A Covenant Not to Sue Fails to Defeat Declaratory Judgment Jurisdiction in the Context of the Hatch-Waxman Act
In April 2008, the Federal Circuit in Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc. held that a covenant not to sue failed to eliminate jurisdiction for a generic drug company’s declaratory judgment suit to find a patent invalid, unenforceable, and not infringed, where a patentee’s indirect actions kept its competitor out of the market. Forest Laboratories, Inc. (“Forest”) has Food and Drug Administration (“FDA”) approval for two patents related to the active ingredient in its drug Lexapro®. Caraco Pharmaceutical Laboratories, Ltd. (“Caraco”), a generic drug maker, filed a declaratory judgment action for non-infringement against Forest to enable FDA approval of its generic product. Caraco’s action was dismissed by the lower court for lack of Article III jurisdiction on the grounds that it had been rendered moot when Forest unilaterally granted Caraco a covenant not to sue for infringement of the two patents.
Ordinarily, a potential competitor can market its product in the face of an adversely held patent. A generic drug competitor covered by the Hatch-Waxman Act, however, cannot do so until it receives FDA approval of its Abbreviated New Drug Application (“ANDA”). Thus, companies like Forest can exclude non-infringing generic drugs from the market for the term of the patent by preventing the FDA from approving the generic drug applications.
Here, another generic drug company, Ivax Pharmaceuticals, Inc. (“Ivax”), previously failed to obtain a judgment that both of Forest’s patents were invalid or not infringed by the generic drug described in its ANDA. Ivax thus failed to trigger its 180-day exclusivity period in the market under the Hatch-Waxman Act. As a subsequent ANDA filer, Caraco was therefore also precluded from the market regardless of whether the generic drug in its ANDA infringes Forest’s patents and regardless of whether Forest’s patents are valid. Accordingly, Forest’s indirect actions kept Caraco out of the market.
The Federal Circuit thus overruled the lower court’s decision to dismiss Caraco’s declaratory judgment action and held that a dispute as to infringement or invalidity of an FDA approved drug constitutes a “substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment” even in light of a covenant not to sue for patent infringement.
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