This spring the Supreme Court seems to have made it easier for generic drug manufacturers to contest the reach of patent protection for brand name drugs. In Caraco Pharmaceutical Labs, Ltd. v. Novo Nordisk, the Supreme Court ruled that a congressionally-created counterclaim allows generic manufacturers to challenge the exact uses a drug patent covers. Generic manufacturers can use the counterclaim in cases where a patent holder asserts infringement in response to an application to manufacture a generic version of a brand-name drug (i.e., Abbreviated New Drug Application or ANDA).
The Supreme Court’s unanimous decision directly addresses what could be referred to as “use squatting,” whereby brand-name drug manufacturers submit inaccurate or overbroad patent information related to methods of using the brand-name drug to the Food and Drug Administration (FDA).
Methods of use, use codes and patent infringement
Brand-name drug manufacturers seeking FDA approval submit an application, such as a New Drug Application, or NDA, that includes a statement of the drug’s components and a proposed label describing the drug’s use. If the drug is covered by a patent(s), the FDA also requires that the manufacturer submit the patent numbers and expiration dates, as well as a description of any method-of-use patent(s) using “use codes.” The FDA does not attempt to verify the accuracy of this information and simply publishes the use codes, along with the corresponding patent numbers and expiration dates in the FDA’s “Orange Book.”
The FDA requires the patent information so that it can appropriately review and approve applications to manufacture generic versions of a brand-name drug. The FDA may not immediately approve an application for a generic drug that is covered by the use codes or by a brand’s patent. But, one way a generic manufacturer can get approval is to submit a so-called “Section VIII statement,” which asserts that the generic manufacturer will market the drug for one or more methods of use not covered by the brand’s listed patents. Such a Section VIII statement is typically used when the brand’s listed patents on the drug have expired and the brand holds patents covering only some approved methods of using the drug. This is typically referred to as “carve-out” or “skinny labeling.”
A 2002 Federal Trade Commission study found that brand-name drug manufacturers were submitting overbroad use code information to prevent or delay generic entry. In response, Congress created a statutory counterclaim for generic manufacturers to challenge the accuracy of use codes that inaccurately describe the brand’s patent(s) as covering a particular method of using the drug in question.
Caraco and the congressional counterclaim
In Caraco, brand-name drug manufacturer Novo Nordisk manufactured a drug for the treatment of diabetes. The FDA had approved three uses of the drug, but Novo’s listed patent covering the method of using the drug claimed only one. Generic manufacturer Caraco Pharmaceutical Laboratories sought FDA approval to market a generic drug for the two other approved uses. Before that approval was issued, Novo changed its use codes to cover all three FDA-approved methods of using the brand-name drug.
Caraco had submitted an ANDA seeking to market a generic version of the brand-name drug, certifying for one of the listed patents that it was invalid or would not be infringed. Novo filed suit for infringement. In the meantime, Caraco submitted a Section VIII statement with a proposed carve-out, or skinny label. Caraco then brought the counterclaim authorized by Congress. The counterclaim requested that Novo “correct” its use code back to the original single method of using the brand-name drug.
The district court granted summary judgment in Caraco’s favor. The Federal Circuit reversed that decision. Interpreting the statute at issue, the Federal Circuit found that the statutory language that says “the patent does not claim…an approved method of using the drug” required that, in order to use the statutory counterclaim, the generic manufacturer must demonstrate that the brand’s patent(s) does not claim any approved method of use.
Before the Supreme Court was the question of whether Congress authorized a generic manufacturer to challenge a use code’s accuracy by bringing a counterclaim in response to a patent infringement suit filed by the brand.
The Supreme Court’s unanimous decision
Reversing the Federal Circuit, the Supreme Court held that a generic manufacturer “may employ the counterclaim provision to force correction of a use code that inaccurately describes the brand’s patent as covering a particular method of using a drug.”
To reach its decision, the Supreme Court specifically rejected Novo’s reading of the statute that would have construed the “not…an” language to limit the availability of the counterclaim to instances in which a patent claims no approved method of use. Instead, the court found that taken in context, a reading that best met congressional intent construed the “not/an” language to permit the counterclaim whenever a patent does not claim the particular method of use the generic manufacturer seeks to market.
The court also rejected Novo’s assertion that use codes do not qualify as patent information submitted under the FDA’s controlling statute. The court said use codes are pivotal to the FDA’s implementation of the Hatch-Waxman Act and that it is “unsurprising that the counterclaim provision’s language sweeps widely enough to embrace them.” The specific remedies in the counterclaim provision allowing deletion of improperly claimed uses confirm that conclusion.
Of note, Justice Sotomayor wrote a separate concurring opinion that discussed the potential complexity that the counterclaim may bring to Hatch-Waxman litigation and pointed out that the court’s opinion “underscores that the counterclaim can only lessen the difficulties created by an overly broad use code; it cannot fix them.”
Time will tell whether the decision in Caraco regarding use squatting will reduce overbroad or inaccurate use codes or simply result in undue litigation. In the meantime, companies should keep this issue in mind, as use squatting is likely to become a frequently raised issue in Hatch-Waxman litigation and, at least in the short-term, increase the costs associated with such litigation. As Justice Sotomayor noted in her concurring opinion, the delays and added expense caused by ambiguities associated with the FDA’s use codes cannot be addressed by the court. Instead, these issues will continue unless and until Congress or the FDA acts.