Limiting Damages: $107 Million Interest Charge Improperly Awarded On-Top of Pre-Agreed Damages

By Dennis Crouch

Sanofi-Aventis v. Apotex (Fed. Cir. 2011)

The case focuses on Sanofi’s patent covering clopidrogrel bisulfate tablets sold under the trade name Plavix. ($4.5 billion in annual sales). In 2001, the generic drug manufacturer Apotex filed an abbreviated new drug application (ANDA) with the FDA – requesting that it be allowed to manufacture a generic version on the drug and alleging that Sanofi’s patent was invalid. Sanofi sued for infringement.

Pre-Judgment Agreement to Limit Damages: May 2006, the parties came to a limited agreement that any actual damages for infringement would be limited to “50% of Apotex’s net sales.” The agreement stated that:

If the litigation results in a judgment that the ‘265 patent is not invalid or unenforceable, Sanofi agrees that its actual damages for any past infringement by Apotex, up to the date on which Apotex is enjoined, will be 50% of Apotex’s net sales of clopidogrel products . . . . Sanofi further agrees that it will not seek increased damages under 35 U.S.C. § 284.

Apotex subsequently began marking its generic product before being stopped a few weeks later by a preliminary injunction. After Sanofi won the infringement trial, the judge set damages for that infringement at 50% of net sales plus interest. In dollar figures, damages were $442 million and the interest charge was $107 million. The district court had agreed that it should be bound by the prior agreement between the parties, but held that the agreement only limited damages and did not limit interest.

Contract Specification: Of course the contract could have spelled-out whether the limitation applied to interest charges, and the parties most certainly considered that issue during negotiations. But, for whatever, reason, they chose not to specify in the contract whether interest charges should be limited. Thus, the court was forced to consider the proper default rule for this situation.

At the Federal Circuit, Apotex argues that the interest payment should be included as part of the damage award and that the judgment therefore exceeds the agreed upon 50% damage limitation. In a 2-1 decision, the Federal Circuit has sided with Apotex – holding that the phrase “actual damages” as used in the contract “include[s] all damages necessary to compensate Sanofi for Apotex’s infringement.”

Because prejudgment interest is a form of compensatory damages, the district court erred by awarding additional prejudgment interest pursuant to 35 U.S.C. § 284.

In the majority opinion, Judge Moore relied both on the contractual language and on the history of compensatory damages that traditionally include both a reasonable royalty calculated at the point of infringement and interests charges for the delay in payment. Both of those elements are part of the “actual damages” calculation necessary to fully compensate the patent holder for past infringement. This follows the view espoused by the Supreme Court in its 1983 case involving General Motors where the court wrote:

An award of interest from the time that the royalty payments would have been received merely serves to make the patent owner whole, since his damages consist not only of the value of the royalty payments but also of the forgone use of the money between the time of infringement and the date of judgment.

Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655 (1983).

Patent Act Damages: As usual, the language of the Patent Act is somewhat ambiguous on the meaning of damages. The first paragraph of Section 284 calls for an award of “damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” One view of this provision would require damages to be, at a minimum, a combination of a reasonable royalty plus interests and costs. In my view, however, the better plain meaning interpretation of Section 284 is that a court is required to award damages (minimum of reasonable royalty) and in addition must award interest and costs.

The appellate panel rejected the parties’ analysis of the language of the patent act as irrelevant – holding instead that “actual damages” was a contract term and that the interpretation therefore does not depend upon any statutory language.

While interesting, these arguments neither illuminate nor resolve the issue before us – the meaning of “actual damages” in the May 2006 agreement. The agreed upon “actual damages” are a creature of contract and not of the Patent Act. By entering into the May 2006 agreement, the parties decided that the agreement itself – not § 271(e)(4)(C) or § 284 – would govern the appropriate measure of damages from Apotex’s infringement.

Writing in Dissent, Judge Newman would have applied the usual background rule that interest is different from damages as a primary driving factor in interpreting the contract. In that framework, the contractual limitation on damages would not apply to limit interest as well.

My colleagues err in reading the contract’s silence on interest for infringement as meaning that the parties intended and agreed to forgo the interest to which the patentee is entitled by statute and precedent. I must, respectfully, dissent


10 thoughts on “Limiting Damages: $107 Million Interest Charge Improperly Awarded On-Top of Pre-Agreed Damages

  1. 10

    Remember how funny OCTOBER 31, 1996 was to you. Shows just how EVIL you are. Oh, and Happy Halloween! LULZZZZZZZZZZZZZZZZZZZZZZZZZZZZ!

  2. 9

    Why would a Lawyer that was set to join a law firm, finally into what he would consider hitting the big time… then take a 1 year hit. And I am given recourse but only on paper, and then he goes from law firm to Law firm … leaving when the going gets tough… only to now be in the worst position he could have ever put himself in? There is more than EGG on his face.
    Then on top of all that…. there’s even more. People I really don’t even know have decided to take everything from me. And they are related to the same Law Firm I am.. But they seem to think because the Trust is SOMEHOW NOW in the Manning name they think entitled to what is Mine? Got NEWS FOR YAH! SEE YOU IN COURT!

  3. 7

    Just as an FYI – the America Invents Act (AIA) overrules Vornado and expands Federal Circuit jurisdiction so that it is no longer limited to cases “arising under” the patent laws.

  4. 6

    I think there are limited circumstances in which such patent cases don’t have to be appealed to the CAFC, but although I remember one of the parties in the Supreme Court case that said this (Vornado, the case was from around 2004), I don’t recall the exact facts.

  5. 5

    The CAFC has jurisdiction under 28 USC 1295(a)1 if the jurisdiction of the district court was based “in whole or in part” on 28 USC 1338, i.e. if it was a patent case where the district court had original jurisdiction under 1338(a). IOW, if a patent case is appealed on a point of contract law it always goes to the CAFC, and there’s nothing new or unusual about that. It’s relatively common.

  6. 3

    CRU – you asked “Why was this appeal taken to the CAFC?”

    It is unclear to me whether you are asking (1) why did they appeal at all or (2) why was the appeal heard by the CAFC rather than the Second Circuit.

    The second question is easy. The Federal Circuit’s jurisdiction is not based upon the question actually being appealed. Rather, the appellate court hears all appeals from cases that include patent law components. Thus, this contract interpretation appeal was heard by the federal circuit because it came out of a lawsuit that involved charges of patent infringement.

    The first question is also easy – at least with hindsight. The appellant won-back $100 million dollars in the appeal — that is pretty good reason to appeal.

  7. 2

    Why was this appeal taken to the CAFC?

    Even the CAFC panel deciding the issue agreed it was a matter of contract interpretation.

  8. 1

    Going forward, the takeaway is that you need to discuss interest when trying to limit damages in a settlement agreement. The defendant was only lucky here.

Comments are closed.