motions, we must recall the history and purposes of this statutory provision. Congress enacted § 271(e)(1) in 1984 in order to reverse the opinion of the United States Court of Appeals for the Federal Circuit in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858, 221 U.S.P.Q. (BNA) 937 (Fed. Cir. 1984). The Roche court had ruled that the experimental use exception was not broad enough to protect manufacturers of generic drugs while they were conducting the extensive field tests of their products that were necessary to generate the data that the FDA required before granting permission to market the drugs commercially. After the opinion in Roche issued, generic drug interests lobbied Congress vigorously for a statutory amendment that would grant such protection. In the legislative battles that ensued, it was clear that a principal purpose of the generic drug interests was to position themselves to be able to market their products on a massive commercial scale just as soon as the patent rights expired on the drugs which the generics incorporated. Eli Lilly and Company v. Medtronic, supra, 872 F.2d 402, at 404-405 (Fed.Cir. 1989).

 We believe that when it responded positively to the lobbying of the generic drug manufacturers by enacting § 271(e)(1), Congress made a fully self-conscious choice between two directly competing interests: continuing full protection of the rights of patent holders, on the one hand, and, on the other, assuring access by the public to medically beneficial new products at truly competitive market prices (i.e., lower prices) immediately after the expiration of the terms of relevant patents. In essence, Congress elevated the health care interests of the public above the pecuniary interests of the patent holders.

 In making this election, Congress reduced the scope of the rights of patent holders in two significant respects. First, it permitted potential competitors, during the life of the patent, to engage in acts that otherwise clearly would constitute acts of infringement, as long as those acts generated data the FDA would use in deciding whether to approve a product for the commercial marketplace. Since Congress knew that the FDA sometimes required data based on considerable use of a product, Congress knew that creating this protection would deprive patent holders of sales that might well be significant, even though Congress apparently expected the patent holders in most instances to retain the lion's share of the relevant markets.

 The second negative impact on the interests of patent holders that Congress effected through the adoption of § 271(e)(1) was arguably even more significant. Under the scenarios that would have obtained under Roche, a competitor could not have begun generating data for the FDA until after expiration of the patent. Because generating the data required by the FDA, and processing an application to market a new product through the FDA bureaucracy, predictably took considerable time, the practical effect of Roche, was to add several years of life to patents by making it impossible for competitors to be ready to enter the commercial marketplace in any significant measure for several years after the formal expiration of the patent holder's rights. Congress knew that enacting § 271(e)(1) would dramatically change this situation. We believe that in enacting this exemption Congress clearly decided that it wanted potential competitors to be able to ready themselves, fully, during the life of the patent, to enter the commercial marketplace in a large scale way as soon as the relevant patents expired. Only by permitting this preparation to enter the market meaningfully could Congress achieve its goal of assuring the public prompt access to new medical products at the lowest commercially feasible prices.

 Understanding the hard choices that Congress made and the policy objectives it sought to achieve when it enacted § 271(e)(1) helps inform our interpretation and application of this exemption.

 2. Interpreting § 271(e)(1) in Context of this Litigation

 In relevant part, § 271(e)(1) declares that:

 
It shall not be an act of infringement to make, use, or sell a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, ...

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