Dr. Reddy's Wins Attorney Fees From AstraZeneca in Prilosec OTC Case

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Includes: AZN, RDY
by: Aaron F. Barkoff

By Jim Wasicak and Aaron Barkoff

AstraZeneca v. Dr. Reddy's, No. 07–6790 (S.D.N.Y. 2010)

After Dr. Reddy's (NYSE:RDY) filed an ANDA for Prilosec OTC (omeprazole), AstraZeneca (NYSE:AZN) filed suit, alleging infringement of U.S. Patent Nos. 5,690,960 and 5,900,424. The patents claim omeprazole formuilations comprising a magnesium salt "having more than 70% crystallinity" and related processes of manufacture.

In response, Dr. Reddy's provided independent test results purporting to show that their product did not infringe the patents and offered to produce samples for Astra to test, suggesting that this matter could be resolved quickly. The district court subsequently required Dr. Reddy's to produce samples of their omeprazole product and ordered Astra to test those samples. Astra’s tests confirmed that the Dr. Reddy's samples were less than 1% crystalline (essentially amorphous). Dr. Reddy's then moved for summary judgment on the ground of noninfringement.

But Astra pressed on, filing a request for additional discovery under Rule 56(f), arguing that further discovery was necessary to adequately access whether to maintain the suit. Astra provided Dr. Reddy's and the court with proposed additional interrogatories, document requests and deposition requests, alleging that Dr. Reddy's may be manufacturing a crystalline product and then converting it into an amorphous form. The court allowed limited discovery, requiring Dr. Reddy's to produce portions of their ANDA and DMF and to make available a witness with knowledge of Dr. Reddy's process for manufacturing omeprazole magnesium. After completing discovery, Astra was unable to provide any evidence to the court's satisfaction that Dr. Reddy's product and process infringed the listed patents. Nevertheless, Astra declined to withdraw its Complaint and instead requested a Markman hearing to construe the phrase "by addition of water."

In March 2009, the district court ruled (.pdf) on summary judgment that there was "no evidence whatever that Dr. Reddy's makes or uses a salt with the requisite degree of crystallinity." Late last year, the Federal Circuit affirmed (.pdf) the ruling without further opinion.

Last month, the district court granted (.pdf) Dr. Reddy's motion for attorney's fees. Analyzing a motion for attorney's fees is a two-step process: (1) the court considers the "totality of the circumstance" in determining whether the case is exceptional under 35 U.S.C. § 285; (2) if found exceptional, the court determines whether granting attorney's fees is appropriate.

In finding this case to be exceptional, the court weighed the "reasonableness" of Astra's decision not to withdraw the suit despite evidence from an independent source and Astra itself that Dr. Reddy's product did not infringe. The court reasoned that "an inference of bad faith exists when a patentee is manifestly unreasonable in assessing infringement, while continuing to assert infringement in court." The court thus concluded:

[Astra] had an obligation not to file a lawsuit unless it had some evidence that Dr. Reddy's was in fact infringing. The fact that a competitive product comes onto the market is not, without more, evidence of infringement. Dr. Reddy's provided Astra with evidence of noninfringement prior to plaintiff’s filing suit. Given the evidence in record before this court . . . I am hard pressed to see why the act of filing this lawsuit did not violate Fed. R. Civ. P. 11.

The court reacted strongly to AstraZeneca's arguments against a finding of exceptional case:

AstraZeneca insists that its litigation conduct here was appropriate because a lot of money was on the line. That is a ridiculous claim to make. Astra was not free to throw up roadblocks or to assert a claim construction in bad faith — to abuse the court system — just because it was to its economic advantage to keep a competitor out of the marketplace.

AstraZeneca also argues that finding this case "exceptional" will "act to chill zealous advocacy by other litigants." I certainly hope that this ruling chills the sort of unreasonable, frivolous, anti-competitive, anti-consumer litigation in which plaintiffs here engaged. This lawsuit was nothing more than an effort to keep a legitimate competitor out of the market on flimsy-to-nonexistent grounds. Plaintiffs did not engage in zealous advocacy here; they engaged in litigation misconduct. They abused the litigation process and needlessly consumed the scarce time of the court. A case in which such tactics are employed ought be deemed exceptional.

The court further found that attorney's fees were appropriate, citing the "public’s interest in getting non-infringing generic drugs to the market without delay" and as a means to protect the courts "from patentees who maintain abusive and frivolous litigations." The court concluded:

It was obvious from very early on that plaintiffs had brought and were maintaining this lawsuit in a desperate effort to keep any competing product from hitting the shelves — even if the competing product was not an infringing product. For choosing that bad faith business strategy, and for cluttering a busy court with work that should never have had to be done, [plaintiffs] should pay the full measure of the fees and expenses incurred by defendants in getting rid of AstraZeneca’s baseless lawsuit.

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