Parties’ Contract Trumps Patent Act to Deny Prejudgment Interest

Notwithstanding that the federal common law provides for pre-judgment interest, the U.S. Court of Appeals for the Federal Circuit overturned a district court award of prejudgment interest in light of the parties’ agreement to limit actual damages.Sanofi-Aventis, et al. v. Apotex Inc. and Apotex Corp., Case No. 11-1048 (Fed. Cir., Oct. 18, 2011) (Moore, J.) (Newman, J., dissenting).

Sanofi sells a drug under the brand name Plavix.In 2001, Apotex filed an Abbreviated New Drug Application (ANDA) with the United States Food and Drug Administration (FDA) seeking approval for the sale of generic version of Plavix and asserting that the Sanofi patent that covered Plavix was invalid.

In 2002 Sanofi filed an infringement action against Apotex.Apotex admitted infringement but counterclaimed that the patent was invalid and unenforceable.The case was subject to the office action 30-month-stay provision of ANDA.In January 2006, the FDA gave Apotex final approval to sell its generic product.Before the FDA approval the parties began negotiating a settlement agreement, which was entered in March 2006.Under the March 2006 Settlement Agreement, Sanofi granted Apotex a future license under the patent, which would allow Apotex to begin sale of its generic product several months before the patent expired.Sanofi also agreed that it would not launch its own generic version of Plavix during the period of Apotex’s license.After the U. S. Federal Trade Commission rejected certain provisions of the March 2006 Settlement Agreement, the parties negotiated further, entering a second settlement agreement in May 2006.Under the terms of the May 2006 Settlement Agreement, Sanofi’s “actual damages” as a result of any infringement by Apotex were set as “50% of Apotex’s net sales.”Under the terms of the May 2006 Settlement Agreement, Sanofi also agreed that it would not seek increased damages under 35 U.S.C. § 284.

After Apotex began selling its generic product, Sanofi moved for a preliminary injunction which was granted.Apotex made over $884 million in net sales before the injunction was entered.The district court, in a subsequent bench trial, held that the patent was not invalid and was not unenforceable.The district court later determined that Sanofi was entitled to $442 million in damages (50 percent of Apotex’s net sales of $884 million), plus $107 million in prejudgment interest.The district court determined that because only “damages” were limited by the parties’ agreement, the separate award of interest (a distinct category of relief) was appropriate.Sanofi appealed.

Reviewing the decision for an abuse of discretion, the Federal Circuit concluded that the parties intended that the phrase “actual damages” include all damages necessary to compensate Sanofi for Apotex’s infringement.Moreover, the Court concluded that the parties’ inclusion of a separate interest provision in another section of the May 2006 Settlement Agreement further supported its conclusion that when the parties agreed upon the amount of “actual damages” they intended this to be the total damages necessary to compensate Sanofi for Apotex’s infringement.

Judge Newman dissented, declaring that the May 2006 Settlement Agreement did not alter the general rule that prejudgment interest is awarded on damages for patent infringement. Although the May 2006 Settlement Agreement explicitly limits damages, it does not in any way restrict an award of interest on those damages.In Judge Newman’s opinion, the parties’ silence should not be interpreted as removing Sanofi’s right to receive the interest to which it is entitled by statute and precedent.