Augmentin 1: Early Ruling Favors Generics

February 21, 2002

Introduction. Augmentin (an oral, anti-bacterial drug) is a combination of amoxicillin and potassium clavulnate  (a beta-lactamase inhibitor). Augmentin was developed to combat emerging bacterial immunities to antibiotics.  It was invented in the UK in 1967, approved by the FDA in 1984, and it was launched in the U.S. in 1985. In 2000, sales were $1.85 billion. Because Augmentin is an antibiotic whose active ingredient was approved before 1997, the Hatch Waxman Act does not apply so no generic is entitled to 180 day exclusivity.

Based on preliminary rulings in Virginia, Glaxo could face generic competition for the antibiotic Augmentin^Ò from Geneva, Teva and/or Ranbaxy  in 2003 or 2004.  The lawsuits have been are consolidated for trial in Norfolk, Virginia, starting May 20, 2002.

• Each generic company seeks a pre-trial decision that Glaxo’s patents are invalid and that their proposed generic products do not infringe; but
• Glaxo sued each generic seeking injunctions for patent infringement.

On December 14, 2001, the judge

• Denied Glaxo’s motion to dismiss;
• Denied Glaxo’s motion to transfer to Pennsylvania (where Glaxo has its headquarters … presumably a more favorable jurisdiction);
• Granted Teva’s motion to invalidate one of Glaxo’s  “third-generation” patents which is due to expire in 2018;
• Denied Teva’s motion to invalidate a second-generation patent expiring in July 2002.

Summary: The Rulings suggest that the Judge may [lpf1] invalidate Glaxo’s other three third-generation on the same grounds, leaving Glaxo with second-generation patents that expire in 2002.  If Glaxo’s stock price assumes continued exclusivity for Augmentin then we think it is inflated.  If the stock price of the generics has nothing factored in for augmentin sales, then we think they are undervalued.

The long, complex patent history: The suits involving Augmentin are complex because there are multiple families of patents developed by different corporations and there are multiple generations of patents within the same family. The 25-year history of patent activity includes:

• Regular patent prosecution before a multitude of patent examiners,
• Internal appeals within the patent office, including an “Interference” proceeding before Board of Patent Appeals
• A ”priority contest” to decide between competing groups of inventors;
• The settlement of another interference proceeding; and
• Multiple patent office “re-examination” proceedings.

The generic companies argue that this complex patent history masks Glaxo’s illicit effort to obtain duplicates of the same patents with different expiration dates. The judge has struggled to understand these unfamiliar patent procedures; and, perhaps because of his unfamiliarity with patent cases, the judge appears skeptical about Glaxo’s motives.

The Patent Families – Cole & Expired [Fleming, Clayton & Crowley]

Glaxo owns several families of Augmentin Patents but only the validity and infringement of the Cole Patents are directly at issue in the consolidated suits.  The generics contend that other patents (discussed in items # 2 & #3 below) invalidate the Cole patents:

1-    The Cole  patents were developed at SmithKlineBeecham and include 12 U.S. patents that were issued in three generations.  The Cole patents’ claims generally cover:

• Clavulanic acid,
• A process for manufacturing it, and
• Combinations of clavulanic acid and amoxicillin.

• All of the Cole patents issued (directly or indirectly) from a patent application filed in 1975.

• The two earliest expired in 1995 and 2001 (first generation),
• Six will expire in 2002 (second generation), and
• Four will expire between 2015 and 2018 (third generation).

2-Expired patents

a- Glaxo also owns four expired “Fleming” patents that the generics contend invalidate the Cole patents. The Fleming patents’ claims generally covered:

1. i.     A process for purifying clavulanic acid, and
2. ii.     Various forms of potassium, lithium and sodium clavulnate.

b- Glaxo also owned two other expired Augmentin patents that the generics contend invalidate the asserted Cole patents:

• The “Clayton” patent lists Cole as a co-inventor, claims the combination of clavulanic acid and penicillin.
• The Crowley patent has also expired and claims a combination of amoxicillin tryhidrate and potassium clavilanate.

The Motions for Summary Judgment

A) Geneva and Teva filed separate motions for summary judgment asking the judge to rule that the Cole patents are invalid.   The generics argue that:

1-Glaxo has enjoyed its 17-year monopoly on Augmentin by virtue of the Cole, Fleming, Clayton and Crowley patents;

2-The second and third-generation Cole patents do not improve Augmentin but cover the same product covered by the expired patents;

3-Glaxo seeks to use the second and third-generation Cole patents to block the generics from marketing the same Augmentin product that Glaxo has sold since 1985. This would extend its monopoly on the same product for another 15 years;

4-The second and third generation Cole patents are the result of Glaxo’s 25 years of churning duplicate patents; and

5-These “duplicate” second and third-generation patents are invalid under the doctrine of “obviousness type double patenting:”

• Teva contends that the ‘380 and ‘552 Cole patents are invalid over the earlier ‘720 and ‘352 Cole patents
• Geneva contends that the ‘093. ‘977, ‘703 and ‘380 Cole patents are invalid over the ‘175 Fleming patents:
• Geneva contends that the ‘093. ‘977, ‘703 and ‘380 Cole patents are also invalid over ‘720 Cole patent; and
• Geneva also contends that the ‘352, ‘552, and ‘720 Cole patents are invalid over the Crowley and Clayton patents.

B) Glaxo filed its own motions for summary judgment and asked the court to rule that its patents are valid as a matter of law.  Glaxo does not seriously dispute the first four points, but argues that:

• The first generation Cole patents do not invalidate the later Cole patents because:
  • The patent examiner ruled that Glaxo’s seminal Cole patent application contained numerous inventions which required separate applications (“restriction requirement’);
  • That ruling permitted Glaxo to file separate “divisional” applications;
  • The patent office caused delays that resulted in the late issuance of the third generation patents;
  • The patent claims are slightly different (“patentably distinct”);
  • Glaxo tried to get the second and third generation patents earlier, but were delayed by appeals and an interference;
  • Glaxo did not violate patent prosecution rules; and
  • The patent office “re-examined” the patents and found them valid again.

• The Fleming patents do not invalidate any second and third-generation patent, because:
  • The rule against double patenting does not apply to a third party’s patents even though the applications were later acquired by Glaxo, and
  • They too are patentably distinct;

• The Clayton and Crowley patents do not invalidate the second and third- generation Cole patents because Clayton and Crowley are also patentably distinct.

C) Generics’ Rebuttal.

• The patent examiner did not issue a restriction requirement on the ‘380 patent, the only third-generation patent that is subject of Teva’s motion;
• The patent examiner later changed his mind on the restriction requirement he issued on the application that resulted in the second-generation ‘552 patent;

• The patent office’s reexamination decisions are wrong, do not bind the court, and should not be considered;

• The acquisition of patent applications before their issuance brings the Fleming patents within the double patenting prohibition, and
• Any distinctions between the various patents are so insignificant that it constitutes form over substance.

D) Rulings on December 14, 2001 from the Bench.

1-Teva’s Motions:

• The judge held the third-generation ‘380 Cole patent is invalid under the doctrine of double patenting. The Court:
  • Adopted Teva’s argument that the patents were essentially the same,
  • Rejected Glaxo’s argument that a ruling by the patent examiner (a “restriction requirement”) allowed prosecution of different patents on separate tracks (“divisional applications”) resulting in later patents with later expiration dates, because:
    • The patent examiner made no such ruling; and,
    • Therefore the later expiration dates were improper.
    • Rejected Glaxo’s argument that the patent office’s determination to the contrary in the re-examination proceeding barred the court’s application of the doctrine.
    • The second generation ‘552 Cole patent (which expires 12/24/02) is valid, because:
      • The double patenting doctrine did not apply,
      • Because its application, unlike the application leading to the ‘380 patent, was properly triggered by the required ruling that properly resulted in:
        • Prosecution on a separate track and
        • Resulting in later expiration date.

2-Geneva Motions: Judge Morgan has not yet ruled on pending motions in the Geneva case seeking to invalidate the other third-generation patents on the same ground of double patenting that proved fatal to the third-generation patent in Teva’s motion:

• The judge promised to issue a memorandum on his rulings on Teva’s motion and this will give the Judge another opportunity to signal what he intends to do on Geneva’s motions or
• The judge could decide Geneva’s motion and issue one opinion covering the summary judgment motions of both Teva and Geneva.

If the judge grants Geneva’s motion, the case will essentially be over at the trial level. However because the Federal Circuit likes to review cases with all the issues decided, the judge is still likely to have a Markman hearing and a trial on infringement, even if he rules for Geneva on all the third-generation patents.

3-Glaxo’s Motion for Summary Judgment.  Judge Morgan rejected the double patenting argument on Glaxo’s second-generation Cole patent.

Does the judge’s Teva’s ruling signal how he will rule on all third-generation patents? During oral argument on its motion, Teva’s attorney told the court that the rulings on the three remaining third-generation Cole patents (that are the subject of Geneva’s motion) should be the same as that of the ‘380 patent. He stated that the same double patenting rule applies, involving the same circumstance that led the court to conclude that the ‘380 patent was not the subject of a restriction requirement. Glaxo’s attorney did not dispute Teva’s assertion that if one-third generation patent is invalid, the three others are invalid as well.

Two Recent Decisions favoring the Generics

1- The Prozac Decision:  In May 2001 the court of appeals for patent cases held that Eli Lilly’s last-expiring patent on Prozac was invalid on the ground of “obviousness type double patenting.”  Until then, double patenting was an obscure and low percentage defense in patent cases.  Teva’s brief highlights the Eli Lilly decision but Glaxo’s brief ignores it.

2- Symbol Technologies Case:  In January 2002 the same appeals court issued a landmark decision in the Symbol Technologies case.  It held that repeated, voluntary delays in prosecuting patents can invalidate patents under the equitable doctrine of  “laches.”  The Symbol decision issued after the Teva briefing was completed but it can only help the generics against Glaxo.

Intangible Factors

1-American vs European Patent Practice: Beecham developed Glaxo’s patents in the U.K.  In Britain, patent agents prosecute patents.  They are engineers or technicians who have not attended law school. In the U.S., lawyers prosecute patents. Two recent infringement cases (involving patents that were developed by British patent agents but litigated in the U.S.) have not fared well. In both cases, there were many delays and other irregularities. The American court decided that that the explanations of the British patent agents were not credible.  The reason for this decision may derive from the differences in how patents are prosecuted, but it does not bode well for Glaxo.

2-Judge’s Background: Judge Morgan has no published decisions involving patent cases.  At the oral argument on Geneva’s motion:

• He showed little familiarity with patent law;
• Admitted a lack of understanding of the technology involved;
• Suggested appointing an expert advisor to the court;
• Indicated an intent to keep the case moving; and
• Was skeptical of Glaxo’s arguments because they relied on technical patent office or patent prosecution rules.

3-  Reliance on “technical” patent arguments weakens Glaxo’s postion.

• Glaxo relies heavily on the Manual of Patent Examination Procedures (MPEP).  The manual contains the patent office rules of practice and procedure but an axiom (only partly facetious) of patent litigation is: “Whoever cites the MPEP first loses.”

• Judge Morgan appeared sympathetic to the generics and he was inclined to find a way for the generics to launch before the expiration of the third generation of patents.

Schedule. The consolidated cases are scheduled on May 20, 2002.  If Judge Morgan invalidates all third-generation patents on the pending motions for summary judgment, there could be an appeal to the Federal Circuit before May 2002 with a decision in the winter of 2003.

Conclusion. The rulings on Teva’s motion for summary judgment suggest that Glaxo’s patent exclusivity on Augmentin will end during 2003 or 2004.  Verdict’s prediction is premised on the following:

The court’s preliminary rulings invalidating the one of the third-generation Cole patents make common and legal sense; and

Teva alleges (and Glaxo did not deny) that that ruling should apply to the other third-generation patents.

• • If Judge Morgan agrees, and enters motions for summary judgment in favor of the generics sometime in the spring of 2002, then all Glaxo’s other patents will expire this year; and
  • The Federal Circuit could affirm Judge Morgan’s decision in 2003.
  • If the case is tried, the final decision will be postponed to 2004.

Caveat Emptor: Our prediction is relatively high risk

Verdict’s prediction is based on the transcript of the oral argument on Teva’s motion.   Verdict did not have access to pleadings and the briefs on the  summary judgment motions because they  were filed  under seal.Because there is so much that is not available to Verdict, it is more difficult to assess whether Judge Morgan will  invalidate all third-generation patents, and whether the Court of Appeals will uphold his decision.

If the judge decides to hold a trial, Glaxo need only establish that one claim of one third-generation patent is valid and that both Geneva and Teva infringe it to preclude generic competition for 13 more years. Nevertheless, the generics would be likely to produce internal correspondence from Glaxo that substantiates the generics claim of  patent chicanery.