Opinion analysis: The Supreme Court reverses another Federal Circuit patent case

Yesterday the Supreme Court vacated in part and reversed in part the U.S. Court of Appeals for the Federal Circuit’s decision in the consolidated patent cases Sandoz v. Amgen and Amgen v. Sandoz, completing the specialized circuit’s dismal 0-for-6 record in patent cases at the court this year.

The case involved another skirmish in the long-running battle between research pharmaceutical companies, which tend to seek more intellectual property and regulatory protections for their innovations, and generic pharmaceutical companies, which typically seek to curb intellectual property and regulatory protections.

The litigation arose after the generic pharmaceutical company Sandoz sought a license from the Food and Drug Administration to market an approximate copy — a “biosimilar” — of Amgen’s “biologic” drug filgrastim (trade name Neupogen). Sandoz’s application for an FDA license triggered a complex statutory mechanism for patent litigation under the Biologics Price Competition and Innovation Act, which is an approximately 17-page subchapter contained in the larger 906-page Affordable Care Act (aka Obamacare).

Sandoz emerged as the clear victor in the case, winning the right to bring “biosimilar” versions of complex biologic drugs to market sooner and also gaining a small but potentially important procedural right for future litigations.

As I speculated in my argument analysis, however, the court left unanswered some of the questions that had been briefed in this hugely complicated case. Justice Clarence Thomas’ opinion for the court is short — only 18 pages — with 10 of those pages devoted to explaining the complicated legal and procedural background of the suit. The court seemed focused on providing some specific guidance in the area, while avoiding issues that were poorly presented or could have broader implications outside this particularly complex area of patent law.

Below I will discuss the specific issues raised in the litigation, and in doing so, I will follow the structure of my argument preview and argument analysis, both of which described the issues in five layers.

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On the two most general aspects of the case — the long-running policy war over the optimal level of patent protection for medicines and the complex technology of biologic and biosimilar drugs — the court said nothing. Indeed, one of the final paragraphs in Thomas’ opinion noted that each side had advanced a “bevy” of plausible “policy arguments” but then eschewed any competency to decide such matters, stating: “The plausibility of the contentions on both sides illustrates why such disputes are appropriately addressed to Congress, not the courts.” The justices treated the case exclusively as a matter of statutory interpretation, not as an opportunity to forge policy.

The first specific legal issue in the case was whether, when Sandoz filed an FDA application to market a biosimilar to Amgen’s biologic drug, Amgen was entitled to obtain Sandoz’s application. On this question, the court provided only a partial answer. It held that Amgen could not get a federal injunction to force Sandoz to turn over the application.

The Federal Circuit had also reached that conclusion, but the Supreme Court did not agree with the lower court’s reasoning. Although the Federal Circuit held that federal injunctive relief was foreclosed by Section 271(e) in the Patent Act (35 U.S.C. § 271(e)), the Supreme Court relied exclusively on 42 U.S.C. § 262(l)(9)(C), which is the provision in the Biologics Act that authorizes research pharmaceutical companies such as Amgen to sue for declaratory injunctions if generic companies such as Sandoz do not turn over their biosimilar applications.

That seemingly minor difference could be significant because Amgen also asserted that it was entitled to injunctive relief under California’s unfair-competition law, which generally authorizes injunctions to restrain “unlawful” acts unless a statute “expressly” provides an “exclusive” set of remedies. The provision in the Patent Act relied upon by the Federal Circuit expressly states that its remedies are exclusive; the provision in the Biologics Act does not.

The Supreme Court “decline[d]” to answer the ultimate issue of whether Amgen might be able to get an injunction under state law. That seems to be a wise course for multiple reasons including, as the court’s opinion mentions, that the issue turns in part on state, not federal, law. Additional reasons for avoiding the state-law issue were also discussed during the oral argument. Any theory that state law provides injunctive relief would raise a serious counterargument of federal pre-emption, but Sandoz may have foregone this argument by disavowing it in the district court. Moreover, the dispute over the right to obtain Sandoz’s application is arguably moot, because Amgen already obtained the application in discovery after exercising its statutory right to sue Sandoz for declaratory relief. In these circumstances, the court’s “declin[ing]” to rule on the ultimate issue seems very sensible. The court remanded this issue to the Federal Circuit, which will confront the procedurally complex question whether to rule on a seemingly moot issue in litigation in which a major counterargument (federal pre-emption) might have been waived.

The second issue decided by the court was whether Sandoz provided Amgen the proper notice of its intent to market a biosimilar. The Biologics Act requires companies seeking to market biosimilars to provide notice to the first biologics company “not later than 180 days before the date of the first commercial marketing of the [biosimilar] product licensed [by the FDA].”

Sandoz sent Amgen notice while its biosimilar application was still pending before the FDA, and the Federal Circuit held that Sandoz had provided the notice too early. The court of appeals believed that the notice would have “to follow [FDA] licensure, at which time the product, its therapeutic uses, and its manufacturing processes are fixed.”

That holding of the Federal Circuit was the financial crux of the case. A delay of 180 days (approximately half a year) can mean hundreds of millions of dollars in additional revenue for a drug company that retains exclusivity over the original biologic. The Federal Circuit’s ruling meant that any company seeking to market a biosimilar would have to stay out of the market for the entire time of the FDA’s licensing process plus another 180 days after the FDA issued the license.

The Supreme Court reversed the Federal Circuit on this issue and held that “the applicant may provide notice either before or after receiving FDA approval.” To the justices, that result followed from the language of the statute, which imposes only a “single timing requirement” (180 days before commercial marketing of the biosimilar) not “two timing requirements” (after FDA licensure and 180 days before commercial marketing).

The end result of the court’s ruling is that companies may often be able to market biosimilars immediately after FDA licensing, provided that (i) the biosimilar company gave notice at the beginning of the FDA process (as Sandoz did); (ii) the FDA process took more than 180 days (as it did for Sandoz’s application); and (iii) the biosimilar does not infringe any valid patent rights. Such accelerated marketing for biosimilars is a huge win for generic companies like Sandoz.

The final issue briefed in the case was whether, if Sandoz violated the notice requirement in the statute, a federal court could enjoin Sandoz from marketing its biosimilar until it provided proper notice. The Federal Circuit had issued an injunction against Sandoz, but that injunction was premised on the Federal Circuit’s erroneous view that Sandoz’s notice was too early. Because the Supreme Court reversed the Federal Circuit’s decision on the proper timing of Sandoz’s notice, the justices did not have to reach this final issue.

Although he joined the entire opinion, Justice Stephen Breyer wrote an interesting one-paragraph concurrence that picked up directly on his comments during oral argument. In the oral argument, Breyer wondered whether “the way to go about this case [is] to ask the agency to issue some regulations?” Later, he remarked that although he “would stick with the idea of the FDA doing this first,” maybe he “can’t get there.”

Breyer did not find a way to get the FDA to issue some regulations first, but his concurrence speculated that “if [the FDA], after greater experience administering this statute, determines that a different interpretation would better serve the statute’s objectives, it may well have authority to depart from, or to modify, today’s interpretation.” Breyer supported that suggestion with a citation to National Cable & Telecommunications Assn. v. Brand X Internet Services, which authorizes agencies to use their rulemaking powers to overturn (in effect) judicial decisions. That’s an interesting possibility, and it provides the justices with an escape hatch if this decision has unintended consequences.

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As Sandoz v. Amgen is the final patent case of the Supreme Court’s 2016 term, I’ll close with two thoughts about how this case fits into the general pattern of patent cases at the Supreme Court.

First, the most striking aspect of this case is that it is the sixth Supreme Court patent case this term. Fifteen years ago, the court was just beginning to average about one patent case per term, and that was seen as the Supreme Court’s return to the field of patents. Now the court has been averaging over three cases per term for several years, and two more are already slated for argument next term. The lesson to patent lawyers is clear: Every significant issue in patent law could end up at the Supreme Court.

Second, although the Federal Circuit’s record at the court this term was especially bad, the justices have not — to put it mildly — provided a ringing endorsement of the Federal Circuit’s patent jurisprudence. That provides an especially hard lesson for lawyers: They constantly face the challenge of preparing their patent cases for two audiences of appellate judges who often see the law in systematically different ways. That challenge and its implications for the stability of patent law remain a central policy problem for the intellectual property system of the 21st century.