Apotex wins on prejudgment interest issue in Plavix case
The issues in the appeal in the Plavix [clopidogrel bisulfate ] case brought by Apotex:
On appeal, Apotex argues that the district court erred by: 1) granting Sanofi prejudgment interest in addition to the damages specified in the May 2006 agreement; 2) awarding the interest at the prime rate; 3) holding Apotex Inc. jointly and severally liable for Sanofi’s damages; and 4) denying Apotex’s motion for leave to file a supplemental answer, affirmative defenses, and counterclaims pleading patent misuse and breach of contract.
Of the prejudgment interest matter (ultimately won by Apotex, over a dissent by Judge Newman):
Apotex contends that the district court abused its discretion by awarding prejudgment interest in addition to the amount of “actual damages” specified in the May 2006 agreement. Apotex argues that the May 2006 agreement, when read as a whole, shows that Sanofi contractually limited its full recovery to 50% of Apotex’s net sales. Apotex contends when the parties contemplated a separate interest payment the May 2006 agreement expressly provided for it.
compared to
Sanofi argues that the district court did not abuse its discretion by awarding prejudgment interest. Sanofi contends that because the agreement is silent regarding prejudgment interest, the district court correctly applied the general rule that “prejudgment interest should ordinarily be awarded.” Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983).
Of the law of settlements:
Because the interpretation of a settlement agreement is not an issue unique to patent law, we apply the law of the appropriate regional circuit. Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed. Cir. 1999). The Second Circuit reviews the district court’s interpretation of a settlement agreement de novo. Hatalmud v. Spellings, 505 F.3d 139, 145 (2d Cir. 2007).
The parties appear to agree that New York contract law governs the interpretation of the May 2006 agreement. See Appellants’ Br. 50-51 (citing New York contract law); Appellees’ Br. 22 (citing New York contract law). Under New York law a court may interpret a con- tract as a matter of law without resorting to extrinsic evidence if the contract is straightforward and unambigu- ous. Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005). Even where a contractual term is ambiguous, if the intention of the parties is clear from the four cor- ners of the agreement, interpretation of the contract is a matter of law, and the court may appropriately rule on summary judgment. See id.
The CAFC sided with Apotex on this point about interest:
After reviewing the May 2006 agreement, we conclude that the parties intended that the phrase “actual damages” include all damages necessary to compensate Sanofi for Apotex’s infringement. Because prejudgment interest is a form of compensatory
damages, the district court erred by awarding additional prejudgment interest pursuant to 35 U.S.C. § 284.
Courts have long held that prejudgment interest is a form of compensatory relief. “No matter what area of law is considered, prejudgment interest, when awarded, is part of a successful plaintiff’s complete compensation.” Transmatic, Inc. v. Gulton Indus., 180 F.3d 1343, 1347-48 (Fed. Cir. 1999); see also Oiness v. Walgreen Co., 88 F.3d 1025, 1033 (Fed. Cir. 1996) (“Prejudgment interest has no punitive, but only compensatory, purposes. Interest compensates the patent owner for the use of its money between the date of injury and the date of judgment.”).
Of some arguments in the briefs:
Sanofi argues that the district court correctly con- cluded that it did not need to preserve the right to pre- judgment interest, because there is a statutory right to interest under 35 U.S.C. § 284. Both parties also make numerous arguments regarding whether the award of prejudgment interest is appropriate in a §271(e)(2) infringement action based on their interpretation of the term “damages” in 35 U.S.C. §§ 271(e)(4)(C) and 284. While interesting, these arguments neither illuminate nor resolve the issue before us – the meaning of “actual damages” in the May 2006 agreement. The agreed upon “actual damages” are a creature of contract and not of the Patent Act. By entering into the May 2006 agreement, the parties decided that the agreement itself – not § 271(e)(4)(C) or § 284 – would govern the appropriate measure of damages from Apotex’s infringement.
Footnote 3:
The dissent argues that Bank of New York v.
Amoco Oil Co., 35 F.3d 643 (2d Cir. 1994), requires us to
award prejudgment interest in this case. In Bank of New
York, however, the settlement agreement at issue was
ambiguous and the court found no clear indication of the
parties’ intent within the agreement. Bank of New York,
35 F.3d at 662. In contrast, in this case the parties’
intention to include prejudgment interest in “actual
damages” is clear from the four corners of the contract.
Cf. Postlewaite, 411 F.3d at 67.
Patent misuse charge:
Apotex’s allegations regarding patent misuse arise entirely from BMS’s conduct surrounding its failure to disclose the existence of the oral agreement regarding an authorized generic to the FTC and the consortium of state attorneys general. Apotex contends that under both Federal law and the FTC’s prior judgments, BMS had a duty to inform the FTC of its oral promise not to launch an authorized generic. Apotex argues that BMS’s failure to disclose the oral agreement, despite this affirmative duty to disclose, rises to the level of patent misuse that rendered the ’265 patent unenforceable during the entire period Apotex sold its generic product.
Nefarious conduct:
The district court properly rejected Apotex’s patent misuse defense as futile. See Acito v. IMCERA Grp., Inc., 47 F.3d 47, 55 (2d Cir. 1995) (“One good reason to deny leave to amend is when such leave would be futile.”). In Princo, 616 F.3d at 1328, we held “that the key inquiry under the patent misuse doctrine is whether . . . the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects.” BMS’s failure to disclose the oral side deal with Apotex, and its false certification to the FTC regarding the same, in no way broadened the scope of the ’265 patent grant. Although it is perhaps plausible that the scope of the ’265 patent grant could have been broadened if the FTC failed to discover BMS’s nefarious conduct, such a hypothetical is irrelevant here – the FTC quickly discovered the existence of the oral agreement and BMS’s false certification prior to either the FTC or the state attorneys general giving approval to the May 2006 agreement.
Apotex contends that our decision in Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1021-22 n.8 (Fed. Cir. 2008), supports its argument that a patent may be held unenforceable for the failure to comply with a statutory obligation to disclose information relating to a patent license and settlement agreement.
Princo comes up:
As we expressly held in Princo, “the defense of patent misuse is not available to a pre- sumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects.” 616 F.3d at 1329. As reprehensible as BMS’s actions may be, they do not constitute patent misuse: “Where the patentee has not leveraged its patent beyond the scope of rights grant by the Patent Act, misuse has not been found.” Id. at 1328.
**Judge Newman dissented on the interest issue. She noted:
The district court observed that “[w]hile the Settlement Agreement explicitly limits damages, it does not in any way restrict an award of interest on those damages.” Sanofi- Aventis v. Apotex Inc., 748 F. Supp. 2d 293, 297 (S.D.N.Y. 2010). Paragraph 14 of the Settlement Agreement states the way damages shall be measured, and does not mention that such damages shall be free of the routine award of interest. The district court correctly interpreted the contract, applying New York contract law and precedent, and held that “[i]n the absence of any agreement to the contrary, the general rule awarding interest on damages in patent infringement actions remains unaltered.” Sanofi-Aventis, 748 F. Supp. 2d at 297 (citing 35 U.S.C. §284; Gen. Motors, 461 U.S. at 657).
The panel majority proposes that the contract’s silence on prejudgment interest means that the parties intended and agreed, by their silence, to forgo such interest. But as the Court confirmed in General Motors, the background rule is that prejudgment interest is awarded on damages for patent infringement, as required by statute. See 6 Corbin on Contracts §26.1 (“The critical concept is that parties apply the background rule if their contract is silent. Assum- ing that the rule is defeasible, and may be changed by agreement, the parties have the choice of saying nothing and keeping it, or affirmatively modifying or displacing it.”).
AND
“Actual damages” and “prejudgment interest” are separate categories, as the district court correctly observed.
Sanofi-Aventis, 748 F. Supp. 2d at 297 (“Damages and interest are distinct categories of recovery.”). Prejudgment interest is awarded on actual damages in order to treat the injured party fairly. In Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1580 (Fed. Cir. 1991), the court explained that “prejudgment interest can only be applied to the primary or actual damage portion and not to the punitive or enhanced portion,” and that “prejudgment interest is designed ‘to compensate for the delay a patentee experiences in obtaining money he would have received sooner if no infringement occurred,’ while ‘on the other hand, damages are trebled as punishment,’” citing Paper Converting, 745 F.2d at 23. See also Gen. Motors, 461 U.S. at 655-56 (“An award of interest from the time that the royalty payments would have been received merely serves to make the patent owner whole, since his damages consist not only of the value of the royalty payments but also of the forgone use of the money between the time of infringement and the date of the judgment.”); Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1128 (Fed. Cir. 1996) (award- ing actual damages plus prejudgment interest on the actual damages). The parties’ agreement that punitive damages would not be sought was not an agreement to forgo the standard award of interest on the actual damages.
AND
Under New York law, “[w]here one interpretation is broader than another, courts should not apply the broader interpretation absent a clear manifestation of intent.” Bank of New York v. Amoco Oil Co., 35 F.3d 643, 662 (2nd Cir. 1994). In Bank of New York the parties had agreed to limit “any recovery of damages” to no more than $550,000 and did not discuss prejudgment interest in the agreement, and the Second Circuit upheld the award of prejudgment interest such that the total amount exceeded $550,000, explaining that:
[R]easonable business people could not know with precision how the inclusion of prejudgment interest should affect the level of the cap on damages. After all, neither party could know with precision when final judgment would be rendered . . . . Absent a clear intent to include prejudgment interest within the meaning of “damages,” we think that reasonable businesspeople faced with uncertainty over how much prejudgment interest there would be would exclude prejudgment interest from the meaning of “damages.”
35 F.3d at 662. The Second Circuit’s reasoning is applicable here
**UPDATE
Grammatical Arguments :
Judge Moore first raised the grammatical issue with Defendant-Appellant’s counsel and noted that she had been consulting her copies of Strunk & White and The Chicago Manual of Style: [Listen].
The issue came up again in the discussion with Plaintiff-Appellee’s counsel: [Listen] and [Listen].
This is the third time that I have heard Judge Moore refer to Strunk and White during various oral arguments. So, if you are making grammatical arguments to the court, you might take into consideration that at least one judge uses that text as a resource. However, it should be noted that another judge has commented during a different oral argument that ”Strunk and White does nothing for me.”
On appeal, Apotex argues that the district court erred by: 1) granting Sanofi prejudgment interest in addition to the damages specified in the May 2006 agreement; 2) awarding the interest at the prime rate; 3) holding Apotex Inc. jointly and severally liable for Sanofi’s damages; and 4) denying Apotex’s motion for leave to file a supplemental answer, affirmative defenses, and counterclaims pleading patent misuse and breach of contract.
Of the prejudgment interest matter (ultimately won by Apotex, over a dissent by Judge Newman):
Apotex contends that the district court abused its discretion by awarding prejudgment interest in addition to the amount of “actual damages” specified in the May 2006 agreement. Apotex argues that the May 2006 agreement, when read as a whole, shows that Sanofi contractually limited its full recovery to 50% of Apotex’s net sales. Apotex contends when the parties contemplated a separate interest payment the May 2006 agreement expressly provided for it.
compared to
Sanofi argues that the district court did not abuse its discretion by awarding prejudgment interest. Sanofi contends that because the agreement is silent regarding prejudgment interest, the district court correctly applied the general rule that “prejudgment interest should ordinarily be awarded.” Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983).
Of the law of settlements:
Because the interpretation of a settlement agreement is not an issue unique to patent law, we apply the law of the appropriate regional circuit. Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed. Cir. 1999). The Second Circuit reviews the district court’s interpretation of a settlement agreement de novo. Hatalmud v. Spellings, 505 F.3d 139, 145 (2d Cir. 2007).
The parties appear to agree that New York contract law governs the interpretation of the May 2006 agreement. See Appellants’ Br. 50-51 (citing New York contract law); Appellees’ Br. 22 (citing New York contract law). Under New York law a court may interpret a con- tract as a matter of law without resorting to extrinsic evidence if the contract is straightforward and unambigu- ous. Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005). Even where a contractual term is ambiguous, if the intention of the parties is clear from the four cor- ners of the agreement, interpretation of the contract is a matter of law, and the court may appropriately rule on summary judgment. See id.
The CAFC sided with Apotex on this point about interest:
After reviewing the May 2006 agreement, we conclude that the parties intended that the phrase “actual damages” include all damages necessary to compensate Sanofi for Apotex’s infringement. Because prejudgment interest is a form of compensatory
damages, the district court erred by awarding additional prejudgment interest pursuant to 35 U.S.C. § 284.
Courts have long held that prejudgment interest is a form of compensatory relief. “No matter what area of law is considered, prejudgment interest, when awarded, is part of a successful plaintiff’s complete compensation.” Transmatic, Inc. v. Gulton Indus., 180 F.3d 1343, 1347-48 (Fed. Cir. 1999); see also Oiness v. Walgreen Co., 88 F.3d 1025, 1033 (Fed. Cir. 1996) (“Prejudgment interest has no punitive, but only compensatory, purposes. Interest compensates the patent owner for the use of its money between the date of injury and the date of judgment.”).
Of some arguments in the briefs:
Sanofi argues that the district court correctly con- cluded that it did not need to preserve the right to pre- judgment interest, because there is a statutory right to interest under 35 U.S.C. § 284. Both parties also make numerous arguments regarding whether the award of prejudgment interest is appropriate in a §271(e)(2) infringement action based on their interpretation of the term “damages” in 35 U.S.C. §§ 271(e)(4)(C) and 284. While interesting, these arguments neither illuminate nor resolve the issue before us – the meaning of “actual damages” in the May 2006 agreement. The agreed upon “actual damages” are a creature of contract and not of the Patent Act. By entering into the May 2006 agreement, the parties decided that the agreement itself – not § 271(e)(4)(C) or § 284 – would govern the appropriate measure of damages from Apotex’s infringement.
Footnote 3:
The dissent argues that Bank of New York v.
Amoco Oil Co., 35 F.3d 643 (2d Cir. 1994), requires us to
award prejudgment interest in this case. In Bank of New
York, however, the settlement agreement at issue was
ambiguous and the court found no clear indication of the
parties’ intent within the agreement. Bank of New York,
35 F.3d at 662. In contrast, in this case the parties’
intention to include prejudgment interest in “actual
damages” is clear from the four corners of the contract.
Cf. Postlewaite, 411 F.3d at 67.
Patent misuse charge:
Apotex’s allegations regarding patent misuse arise entirely from BMS’s conduct surrounding its failure to disclose the existence of the oral agreement regarding an authorized generic to the FTC and the consortium of state attorneys general. Apotex contends that under both Federal law and the FTC’s prior judgments, BMS had a duty to inform the FTC of its oral promise not to launch an authorized generic. Apotex argues that BMS’s failure to disclose the oral agreement, despite this affirmative duty to disclose, rises to the level of patent misuse that rendered the ’265 patent unenforceable during the entire period Apotex sold its generic product.
Nefarious conduct:
The district court properly rejected Apotex’s patent misuse defense as futile. See Acito v. IMCERA Grp., Inc., 47 F.3d 47, 55 (2d Cir. 1995) (“One good reason to deny leave to amend is when such leave would be futile.”). In Princo, 616 F.3d at 1328, we held “that the key inquiry under the patent misuse doctrine is whether . . . the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects.” BMS’s failure to disclose the oral side deal with Apotex, and its false certification to the FTC regarding the same, in no way broadened the scope of the ’265 patent grant. Although it is perhaps plausible that the scope of the ’265 patent grant could have been broadened if the FTC failed to discover BMS’s nefarious conduct, such a hypothetical is irrelevant here – the FTC quickly discovered the existence of the oral agreement and BMS’s false certification prior to either the FTC or the state attorneys general giving approval to the May 2006 agreement.
Apotex contends that our decision in Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1021-22 n.8 (Fed. Cir. 2008), supports its argument that a patent may be held unenforceable for the failure to comply with a statutory obligation to disclose information relating to a patent license and settlement agreement.
Princo comes up:
As we expressly held in Princo, “the defense of patent misuse is not available to a pre- sumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects.” 616 F.3d at 1329. As reprehensible as BMS’s actions may be, they do not constitute patent misuse: “Where the patentee has not leveraged its patent beyond the scope of rights grant by the Patent Act, misuse has not been found.” Id. at 1328.
**Judge Newman dissented on the interest issue. She noted:
The district court observed that “[w]hile the Settlement Agreement explicitly limits damages, it does not in any way restrict an award of interest on those damages.” Sanofi- Aventis v. Apotex Inc., 748 F. Supp. 2d 293, 297 (S.D.N.Y. 2010). Paragraph 14 of the Settlement Agreement states the way damages shall be measured, and does not mention that such damages shall be free of the routine award of interest. The district court correctly interpreted the contract, applying New York contract law and precedent, and held that “[i]n the absence of any agreement to the contrary, the general rule awarding interest on damages in patent infringement actions remains unaltered.” Sanofi-Aventis, 748 F. Supp. 2d at 297 (citing 35 U.S.C. §284; Gen. Motors, 461 U.S. at 657).
The panel majority proposes that the contract’s silence on prejudgment interest means that the parties intended and agreed, by their silence, to forgo such interest. But as the Court confirmed in General Motors, the background rule is that prejudgment interest is awarded on damages for patent infringement, as required by statute. See 6 Corbin on Contracts §26.1 (“The critical concept is that parties apply the background rule if their contract is silent. Assum- ing that the rule is defeasible, and may be changed by agreement, the parties have the choice of saying nothing and keeping it, or affirmatively modifying or displacing it.”).
AND
“Actual damages” and “prejudgment interest” are separate categories, as the district court correctly observed.
Sanofi-Aventis, 748 F. Supp. 2d at 297 (“Damages and interest are distinct categories of recovery.”). Prejudgment interest is awarded on actual damages in order to treat the injured party fairly. In Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1580 (Fed. Cir. 1991), the court explained that “prejudgment interest can only be applied to the primary or actual damage portion and not to the punitive or enhanced portion,” and that “prejudgment interest is designed ‘to compensate for the delay a patentee experiences in obtaining money he would have received sooner if no infringement occurred,’ while ‘on the other hand, damages are trebled as punishment,’” citing Paper Converting, 745 F.2d at 23. See also Gen. Motors, 461 U.S. at 655-56 (“An award of interest from the time that the royalty payments would have been received merely serves to make the patent owner whole, since his damages consist not only of the value of the royalty payments but also of the forgone use of the money between the time of infringement and the date of the judgment.”); Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1128 (Fed. Cir. 1996) (award- ing actual damages plus prejudgment interest on the actual damages). The parties’ agreement that punitive damages would not be sought was not an agreement to forgo the standard award of interest on the actual damages.
AND
Under New York law, “[w]here one interpretation is broader than another, courts should not apply the broader interpretation absent a clear manifestation of intent.” Bank of New York v. Amoco Oil Co., 35 F.3d 643, 662 (2nd Cir. 1994). In Bank of New York the parties had agreed to limit “any recovery of damages” to no more than $550,000 and did not discuss prejudgment interest in the agreement, and the Second Circuit upheld the award of prejudgment interest such that the total amount exceeded $550,000, explaining that:
[R]easonable business people could not know with precision how the inclusion of prejudgment interest should affect the level of the cap on damages. After all, neither party could know with precision when final judgment would be rendered . . . . Absent a clear intent to include prejudgment interest within the meaning of “damages,” we think that reasonable businesspeople faced with uncertainty over how much prejudgment interest there would be would exclude prejudgment interest from the meaning of “damages.”
35 F.3d at 662. The Second Circuit’s reasoning is applicable here
**UPDATE
Grammatical Arguments :
Judge Moore first raised the grammatical issue with Defendant-Appellant’s counsel and noted that she had been consulting her copies of Strunk & White and The Chicago Manual of Style: [Listen].
The issue came up again in the discussion with Plaintiff-Appellee’s counsel: [Listen] and [Listen].
This is the third time that I have heard Judge Moore refer to Strunk and White during various oral arguments. So, if you are making grammatical arguments to the court, you might take into consideration that at least one judge uses that text as a resource. However, it should be noted that another judge has commented during a different oral argument that ”Strunk and White does nothing for me.”
posted by Lawrence B. Ebert at 8:31 AM
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