Based on the dispute between Celltrion and Genentech over Celltrion’s biosimilar version of Rituxan (rituximab), it should be clear that interpretive disputes relating to the patent dance in the 2010 biosimilar law are far from over.  The patent dance is indeed the gift that keeps on giving.  And some of the interpretive conundrums lead to ridiculous results, at least, if you’re at all interested in saving litigants money.  Look at what Genentech recently found itself doing.

Let’s Review the Bidding

For more details on the dispute between the companies and on the statutory framework, see my blog post from earlier this week.  Here are the highlights for purposes of today’s blog post.

• In April 2017, Celltrion submitted its biosimilar application.
• The companies danced, sort of, until January 2018. According to Genentech, Celltrion was at best a reluctant dance partner.  In early January, Celltrion stopped dancing and provided a notice of commercial marketing.
• On January 11, Celltrion brought a declaratory judgment action in California, seeking a declaration that the patents were invalid and/or not infringed.
• On January 12, Genentech brought a patent infringement case in New Jersey. Genentech, Inc. et al. v. Celltrion, Inc., et al., Docket No. 1:18-cv-00574 (D.N.J. Jan. 12, 2018).  In April, Celltrion notified the court that it planned to move for dismissal, because the Genentech suit duplicated its own earlier filed case in California.
• In May 2018, however, the California court dismissed Celltrion’s declaratory judgment action, because Celltrion didn’t complete the patent dance. This decision is on appeal in the Federal Circuit.

And this is where it gets interesting again. . . .

Wait, Wait, I Changed My Mind!

After the California court dismissed its lawsuit Celltrion changed its mind about the patent dance.  It returned to Genentech and tried to restart the patent dance exactly where it had left off.  Thus, at least by Genentech’s account, Celltrion was a reluctant dancer, walked off the dance floor, and then decided it wanted back in, after all.

Remember that by now the companies were already engaged in patent litigation, in federal district court in New Jersey.   Nevertheless, Celltrion demanded that the parties complete step (5) of the patent dance, identifying a subset of patents for immediate litigation under step (6).  Pursuant to step (5)(A), therefore, it notified Genentech of the number of patents it would provide in the list exchange under step (5)(B).  Genentech objected to this course of action, but responded on June 11 (identifying all of the patents that it had asserted in its January complaint), while reserving its rights.

So were the companies actually now dancing again?  Perhaps not.  The patent dance provisions specify very strict timelines for almost every step . . .  20 days for this, 60 days for that, 30 days for this, 15 days for that . . .  Curiously, paragraph (4)(A) does not state a deadline for starting the negotiation of a patent list for immediate litigation.  42 U.S.C. § 262(l)(4)(A).  But, Celltrion has claimed that it began the paragraph (4) negotiations back in January (and so the California judge wrote, when he dismissed the case).  Paragraph 53 of Celltrion’s amended complaint in California stated that on January 11, “Celltrion Inc. stated that, pursuant to 42 U.S.C. § 262(l)(4)(A), Celltrion Inc. wished to litigate all of the patents on Genentech’s (3)(A) list.”  And the statute is unambiguous that once the (4)(A) negotiations start, the companies have only 15 days to negotiate, at which point the list exchange process in paragraph (5) must begin — with Celltrion taking the first step.  If Celltrion began the paragraph (4) negotiations in January, then taking the first step under paragraph (5) in June was not timely.

Why Did Celltrion Want to Resurrect the Dance?

It’s not as crazy as it sounds.  The California court held that Celltrion could not bring a declaratory judgment action, because it had failed to complete the patent dance.  Celltrion then took the declaratory judgment claims from the California case and refiled them as counterclaims in Genentech’s New Jersey case.  Genentech has argued that these claims are barred, whether brought as claims or counterclaims.  Celltrion admitted to Genentech that it was resurrecting the patent dance simply to insulate the counterclaims from dismissal.

Here’s where it gets interesting. 

On July 11, Genentech filed a second patent infringement suit, again in New Jersey.  Genentech, Inc. v. Celltrion, Inc. et al., Docket No. 1:18-cv-11553 (D.N.J. Jul. 11, 2018).

Why the second suit? 

I think there is a strong argument that a list exchange under paragraph (5) did not occur.  But according to Genentech, Celltrion takes the position that the parties have now exchanged lists under paragraph (5).  And the BPCIA imposes severe penalties on innovators if they don’t follow the rules of the dance that apply next.

• Paragraph (6) of the patent dance says that the patent owner must bring suit within 30 days after the list exchange.  Section 271(e)(6) of the Patent Act says that if the patent owner misses this deadline, it loses any ability to recover lost profits. The only remedy available will be a reasonably royalty.
• Celltrion might persuade a court that the paragraph (5) list exchange has occurred. In this case, if Genentech didn’t make the 30-day  deadline with a lawsuit, it would lose the ability to collect money damages for infringement.
• But Genentech already had a suit pending.  As a result, a court might dismiss the second lawsuit.  At the very least, the company might not prosecute the second case to completion, given that it was redundant.
• Here’s the kicker: section 271(e)(6) also says that if the patent owner brings the suit on time, but the suit is dismissed without prejudice or not prosecuted to judgment in good faith, the same thing happens — no lost profits, only a reasonable royalty.

This was a no-win situation for Genentech.  In a letter to the judge in the first case, Genentech explained the situation, indicated that it was asking Celltrion to stipulate to consolidation, and asked the judge to consolidate (rather than dismiss) the new suit, so as to avoid triggering the penalty provision.

Reasonable Readings of the Reasonable Royalty Provision?

The judge finally consolidated the cases on Friday.  So at this point, there’s simply a pending appeal in the Federal Circuit from the California dismissal, and a case pending in New Jersey brought by Genentech.

But it seems to me that there will be arguments, in due course, over the scope of the reasonable royalty penalty provision.  Genentech seems to have been concerned that failing to bring a new suit, upon the completion of the paragraph (5) list exchange, would limit its remedies in the pending case in New Jersey.  It is not unreasonable to fear that a court would read the Patent Act to limit the patent owner to reasonable royalties on the patent forever after, in any patent infringement case, against any defendant.  So it is hard to blame Genentech for the conservative strategy.  The price of being wrong would be very high.

But, there is another reading.  Perhaps the remedies limitation applies only in the action in question.  In other words, if the patent owner sues after the 30 day deadline expires, it is limited in that case to reasonable royalties.  (Obviously if the case is dismissed or not prosecuted to judgment in good faith, the patent owner won’t even get to the remedies question.)  This is far less draconian, and it makes more sense, if you understand the remedy provisions of the BPCIA as intended to ensure that each patent exchange works properly and fairly for the parties to the exchange.  This seems more likely than an enforcement scheme designed to be unilaterally punitive (and draconian, at that).

Readers interested in both possibilities should look closely at 35 U.S.C. § 271(e)(6)(A) and (B).  Subparagraph (B) states that the only remedy is a reasonable royalty in “an action for infringement of a patent described in subparagraph (A).”

• If “described in subparagraph (A)” modifies “action for infringement of a patent,” then my proposed reading is correct.  The actions described in subparagraph (A) are “an action . . . brought after the expiration of the 30-day period” and “an action . .  dismissed without prejudice . . . or not prosecuted to judgment in good faith.”
• If, on the other hand, “described in subparagraph (A)” modifies “patent,” then the consequences are more dire.  The patents described in subparagraph (A) are patents that (1) were identified in the subset for first phase litigation and (2) are the subject of an action that was brought after the 30-day window (or dismissed without prejudice or not prosecuted in good faith).

Where are we now?   

We don’t know the answer to the interpretive question above, and no answer seems imminent.   Whether other companies will find themselves on the horns of this same dilemma remains to be seen.

And stay tuned for the outcome of the Federal Circuit appeal.