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Damages in Hatch-Waxman: What’s at risk from an at-risk launch after the market is created?

Client Updates

April is the 5-year anniversary of AstraZeneca, a comprehensive effort by the Federal Circuit to address damages resulting from an at-risk generic launch.1 While at-risk launches of generic pharmaceuticals are not uncommon,2 opinions addressing damages resulting from those launches are. It is that discrepancy that motivates this review. Below, I briefly introduce at-risk generic pharmaceutical launches, then discuss some of the factors courts consider when determining damages from an at-risk launch of an infringing compound.

  1. Background

    What happens when a manufacturer launches a generic pharmaceutical before its associated Hatch-Waxman proceedings are complete? The Hatch-Waxman act provides a legal framework allowing generic pharmaceuticals to reach the market without going through the FDA’s lengthy new drug application (“NDA”) process. During Hatch-Waxman proceedings, the court—at a bench trial—determines 1) if the proposed generic infringes the patents that cover the name-brand drug, and 2) if the patents that cover the name-brand drug are valid. This reduces the risk to generics manufacturers by letting them know if their drug infringes before bringing it to market.

    However, in some circumstances, the generics manufacturer can launch before the Hatch-Waxman proceedings are over. This is known as an “at-risk” launch; so-called because the generic manufacturer risks that its generic will be found to infringe only after it’s sold. It is this risk of future infringement that gives rise to several of the damages considerations discussed below.

    At-risk launches typically occur after a significant event that helps the generic manufacturer assess its infringement risk. Companies have launched after: denial of a preliminary injunction,3 summary judgment,4 district court verdict,5 Federal Circuit decision,6 or after the FTC rejected a settlement agreement between the parties.7

  2. Damages under an at-risk launch

    The Hatch-Waxman act provides for damages under 35 U.S.C. § 271(e)(4)(C). As with normal infringement, Hatch-Waxman damages can be analyzed under both “reasonable royalties” and “lost profits” frameworks. However, because the infringement occurs during the pendency of a litigation and usually in concert with several other parties, there are a number of special considerations that courts take into account when assessing damages resulting from an at-risk generic launch.

    1. Reasonable Royalty

      To date, cases containing a reasonable royalty analysis for an at-risk launch remain relatively rare; two examples are Brigham v. Perrigo and AstraZeneca v. Apotex.8 The court in Brigham agreed with a jury analysis of reasonable royalty damages, but held there was no infringement.9 The Brigham court briefly reviewed the evidence supporting the jury’s damages finding, but provided little additional analysis.10 The Federal Circuit in AstraZeneca, however, discussed several damages considerations specific to at-risk launches.

      AstraZeneca was decided after two waves of generic ANDA filers had gone to court for approval of their Prilosec generics. In the first wave, which was decided in 2002, the district court held that AstraZeneca’s patents were valid, infringed by Andrx, Genpharm, and Ceminor, and not infringed by KUDCo.11 KUDCo launched its generic shortly thereafter, in December 2002.

      In the second wave, which was decided in 2007, AstraZeneca’s patents were found valid and infringed by Apotex (the AstraZeneca defendant), and not infringed by Mylan and Lek.12 Apotex, Mylan, and Lek launched their generic products in August 2003, during the pendency of the second-wave litigation.13 At the conclusion of the second-wave litigation, the district court held a bench trial to determine AstraZeneca’s damages from Apotex’s infringement.14

      The district court applied a reasonable royalty damages framework instead of lost profits.15 Lost profits were not applied because over the infringement period there were at least three non-third-party generic entrants into the market.16 In addition, AstraZeneca itself launched a different drug targeted at the same indication during this time period (Nexium), which the court found to compete with Prilosec—the brand-name drug at issue.17

      The reasonable royalty analysis is performed by constructing a hypothetical negotiation between the parties that takes place at the time of infringement, and using that as a framework to decide what the proper royalty should be.18 This analysis must employ the Georgia-Pacific factors, which is a list of considerations to be made in constructing the negotiation.19 The district court found that the date of the hypothetical negotiation should be November 2003, when Apotex started selling its generic product.20

      In reviewing the hypothetical negotiation, the district court discussed four considerations that are especially relevant to at-risk launches: 1) the difference between historic sales prices and hypothetical sales prices; 2) the effects of launch timing on the hypothetical negotiation; 3) whether any of the other market entrants provide non-infringing alternatives; and 4) contemporaneous settlements regarding the same drug.

      1. Historic sales prices are not indicative of the hypothetical sale price

        The first at-risk-specific consideration is what price would the infringer have charged after it acquired a license in a hypothetical negotiation.21 This primarily speaks to the 4th, 6th, and 15th factors: policies against licensing to competitors, effects of the sale on the patentee’s other products, and the amount a licensor and licensee would have agreed on if they had been voluntarily been trying to reach an agreement.22

        When Apotex launched its generic, it did not “aggressively cut” its prices in an effort to undercut the competition and secure a larger market share.23 Pointing to these historic sale prices, Apotex argued its entry into the market did not significantly change the price of AstraZeneca’s name-brand drug.24 Thus, any infringement was negligible and a large royalty would be inappropriate.25

        However, the Federal Circuit rebuked this analysis as being focused too much on the harm AstraZeneca suffered, as opposed to how it would affect the reasonable royalty analysis.26 Instead, the Federal Circuit focused on the finding that Apotex sold its generic at high prices because the launch had been “at risk,” and the high prices limited potential damages.27 After a hypothetical negotiation, though, Apotex—“armed with a license”—could lower its prices to capture the market.28 This, in turn, would cause the price of AstraZeneca’s drug to drop significantly, which would not only damage AstraZeneca’s name-brand sales,29 but also damage its sales of its newer, higher-priced offering, Nexium.30 Thus, the court found that AstraZeneca would require a substantial royalty to offset these issues in the hypothetical negotiation.31

      2. How does the launch timing affect the negotiation?

        The second factor to consider during an at-risk launch is the launch timing. While the timing of a product launch is always a consideration in the hypothetical negotiation, it is especially important in the context of an at-risk launch—after all, the launch is “at risk” due to its speed. This consideration primarily relates to the 6th and 15th factors.32

        In AstraZeneca, the district court found that the price of omeprazole remained high in November 2003 because only one company—KUDCo—could produce it without the threat of litigation, and it had limited manufacturing capabilities.33 It also found that most drug sellers only stock a single generic, which meant that getting to market quickly was of the utmost importance; late movers could get locked out of the market entirely.34

        Thus, November 2003—the date Apotex was forced to launch at-risk—was a “golden opportunity” for Apotex to enter the market. The district court held that this further increased the royalty Apotex would be willing to pay in the hypothetical negotiation.35

      3. Do any of the other market entrants provide non-infringing alternatives?

        The third factor to consider in an at-risk launch is the existence of drug formulations that are found not to infringe the brand-name’s patent. The existence of these additional avenues decreases the value of using the patent—the 11th Georgia-Pacific factor.36 This consideration is especially pertinent in at-risk launches because multiple parties might file under the Hatch-Waxman act to enter the market at the same time with their own generic formulations. In AstraZeneca, for example, Apotex pointed to the other market entrants and argued that it could use those non-infringing formulations to avoid AstraZeneca’s patent.

        With regards to the Lek and Mylan formulations, the Federal Circuit held that they were not non-infringing alternatives because they were only found non-infringing in 2007.37 Thus, they would not be taken into account in 2003.38

        The KUDCo formulation, however, was available in 2003. Despite its availability, it was covered by KUDCo’s patents—a fact Apotex did not dispute.39 Instead, Apotex argued that the formulation was available regardless because AstraZeneca did not show that using the formulation would have infringed KUDCo’s patent. The Federal Circuit held that the district court could “reasonably infer” that those patents “were designed to protect [KUDCo’s] formulation,” and thus the formulation was “not available.”40

      4. Have there been any other settlements regarding the same drug?

        The final factor to consider when assessing at-risk launch damages is similar to the third—what settlements have the other generic entrants entered into? This relates most directly to the 12th factor—what portion of the profit is customarily used in the industry for the use of an invention.41 As seen in AstraZeneca, in Hatch-Waxman litigation there can be multiple generics companies in factual positions very similar to that of the Defendant.42 Settlement agreements with these parties can be used as comparable licenses for the hypothetical negotiation.43 For example, the district court in AstraZeneca looked to settlement agreements between AstraZeneca and two other parties—Andrx and Teva—regarding the same generic as guides for determining reasonable royalty rates.44

    2. Lost profits

      District Courts have identified fewer considerations to account for when performing the lost profits analysis for at-risk launches. In several at-risk launch opinions, the district courts did not analyze the damages valuation.45 In one—Altana v. Teva—the court discussed factors specific to at-risk launches. 46

      Lost profits must be proved by “show[ing] that ‘but for’ infringement [the plaintiff] would have made the additional profits enjoyed by the infringer.”47 This requires a showing for four factors: “(1) demand for the patented product, (2) absence of acceptable non-infringing substitutes, (3) [plaintiff’s] manufacturing and marketing capability to exploit the demand, and (4) the amount of profit [plaintiff] would have made.”48 This is very different from the reasonable royalty analysis, where the plaintiff does not have to show any ability to sell the product.

      In Altana, the court described one consideration related to at-risk launches—can pre-launch activities be considered to cause cognizable damages? Defendants filed a summary judgment motion of no lost profits based on the damages having occurred before launch—after all, the defendant did not “enjoy” any profits before it launched its product.49 Plaintiffs argued that any damages after the first point of infringement—which, by stipulation, occurred before launch—were recoverable.50 The district court held that damages resulting from pre-launch infringement are recoverable, and denied the summary judgment motion.51

  3. Conclusions

Determining at-risk launch damages requires evaluating considerations that are not typically found in other damages contexts. To estimate reasonable royalties, for example, courts have considered risk mitigation efforts by the infringer and what effect the entrance of multiple parties into market simultaneously has on the hypothetical negotiation. In the lost profits context, the courts have considered the effects the threat of an at-risk launch has on the patentee’s pre-launch activities, which may result in compensable damages. These examples show how important it is to keep track of the differences between at-risk launches and other potentially-infringing activities.


1 AstraZeneca AB v. Apotex, 782 F.3d 1324 (Fed. Cir. 2015).

See, e.g., GlaxoSmithKline LLC v. Teva Pharms., 313 F. Supp. 3d 582 (D. Del. 2018); Indivior Inc. v. Dr. Reddy’s Labs., 2019 WL 5704700 (D.N.J. 2019).

3 Abbott v. Sandoz, 486 F.Supp.2d 767 (N.D. Ill. 2007).

4 Geneva Pharms. v. GSK, 189 F. Supp. 2d 377 (E.D. Va. 2002).

5 Anesta AG v. Mylan Pharms., Inc., 2014 WL 3976456 (D. Del. 2014).

6 Purdue Pharms. L.P. v. Endo. Pharms. Inc., 410 F.3d 690 (Fed. Cir. 2005).

7 Sanofi v. Apotex 659 F.3d 1171 (Fed. Cir. 2011).

8 Brigham and Woman’s Hosp., Inc. v. Perrigo Co., 280 F. Supp. 3d 192 (D. Mass. 2017); AstraZeneca AB v. Apotex, 782 F.3d 1324, 1329 (Fed. Cir. 2015)

9 Brigham and Woman’s Hosp., Inc. v. Perrigo Co., 280 F. Supp. 3d 192, 205 (D. Mass. 2017).

10 Id. at n. 12.

11 See In re Omeprazole Patent Litigation, 84 Fed. Appx. 76 (Fed. Cir. 2003).

12 See In re Omeprazole Patent Litigation, 281 Fed. Appx. 974 (Fed. Cir. 2008).

13 AstraZeneca AB v. Apotex, 782 F.3d 1324, 1329 (Fed. Cir. 2015)

14 Id.

15 Id. at 1329–30.

16 Id. at 1330.

17 Id.

18 Id.

19 Id. at 1332 (Fed. Cir. 2015) (referencing Georgia–Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y.1970)).

20 Id. at 1329. There was no discussion in the opinion as to whether this date was the correct date for the negotiation, or 1997, the date Apotex filed its ANDA and thus initiated AstraZeneca’s cause of action.

21 Id. at 1333–34.

22 The district court did not provide a separate analysis on each of the Georgia-Pacific factors. See AstraZeneca AB v. Apotex Corp., 985 F. Supp. 2d 452, 496 (S.D.N.Y. 2013).

23 AstraZeneca, 782 F.3d at 1334.

24 Id.

25 Id.

26 Id. at 1333–34.

27 Id. at 1333.

28 Id. at 1334.

29 Id.

30 Id.

31 AstraZeneca, 985 F. Supp. 2d at 503.

32 Id. at 496.

33 AstraZeneca, 782 F.3d at 1330.

34 Id. at 1332.

35 Id. at 1330.

36 AstraZeneca, 985 F. Supp. 2d at 496.

37 AstraZeneca, 782 F.3d at 1340.

38 Id.

39 Id.

40 Id.

41 AstraZeneca, 985 F. Supp. 2d at 496.

42 AstraZeneca, 782 F.3d at 1336.

43 Id.

44 Id.

45 GlaxoSmithKline LLC v. Teva Pharms., 313 F. Supp. 3d 582, 585 (D. Del. 2018) (affirming a jury finding without analysis); Sanofi-Aventis v. Glenmark Pharms., 821 F. Supp. 2d 681, 688 (D.N.J. 2011) (affirming a jury finding without analysis); Sanofi v. Apotex 659 F.3d 1171, 1180 (Fed. Cir. 2011) (holding that a prior agreement between the parties determined damages).

46 Altana Pharma AG v. Teva Pharms., USA, Inc., 2013 WL 12157873 (D.N.J. 2013).

47 Micro Chemical, Inc. v. Lextron, Inc., 318 F.3d 1119, 1125 (Fed. Cir. 2003).

48 Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978).

49 Altana, 2013 WL 12157873 at *4.

50 Id. at *7.

51 Id. at *8.

 

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