What The Court Got Wrong About Hatch-Waxman In Alcon

This article appeared on Law360 on February 1, 2016 and is reprinted with permission.

In Alcon Laboratories Inc. v. Akorn Inc., 2016 WL 99201 (D.N.J. Jan. 8, 2016), the court sua sponte stayed a pending Hatch-Waxman action, but denied Alcon's request to extend the 30-month stay of U.S. Food and Drug Administration approval. The court reasoned that "it had discretion to extend the 30-month regulatory approval stay, but only if a party 'failed to reasonably cooperate in expediting the action.' 21 U.S.C. § 355 (1)(5)(B)(iii)." Id. at *2. Since neither party failed to cooperate, the court held that it was powerless to grant the requested extension. The court cited various decisions to support its holding, but some actually undercut its reasoning. More important, the ruling disregards the very purpose of the 30-month stay as apparent from the legislative history of the Hatch-Waxman Act.

Purpose of the 30-Month Stay of FDA Approval

The legislative history of the Hatch-Waxman Act demonstrates that the 30-month stay of FDA approval — originally 18 months — was enacted to "increase the likelihood" that an infringement action would be completed before introduction of a competing generic product. Thus, the generic would have patent certainty and would not be forced to launch-at-risk. And, the patentee would be protected from a premature generic introduction while its patent claims remained unresolved. The legislative history does not indicate, as two courts have held, that any prejudice to the patentee resulting from this situation would be obviated by seeking a preliminary injunction.

Sen. Orrin Hatch, R-Utah, endorsing the amendment increasing the 18-month period to 30 months, stated:

This [extension] increases the likelihood that the [ANDA] litigation will be concluded within the time period during which ANDA's are not allowed. Remarks of Sen. Hatch, Cong. Rec. of Aug. 10, 1984, S10504.

Addressing the same amendment, Former Rep. Henry Waxman stated:

Some of the brand name drug companies felt this charge increases the likelihood that such patent litigation will be concluded before the generic drug maker begins marketing. …[The extension] was agreed upon to have a period of time by which there most likely would have been a court adjudication of the patent in question. Remarks of Rep. Waxman, House Floor Debate, Cong. Rec. of Sept. 6, 1984, H9114, H9118.

These statements show that the 30-month stay was intended to allow infringement issues to be resolved before generic introduction. This reading is consistent with Rep. Waxman's belief that "generic drug manufacturers will not market a product until the court has decided that they are free to do so without infringing the original patent." Remarks of Rep. Waxman, House Floor Debate, Cong. Rec. of Sept. 6, 1984, H9116. Accordingly, the 30-month stay benefits both the patentee and the generic.

To ensure that neither party abused the 30-month stay, the act included 21. U.S.C. § 355(j)(5)(B)(iii), which allows the court to lengthen or shorten the 30-month stay where a party does not "reasonably cooperate in expediting the action." Like the 30-month stay itself, the purpose of this provision was to make it "most likely" that infringement litigation would be completed before generic introduction. While the provision guards against abuse by either party, it does not preclude a court from extending the 30-month stay where circumstances — other that a party's lack of cooperation — warrant such relief.

Alcon Labs v. Akorn

In Alcon, supra, plaintiff Alcon filed a Hatch-Waxman action against Akorn. After the Patent Trial and Appeal Board instituted an inter partes review, the court sua sponte issued a show cause order why the litigation should not be stayed pending the outcome of the IPR. Akorn opposed the stay, but Alcon agreed with the court, provided that the 30-month stay would be correspondingly extended.

The court stayed the action because the typical three-part test for granting such relief — (1) whether the stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party; (2) whether a stay would simplify the issues; and (3) whether discovery was complete and a trial date set — was satisfied.

The court readily dismissed both parties' arguments that they would be prejudiced by the stay and focused on the second and third factors, which clearly favored staying the action. As a result, the court stayed the litigation, but held that it was "without the authority" to extend the 30-month stay. It agreed with Alcon that the 30-month stay was a "critical provision" of the act, but citing the statute, concluded that the stay can only be extended where a party has "failed to reasonably cooperate in expediting the action." Id. at *2. The court found that Alcon could move for a preliminary injunction to prevent any prejudice if the 30-month stay expired, and Akorn launched a generic product. The court did not discuss the relevant legislative history, but relied on the few cases discussed below.

The Alcon court first cites Novartis Corp. v. Dr. Reddy's Labs Ltd., 2004 WL 2368007 (S.D.N.Y. Oct. 21, 2004), where the court stayed a Hatch-Waxman action at the generic's request while the FDA was reconsidering the viability of its abbreviated new drug application. By seeking the stay, the generic was not cooperating in expediting the action; therefore, the 30-month stay was also extended.

Novartis argued that "it would be an abuse of the statutory scheme to allow an [ANDA] applicant … [to] benefit from a stay of litigation by letting the clock run on the thirty-month stay of FDA approval." Id. at *3. The court agreed and held that "[w]ith an extension of the 30-month stay, Novartis will not be disadvantaged by a stay of these proceedings." Id. Thus, the Novartis court addressed possible prejudice, the first factor for granting a stay — the factor that the Alcon court overlooked — and concluded that without the extension, the patentee would be prejudiced. Admittedly, the Novartis court's decision was straightforward because the terms of the statue were satisfied. The court's reasoning, however, on possible prejudice is equally valid even where both parties cooperate in expediting the action.[1]

The Alcon court next cites Cima Labs Inc. v. Actavis Group AG, 2007 WL 1672229 (D.N.J. June 7, 2007), where the court granted Cima's request to stay the action, but denied defendants' request to extend the 30-month regulatory stay. The court found that defendants' reliance on 21 U.S.C. § 355 (j)(5)(iii) — which certainly gave the court discretion to extend the 30-month stay — was "misplaced." Id. at *11. Regardless, the court did not hold that the statute limited its inherent power to extend the 30-month stay.

In Abbott Laboratories v. Matrix Laboratories Inc., 2009 WL 3719214 (N.D. Ill. Nov. 5, 2009), another case cited in Alcon, the court granted defendants' motion, stayed the pending Hatch-Waxman action, and extended the 30-month stay. The defendants had argued that without the extension, it would be prejudiced because it could lose the 180-day market exclusivity afforded to the first-filed generic. In a section titled "Undue Prejudice or Tactical Disadvantage," the Abbott court stated:

Consideration of the appropriate factors weighs in favor of issuing a stay in this case. Abbott could suffer prejudice if any motion for a stay were not accompanied by an order tolling the 30-month limitations period. But for tolling, the 30-month period could run during the pendency of the stay. However, Defendants' motion to stay the action has been accompanied by a request that the Court toll the limitations period. Id. at *2.

In conclusion, the court stated: "In sum, the Court concludes that Abbott's interests will not be harmed by issuing a stay because the court also orders the tolling of the [30-month] limitation period." Id at *5. Thus, the court specifically recognized that the first factor for granting a stay — prejudice to the nonmoving party — was eliminated only where the litigation stay was accompanied by a corresponding stay of the 30-month period. Like Novartis, this decision highlights the Alcon's court's failure to fully consider the first factor in granting the stay.

In Eli Lilly and Co. v. Accord Healthcare Inc., 2015 WL 8675158 (S.D. Ind. Dec. 11, 2015), the only decision that arguably supports the Alcon court, the Lilly court granted defendants' motion to stay a Hatch-Waxman action pending the outcome of a related IPR. Lilly argued that it would be prejudiced if the action were not resolved before the 30-month stay expired and therefore, this period should be extended. The court denied Lilly's request and ruled that the only basis to extend the 30-month stay was a party's failure to cooperate in expediting the litigation. If the action were not completed within 30 months, Lilly could move for a preliminary injunction "which would eliminate any alleged prejudice." Id. at *2. Surprisingly, the court found that this statute specifically authorizing an extension did not apply, even though the defendants had requested the stay.

Discussion

Both the Alcon and Lilly courts held that they were powerless to stay the 30 — unless a party was not cooperating to expedite the action. Both courts, however, recognized that one relevant factor in deciding to grant a stay was the lack of prejudice to the nonmoving party. But the Novartis and Cima courts both recognized that prejudice would result if a Hatch-Waxman action were stayed without extending the 30-month period. If a court has inherent power to stay a litigation, it has the corresponding power to extend the 30-month stay. Otherwise, the first factor authorizing the litigation stay — absence of prejudice — would not be satisfied. The explicit provision allowing the modification of the 30-month stay to 'punish' a non-cooperating party does not deprive the court of its inherent power to extend that period when it stays the related litigation.

The possibility of a preliminary injunction, which the Alcon and Lilly courts submit removes any prejudice, does not solve the problem. Clearly, the availability of an uncertain result from a preliminary injunction motion is small consolation for depriving the patentee of the certainty of the 30-month stay. Indeed, a patentee should not be forced to pursue this remedy when the act — as shown from its legislative history — was specifically designed to avoid this very uncertainty.

The considerations regarding the grant of a litigation stay dictate that an extension of 30 months is also warranted. Indeed, the regulatory stay was extended from 18 to 30 months to "increase the likelihood" that patent disputes would be resolved before a generic product could be marketed. Both the Alcon and Lilly courts disregarded this important statutory purpose.

In a given case, the patentee or the generic or possibly both may argue that a litigation stay is only appropriate if the 30-month period is corresponding extended. The decision will depend on the specific facts, but the court should not deny the extension, because it lacks the power to do so.

—By Brian D. Coggio and Ron Vogel, Fish & Richardson PC. Brian Coggio is of counsel and Ron Vogel is an associate in Fish & Richardson’s New York office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] The Alcon court also cites Sonovion Pharmaceuticus, Inc. v. Sandoz, Inc., 2011 WL 3875397 (E.D.N.C. Sept. 1, 2011), where a magistrate judge recommended extending the 30-month stay because Sandoz, the generic, had failed to cooperate in expediting the action.