The case is Otsuka Am. Pharm., Inc. v. Hetero Labs Ltd., opinion by Judge Bryson. Judge Stoll joins the opinion in its entirety. Judge Dyk dissents on the principal issue in the case—whether the district court, in granting the preliminary injunction, properly construed the claim at issue—but he joins the majority on the bond issue.
The patent in suit—which is due to expire on August 13, 2026—is for a method for treating emotional lability in patients with (e.g.) certain neurodegenerative diseases, and involves the administration of two drugs, dextromethorphan and quinidine. The FDA approved the defendant’s ANDA for a generic version of Otsuka’s drug, after which Otsuka filed suit and moved for a temporary restraining order (later converted to a preliminary injunction). The principal issue on appeal, as noted above, is whether the district court properly construed the claim in suit. (The claim requires a weight-to-weight ratio of dextromethorphan to quinidine of 1:0.5 or less, and the question is whether a product in which the weight ratio of the salt forms of these drugs is less than 1:0.5, but the weight ratio of the free bases is greater than 1:05, falls within the scope of the claim. The majority holds that it does.) The majority concludes that the answer is yes, which apparently points to a likelihood of success on the merits, and there is no discussion of any of the other issues relevant to granting a preliminary injunction in the appellate opinion. The issue that does come up is whether the district court should have waived the bond requirement. From the opinion:
According to Federal Rule of Civil Procedure 65(c), a court “may issue a preliminary injunction . . . only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” The Third Circuit has recognized limited exceptions to the Rule 65(c) bond requirement, but has noted that waiver is “so rare that the requirement is almost mandatory.” Frank’s GMC Truck Ctr., Inc. v. Gen. Motors Corp., 847 F.2d 100, 103 (3d Cir. 1988).
The Third Circuit has held that the bond requirement may be waived if “there is no risk of monetary loss to the defendant.” Id. (citing Sys. Operations, Inc. v. Sci. Games Dev. Corp., 555 F.2d 1131, 1145–46 (3d Cir. 1977)). The court has also held that the bond requirement may be waived under circumstances such as those described in Temple University v. White, 941 F.2d 201, 219–20 (3d Cir. 1991). That case explained that a court may excuse compliance with the bond requirement “at least in non-commercial cases . . . [upon] consider[ing] the possible loss to the enjoined party together with the hardship that a bond requirement would impose on the applicant.” Id. at 219 (quoting Crowley v. Local No. 82, Furniture & Piano Moving, 679 F.2d 978, 1000 (1st Cir. 1982), rev’d on other grounds, 467 U.S. 526 (1984)). An exception to the bond requirement may also apply in “suits to enforce important federal rights or public interests, arising out of comprehensive federal health and welfare statutes.” Id. at 220 (quoting Crowley, 679 F.2d at 1000) (citation modified).
Applying the first Temple exception, the district court found the risk to financial harm to Hetero “speculative at best” and expressed concern regarding “a chilling effect on access to justice” if a multi-million-dollar bond were required in this case. J.A. 31 (citation omitted). Thus, the court waived the requirement for Otsuka to post security under Rule 65(c). J.A. 32. We are bound to follow the Third Circuit’s narrow exceptions to Rule 65(c). And the Third Circuit has “never excused a [d]istrict [c]ourt from requiring a bond where an injunction prevents commercial, money-making activities.” Zambelli, 592 F.3d at 426. Hetero’s attempt to enter the market with its generic pharmaceutical product is clearly a commercial, money-making activity. Accordingly, we vacate the Rule 65(c) bond waiver and remand the bond issue to the district court for reconsideration.
On remand, the district court may exercise its discretion in determining an appropriate amount to require as a security in light of the limited time remaining before the ’282 patent expires. With regard to the district court’s concern about imposing a large expense for a bond on the plaintiffs, we note that under the Local Rules for the United States District Court for the District of Delaware, the “reasonable premiums or expenses paid on bonds or security stipulations shall be allowed” as taxable costs when those amounts are “furnished by requirements of the law or rule of Court . . . or where required to enable a party to receive or preserve some right accorded the party in an action or proceeding.” D. Del. R. 54.1(b)(10) (pp. 18-20).
This seems right to me. As I discuss in chapter 4 of my new book Wrongful Patent Enforcement: A Comparative Law and Economics Analysis, I think it is important to ensure that the defendant who is temporarily excluded from the market on the basis of a patent that turns out, ex post, to have been either invalid or not infringed (or otherwise unenforceable), is compensated for the interim losses it suffers. (Indeed, arguments are sometimes made that even compensatory damages may be insufficient from a policy standpoint, because the temporary exclusion may leave a monopolist plaintiff better off than it otherwise would have been, even if it has to compensate the defendant for the loss of the latter’s duopoly profit. Nevertheless, I wouldn’t advocate requiring the plaintiff to disgorge its profit, for reasons I discuss in the book.) In some countries, moreover, the wrongly-excluded defendant is presumptively entitled to full compensation, in whatever amount is ultimately proven, though in the U.S. compensation is almost always limited to the amount of the bond; and concerns are sometimes voiced that.the amount of the bond as set by the court sometimes turns out to be less than fully compensatory. (For that reason, I think courts should be permitted to award proven damages in excess of the bond.) That said, I agree that there may be some exceptional situations where the balance of equities weighs in favor of dispensing with a bond or any form of compensation; but the Federal Circuit’s application of the law to the facts of this case seems correct to me. One thing that puzzles me, however, is the district court’s implication, as stated in the Federal Circuit opinion, that the defendant’s harm was speculative and that, absent a waiver, the plaintiff might have to post a multimillion dollar bond. At first blush, these two concerns seem to point in opposite directions--if the defendant’s expected harm is low, then you would think that the amount of the bond should be low too--though perhaps on the facts of this case, the defendant faces a low probability of harm, while at the same time the amount of the harm, should it come to pass, would be substantial, thus inclining the court to require the posting of a multimillion dollar bond just in case; I don’t know.
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