On March 31, 2014, the U.S. Court of Appeals for the Federal
Circuit vacated a denial of a preliminary injunction
in Endo Pharmaceuticals, Inc. v. Actavis, Inc. and
Actavis South Atlantic, LLC, in a decision that underscores
the importance of careful drafting and knowledge of the patent
landscape in executing patent license agreements.
Endo Pharmaceuticals, Inc. sells Opana ER, which contains the
painkiller called oxymorphone. Actavis, Inc., Actavis South
Atlantic, LLC, and Roxane Laboratories, Inc. (collectively the
"Defendant-Appellees") attempted to
market generic versions of Opana ER. After an initial patent
infringement suit between Endo and Actavis, all parties entered
into settlement and license agreements. The license agreement
between Endo and Roxane, to which the license agreement between
Endo and Actavis is similar, dictated that Endo would grant patent
licenses for:
"(a) any [U.S.] patents that are both (i) now owned by
Endo...and (ii) issued as of the Effective Date of this
Agreement, including the Opana ER Patents,
(b) any [U.S.] patent applications that claim priority to
the Opana ER Patents, including any continuation,
continuation-in-part and divisional patent applications that claim
priority to Opana ER Patents, and
(c) any patents resulting from the reissue or reexamination of
patents or patent applications comprised within clauses (a) and
(b)..."
As a result of clauses (a) through (c), the license agreement
granted express license rights to the Defendant-Appellees for three
of Endo's Opana ER patents. As a limitation to the scope of the
Licensed Patents, the license agreements contained provisions
expressly barring any patent rights to Actavis and Roxane
"whether by implication, estoppel or otherwise, other than as
expressly granted herein." Roxane J.A. 4949 § 4.4. While
the license agreements contained covenants not to sue, detailing
that Endo would not assert that Defendant-Appellees' generic
versions of Opana ER infringe, those covenants were limited to the
Licensed Patents.
Subsequent to the license agreement, the USPTO issued two
additional Endo patents relating to Opana ER. Endo then sued
Actavis and Roxane, alleging that their generic versions of Opana
ER violated these two newly issued patents, for which Actavis and
Roxane did not have a license. Endo moved for a preliminary
injunction to prevent further marketing of the
Defendant-Appellees' generic versions of Opana ER. In response,
Actavis and Roxane argued that they had an express license and an
implied license to the later-issued patents, the latter license by
reason of estoppel because Endo was effectively trying to deprive
them of "the benefit of [the earlier] bargain." Roxane
J.A. 4823; see also Actavis J.A. 2717.
With regard to the Defendant-Appellees' argument that they had
an express license, the question goes to whether the subsequent
Endo patents fall within the scope of clauses (a) through (c) of
the prior agreements. The court held that the patents did not,
focusing its analysis on clause (b).
According to the court, to satisfy clause (b), "a patent must
make an express cross-reference to the nonprovisional application
from which the prior patent issued." Endo Pharmaceuticals,
Inc. v. Actavis, Inc., No. 2013-1662, 2014 WL 1272846 *7, n. 1
(Fed. Cir. Mar. 31, 2014). The court found that none of the
subsequent Endo patents were continuations of the patents governed
by the license agreements because the subsequent patents did not
cross-reference the Licensed Patents.
However, the subsequent patents did claim priority to a U.S.
provisional application to which one of the Licensed Patents also
claimed priority. On this basis, Actavis and Roxane argued the
subsequent patents satisfied clause (b). The court rejected
those arguments, holding that a common provisional application was
insufficient to satisfy clause (b). Instead, the later-issued
patents would have had to cross-reference a Licensed Patent in
order to be a "continuation" of a Licensed Patent.
The court explained that Actavis and Roxane were only granted
licenses limited to specific patents and patent applications, not
to entire subject matters. The court effectively held that estoppel
does not grant an implied license to unrelated patents. Thus, Endo
was not estopped from asserting the subsequent patents because the
subsequent patents are not continuations of the Licensed Patents.
Accordingly, the court vacated the district court's denial of a
preliminary injunction and remanded for further proceedings.
From a transactional standpoint in drafting patent license
agreements, the court suggested two provisions that would have
expressly included the later-issued patents in the license and
prevented Endo from suing the Defendant-Appellees for patent
infringement.
First, in a situation where several patents have a provisional
application in common, a licensee should include language that the
licensed patents include "any application claiming a
common priority date as the licensed patents." This
language would have expressly made the subsequent patents Licensed
Patents under the agreement.
Second, if properly drafted, a license agreement may provide an
implied license to subsequent patents where the subsequent patents
have the "same inventive subject matter" as the licensed
patents. Endo Pharmaceuticals, Inc. v. Actavis, Inc., No.
2013-1662, 2014 WL 1272846 *12 (Fed. Cir. Mar. 31, 2014) (citing
General Protecht Group, Inc. v. Leviton Manufacturing Co.,
Inc., 651 F.3d 1355, 1361 (Fed. Cir. 2011)). Such implied
license was found when the license agreement at issue gave a
license "to practice, and cause to be
practiced...throughout the world, each Subject
Invention." This language does not limit the license
to specific patents. Id. (citing AMP Inc. v. United
States, 389 F.2d 448, 454 (Ct. Cl. 1967)). Rather, such
language grants a license to the overall concept and subject matter
of the related patents, rather than a license to specific patents,
regardless of whether such patents were issued or in existence at
the time of the agreement.
Following Endo, transactional attorneys drafting patent
license agreements should be careful to avoid these pitfalls. Given
the court's analysis, it is crucial to identify the potential
implications of future patents and adequately address their
treatment in each patent license agreement. The results of the case
may cost Actavis and Roxane the ability to market their generic
versions of Opana ER, despite the consideration they paid to Endo
in the settlement and license agreement. As this case demonstrates,
courts will not rewrite written agreements between the parties,
even when the rules of patent law may render the license
ineffective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.