IP Law Daily Eli Lilly ordered to pay twice jury’s implied royalty rate for Cialis patent infringement
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Thursday, July 20, 2017

Eli Lilly ordered to pay twice jury’s implied royalty rate for Cialis patent infringement

By Peter Reap, J.D., LL.M.

Plaintiff Erfindergemeinschaft UroPep GbR ("UroPep") was entitled to an award of ongoing royalties from Eli Lilly and Company (Lilly) at twice a jury’s implied royalty rate for Lilly’s infringing sales of Cialis between April 17, 2017, and July 9, 2017, the date of the expiration of UroPep’s asserted patent, the federal district court in Marshall, Texas, has determined. That amount was added to the $20 million that UroPep was awarded as damages for Lilly’s infringing sales for the pretrial infringement period (Erfindergemeinschaft UroPep GbR v. Eli Lilly and Company, July 18, 2017, Bryson, W.). In a separate opinion, UroPep was not entitled to attorney fees because the positions that Lilly had taken were not so weak as to render the case exceptional (Erfindergemeinschaft UroPep GbR v. Eli Lilly and Company, July 18, 2017, Bryson, W.).

UroPep alleged that Lilly had infringed UroPep’s patent, U.S. Patent No. 8,791,124 ("the ’124 patent"), by marketing the drug Cialis for the treatment of benign prostatic hyperplasia ("BPH"). Lilly answered by denying infringement and contending that the ’124 patent was invalid. The evidence at trial showed that Lilly had made approximately $704.3 million in sales of Cialis attributable to the BPH indication between October 9, 2014 (the date on which Lilly was notified of UroPep’s patent), and April 16, 2017 (the day before the beginning of the trial).

The jury found that Lilly had infringed the ’124 patent and that the patent was not invalid. It awarded UroPep $20 million in damages. The implied royalty rate adopted by the jury was 2.84 percent of the total infringing sales for the pretrial infringement period. On May 18, 2017, the court awarded pre- and post-judgment interest, but also concluded that UroPep was not entitled to enhanced damages based on willful infringement.

Thereafter, UroPep requested an ongoing royalty rate of 15 percent—much greater than the 2.84 percent royalty rate that was implied by the jury’s verdict for Lilly’s pretrial infringing conduct. According to UroPep, the proposed 15 percent rate was supported by: (1) the increased profitability of Lilly’s post-verdict infringing sales; (2) UroPep’s post-verdict bargaining power; and (3) Lilly’s post-verdict willful infringement. Lilly, on the other hand, contended that the court should not award an ongoing royalty.

Right to an ongoing royalty. UroPep was clearly entitled to compensation for infringement that had occurred between the cut-off date for the calculation of damages (April 16, 2017) and the expiration date of the ’124 patent (July 9, 2017). Lilly made several arguments for a bar on any recovery for that period, but none of the arguments was persuasive, the court decided.

First, Lilly argued that the statement in the court’s final judgment denying all relief, other than the relief that was set forth in the judgment, barred any recovery for the post-verdict period. In fact, however, the court explained in a telephonic conference conducted on May 15, 2017, shortly before the judgment was entered, that the court would address the issue of ongoing royalties in an amended judgment following the parties’ briefing of that issue.

Second, Lilly argued that UroPep had waived its right to an ongoing royalty award, pursuant to 35 U.S.C. §283, by not requesting an injunction. UroPep stated in the joint pretrial order that it was "entitled to recover both pre-verdict and post-verdict damages in the form of a reasonable royalty for the infringement of the ’124 patent by Lilly," the court noted. The court interpreted that statement as a request for ongoing royalties, in lieu of an injunction, to be assessed by the court pursuant to 35 U.S.C. §283. UroPep did not request an injunction, no doubt appreciating that the equities would not favor the issuance of an injunction in favor of a non-competitor and for the short period of time that remained in the life of the ’124 patent.

Third, Lilly argued that the court had the option to refuse to award any ongoing royalties. While that was technically true, it would be improper for the court to first conclude that the damages awarded by the jury did not cover the post-verdict period, but then to rule that UroPep was not entitled to any relief for that period, the court reasoned.

Calculation of ongoing royalty. UroPep asked the court to increase the royalty rate more than five-fold and award a 15 percent royalty rate for all infringing sales made during the post-verdict period. UroPep’s argument was that the jury’s verdict should not control the royalty rate for the post-verdict period; instead, the court should calculate the post-verdict royalty rate by determining the rate that would have been agreed upon in a hypothetical negotiation occurring just after the verdict.

According to UroPep, a hypothetical negotiation would produce a higher royalty rate, both because of the greater certainty provided by the verdict regarding infringement and validity, and because the evidence showed that Lilly could expect to earn a higher profit margin on its sales of Cialis during the three-month post-verdict infringement period than in the pre-verdict infringement period. Underpinning UroPep’s argument was the theoretical framework discussed in Amado v. Microsoft Corp., 517 F.3d 1353 (Fed. Cir. 2008).

The court concluded that the previously discussed factors bearing on the Amado analysis would not by themselves compel a departure from the jury’s implied royalty rate of 2.84 percent for the post-verdict period. There was, however, another factor that affected the court’s judgment as to the proper royalty rate for that three-month period of infringement. That factor was the evidence that, as of April 17, 2017, Lilly’s profit margin on Cialis for the BPH indication was expected to be higher during the three-month post-trial infringement period than during the two-and-a-half year pretrial infringement period.

Based on evidence from the parties’ experts, the court was persuaded that Lilly’s profit margin had increased during the pretrial period and could be expected to increase further during the post-verdict period. UroPep’s expert estimated that the increase in Lilly’s profits on infringing sales during the post-verdict period would be approximately twice the level of its profits for the pretrial infringement period as a whole. Because Lilly’s expert-derived estimate of the degree of increase in Lilly’s profits on infringing sales during the post-verdict period was even higher, the court accepted the estimate of UroPep’s expert on the increase in the profitability of Lilly’s sales of Cialis for BPH during the post-verdict infringement period. Accordingly, the court adopted an ongoing royalty rate of twice the rate awarded by the jury for the pretrial infringement period.

Attorney fees. UroPep asserted two grounds in support of its request for a fee award. First, Uroprep argued that, after claim construction, Lilly’s non-infringement position was entirely meritless, and also that Lilly should not have put UroPep to the task of proving infringement at trial. Second, UroPep argued that Lilly’s anticipation defense, which was based on a monograph by C.S. Cheung dealing with the herbal treatment of BPH, was meritless from the start and should not have been pressed at trial.

The court rejected both arguments. Lilly’s positions on those two issues were weak, but not so weak as to render the case exceptional and justify an award of attorney fees. Notwithstanding the absence of authority supporting UroPep’s position, the court refused to conclude that an award of attorney fees would never be appropriate when the first party requires the second party with the burden of proof to prove its case and the first party does not introduce countervailing evidence. Further, Lilly’s anticipation defense was not so manifestly meritless as to render the case exceptional. It was not fanciful to characterize the evidence as permitting a finder of fact to conclude that Horny Goat Weed contains a sufficient amount of a PDE5 inhibitor such that, under the right circumstances, it could have some ameliorative effect on BPH.

The case is No. 2:15-cv-01202-WCB.

Attorneys: Adam K. Mortara (Bartlit Beck Herman Palenchar & Scott LLP) and Melissa Richards Smith (Gillam & Smith, LLP) for Erfindergemeinschaft UroPep GbR. Todd G. Vare (Barnes & Thornburg LLP) for Eli Lilly and Co.

Companies: Erfindergemeinschaft UroPep GbR; Eli Lilly and Co.

MainStory: TopStory Patent TexasNews

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