Delisting Counterclaims in Hatch-Waxman Cases: An Ineffective Weapon to Address Improper Patent Listing

The Hatch-Waxman Act (“the Act”) was designed to strike a delicate balance between pharmaceutical innovation and faster access to affordable drugs. However, one aspect of the Act, the patent listing process, when used improperly, can knock this balance out of whack. Unfortunately, in the present environment, the potential for improper patent listing is high, and current remedies are insufficient.

The statutory patent listing requirements are a cornerstone of the Act. New Drug Application (NDA) holders are required to provide the Food and Drug Administration (FDA) with a list of patents covering the drug substance, the drug product, and approved methods of use for the specific drug product covered by that NDA, and to update that list in certain circumstances. Further, if the patent covers an approved method of use, the NDA holder must also provide the FDA with a “use code,” which describes the use covered by that patent. This information is then published by the FDA in the “Orange Book.”

Why is this important? Because the Act requires that applicants seeking to market a generic version of a given drug product must address each of the listed patents as part of their application.

Addressing Listed Patents

While there are a number of ways listed patents can be addressed, two are relevant here. First, a generic applicant can assert that a listed patent is invalid or will not be infringed. This is known as a “paragraph IV” certification. A paragraph IV certification kicks off a statutorily-prescribed process whereby the generic applicant provides the NDA holder with notice of the certification, after which time the NDA holder has 45 days to bring a lawsuit. If it does so, an automatic 30 month stay of approval of the generic drug product is put into place from the date the notice was received, and the litigation commences. Obtaining this stay is quite important, as it can serve to delay approval of competing generic products.

Second, where the approved drug product has more than one approved use, and a listed patent covers less than all of those uses, the applicant can decide to seek approval only for the unpatented uses and “carve out” the information regarding patented uses from its proposed labeling. In this instance, the applicant makes a “section viii statement.” Unlike a paragraph IV certification, an applicant who has submitted a section viii statement does not have to provide the NDA holder with notice, and there is no 30-month stay of approval. This is of great value to the generic applicant, as it can result in a faster pathway to market.

Given the importance of the patent listing process, one might think that the FDA carefully monitors proposed patent listings to make sure they are accurate. Not so. The FDA has repeatedly refused to police this information. Not surprisingly, the FDA’s “hands off’ approach leads some NDA holders to play “fast and loose” with the system. For example, they may list patents that are not allowed to be listed. NDA holders may also submit use codes that are broader than the actual method of use claimed in the listed patent, including use codes that cover unclaimed approved uses. In that instance, the FDA prohibits generic applicants from making label carve-outs that overlap with these improper use codes, instead requiring paragraph IV certifications to that patent. As a result, the generic applicant, if sued, is subjected to the 30-month stay and a markedly more difficult battle to prove non-infringement.

Initially, generic applicants had no means to challenge improperly listed patents. In Mylan v. Thompson, 268 F.3d 1323 (Fed. Cir. 2001), the Federal Circuit held that Mylan’s declaratory judgment action to delist a patent from the Orange Book was not authorized by the Act or recognizable as a defense to infringement.

Enter, Delisting

As evidence of improprieties in the patent listing process continued to mount, Congress decided to act. In 2003, Congress authorized generic applicants sued for patent infringement to assert a counterclaim seeking an order requiring the NDA holder to correct or delete patent information on the basis that the patent does not cover the approved drug product or an approved method of use. See, e.g., 21 U.SC. §355(j)(5)(C)(ii)(I).

In 2012, the U.S. Supreme Court clarified that this counterclaim, now colloquially called a “delisting counterclaim,” was also available to correct overbroad use codes. Caraco Pharm. Labs. Ltd. v. Novo Nordisk A/S, 566 U.S. 399 (2012). Justice Sotomayor in her concurrence noted that availability of a delisting counterclaim did not fix the issues of delays in approval, as it resulted in expensive and time-consuming litigation. Id. at 426-430.

Justice Sotomayor was right. Delisting counterclaims, even if successful, are typically not resolved quickly enough to provide significant benefit to the generic applicants impacted by the listing. The main reasons for this are the nature of the counterclaim itself and the hesitancy of district court judges to decide these counterclaims in early motion practice or expedited summary judgment.

The Problems with Delisting

The first problem with delisting counterclaims is that they can only be brought in response to a charge of patent infringement. By this time, the generic applicant has been required to make a paragraph IV certification to the patent that is the subject of the counterclaim, and the NDA holder has obtained its 30-month stay of FDA approval of the generic drug product. Thus, the NDA holder has already significantly increased its chances of delaying approval of the generic drug product simply by forcing that paragraph IV certification to the potentially wrongfully listed patent.

Second, it is difficult to get a delisting counterclaim decided in a timely manner once litigation has commenced. There are three potential ways to get a relatively expedited ruling on a delisting counterclaim: a Rule 12(b) motion to dismiss; a Rule 12(c) motion for judgment on the pleadings; or a summary judgment motion.

While Rule (12)(b)(6) and Rule 12(c) motions can be brought early in litigation, there are significant barriers to success. First, all facts pleaded by the plaintiff must be taken as true and viewed in a light most favorable to it. Thus, to the extent the plaintiff can show there are facts relevant to whether a given patent should be delisted or its use code corrected, the motion will be denied. Second, plaintiffs faced with these motions often argue that claim construction is necessary to decide the counterclaim, which most courts will refuse to do for a motion to dismiss or for judgment on the pleadings.

Likewise, summary judgment motions are not an ideal vehicle to resolve delisting counterclaims. First, they are not typically allowed to be brought until the end of fact or expert discovery, which may not occur for a significant period of time after litigation commences. In addition, some district court judges, most notably in Delaware, rarely, if ever, allow summary judgment motions in Hatch-Waxman cases, effectively eliminating this as an option for generic litigants. Second, if the plaintiff can raise any genuine issue of material fact relating to the delisting counterclaim, such as issues relating to patent validity, it will be denied. This is a common occurrence with respect to summary judgment motions generally, and has also occurred with respect to delisting counterclaims.

If a generic applicant fails to get its delisting counterclaim resolved in one of these ways, the counterclaim is decided at, or even after trial. District courts assigned Hatch-Waxman cases are cognizant of the 30-month stay, and typically strive to get those cases resolved within this timeframe. Even so, early approval of the generic product has been effectively foreclosed.

Thus, even where a generic applicant ultimately succeeds on its delisting counterclaim, the NDA holder has benefited from its improper patent listing. Consequently, there is no real incentive for such entities to change their behavior, except perhaps for the potential of antitrust liability at some later date. See, e.g., In re Lantus Direct Purchaser Antitrust Litigation, 950 F.3d 1 (1^st Cir. 2020).

One Example

The effects of improper listing are illustrated by the Jazz v. Avadel litigation. On May 20, 2021, Jazz sued Avadel for infringement of a number of patents based on Avadel’s submission of an NDA seeking approval to market a product in competition with Jazz’s blockbuster drug XYREM®. Of these patents, only one, U.S. Patent No. 8,731,963, was listed in the Orange Book. Avadel filed a delisting counterclaim, and shortly thereafter, a motion for judgment on this counterclaim, arguing that the ’963 patent was not properly listed, as it claimed “a computer-implemented system” for treatment of a narcoleptic patient, and not a method of use. The court, however, denied the motion, reasoning that claim construction was required to resolve the issue. Jazz Pharms. v. Avadel, 2021 WL 4860682 at *3 (D. Del. Oct. 19, 2021).

During this time, Jazz benefited from listing the ’963 patent in the Orange Book. Avadel had been forced to file a paragraph IV certification, which subsequently resulted in a 30-month stay of approval for Avadel’s NDA. As litigation proceeded, the FDA tentatively approved Avadel’s NDA on July 18, 2022, with the only barrier to full approval being the 30-month stay.

After claim construction, the court entered judgment in Avadel’s favor on the delisting counterclaim and directed Jazz to request the ’963 patent be removed from the Orange Book. Not surprisingly, the court held that the ’963 patent claims were directed to a system, and not an approved method of use, and therefore the ’963 patent was not properly listed. Jazz v. Avadel, 2022 WL 17083873 (D. Del. November 21, 2022.)

That was not the end of the story, however. Jazz appealed the decision to the Federal Circuit, which expedited the appeal, but also stayed the district court’s delisting order. Finally, on February 24, 2023, the Federal Circuit issued its decision affirming the district court’s ruling. Jazz v. Avadel, 60 F. 4^th 1373 (Fed. Cir. 2023). The patent was then delisted, and on May 1, 2023, the FDA granted Avadel final approval of its NDA.

Therefore, Jazz’s improper listing of the ’963 patent in the Orange Book had its intended effect. It delayed Avadel’s approval by approximately 10 months and forced Avadel to engage in expensive and protracted litigation to pursue its delisting counterclaim. Thus, although Avadel ultimately won the battle, it may have lost the war.

Some Solutions

Cases like this amply illustrate that the availability of a delisting counterclaim does not go far enough to curtail improper patent listings. But there are potential avenues for correcting this problem. Congress could (and one could argue, should) provide generic applicants with the ability to pursue an independent civil action to remove improperly listed patents from the Orange Book. Such suits could be brought during the development of the generic product, thus “clearing the field” of improperly listed patents at an earlier date, and perhaps even prior to submission of the application seeking approval for the generic product. Ironically, Congress previously rejected this proposed solution on the grounds it would encourage excess litigation. Caraco, 599 U.S. at 430. Given today’s emphasis on affordable drug prices, which are a consequence of generic drug availability, this idea should be revisited.

Absent such Congressional action, courts in appropriate circumstances should look for ways to expedite resolution of delisting counterclaims. For example, where a generic applicant can show it is likely to get approval prior to the expiration of the 30-month stay but for the improperly listed patent, district courts could allow for expedited claim construction limited to issues relating to the delisting counterclaim and/or expedited discovery in support of summary judgment.

There are likely other potential solutions. The FDA could decide to substantively review patent information (unlikely), or to require a use code to parrot the broadest claim to an approved use in the listed patent. Until a solution to the problem of improper patent listing is implemented, the promise of the Hatch-Waxman act to “get generic drugs into the hands of patients at reasonable prices—fast” will not be fully achieved.

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Author: tashatuvango
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