February 19, 2009 - 9:45am
Covenant Not to Sue Eliminates Patent Counts, but Antitrust and Tort Claims Survive in Dispute over Generic Pharmaceutical Posted by: Administrator


In a battle between manufacturers of generic pharmaceuticals, the Eastern District of Virginia has dismissed counts for declaratory judgment of patent noninfringement, invalidity, and unenforceability.  Zydus Pharms., Inc., USA v. Teva Pharm. Indus. Ltd., No. 1:08cv1071 (E.D. Va. Jan. 23, 2009) (order granting in part and denying in part defendants’ motion to dismiss).  A covenant not to sue that Teva provided to Zydus was deemed sufficient to resolve the Article III controversy between the parties regarding the patent counts, thereby eliminating subject matter jurisdiction over them.  The court, however, permitted Zydus’s state and federal antitrust claims and its claim for tortuous interference with prospective economic advantage to proceed.

Zydus’s declaratory-judgment counts target two Teva patents concerning the preparation of risperidone, an active ingredient in pharmaceutical formulations used to treat mental illnesses such as bipolar disorder.  The Zydus complaint, filed on October 14, 2008, includes six such counts, which seek declaratory judgments that Zydus’s risperidone product does not infringe either of the Teva patents and that the patents are both invalid and unenforceable.  Zydus alleges that it filed its complaint in response to a demand letter from Teva threatening legal action if Zydus did not provide a sample of its product to Teva for analysis for possible patent infringement.

The Zydus complaint also includes two antitrust counts and a count for tortious interference with prospective economic advantage.  The first antitrust count is a state-law claim based on the Virginia Antitrust Act.  The second is a federal claim based on the Sherman Act.  Both antitrust counts allege that the Teva patents were wrongfully obtained and are being improperly asserted in a manner that interferes with Zydus’s present and future business interests.  The tort claim alleges that Teva's legal threats were made in bad faith and wrongly prevent Zydus from supplying generic risperidone to customers.

On October 17, three days after the complaint was filed, Teva responded by offering Zydus a covenant not to sue it or its customers for infringement of the two patents.  Rather than responding to Teva’s offer, Zydus served Teva with its complaint on October 22.  Teva then executed its covenant on October 23 and provided it to Zydus the next day.  The covenant stated that Teva would not assert a patent-infringement claim against Zydus “or any of Zydus’s customers, suppliers, importers, manufacturers, or distributors.” 

Teva then moved to dismiss Zydus’s complaint.  Teva argued that the covenant removed subject matter jurisdiction over the patent counts, necessitating dismissal under Rule 12(b)(1).  The antitrust and tort claims were alleged to be deficient for failure to state a claim upon which relief could be granted.  Zydus opposed the motion, arguing that Teva’s covenant failed to protect end users of the product, i.e., patients, and that its antitrust and tort claims were adequately pled.

The Court conducted a hearing on Teva’s motion on January 23, and concluded that Teva had provided a “broad covenant not to sue” and that there was “no question” that Zydus’s customers were covered by it.  The Court further decided that “the covenant...not to sue is sufficiently broad that it does take the patent claims out of this case.”  The antitrust claims, however, were considered sufficiently pled for the court “to deny the motion to dismiss and let them go forward.”  The court observed that its decision effectively kept patent issues in the case because they are relevant to the substance of the antitrust claims.