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Apotex, Inc. v. Cephalon, Inc.

United States District Court, E.D. Pennsylvania

June 8, 2017

APOTEX, INC., Plaintiff,
v.
CEPHALON, INC., et al., Defendants. GIANT EAGLE, INC., Plaintiff,
v.
CEPHALON, INC., et al., Defendants. WALGREEN CO., et al., Plaintiffs,
v.
CEPHALON, INC., et al., Defendants. RITE AID CORPORATION, et al., Plaintiffs,
v.
CEPHALON, INC., et al., Defendants.

          MEMORANDUM OPINION

          Goldberg, J.

         In Federal Trade Commission v. Actavis, 133 S.Ct. 2223 (2013), the Supreme Court wrestled with the complexities of how a reverse-payment patent litigation settlement fits within an antitrust context. Ultimately concluding that a rule of reason analysis applies, the Court stressed that the “structuring of the present rule-of-reason antitrust litigation” must be left to the trial court. This Opinion sets forth such a structure where the relevant patent is found to be invalid and not infringed several years after the reverse-payment settlement agreements were executed.

         After careful consideration and noting that there is no precedential guidance on this issue, I conclude that prior findings of patent invalidity and non-infringement made after the reverse-payment settlement agreements are irrelevant to a rule of reason analysis. However, I conclude that the prior patent ruling is relevant to Plaintiffs' antitrust causation showing and, in this context, the ruling is admissible under Federal Rule of Evidence 403.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         The case before me involves allegations that four reverse-payment settlement agreements entered into by a brand-name drug manufacturer, Cephalon, Inc., and four generic drug companies constitute antitrust violations under the Sherman Act.[1] Plaintiffs claim that these settlement agreements were executed for the purpose of delaying competition from generic versions of the brand-name pharmaceutical, Provigil. Defendants, signatories to the settlement agreements, maintain that the agreements were pro-competitive and legitimate settlements of litigation involving Provigil and its related patent.

         As a result of various settlements and the procedural postures of other related cases, the only plaintiffs who will participate in the upcoming trial are Apotex, Inc., a generic competitor, and a group of owners and operators of retail pharmacies. Over the course of this litigation, these plaintiffs have been referred to as “Individual Plaintiffs, ” “Retailer Plaintiffs, ” “Opt-Out Plaintiffs” and “Merchant Plaintiffs.” The only defendants in the upcoming trial are generic manufacturers Mylan and Ranbaxy.[2]

         a. Relevant Regulatory Background

          Under the Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, commonly known as the Hatch-Waxman Act, generic manufacturers are permitted to file an Abbreviated New Drug Application (“ANDA”) when seeking approval from the Food and Drug Administration to market a generic version of an approved drug. An ANDA filer is able to adopt the safety and efficacy studies that the FDA previously approved in connection with a brand-name drug's New Drug Application. See Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc., 527 F.3d 1278, 1282 (Fed. Cir. 2008).

         In filing an ANDA, a generic manufacturer must demonstrate that its generic product and the approved brand-name drug share the same active ingredients and are bioequivalent. As to any patents covering the brand-name drug, the generic manufacturer must certify: (1) that the relevant patent information has not been filed with the FDA; (2) that any such patent has expired; (3) the date that such patent will expire; or (4) “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. at 1282-83 (quoting 21 U.S.C. § 355(j)(2)(A)(vii)). If a generic manufacturer seeks to market a generic drug prior to the expiration of patents covering the brand drug, it must file a certification under 21 U.S.C. § 355(j)(2)(A)(vii)(IV)-i.e., a “Paragraph IV certification.” Id. at 1283. The filing of a Paragraph IV ANDA constitutes an act of patent infringement, often prompting the patent holder to file a lawsuit. Actavis, 133 S.Ct. at 2228 (citing 35 U.S.C. § 271(e)(2)(A)).

         If the patent holder files an infringement lawsuit within forty-five days of a generic manufacturer's ANDA filing, the FDA is barred from approving the generic's ANDA for a period of thirty months. 21 U.S.C. § 355(j)(5)(B)(iii). If the case is resolved during the thirty month stay, the FDA will take action on the ANDA consistent with the court's judgment. Actavis, 133 S.Ct. at 2228. However, if the case is not resolved during that period, the FDA may approve the ANDA, at which point the generic company decides whether to sell its product “at-risk” of incurring damages should the infringement case result in a judgment in favor of the patent holder. Id.

         b. Relevant Factual Background

         Cephalon held U.S. Reissue Patent No. 37, 516 (RE ‘516) claiming a specific formulation of modafinil-a molecule with wakefulness-promoting properties. The RE ‘516 patent covered Cephalon's drug, Provigil, and, when combined with a number of FDA regulatory exclusivity periods Cephalon had obtained, it had the potential to protect Provigil from generic competition through April 6, 2015.

         On December 24, 2002, the first day allowed by law, the Generic Defendants sought permission from the FDA to market generic versions of Provigil. In doing so, the four generic drug manufacturers filed Paragraph IV certifications attesting that the RE ‘516 patent was either invalid or not infringed by their proposed generic Provigil products. In response to these certifications, Cephalon filed suit against the Generic Defendants for patent infringement. The parties have referred to these lawsuits as the “Paragraph IV litigation.” Between December 2005 and February 2006, the Paragraph IV litigation settled, with Cephalon paying the Generic Defendants millions of dollars in return for various business arrangements and, most importantly for purposes of this case, promises from each of the Generic Defendants to drop their respective invalidity contentions and not market a generic version of Provigil until April 6, 2012.

         Pursuant to another provision of the Hatch-Waxman Act, no other company could sell generic Provigil until six months after the settling Generic Defendants began to market their versions. Thus, in order to be allowed to enter the market sooner, a competing generic-here, Apotex-would need to receive a court determination that the RE ‘516 patent was invalid or not infringed.

         In the cases before me, the Federal Trade Commission, two putative classes of plaintiffs, the Retailer Plaintiffs and Apotex brought Actavis antitrust claims against all Defendants. Apotex also brought claims for Walker Process fraud and sham litigation against Cephalon and also sought a declaratory judgment invalidating the RE ‘516 Patent.

         Appreciating that resolution of the antitrust claims could take many years, I commenced a patent trial in 2011. After submission of extensive testimony, I found merit in Apotex's position and declared Cephalon's patent invalid on several grounds and also unenforceable as a result of Cephalon's inequitable conduct during the procurement process. See Apotex, Inc. v. Cephalon, Inc., 2011 WL 6090696 (E.D. Pa. Nov. 7, 2011). This ruling was subsequently affirmed by the United States Court of Appeals for the Federal Circuit, Apotex, Inc. v. Cephalon, Inc., 500 Fed. App'x 959 (Fed. Cir. 2013), and certiorari was denied by the United States Supreme Court. See 134 S.Ct. 825 (2013).

         As the antitrust case progressed, the parties subsequently litigated whether the patent ruling had a preclusive effect on certain arguments Cephalon sought to present in defending against the antitrust claims brought against it. See King Drug Co. of Florence v. Cephalon, Inc., 2014 WL 982848 (E.D. Pa. Mar. 13, 2014); F.T.C. v. Cephalon, Inc., 36 F.Supp.3d 527 (E.D. Pa. 2014) (collectively, “collateral estoppel decisions”). These collateral estoppel decisions primarily dealt with whether Cephalon was precluded from relitigating issues decided in the 2011 patent proceedings and presenting evidence that implicated those previously litigated issues.

         After extensive discovery and further motion practice, a liability trial-including the Apotex and the Retailer Plaintiffs' cases-was scheduled to begin on February 2, 2016. Prior to that date, the parties filed multiple motions in limine regarding what role, if any, the prior patent findings should play in the upcoming antitrust trial. Many of the parties' Daubert motions also touched on this issue.

         In ruling on a number of Plaintiffs' Daubert motions, I summarized how the collateral estoppel decisions would shape the antitrust trial in general and the Walker Process claim against Cephalon in particular as follows:

With trial pending, it may be useful to restate here which issues have been decided and may not be revisited: (1) the RE ‘516 patent is invalid due to the on-sale bar, derivation and obviousness; and (2) the materiality prong of Walker Process fraud has been established. Consequently, and as will be explained in greater detail infra, any expert opinions contrary to these holdings will not be permitted.
It is also my intention to explain to the jury that these issues have been previously decided, must be accepted, and are not for their consideration. This explanation will come by way of instructions prior to opening statements and the taking of testimony. I will, of course, accept input from counsel as to how these concepts should be conveyed to the jury, but care will be taken to ensure that Defendants' rights in defending the antitrust allegations will be protected.

King Drug Co. of Florence, Inc. v. Cephalon, Inc., 2015 WL 6750899, at *3-4 (E.D. Pa. Nov. 5, 2015). I also noted that my collateral estoppel decisions made clear that “[t]he fact that the patent was found invalid in the 2011 Apotex patent litigation should have no bearing on the proofs necessary to hold the Generic Defendants liable for antitrust violations . . . [and] [t]he Generic Defendants will still be able to argue, should they so choose, that settlement was pro-competitive, and that they were unaware of Cephalon's alleged fraud or the invalidity of the patent.” Id. at *3 (quoting King Drug Co. of Florence v. Cephalon, Inc., 2014 WL 982848, at *13).

         In the lead up to the February 2016 trial date, Defendants appealed my ruling granting certification of a Direct Purchaser class. In light of that appeal, the United States Court of Appeals for the Third Circuit stayed the February trial date as to all parties. As such, many of the motions in limine were not resolved at that time and were still pending when a new trial date ...


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