Federal Circuit Finds Declaratory Judgment Jurisdiction Despite Covenant Not to Sue
Caraco Pharm. Labs. v. Forest Labs., No. 2007-1404 (Fed. Cir. 2008)
In a 2-1 decision, the Federal Circuit held today that an ANDA applicant's declaratory judgment action for noninfringement meets Article III's "case or controversy" requirement notwithstanding that the patentee has granted the applicant a covenant not to sue. Today's decision will likely bring a flood of new declaratory judgment claims by generic drug companies seeking a clear path to the market. In addition, it may solve the "bottleneck problem" created when an innovator settles litigation with a first ANDA applicant but refuses to sue subsequent applicants.
The case involves Lexapro (escitalopram oxalate), Forest Labs' antidepressant drug with over $2 billion in annual sales. Forest owns two Orange Book-listed patents on Lexapro: U.S. Patent Nos. RE34,712 and 6,916,941. The '712 patent claims substantially pure escitalopram, and expires in 2012; the '941 patent claims crystalline particles of escitalopram of a particular size range, and expires in 2023.
The first ANDA applicant to file paragraph IV certifications to the '712 and '941 patents was Ivax Pharmaceuticals (since acquired by Teva). Accordingly, Ivax is entitled to 180 days of market exclusivity, which will begin either on the day it begins marketing its drug or on the day a court determines that both the '712 and '941 patents are invalid or not infringed, whichever comes first. (This is a pre-MMA case.) Forest sued Ivax on the '712 patent but not the '941 patent. Last year, the Federal Circuit affirmed a district court decision that the '712 patent is valid and infringed. Thus, Ivax is enjoined from marketing its generic Lexapro until 2012, and all subsequent ANDA applicants are blocked by Ivax's 180-day exclusivity.
After Ivax's ANDA filing, Caraco (a subsidiary of Sun Pharma) filed its own ANDA with paragraph IV certifications to the '712 and '941 patents. Forest sued Caraco on the '712 patent but not the '941 patent. Caraco then filed a complaint seeking a declaratory judgment that its generic version of Lexapro does not infringe the '941 patent. Forest moved to dismiss under FRCP 12(b)(1) on the grounds that the action did not present a "case" or "controversy" as required by Article III of the Constitution. Then, following the Federal Circuit's decision in Teva v. Novartis, Forest unilaterally granted Caraco an irrevocable covenant not to sue for infringement of the '941 patent. Due to the covenant not to sue, the district court dismissed Caraco's complaint for lack of jurisdiction.
In reversing the district court's dismissal of the case, the Federal Circuit cited the Supreme Court's decision last year in MedImmune v. Genentech, where the Court "framed the justiciability inquiry as 'whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" The Federal Circuit applied "the Supreme Court's three-part framework for determining whether an action presents a justiciable Article III controversy": whether (1) the plaintiff has standing; (2) the issues presented are ripe for judicial review; and (3) the case is not rendered moot at any stage of the litigation.
The court determined that Caraco has standing for three reasons. First, according to the court, Caraco alleges a judicially cognizable injury-in-fact: "it is being excluded from selling a non-infringing product because Forest has taken actions that delay the FDA from approving Caraco's ANDA." Second, Caraco's injury is traceable to Forest: "Forest's listing of the '712 and '941 patents in the Orange Book effectively denies Caraco an economic opportunity to enter the marketplace unless Caraco can obtain a judgment that both those patents are invalid or not infringed by its generic drug." Third, Caraco's injury is redressible by a favorable judgment: "If Caraco obtains a favorable judgment that the drug described in its ANDA does not infringe Forest's '941 patent, then it will only need a judgment of invalidity or noninfringement on Forest's '712 patent in order to activate Ivax's exclusivity period and obtain FDA approval as swiftly as possible."
Interestingly, the Federal Circuit stated, in a footnote:
Although we do not so decide, it appears that if Forest would submit to a consent decree that the drug described in Caraco's ANDA does not infringe the '941 patent, such a decree would redress Caraco's alleged injury-in-fact just as well as any other court judgment. Thus, if Forest's objective in granting the covenant not to sue on the '941 patent was to avoid costly litigation with Caraco, this might be the best approach to resolve the controversy between the parties.
The Federal Circuit further determined that the issues are ripe and the case is not moot. Accordingly, the court held that Caraco's action presents an ongoing Article III case and controversy, reversed the district court's decision dismissing the case, and remanded the case for a decision on the merits.
Given the importance of today's decision (and the split vote--J. Friedman dissented), it would not be surprising to see the Federal Circuit review the case en banc.
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