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HZNP Medicines LLC v. Actavis Laboratories UT, Inc.

United States Court of Appeals, Federal Circuit

October 10, 2019

ACTAVIS LABORATORIES UT, INC., Defendant-Cross-Appellant

          Appeals from the United States District Court for the District of New Jersey in Nos. 1:14-cv-07992-NLH-AMD, 1:15-cv-05025-NLH-AMD, 1:15-cv-06131-NLH-AMD, 1:15-cv-06989-NLH-AMD, 1:15-cv-07742-NLH-AMD, 1:16-cv-00645-NLH-AMD, Judge Noel Lawrence Hillman.

          Caryn Borg-Breen, Green, Griffith & Borg-Breen LLP, Chicago, IL, argued for all plaintiffs-appellants. Also represented by Robert Fritz Green, Jessica Mackay.

          Michael E. Joffre, Sterne Kessler Goldstein & Fox, PLLC, Washington, DC, argued for defendant-cross-appellant. Also represented by John Christopher Rozendaal, Kristina Caggiano Kelly, William H. Milliken.

          Before Prost, Chief Judge, Newman and Reyna, Circuit Judges.


          Reyna Circuit Judge.

         HZNP Medicines LLC and Horizon Pharma USA, Inc. ("Horizon") appeal from the U.S. District Court for the District of New Jersey's judgment of invalidity and noninfringement. Actavis Laboratories UT, Inc. ("Actavis") cross-appeals the district court's judgment of nonobviousness. We affirm.


         Horizon[1] is the assignee of U.S. Patent Nos. 8, 217, 078 ("the '078 patent"); 9, 132, 110 ("the '110 patent"); 8, 618, 164 ("the '164 patent"); 9, 168, 304 ("the '304 patent"); 9, 168, 305 ("the '305 patent"); 8, 546, 450 ("the '450 patent"); 9, 101, 591 ("the '591 patent"); 8, 563, 613 ("the '613 patent"); 9, 220, 784 ("the '784 patent"); 8, 871, 809 ("the '809 patent"); 8, 252, 838 ("the '838 patent"); and 9, 066, 913 ("the '913 patent") (collectively, "the patents-at-issue" or "Horizon's patents"). The patents-at-issue generally relate to methods and compositions for treating osteoarthritis and can be divided into two groups, with the patents in each group sharing a substantially similar specification.

         The first group of patents consists of method-of-use patents, including the '450, '078, '110, and '164 patents. (the "method-of-use patents"). Claim 10 of the '450 patent is illustrative of the asserted claims of the method-of-use patents:

         10. A method for applying topical agents to a knee of a patient with pain, said method comprising:

applying a first medication consisting of a topical diclofenac preparation to an area of the knee of said patient to treat osteoarthritis of the knee of said patient, wherein the topical diclofenac preparation comprises a therapeutically effective amount of a diclofenac salt and 40-50% w/w dimethyl sulfoxide;
waiting for the treated area to dry;
subsequently applying a sunscreen, or an insect repellant to said treated area after said treated area is dry, wherein said step of applying a first medication does not enhance the systemic absorption of the subsequently applied sunscreen, or insect repellant; and
wherein said subsequent application occurs during a course of treatment of said patient with said topical diclofenac preparation.

'450 patent col. 73 l. 35-col. 74 l. 11.

         The second group of patents consists of formulation patents, including the '838, '591, '304, '305, '784, '613, '809, and '913 patents. (the "formulation patents"). Claim 49 of the '838 patent is illustrative of the asserted claims of the formulation patents:

         49. A topical formulation consisting essentially of:

1-2% w/w diclofenac sodium;
40-50% w/w DMSO;
23-29% w/w ethanol;
10-12% w/w propylene glycol;
hydroxypropyl cellulose; and
water to make 100% w/w, wherein the topical formulation has a viscosity of 500-5000 centipoise.

'838 patent col. 30 ll. 60-67.

         Both groups of patents are listed in the U.S. Food and Drug Administration's ("FDA") Approved Drug Products with Therapeutic Equivalence Evaluations ("Orange Book") for Horizon's PENNSAID® 2% product. PENNSAID® 2% is a nonsteroidal anti-inflammatory drug ("NSAID") and the first FDA-approved twice-daily topical diclofenac sodium formulation for the treatment of pain of osteoarthritis of the knees.

         Relevant to the development of PENNSAID® 2% is prior art PENNSAID® 1.5%. PENNSAID® 1.5% also treats osteoarthritis knee pain but differs from PENNSAID® 2% both in formulation and recommended dosage. As to dosage, PENNSAID® 1.5% directs the user to administer the formulation by applying 40 drops of PENNSAID® 1.5% on each painful knee, four times a day. J.A. 6923. PENNSAID® 2% improved upon this dosing regimen by reducing the frequency of application to a recommended dose of 40 mg of the formulation, applied through "2 pump actuations on each painful knee, 2 times a day." J.A. 6649-51.

         Actavis sought to market a generic version of PENNSAID 2% and filed Abbreviated New Drug Application ("ANDA") No. 207238.[2] The ANDA included a certification under 21 U.S.C. § 355(j)(2)(A)(vii)(IV) ("Paragraph IV certification"), stating that the patents-at-issue were invalid or would not be infringed by Actavis's generic product. The filing of an ANDA with a Paragraph IV certification constitutes an act of artificial patent infringement under 35 U.S.C. § 271(e)(2)(A), which allows litigation to commence before actual sale of an accused product has occurred. Vanda Pharm. Inc. v. West-Ward Pharm. Int'l Ltd., 887 F.3d 1117, 1126 (Fed. Cir. 2018).

         On December 23, 2014, after receiving notice of Actavis's Paragraph IV certification, Horizon filed suit in the District of New Jersey, alleging infringement of the pa-tents-at-issue under § 271(e)(2)(A).

         I. Claim Construction

         At the district court, the parties disputed the construction of various terms in the asserted claims. Both sides filed claim construction briefs. The district court conducted Markman hearings on March 3, 2016, and June 7, 2016. On August 17, 2016, the district court issued its Markman order, finding three terms in the asserted claims of the formulation patents to be indefinite.

         First, the district court found that the term "the topical formulation produces less than 0.1% impurity A after 6 months at 25°C and 60% humidity" was indefinite because the identity of "impurity A" is unknowable to a person of ordinary skill in the art ("POSITA").

         Second, the district court found that the term "the formulation degrades by less than 1% over 6 months" was indefinite because neither the claims nor the specification disclose the means to evaluate degradation.

         Third, the district court found that the term "consisting essentially of" was indefinite. In that regard, the district court began by recognizing that the phrase "consisting essentially of," when used in a formulation patent, reflects that the recited formulation includes (a) the listed ingredients that follow the phrase, and (b) unlisted ingredients that do not materially affect the basic and novel properties of the invention. See J.A. 14-15 (citing PPG Indus. v. Guardian Indus. Corp., 156 F.3d 1351, 1354 (Fed. Cir. 1998)). Because the parties disputed the basic and novel properties, the district court determined that in this case identification of those properties was required. The district court therefore concluded that "[b]ecause the basic and novel properties of an invention are part of the construction of a claim containing the phrase 'consisting essentially of,' the Nautilus standard applies to the assessment of an invention's basic and novel properties." J.A. 22-23 (citing Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898, 910 (2014)).

         Turning to the basic and novel properties of the invention, the district court noted that the specification identified five properties: (1) better drying time; (2) higher viscosity; (3) increased transdermal flux; (4) greater pharmacokinetic absorption; and (5) favorable stability. The district court focused on the "better drying time" property and held that this basic and novel property was indefinite. In doing so, the district court emphasized that the specification described two different methods for evaluating "better drying time." Those two methods, however, did not provide consistent results at consistent times. Faced with this inconsistency, the district court was persuaded by expert testimony that a POSITA would not know under which standard to evaluate the drying rate of the claimed invention. According to the district court, this prevented a POSITA from being able to have "reasonable certainty" about the scope of the basic and novel properties of the invention, thereby rendering the term "consisting essentially of" indefinite. J.A. 27.

         On August 30, 2016, Horizon filed a motion for reconsideration of the claim construction. Horizon argued that the district court erred by failing to consider indefiniteness on a claim-by-claim basis. Horizon also contended that it had been prevented from fully developing the record in relation to the "better drying time" property. On January 4, 2017, the district court conducted a hearing on the motion for reconsideration, and on January 6, 2017, it issued an opinion denying Horizon's motion for reconsideration and maintaining its initial claim constructions and indefinite-ness determinations.

         The district court concluded that Horizon's arguments on reconsideration lacked merit. As to the claim-by-claim argument, the district court noted that Horizon chose to address the issue in relation to the formulation patents as a whole, and that this was a new argument raised for the first time in a motion for reconsideration, which is improper. The district court also found that Horizon had ample notice and opportunity to present evidence and develop the record during the two Markman hearings, the supplemental briefing in between those hearings, and during the ten weeks between the second hearing and the Markman order.

         The district court bolstered its conclusion that the basic and novel properties were indefinite by analyzing the "favorable stability" property, which had not been addressed in the initial Markman order. Because the specification failed to provide the requisite guidance for a POSITA to evaluate stability, the district court found that the "favorable stability" property was indefinite which in this case, by extension, rendered the phrase "consisting essentially of" indefinite.

         II. Summary Judgment

         On January 27, 2017, after the district court reaffirmed its claim constructions and related indefiniteness determinations, Actavis filed a motion for summary judgment of noninfringement. Actavis argued that there was no dispute that Actavis did not directly infringe the patents-at-issue, and that, while Horizon premised its allegations of induced infringement upon the labeling of Actavis's ANDA product, there was also no material factual dispute that Actavis's proposed label does not induce infringement.

         In evaluating the inducement argument, the district court considered, among other things, the asserted claims of the method-of-use patents and the respective labels for both Horizon's and Actavis's products. As to the asserted claims of the method-of-use patents, the district court found that Horizon's claimed methods required the following steps: (1) application of the medication to knee, (2) waiting for the area to dry, and (3) application of sunscreen, insect repellant, or a second topical medication. To perform Horizon's claimed methods, all the steps must be conducted.

         Turning to the parties' respective labels, according to the district court, both were essentially the same; the main distinction being that Actavis's proposed ANDA label replaced "PENNSAID" with "diclofenac sodium topical solution." In relevant part, the parties' labels warn to "[w]ait until the treated area is dry" before applying a second topical agent, such as sunscreen, insect repellant, or covering the area with clothing. The district court held that this warning was insufficient to show induced infringement because Horizon's claimed method requires application of a second topical agent whereas the label merely permits, without encouraging, post-product application of sunscreen, insect repellant, or a second topical medication. The district court thus granted summary judgment in Actavis's favor, concluding that Horizon had not met its burden to show that Actavis's label induced infringement of the method-of-use patents.

         III. Trial

         The district court's Markman and summary-judgment orders disposed of most of the asserted claims of the pa-tents-at-issue. At trial, only one claim remained-claim 12 of the '913 patent. Actavis maintained that claim 12 of the '913 patent was invalid as obvious. Actavis stipulated that if the claim was found not invalid at trial, its ANDA product would infringe the claim. The stipulation thus narrowed the trial court's focus to obviousness.

         Actavis's obviousness theory was that the changes made to PENNSAID® 1.5%, which resulted in the PENNSAID® 2% formulation, would have been obvious to a POSITA based upon the prior art available at the time of the invention.

         The formulation differences between PENNSAID® 1.5% and PENNSAID® 2% (as recited in claim 12 of the '913 patent)[3] are as follows:

         (Table Omitted)

         J.A. 15915 (table generated by the district court). Each of the ingredients listed above performs a specific function. Diclofenac sodium is the active ingredient. Dimethyl sulfoxide ("DMSO") is a penetration enhancer, which enhances absorption of the drug into the skin. Ethanol is both a solvent, which dissolves the active ingredient for absorption of the drug into the skin, and a penetration enhancer. Propylene glycol is a solvent. Hydroxypropyl cellulose ("HPC") is a thickening agent, which increases the viscosity of a formulation. Glycerin is a humectant, which is a nonvolatile substance that holds water onto the skin. And water is a solvent.

         Actavis contended that the drawbacks to PENNSAID® 1.5%-frequent application and vulnerability to run-off- were known, and that a POSITA would have been motivated to modify PENNSAID® 1.5% to address these drawbacks by: (a) increasing the absorption to reduce application frequency; (b) thickening the formulation; and (c) reducing the drying time to prevent run-off. Actavis proposed that a POSITA would have had a reasonable expectation that these modifications would address the known drawbacks. Actavis also pointed out that PENNSAID® 1.5% included all of the ingredients required by claim 12 of the '913 patent except for a thickener (the HPC), in addition to the claimed amounts of DMSO, pro-pylene glycol, and water. As to the remaining limitations in claim 12, Actavis maintained that they were disclosed in the prior art. Actavis argued that all the changes were obvious optimizations of result-effective variables that produced a predictable result in relation to absorption, thickness, and drying times.

         Horizon, on the other hand, argued that the changes made to PENNSAID® 1.5% were not routine optimizations, and that the results of the various changes could not be predicted by the prior art. According to Horizon, the prior art reflects that the field of topical pharmaceutical formulations is complex and unpredictable. And to arrive at the formulation recited in claim 12 of the '913 patent, Horizon maintains that a POSITA would have had to:

(1) increase the diclofenac concentration from 1.5% to exactly 2%, (2) increase the concentration of ethanol from 11% to exactly the range of 23-29%, (3) add a thickening agent, (4) choose the thickening agent to be HPC, (5) identify the concentration of HPC to be exactly 2.5%, (6) select a viscosity range of between 500 and 5000 cps, and then (7) decide not to change the concentrations of DMSO or pro-pylene glycol, but instead (8) remove or reduce glycerin and/or water to account for the increases in diclofenac, ethanol and thickening agent concentrations and still total 100%, and the [POSITA] would also have had to change the method of administration from 3-4 times per day to twice a day [despite knowing that increasing viscosity makes it harder for drug molecules to penetrate the skin.]

J.A. 15921-22.

         Trial began on March 21, 2017, and continued until March 30, 2017. The parties filed post-trial submissions on April 20, 2017.

         On May 12, 2017, the district court found that Actavis had not shown, by clear and convincing evidence, that claim 12 of the '913 patent is invalid for obviousness. On May 22, 2017, the district court entered a final judgment consistent with its holdings and conclusions in the Mark-man order, the summary-judgment order, and the post-trial findings of fact and conclusions of law. Since claim 12 of the '913 patent was found to be nonobvious and Actavis had stipulated to infringement of that claim if it was deemed not invalid at trial, the district court ordered that Actavis be enjoined from engaging in the commercial use, offer for sale, or sale of its ANDA product until the expiration of the '913 patent.

         Horizon appeals and Actavis cross-appeals the district court's final judgment. We have jurisdiction under 28 U.S.C. § 1295(a)(1).


         We first address Horizon's appeal and then Actavis's cross-appeal.

         I. Horizon's Appeal

         Horizon's appeal proceeds on two fronts. First, Horizon contests the district court's holding on claim construction that the terms "impurity A"; "degrades at less than 1% over 6 months"; and "consisting essentially of" are indefinite. Second, Horizon challenges the district court's holding, on summary judgment, that Actavis's ANDA label did not induce infringement. For the reasons below, we affirm.

         A. Indefiniteness

         We review indefiniteness determinations de novo. Interval Licensing LLC v. AOL, Inc., 766 F.3d 1364, 1370 (Fed. Cir. 2014). A claim is invalid for indefiniteness if its language, read in light of the specification and prosecution history, "fail[s] to inform, with reasonable certainty, those skilled in the art about the scope of the invention." Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898, 901 (2014). General principles of claim construction apply to indefiniteness allegations. Biosig Instruments, Inc. v. Nautilus, Inc., 783 F.3d 1374, 1377-78 (Fed. Cir. 2015). Accordingly, we review a district court's determinations of subsidiary facts based upon extrinsic evidence for clear error, and those based upon intrinsic evidence (the patent claims, specification, and prosecution history) de novo. Id.

         The district court found that a POSITA would not have understood, with reasonable certainty, the scope of the claims reciting (1) "impurity A," (claim 4 of the '913 pa-tent);[4] (2) a formulation that "degrades at less than 1% over 6 months" (asserted claims of the '613 patent and claims 10-11 and 19 of the '591 patent); and (3) a formulation "consisting essentially of" specified ingredients (asserted claims of the '838, '304, '305, and '784 patents and claims 12-15, 17, 19, and 24-25 of the '591 patent). It thus held that those claims were indefinite. We address each of those conclusions in turn.

         1. "Impurity A"

         Claim 4 of the '913 patent recites a "topical formulation produc[ing] less than 0.1% [of] impurity A after 6 months at 25° C[] and 60% humidity." '913 patent col. 30 ll. 22-24. The district court concluded that "impurity A" is indefinite because a POSITA would not know, with reasonable certainty, the identity of the substance as claimed. We agree.

         The term "impurity A" only appears in claim 4 and Example 6 of the '913 patent. Example 6 examines "the stability of the compositions of the present invention . . . at room temperature over a six month period." '913 patent col. 25 ll. 36-38. To do so, the example refers to a study where samples were placed into sealed plastic screw cap bottles and then stored at 25°C and 60% humidity for six months. Id. col. 25 ll. 47-49. After six months of storage, "the samples were tested for impurities by high performance liquid chromatography (HPLC)." Id. col. 25 ll. 49- 51.

         According to Example 6, this test revealed two unexpected findings: (1) that the composition of the invention contained a higher concentration of the active agent while resulting in a "lower concentration of a degradation impurity"; and (2) "that compositions using hydroxypropylcellu-lose (HPC) as the gelling agent had a significantly lower quantity of this impurity as compared to compositions made using carbomer gelling agents." Id. col. 25 ll. 38-46. In discussing the results of the study, the example refers to "an impurity, termed 'impurity A,' [which] was seen to elute at about 6.6 minutes in varying amounts for the various [tested] compositions." Id. col. 25 ll. 54-56. Table 13 shows the percentage of "impurity A" in relation to the tested compositions:

Composition Percent "impurity A" after 6 months of storage (wt/wt)
1.5% diclofenac sodium as a comparative liquid formulation solution 0.034%
2.0% diclofenac sodium in 0.9% Carbopol gel 0.09%
2.0% diclofenac sodium in 3.5% HPC gel 0.02%

Id. col. 25 ll. 57-66.

         The example goes on to remark that the appearance of "a lower percentage of 'impurity A'" in the formulation "containing 3.5% HPC shows a higher degree of stability." Id. col. 26 ll. 1-5. It also states that the "reduction in the level of impurity A" in the HPC gel formulation, as compared to the formulation containing 0.9% Carbopol, shows that the former "is more stable than" the latter. Id. col. 26 ll. 7-11. Because of that, it concludes that "the present invention provides improved stability," which is evidenced by the "degradation of] less than 0.034% or 0.09%" over the six-month period. Id. col. 26 ll. 11-16. Lastly, the example notes that "the amount of 'impurity A found [was] . . . well below [the] limits that would require additional nonclinical testing of the impurity." Id. col. 26 ll. 16-19.

         Although the specification does not define "impurity A," Horizon argues that a POSITA would understand the term to mean "USP Related Diclofenac Compound A." ("USP Compound A"). According to Horizon, a POSITA versed in the pertinent prior art would be able to ascertain the meaning of "impurity A" based on the intrinsic evidence. It is undisputed that the intrinsic evidence does not explicitly refer to USP Compound A, or its chemical formulation, in relation to "impurity A." Still, Horizon maintains that, consulting the available pharmacopeias at the time, a POSITA would know "impurity A" refers to a specific impurity of diclofenac sodium. Horizon posits that because the specification refers to "impurity A" as a degradation of diclofenac sodium, which is the only component of the inventive formulation with a known impurity, a POSITA would know this term refers to "USP Related Diclofenac Compound A RS."

         Actavis argues that the specification does not provide any clues as to the identity of "impurity A," which implies that "impurity A" is an unknown impurity. According to Actavis's expert, a POSITA reading the specification would read "impurity A" as referring to an unknown impurity because the specification: (a) does not disclose the chemical name of the impurity, which would be expected if such were known; (b) uses quotes to refer to "impurity A," suggesting that it is not the formal name of a known impurity; and (c) justifies not conducting additional tests to identify the impurity merely because it occurs in low amounts. Actavis contends that the only relevant disclosure in the specification about "impurity A" is in relation to Example 6. But, citing to its expert's declaration, Actavis maintains that the information in Example 6 is insufficient to allow a POSITA to determine the identity of "impurity A." For instance, Actavis's expert opined that the specification offers no information about the HPLC procedure used, including the column type, mobile solvent, and temperature used for the HPLC analysis reported. Moreover, Actavis contends that Example 6's observation that the amount of "impurity A" is so low that no "additional nonclinical testing" is required implies further testing was necessary to ascertain the identity of "impurity A."

         As to Horizon's reliance on pharmacopeias, Actavis argues that the district court did not clearly err in rejecting Horizon's view on what a POSITA would have surmised from those pharmacopeias. Actavis points out that the specification never mentions USP Diclofenac Related Compound A RS, which is a degradation of the active ingredient. Actavis also states that the claims refer to the degradation of the entire formulation-including other ex-cipients (inactive ingredients)-as opposed to the degradation of the diclofenac sodium, the active ingredient. Actavis argues that even in light of the pharmacopeias, there is considerable doubt as to whether a POSITA would read "impurity A" to mean an impurity of the formulation as opposed to that of the active ingredient.

         We find no error in the district court's conclusion that "impurity A" is indefinite. First, we look to the language of the claims to evaluate if the meaning of "impurity A" is reasonably clear. Berkheimer v. HP Inc., 881 F.3d 1360, 1363 (Fed. Cir. 2018) ("We look first to the language of the claim to determine whether the meaning of [the term] is reasonably clear."). Claim 4 of the '913 patent depends upon claim 1. Claim 1 recites:

         1. A topical formulation comprising:

diclofenac sodium present at 2% w/w;
DMSO present at about 40 to about ...

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