High Court’s Venue Ruling Limits Where Generic Drugmakers Can Be Sued

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Dana A. Elfin and John T. Aquino

A recent U.S. Supreme Court ruling on where drug patent cases can be filed is a significant shift for both brand and generic drug companies, attorneys told Bloomberg BNA ( TC Heartland LLC v. Kraft Foods Group Brands LLC , U.S., No. 16-341, 5/22/17 ).

The justices ruled in favor of TC Heartland LLC, an Indiana-based maker of water flavorings, and said patent suits should be filed in the state where the defendant is incorporated or where the defendant has a regular place of business.

For drug patent holders in litigation, the high court’s ruling means defendants will enjoy a home court advantage in patent infringement cases. Brand drug makers are expecting longer and more expensive litigations against multiple defendant generic companies in different courts.

“This is going to change the Hatch-Waxman world,” Jake M. Holdreith of Robins Kaplan LLP in Minneapolis told Bloomberg BNA May 22.

Generics, States Backed Winner

The ruling represents a “seismic shift in venue practice that effectively closes the doors to patent infringement hotbeds like the Eastern District of Texas [and] shifts home court advantage to companies accused of patent infringement,” Paul J. Cronin, a partner at Nutter McClennen & Fish LLP in Boston, told Bloomberg BNA in a May 22 email.

Branded and generic drug industry groups filed friend-of-the-court briefs backing opposite positions in the case.

The Biotechnology Innovation Organization (BIO) filed a brief asking the court to either rule in favor of the more lenient Federal Circuit approach or not rule on the case at all. Meanwhile, generic-drug companies had backed TC Heartland in the case. Seventeen states, including the state of Texas, also backed Heartland.

The supreme court reversed the U.S. Court of Appeals for the Federal Circuit’s earlier venue interpretation that effectively allowed brand-drug companies to sue generic drug makers in any court in the nation.

Generics Benefit

For generic drug companies in patent litigation, the TC Heartland ruling “means that, for venue purposes, there is no nationwide venue allowing generic companies to be sued in any court across the land,” Shashank Upadhye of Amin Talati & Upadhye in Chicago told Bloomberg BNA May 22.

“In theory, the ruling will require brand pharmaceutical companies to sue generic defendants only where they are incorporated,” Steven M. Coyle of Cantor Colburn LLP in Hartford, Conn., told Bloomberg BNA May 22.

“Generic companies sued by biopharmas claiming the generic drug infringes the biopharma’s patent will benefit because, of course, they could be able to stay in their home court and not be dragged into district courts that have rules and procedures that are foreign to them,” Guillermo C. Artiles, an associate with McCarter & English in Washington, told Bloomberg BNA in a May 22 phone interview.

In a May 23 statement provided to Bloomberg BNA, the Association for Accessible Medicines, the trade group for the generic drug industry, praised the decision.

“As evidenced by the Court’s unanimous decision, Congress clearly intended to limit venue in patent cases to those where defendants are actually ‘at home’ due to incorporation or commercial establishment,” Jeffrey K. Francer, AAM’s senior vice president and general counsel, said.

“In the Hatch-Waxman context, Congress attempted to strike a careful balance between patent holders and generic drug applicants,” Francer said. Limiting venue, he added, “will help to stop abusive patent litigation concentrated in just one or two districts where brand-name pharmaceutical companies are located.”

Brands Predict Protracted Litigation

For brand biopharmas, the decision will cause them to file patent infringement litigation against multiple generic defendants in different district courts, which will increase costs and could produce different outcomes, Hans Sauer, deputy general counsel for intellectual property at the Biotechnology Innovation Organization, told Bloomberg BNA in a May 22 phone interview.

Artiles predicted the decision would lead to protracted venue battles with more and more generics filing change-of-venue motions.

And protracted litigation could wind up disadvantaging generic litigants, too, by delaying market entry of cheaper generic drugs, he said.

“A perhaps unexpected outcome is that, with protracted litigation, the brand side will have a longer time to sell their products exclusively and at the same time there will be more of a delay in bringing generics to market,” Artiles said.

“The court’s decision will take us back to a time when venue was heavily litigated, which will tend to benefit litigants with deep pockets,” Sauer said.

“There will be no easy answers concerning venue for a while,” Sauer added.

Transfer, Dismissal Moves Likely

The interesting aspect of the court’s decision will be to see what happens with Paragraph IV cases that were filed since 2016, Nicolas G. Barzoukas of Reed Smith LLP in Houston told Bloomberg BNA May 22.

In traditional district court litigation, generic drug manufacturers file Paragraph IV certifications to certify that their proposed generic products won’t infringe a brand-name maker’s patent and/or challenge the patent as invalid. Once notified of the patent challenge (known as a Paragraph IV challenge), the patent owner has 45 days to sue the generic for infringement in federal district court.

In 2016, in addition to its adoption of a broad interpretation of venue in the TC Heartland case, the Federal Circuit decided a jurisdictional case that led branded companies to file cases in a broader array of jurisdictions, including the U.S. District Court for the Eastern District of Texas.

“I’m certain that the generics will ask for [Paragraph IV cases] to be dismissed or at least transferred. The branded will claim that this issue has been waived and there will be a number of fights about it,” Barzoukas said.

Supreme Court law requires that when the court decides an issue of federal law, it should be applied retroactively. That means parties should be able to go back to a district court and argue venue in any case still pending where the venue question was preserved for appeal, Melanie L. Mayer, an intellectual property litigator with Fenwick & West LLP, Seattle, told Bloomberg BNA in a May 22 phone interview.

Real-World Effects Could Be Muted

Practically speaking, though, some drug patent litigators predicted the actual effect of the high court ruling on Hatch-Waxman cases may not be all that significant.

“In practice, it may be that generics sued in a different district will choose not to contest venue as they seek final determinations within the 30-month FDA stay period,” Coyle said.

Under the Hatch-Waxman Act, an automatic 30-month stay on regulatory approval is triggered when a branded drugmaker sues a generic drugmaker over its filing of an abbreviated new drug application (ANDA) seeking Food and Drug Administration approval to make a generic version of the branded drug.

Because of the timing issues in Hatch-Waxman cases, parties find it is helpful to have a judge who is familiar with these types of cases, and the courts in New Jersey and Delaware have a lot of experience with Hatch-Waxman cases, so it’s far from certain generic companies will move to transfer venue from those courts.

Suits Could Be Consolidated

The desire to reduce litigation costs also could dissuade a generic company from contesting venue.

“Some will consent to the plaintiff’s choice of venue and some will spend a lot of money to fight jurisdiction because it’s worth it to them,” Barzoukas said. “I think it’s very company dependent.”

Another consideration is whether there are related ANDA cases pending in the patentee’s chosen forum.

Because there are frequently multiple defendants in Hatch-Waxman cases, multiple related ANDA suits pending in different courts could wind up being consolidated in a single court anyway, Coyle said.

“Even if suits are initially brought in different courts as a result of TC Heartland, consolidation as part of a multi-district litigation proceeding seems likely anyway,” he said.

“Nevertheless, TC Heartland may provide a useful weapon for those generic defendants seeking to avoid litigating in a brand company’s chosen court,” he said.

“I think that the decision is going to have an effect on the margins,” Paul A. Ainsworth of Sterne Kessler Goldstein & Fox LLP in Washington told Bloomberg BNA in a May 22 telephone interview. “There certainly will be some defendants that will insist on being sued in a forum more of their own choosing.”

Outcome Hard to Predict

Holdreith cautioned it’s too early to assess how the high court’s ruling will affect the drug patent litigation landscape.

“I think this is hard to predict and will play out in the real world dynamically,” Holdreith said May 22. “I would be cautious about making too strong a prediction about how this will develop.”

And all this could change if Congress gets involved, BIO’s Sauer said. “The decision will probably attract Congress’s attention,” he said, noting Congress has considered developing legislation that would affect patent venues that was more permissive than the approach related in the supreme court’s ruling.

To contact the reporters on this story: Dana A. Elfin in Washington at delfin@bna.com; John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

The Supreme Court's opinion is available at http://src.bna.com/o5n.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.