AstraZeneca AB v. Apotex Corp.
2013 U.S. Dist. LEXIS 170188
S.D.N.Y.2013Background
- AstraZeneca owned formulation patents ('505 and '230) covering omeprazole formulation elements (ARC core, enteric coat, water‑soluble subcoating); molecule patent expired 2001 but formulation patents ran to 2007.
- Multiple generics filed ANDAs; KUDCo launched non‑infringing generic in Dec 2002 (180‑day exclusivity); Mylan and Lek launched at risk in Aug 2003; Apotex launched at risk Nov 12, 2003.
- Apotex sold infringing omeprazole 2003–2007; Judge Jones later found Apotex infringed and pediatric exclusivity pushed effective ANDA date to Oct 20, 2007.
- This bench trial concerned damages only; parties agreed damages = reasonable royalty from a hypothetical license negotiated in November 2003 (on eve of Apotex launch).
- Key factual inputs to the hypothetical negotiation: (1) generic prices remained unusually high in late‑2003; (2) Apotex lacked a reliable non‑infringing alternative and faced substantial delay/cost to develop one; (3) Astra had strong incentives to avoid licensed entry (risk to Prilosec and Nexium via formulary/MAC/rebate pressures).
- Court awarded a reasonable royalty equal to 50% of Apotex’s profits on infringing sales ($76,021,994.50 plus prejudgment interest).
Issues
| Issue | Plaintiff's Argument (Astra) | Defendant's Argument (Apotex) | Held |
|---|---|---|---|
| Proper royalty base (entire capsule v. isolated subcoating) | Use whole capsule value; subcoating substantially contributes to commercial viability | Royalty should measure isolated, minimal value of inert subcoating | Court used whole capsule/revenue (entire‑market‑value rule applies because subcoating substantially created product value) |
| Inclusion of pediatric exclusivity period in damages | Royalties for the license should cover sales through pediatric exclusivity (license in 2003 would include that six‑month statutory exclusivity) | Brulotte forbids royalties after patent expiration; exclusivity not a patent extension so royalties for that period are improper | Court allowed inclusion — pediatric exclusivity is statutory market exclusivity and royalties for that period are proper (Brulotte concern inapplicable) |
| Standing of the plaintiffs to seek damages | Astra entities (Hassle, AstraZeneca AB, KBI‑E, AstraZeneca LP) have rights; some are exclusive licensees so have standing | Apotex contends several plaintiffs lack standing (no written assignments; corporate structure insufficient) | Court found four plaintiffs had standing (Hassle owner; AstraZeneca AB as implied exclusive licensee; KBI‑E and AstraZeneca LP as exclusive licensees). KBI lacked standing. |
| Quantum of reasonable royalty (rate) | Parties would have bargained in Nov 2003; Astra would have demanded a large share because licensed entry would materially harm Prilosec/Nexium; negotiated/settlement markers (Andrx offer, Teva settlement, P&G OTC deal) support high rate | Apotex: royalty should be much lower (cannot be based on hold‑up; should consider non‑infringing alternatives; 50% unrealistic for generics) | Court fixed royalty at 50% of Apotex profits (applied Georgia‑Pacific analysis; Apotex lacked viable timely alternatives; benchmarks supported mid‑to‑high‑profit shares). |
Key Cases Cited
- F.T.C. v. Actavis, 133 S. Ct. 2223 (2013) (Hatch‑Waxman/ANDA framework and antitrust context cited)
- ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010) (reasonable‑royalty hypothetical negotiation timing rule)
- Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009) (entire‑market‑value rule and apportionment guidance)
- Dow Chemical Co. v. Mee Industries, Inc., 341 F.3d 1370 (Fed. Cir. 2003) (Georgia‑Pacific factors framework)
- LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (smallest salable patent‑practicing unit principle)
- Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) (entire‑market‑value rule: patented feature must create basis for customer demand or substantially all value)
- Brulotte v. Thys Co., 379 U.S. 29 (1964) (rule on post‑expiration royalty agreements; distinguished here)
- Rite‑Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (standing and license‑rights analysis)
- Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075 (Fed. Cir. 1983) (hypothetical negotiation may consider actual alternatives and buyer's choice)
- In re Omeprazole Patent Litigation (Omeprazole I), 222 F. Supp. 2d 423 (S.D.N.Y. 2002) (factual background on omeprazole formulation and subcoating importance)
- In re Omeprazole Patent Litigation, 536 F.3d 1361 (Fed. Cir. 2008) (affirming district court findings re: infringement and pediatric exclusivity implications)