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Kaiser Foundation Health Plan Inc. v. Abbott Laboratories

January 13, 2009

KAISER FOUNDATION HEALTH PLAN INC., PLAINTIFF-APPELLANT,
v.
ABBOTT LABORATORIES, INC.; GENEVA PHARMACEUTICALS TECHNOLOGY CORPORATION, DEFENDANTS-APPELLEES.
KAISER FOUNDATION HEALTH PLAN INC., PLAINTIFF-APPELLEE,
v.
ABBOTT LABORATORIES, INC.; GENEVA PHARMACEUTICALS TECHNOLOGY CORPORATION, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Central District of California John F. Walter, District Judge, Presiding. D.C. No. CV-02-02443-JFW.

The opinion of the court was delivered by: W. Fletcher, Circuit Judge

FOR PUBLICATION

OPINION

Argued and Submitted February 4, 2008 -- Pasadena, California

Before: Alex Kozinski, Chief Judge, Diarmuid F. O'Scannlain, and William A. Fletcher, Circuit Judges.

Plaintiff-Appellant Kaiser Foundation Health Plan, Inc. ("Kaiser") sued Defendants-Appellees Abbott Laboratories ("Abbott") and Geneva Pharmaceuticals ("Geneva") for violations of the Sherman Antitrust Act and analogous provisions of California law. Kaiser brought a claim under Section One of the Sherman Act against both Abbott and Geneva, and a claim under Section Two against only Abbott. A multidistrict litigation federal district court in Florida allowed Kaiser's Section One claim to go to trial. The suit was transferred to a federal district court in California for trial on that claim. The jury returned a verdict against Kaiser. The district court in Florida granted summary judgment against Kaiser on its Section Two claim.

We affirm the judgment entered on the jury's verdict on Kaiser's Section One claim. We reverse summary judgment on Kaiser's Section Two claim and remand for further proceedings.

I. Regulatory Background

The Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. §§ 301 et seq., governs the sale and manufacture of prescription drugs in the United States. Any entity seeking to distribute a new prescription drug must file a New Drug Application ("NDA") with the Food and Drug Administration ("FDA"). The application must include "full reports of investigations which have been made to show whether or not such drug is safe for use and whether such drug is effective in use."

21 U.S.C. § 355(b)(1)(A). Upon approval by the FDA, a drug may be manufactured and sold in the United States. Drugs approved by the FDA under the NDA process are commonly referred to as "brand-name" drugs.

Brand-name drugs are typically protected by patents at the time of their approval by the FDA, and for a number of years thereafter. A patent holder has the exclusive right to make, use and sell the patented invention during the life of the patent. 35 U.S.C. § 154(a). A manufacturer of a brand-name drug protected by a patent is able to sell the drug at monopoly prices.

The Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the "Hatch-Waxman Act" or "Hatch-Waxman," was passed to facilitate the approval of generic versions of brand-name drugs. 21 U.S.C. § 355. Under Hatch-Waxman, a manufacturer seeking FDA approval of a new brand-name drug must file with its NDA the patent number and expiration date of any patent which claims the drug for which the applicant submitted the application or which claims a method of using such drug and with respect to which a claim of patent infringement could reasonably be asserted if a person not licensed by the owner engaged in the manufacture, use, or sale of the drug.

Id. § 355(b)(1). The brand-name drug and its associate patent or patents are then published in the "Approved Drug Products with Therapeutic Equivalence Evaluations," commonly referred to as the "Orange Book."

Under Hatch-Waxman, a drug manufacturer seeking FDA approval for a generic version of a brand-name drug may file an Abbreviated New Drug Application ("ANDA") showing that its proposed generic drug is the "bioequivalent" of an already approved brand-name drug. Id. § 355(j). The ANDA shall contain, with respect to patents for the already approved brand-name drug listed in the Orange Book,

a certification . . .

(I) that such patent information has not been filed,

(II) that such patent has expired,

(III) of the date on which such patent will expire, or

(IV) that such patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted[.]

Id. § 355(j)(2)(A)(vii). Such a certification is referred to as a "Paragraph I," "Paragraph II," "Paragraph III," or "Paragraph IV" certification. The first ANDA applicant for approval of a generic version of a particular brand-name drug who makes a Paragraph IV certification is guaranteed a 180-day period of exclusive distribution of the generic drug if that drug is approved by the FDA. The 180-day period begins either on the date the applicant notifies the FDA of its first "commercial marketing" of the generic drug, or on the date of the judicial decision holding the patent invalid or not infringed, whichever is earlier. Id. § 355(j)(5)(B)(iv).

An ANDA applicant who makes a Paragraph IV certification must notify the patent holder of that certification. Id. § 355(j)(2)(B). If an ANDA contains a Paragraph IV certification, FDA approval of the proposed generic drug must be "made effective immediately unless . . . an action is brought for infringement of the patent that is the subject of the certification" within forty-five days of the patent holder receiving notice of the certification. Id. § 355(j)(5)(B)(iii). If a patent holder brings suit within forty-five days, FDA approval will not become effective until thirty months after the receipt of the notice, subject to certain exceptions. Id. This thirty-month delay is commonly referred to as the "automatic stay." An exception to the thirty-month automatic stay is a final court decision in the patent holder's infringement suit that the patent is invalid or not infringed. In the event of such a court decision, FDA approval "shall be made effective on the date on which the court enters judgment reflecting the decision" if the court decision is less than thirty months after receipt of the notice.*fn1 Id. § 355(j)(5)(B)(iii)(I).

If a patent holder fails to bring an infringement suit within forty-five days of receipt of a Paragraph IV notification, it loses the right to the thirty-month automatic stay of FDA approval of the proposed generic drug. However, the patent holder does not lose the right to bring an infringement suit against the generic drug manufacturer; the patent holder simply loses the right to bring the infringement suit under Hatch- Waxman. A patent holder who misses the forty-five day deadline for bringing a Hatch-Waxman infringement suit suffers two significant disadvantages. First, the patent holder cannot bring an infringement suit immediately upon the filing of the ANDA; it must wait until the generic drug is sold commercially. See 35 U.S.C. § 271(e)(1). See generally Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005). Second, there is no automatic stay barring the FDA from approving the generic drug. Once approved, its manufacturer may sell the generic drug during the pendency of any infringement suit brought by the patent holder.

II. Factual Background and Procedural History

Plaintiff-appellant Kaiser is a health care provider that buys large quantities of prescription drugs. Defendant-appellee Abbott is a large developer and manufacturer of brand-name drugs. Defendant-appellee Geneva is a large developer and manufacturer of generic drugs.

Abbott sought and obtained FDA approval through the NDA process to sell terazosin hydrochloride as a brand-name drug to treat hypertension and enlarged prostate. Abbott began selling terazosin hydrochloride, in tablet and capsule form, under the brand name Hytrin in 1987. The sale of Hytrin was extremely lucrative. In 1998, Hytrin generated $540 million in sales, accounting for more than twenty percent of Abbott's domestic sales of pharmaceutical products.

Abbott submitted three patents, described below, for inclusion in the Orange Book in connection with its NDA for terazosin hydrochloride.

Patent 4,026,894 ("the '894 patent") was filed on October 14, 1975, and issued on May 31, 1977. It protected terazosin hydrochloride. The '894 patent expired on May 31, 1994. No generic drug manufacturer ever challenged the validity of the '894 patent or sought to market a generic terazosin hydrochlo-ride product before its expiration.

Patent 4,112,097 ("the '097 patent"), a divisional application of the '894 patent, was filed on January 21, 1977, and issued on September 5, 1978. It protected a pharmaceutical composition of terazosin hydrochloride for treating hypertension and a method for treating hypertension with the drug. The '097 patent was scheduled to expire on September 5, 1995. In separate litigation, Abbott argued that the Uruguay Round Agreements Act extended the '097 patent's term until January 21, 1997. The Federal Circuit rejected Abbott's argument and held that the patent had expired on October 14, 1995. See Abbott Labs. v. Novopharm Ltd., 104 F.3d 1305, 1308-09 (Fed. Cir. 1997). No generic drug manufacturer ever challenged the validity of the '097 patent or sought to market a generic terazosin hydrochloride product before October 14, 1995. However, Geneva and two other generic drug manufacturers filed ANDAs before January 21, 1997, certifying under Paragraph III that the '097 patent had expired on October 14, 1995.

Patent 4,251,532 ( "the '532 patent") was filed on September 24, 1979, and issued on February 17, 1981. It protected dihydrate terazosin hydrochloride, its pharmaceutical composition, and a method for treating hypertension with dihydrate terazosin hydrochloride. The '532 patent expired on February 17, 2000. No generic drug manufacturer ever challenged the validity of the '532 patent.

Just as the '894 and '097 patents were about to expire, or had expired, Abbott filed three more patents for terazosin hydrochloride. They were as follows.

Patent 5,294,615 ("the '615 patent") was filed on July 13, 1993, and issued on March 15, 1994. It protected a crystalline polymorph of terazosin hydrochloride with a certain x-ray diffraction pattern ("Form II"). The '615 patent was listed in the March 1995 supplement to the Orange Book, and was scheduled to expire on April 29, 2013.

Patent 5,412,095 ("the '095 patent") was filed on May 20, 1994, and issued on May 2, 1995. It protected a crystalline polymorph of terazosin hydrochloride with a different x-ray diffraction pattern ("Form III"). The '095 patent was listed in the Orange Book on May 8, 1995, and was scheduled to expire on April 29, 2013.

Patent 5,504,207 ("the '207 patent") was filed on October 18, 1994, and issued on April 2, 1996. It protected a crystalline polymorph of terazosin hydrochloride with a different xray diffraction pattern ("Form IV") and a process for preparing terazosin hydrochloride dihydrate using Form IV. The '207 patent was submitted to the FDA for listing in the Orange Book on April 2, 1996, and was scheduled to expire on April 29, 2013.

Geneva began work on a generic version of Hytrin in 1990 and subsequently filed two ANDAs related to terazosin hydrochloride. Geneva filed its first ANDA in January 1993, for a tablet form of generic terazosin hydrochloride ("tablet ANDA"). In December 1995, Geneva filed its second ANDA for a capsule form of generic terazosin hydrochloride ("capsule ANDA"). Between 1993 and 1996, Geneva made six Paragraph IV certifications related to these ANDAs and provided notice to Abbott for each certification. We describe the certifications in turn.

First, on January 12, 1993, Geneva provided Abbott notice of a Paragraph IV certification for its tablet ANDA with respect to the '532 patent. It asserted that its proposed generic terazosin hydrochloride would not infringe the '532 patent because its product was anhydrous ("without water") rather than dihydrate ("including water") terazosin hyrdochloride.

Second, on October 5, 1995, Geneva provided Abbott notice of a Paragraph IV certification for its tablet ANDA with respect to the '097 patent. It asserted that the '097 patent expired on October 14, 1995. Geneva proposed to sell generic terazosin hydrochloride after October 14, 1995, but before January 21, 1997, the date Abbott claimed its '097 patent expired.

Third, also on October 5, 1995, Geneva provided Abbott notice of a Paragraph IV certification for its tablet ANDA with respect to the '095 patent. It asserted that its proposed generic terazosin hydrochloride would not infringe the '095 patent because its product used an anhydrous form of terzosin hyrdochloride different from the "Form III" claimed in the '095 patent.

Fourth, on February 16, 1996, Geneva provided Abbott notice of a Paragraph IV certification for its capsule ANDA with respect to the '615 patent. It asserted that its proposed generic terazosin hydrochloride would not infringe the '615 patent because its product contained "Form IV" terazosin hydrochloride rather than the "Form II" claimed in the '615 patent. (Abbott's '207 patent claiming Form IV terazosin hydrochloride was not issued until April 2, 1996, a month and a half after Geneva's Paragraph IV certification.)

Finally, on April 29, 1996, Geneva provided Abbott notice of two Paragraph IV certifications with respect to the '207 patent. One certification supplemented Geneva's tablet ANDA and the other supplemented Geneva's capsule ANDA. Geneva conceded that these two proposed products infringed the part of the '207 patent that protected Form IV terazosin hydrochloride, but it asserted this part of the '207 patent was invalid under 35 U.S.C. § 102(b). Section 102(b) bars patents on inventions that already have been patented, described in a printed publication, or sold in the United States more than one year before the patent application. The bar on patents for inventions previously sold in the United States is commonly referred to as the "on-sale bar."

Abbott filed timely suits under Hatch-Waxman in response to five of Geneva's six Paragraph IV certifications. In those five suits, Abbott received the thirty-month automatic stay of FDA approval. However, Abbott neglected to file a timely suit under Hatch-Waxman in response to Geneva's Paragraph IV certification with respect to the '207 patent for the capsule form of generic terazosin hydrochloride. The FDA proceeded to evaluate Geneva's capsule ANDA. Geneva received final FDA approval to market its capsule form of terazosin hydro-chloride on March 30, 1998. At the time of the FDA approval, there had been no judicial determination of the validity of the '207 patent.

Between 1993 and 1998, seven generic drug manufacturers filed ANDAs seeking FDA approval of generic terazosin hydrochloride accompanied by Paragraph IV certifications. In chronological order of their ANDAs, those manufacturers were (in addition to Geneva) Novopharm, Zenith-Goldline ("Zenith"), Invamed, Lemmon Pharmacal, Warner-Chilcott, and Mylan Pharmaceuticals. Abbott filed infringement suits in response to all of the ANDAs, with the exception of Geneva's capsule ANDA that infringed the '207 patent. All told, Abbott filed seventeen patent infringement suits during this period in an attempt to preserve its Hytrin market monopoly.

On April 1, 1998, two days after the FDA approved Gene-va's capsule ANDA, Abbott and Geneva entered into a contract. In brief, Geneva agreed to keep its generic capsule form of terazosin hydrochloride off the market until the earliest of (1) the sale of generic terazosin hydrochloride by another generic manufacturer, (2) the expiration date of the '532 patent (February 17, 2000), or (3) a final unappealable judgment holding the '207 patent invalid. In return, Abbott agreed to pay Geneva $4.5 million dollars per month during this period. If a final but appealable judgment holding the '207 patent invalid was rendered during the period, Abbott would pay the $4.5 million per month into escrow until the earliest of the three above-specified events occurred.

Abbott and Zenith had entered into a comparable contract the day before, on March 31, 1998. Like Geneva, Zenith had filed an ANDA in June 1994 seeking approval of a generic terazosin hydrochloride drug. Zenith successfully opposed two patent infringement suits brought by Abbott under its '615 patent. See Abbott Labs. v. Zenith Labs., 934 F. Supp. 925, 928, 933-36 (N.D. Ill. 1995) ("Zenith"). Abbott then submitted its '095 and '207 patents for inclusion in the Orange Book. In March 1996, the FDA informed Zenith that it would have to amend its ANDA to provide a Paragraph IV certification with respect to these patents. Zenith declined to do so. Instead, it filed suit against Abbott alleging that the '095 and '207 patents had been improperly listed in the Orange Book and seeking an injunction requiring that they be delisted. Abbott counterclaimed for infringement.

In brief, Zenith agreed in its contract with Abbott to dismiss its delisting suit and not to sell any form of terazosin hydrochloride until another generic manufacturer began to sell generic terazosin hydrochloride or until the '532 patent expired (February 17, 2000), whichever occurred first. In return, Abbott agreed to dismiss its counterclaim and to pay Zenith $3 million immediately, $3 million after three months, and $6 million every three months thereafter until March 1, 2000, unless ...


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