Apotex Gets (Super) Sacked By Covenant Not To Sue
Judge Sleet granted Merck's motion to dismiss this case for lack of subject matter jurisdiction after Merck comprehensively covenanted not to sue Apotex over its generic version of Fosamax, despite the alleged jurisdictional "gaming" of the Hatch-Waxman Act's "triggering events" by Merck. This opinion addresses an important issue in ANDA litigation, so I will break down this opinion in more detail than usual.
Merck owns nine Orange Book patents for Fosamax. Apotex filed an ANDA seeking to make a generic version of Fosamax, certifying to the FDA that Merck's patents were invalid, unenforceable, and/or not infringed by its generic. Apotex informed Merck of its ANDA, and Merck filed suit under the Hatch-Waxman Act for infringement in April 2006. Apotex counterclaimed for a declaratory judgment of invalidity and noninfringement. In August 2006, Merck granted Apotex a comprehensive covenant not to sue and then moved to dismiss the case for lack of subject matter jurisdiction.
The Heart of the Problem - Gamesmanship
Essentially, the brand-name drug companies have found a loophole in the interaction between the Hatch-Waxman Act and the federal courts that delays generic manufacturers' entry into the marketplace. The Hatch-Waxman Act provides that a patentee may sue an ANDA applicant that submits an application with a paragraph IV certification (that the brand name drug's patent(s) is invalid/unenforceable/not infringed) for infringement. If the brand name manufacturer files suit within 45 days of receiving notice of the application, then a 30-month stay of the generic application's approval is invoked. The 30-month stay can only be lifted by an earlier decision in a patent infringement case or by Court order to shorten or lengthen the stay. The loophole goes like this: 1) generic files application, 2) brand name files suit for infringement within 45 days, invoking the 30-month stay, 3) the brand name covenants not to sue the generic, depriving the district court of jurisdiction, and 4) the infringement case is dismissed, but the 30-month stay remains because no "triggering event" has occurred. The advantage to the brand name manufacturer is a potentially longer period of exclusivity than if the district court had found in favor of the generic manufacturer on the merits.
Judge Sleet notes quite strongly that the practical realities of this system unnecessarily strain the court system. Op. at 10, fn. 4.
The Court's Hands Are Tied
The Court analyzed the continued existence of an actual case or controversy under the Federal Circuit's recent decision in Teva v. Novartis, which announced the end of the "reasonable apprehension of suit" test, ushering in a broader "actual controversy" inquiry dictated by the Supreme Court's MedImmune decision. The Court found that "Apotex's advancement of this case against Merck [after Merck's covenant not to sue] becomes merely a means to an end, where the desired "end" is a triggering event but the means to that end, the litigation itself, is not sanctioned under the current legal framework." Op. at 8. Thus, the Court held that Merck's covenant not to sue deprived it of jurisdiction over Apotex's declaratory judgment counterclaims under Super Sack and dismissed the suit.
Apotex argued to the Court that "Merck's actions of filing suit, covenanting not to sue, and moving to dismiss for lack of jurisdiction, are an unlawfully anticompetitive and monopolistic scheme to delay entry by Apotex and other generic filers into the market…." Op. at 13. Ultimately, the Court found that while Apotex may suffer a business disadvantage from Merck's use of the Hatch-Waxman scheme, this disadvantage is not actionable as an antitrust violation because it is sanctioned and contemplated by the Hatch-Waxman Act. Op. at 18. As such, the Court denied Apotex's motion to amend its complaint to add antitrust claims as futile.
Just when everyone thought that Teva v. Novartis would make it easier for generic manufacturers to maintain suits against patentees, the brand name manufacturers come up with a new tactic. Looking forward, it will be interesting to see how the FDA and Congress deal with this loophole. Considering the amount of money on the line, I'm sure the Federal Circuit will also get a chance to opine on this case.