What does Caraco court win mean for generic drug companies?

Tue Apr 17, 2012 8:03pm EDT

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(Reuters) - U.S. Supreme Court Justice Elena Kagan had fun with semantics in Tuesday's unanimous ruling in the Caraco Pharmaceutical versus Novo Nordisk case in which pharmaceutical companies faced off against generic drug makers.

At issue was a 2003 law with a loophole used by brand-name drug makers to keep generic competitors off the market.

Faced with expiring patents on successful drugs, brand makers in the 1990s began extending their monopoly rights by obtaining "method" patents on use of the medications.

Such patents could give brand-makers longer exclusivity, but the U.S. Food Drug Administration (FDA) became concerned in the late 1990s that pharmaceutical companies were abusing the system by submitting overly-broad descriptions of their method patents to the FDA.

The FDA was concerned that brand-manufacturers were improperly shutting generics out of uses their method patents did not cover. Congress responded with a law giving generics the right to wage a misuse argument, leaving it to a federal district judge, rather than the FDA, to determine the scope of the brand-maker's method patent.

The law, however, was "not altogether free of ambiguity," Kagan said.

The issue at the Supreme Court boiled down to a particular phrase.

Generics, the law says, may bring a counterclaim against the brand maker "on the ground that the patent does not claim . . . an approved method of using the drug."

As Kagan explained in amusing fashion (musing on the New York Mets' playoff prospects and the excuses a college student might make for failing an exam), "not … an" can have two distinct meanings.

Novo and the Federal Circuit Court of Appeals interpreted the phrase to mean "not any." Since Novo had a method patent on one use of its diabetes drug repaglinide, it argued, and the Federal Circuit agreed, that the generic Caraco was precluded from filing any counterclaim.

Caraco, represented throughout the case by James Hurst of Winston & Strawn (who has had a string of wins for generics), said that "not … an" is more specific than "not any." It argued that Novo's method patent covered only one use of repaglinide, despite the brand-maker's attempt to tell the FDA otherwise. Because Caraco sought FDA approval of a different use of the drug, it said it should be able to sue.

Significantly, Caraco's position had the backing of the U.S. Solicitor General. The Justice Department was invited by the court to submit an amicus brief (a document filed by an interested party not directly related to the case) and, after presentations by both sides, came down in the generics' camp.

The Supreme Court agreed with Caraco and the Solicitor General that Novo's interpretation of the statute would make the law meaningless.

"We think that the ‘not any' construction does not appear in the relevant counterclaim provision because Congress did not mean what Novo wishes it had," Kagan wrote. "And we think that is so because 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."

So if generics have the right to challenge the scope of brand-makers' method patents, how much benefit does that bring to consumers?

The Solicitor General's amicus brief in the Caraco case said that in fiscal year 2010, the FDA approved 11 generics under method patent carve-outs that would have been precluded under the Novo and Federal Circuit reading of the 2003 law.

Three of the five top-selling drugs that went generic in that stretch, each with sales of more than $2.5 billion, went to market because of carve-outs from method patents. Presumably, consumers will save those billions because the Supreme Court preserved the generics' right to sue over the scope of method patents.

Novo Nordisk general counsel James Shehan told Reuters the Supreme Court's opinion is a narrow holding on a specific use of the counterclaim. The high court held that generics may sue even if the brand manufacture has a method patent covering one use of its drug, but Shehan said such lawsuits are rare.

"This is not a particularly significant setback to the industry," he said. (Novo's statement on the ruling emphasizes that the Supreme Court only gave Caraco the right to sue; it did not conclude that Caraco's position in the underlying case is correct.)

A spokesperson for the Pharmaceutical Research & Manufacturers of America said the trade group was still evaluating the ruling.

Novo was represented at the Supreme Court by Gibson, Dunn & Crutcher.

(Reporting By Alison Frankel)

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