Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S 566 U.S. ___, 132 S. Ct. 1670 (Apr. 17, 2012)

By Nagendra Setty and Bill Blonigan

The Hatch-Waxman Act

Congress designed the Hatch-Waxman Act (codified at 21 U.S.C. § 355(b), (j), (l) and 35 U.S.C. §§ 156, 271, and 282) to inspire medical innovation by giving medical-device and pharmaceutical patent owners a more fruitful patent term while providing follow-on manufacturers to more quickly market their products once medical patents expire. Unlike other products, advanced medical devices and drugs must be FDA approved. These products can’t be marketed until proven sufficiently safe and effective through tests and clinical trials. FDA approval is expensive and time consuming. But it’s more than a matter of time and money. Medical innovators—especially drug developers—face the significant risk that a potential product will not live up to its promise.

Patents generally provide a time-limited monopoly that’s meant to reward innovation. But to reward the clinical-trial gamble, the Hatch-Waxman Act offers an extended patent monopoly through Patent Term Extension to medical-device and drug patent owners (also called brand-name manufacturers, or brands) that commercialize innovative medical products. The extended patent term helps offset the patent’s wasted youth, which was spent awaiting FDA approval instead of generating sales revenue under a patent monopoly. But a longer patent term means a longer wait for me-too manufacturers (also called generic manufacturers, or generics) that must wait out the extended patent term to sell the patented product. For generics, Congress leveled the playing field by allowing them to piggyback on brand-name manufacturers’ clinical-trial results. This allows them to bring generic products to market faster and less expensively. The concept is simple enough. But the Hatch-Waxman Act is possibly the gnarliest thicket of patent legislation ever enacted.

Under Caraco, use codes must coincide with patent scope

In Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S, the Supreme Court interpreted a portion of the Hatch-Waxman Act that deals with so-called section viii statements or, more specifically, use codes and carve-out drug labeling. Brand-name manufacturers must file a use code that describes what uses of the drug are patented and, therefore, off limits to generics. The patent owner drafts the use code, and the FDA assumes, without question, that it is accurate.

A generic can sell the drug despite the patent if it carves out a product label that doesn’t instruct users to practice any method described in the use code as long as: (1) a brand’s patent covers only some of the drug’s possible uses and (2) the drug compound itself is not patented.

Problems can arise when patent owners—like Novo Nordisk in Caraco—draft use codes that extend to non-patented uses of the drug and thus prevent competitors from entering the market by virtue of patent rights that could not otherwise provide such a broad monopoly.

Caraco wanted to market the diabetes drug repaglinide, the generic name of Novo Nordisk’s Prandin. Repaglinide is FDA approved to treat diabetes in three ways: (1) by itself, (2) combined with either another drug, metformin, and (3) combined with one of a class of drugs, called thiazolidinediones (TZDs). Because Novo Nordisk’s patent claimed only the second use, Caraco believed that it should have been able to carve out a label covering only the other two uses. But just after Caraco submitted its carve-out label to the FDA, Novo Nordisk broadened its use code to state that its patent covered all three methods. Accordingly, the FDA refused to approve Caraco’s generic drug. When Novo Nordisk sued Caraco for patent infringement, Caraco filed a counterclaim seeking to force Novo Nordisk to change its use code by removing reference to the two unpatented methods. Novo Nordisk argued that the Hatch-Waxman Act did not allow such a counterclaim.

The Supreme Court disagreed. Construing the relevant portions of the Hatch-Waxman Act, the Court reasoned that within the literal and policy context of the statute, it would make no sense to allow patentees to block unpatented treatment methods by filing inaccurate use codes with the FDA. “Congress meant (as it usually does) for the provision it enacted to fit within the statutory scheme—here, by facilitating the approval of non-infringing generic drugs under section viii.” Caraco, 566 U.S. ___, slip op. at 15 (construing 21 U.S.C. § 355(j)(5)(C)(ii)(I)).

Caraco’s reasoning is relevant to medical-device patents

While Caraco involved a portion of the Hatch-Waxman Act that directly affects only drug companies, the Supreme Court’s reasoning and statutory construction could also affect medical-device companies. In Eli Lilly & Co. v. Medtronic, Inc., 496 U. S. 661 (1990), the Supreme Court interpreted the Act—formally titled, The Drug Price Competition and Patent Term Restoration Act of 1984—broadly, holding that it exempted from patent infringement acts done in pursuit of obtaining FDA approval by not only drug companies, as the Act’s formal name obviously suggests, but also medical-device companies. Id. at 672–73. The Court recognized that because Hatch-Waxman was a literal balancing Act, it would be unfair if medical-device patentees could enjoy the advantage of an extended patent term under 35 U.S.C. § 156 without suffering the disadvantage of a patent-infringement safe harbor (under 35 U.S.C. § 271(e)(1)) for competitors seeking FDA approval. Accordingly, there is a strong argument that the Hatch-Waxman Act balances incentives for drugs and medical devices consistently.

Just as Caraco concerned the unfairness of broadening a drug patent’s reach by crafting overbroad use codes, medical-device patents can be effectively broadened through arguably overbroad Patent Term Extension. In Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., No. C95-03577-DLJ, 2008 U.S. Dist. LEXIS 88892 (N.D. Cal. Oct. 21, 2008) (ACS), for example, the asserted patent claimed a rapid-exchange stent-delivery catheter. The patented catheter was one of four components in a drug-coated-stent kit. In the ACS court’s view, the delivery catheter played only a trivial role in delivering treatment—which the court compared to a spoon that delivers medicine to a patient’s mouth—and the focus of the FDA’s review was on the drug-coated stent. Further, while the Hatch-Waxman Act only allows Patent Term Extension based on the first premarket-approval (PMA) of the patented product, the patented catheter had already been used in at least 100 other FDA-approved devices. To extend the term of the delivery-catheter patent based on the FDA’s review of the hundred-and-first product that, only by “happenstance,” used the patented technology “would work a thorough distortion of Hatch-Waxman,” said the court. Id. at *36.

Nevertheless, and controversially, the Patent Office extended the term of the delivery-catheter patent. Critics, like the ACS court, argue that by so liberally extending the life of medical-device patents—when FDA review did not delay commercialization of the patented technology—the Patent Office is missing the point of the Hatch-Waxman Act’s Patent Term Extension scheme—to make up for market time lost during the PMA process—and extending the lives of too many patents. Medical-device manufacturers seeking to challenge the government’s liberal policy can now cite Caraco, in addition to Eli Lilly and ACS, for the proposition that the Hatch-Waxman Act should be interpreted to fit within the statutory balancing act—not to reward happenstance.