BakerHostetler Patent Watch: Aria Diagnostics, Inc. v. Sequenom, Inc.

by BakerHostetler
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While the facts may show that damages would be reparable, this assumption is not sufficient [for purposes of a preliminary injunction analysis]. In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license.

On August 9, 2013, in Aria Diagnostics, Inc. v. Sequenom, Inc., the U.S. Court of Appeals for the Federal Circuit (Rader,* Dyk, Reyna) vacated and remanded the district court denial of a preliminary injunction enjoining Aria from making, using or selling its Harmony test that Sequenom alleged infringed U.S. Patent No. 6,258,540, which related to the identification of fetal genetic defects by analyzing maternal plasma or serum for non-nucleated free-floating fetal DNA (cffDNA). The Federal Circuit stated:

[T]he record does not support importation into the claims of a "known in advance" limitation. Accordingly, the district court erred in relying upon this construction to hold that Ariosa had raised a substantial question of noninfringement. . . . The district court also found there was a substantial question over whether the subject matter of the asserted claims was to eligible subject matter. Since the district court's decision, the Supreme Court decided Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013) (Myriad), which held that product claims directed to isolated DNA segments were not eligible subject matter, but that product claims directed to synthetic cDNA were patent eligible. Because the district court did not have the benefit of Myriad and also in light of this court's disagreement with the district court's claim construction, this court remands for the district court to examine subject matter eligibility in the first instance.

To be clear, this court offers no opinion as to whether there is or is not a substantial question regarding the subject matter eligibility of the asserted claims. This court merely concludes that in light of Myriad and the different claim construction, this court would benefit from the district court's initial and further consideration. On remand, the district court may once again consider this issue, as well as whether there is a substantial question of validity of the asserted claims under other defenses raised by Ariosa but not reached previously by the district court.

On remand, if the district court finds no substantial question of validity or infringement, it must address the traditional equitable factors for a preliminary injunction. The district court correctly held that in addition to showing the likelihood of success on the merits, Sequenom must show it likely will suffer irreparable harm, that the balance of equities tips in its favor, and that an injunction is in the public interest. Because it found substantial questions on infringement and "validity" in the form of ineligible subject matter, the district court only briefly addressed the traditional factors. The district court erred in some aspects of its brief analysis. Accordingly, this court remands with additional guidance.

Significantly, the district found that price and market erosion would occur. Under this court's precedent, "[p]rice erosion, loss of goodwill, damage to reputation, and loss of business opportunities are all valid grounds for finding irreparable harm." Nonetheless, the district court denied Sequenom's motion, giving four reasons. First, the district court reasoned that the erosion to Sequenom's price and its loss of market share were not irreparable. It reasoned that if Sequenom was proven correct that the '540 patent and the MaterniT21test would set new standards of care, then Sequenom could recover the market and receive damages to compensate for the infringement. While the facts may show that damages would be reparable, this assumption is not sufficient. In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license. Second, the district court reasoned that the degree of price erosion and market loss had not been adequately shown by Sequenom's expert, Dr. Rao. More specifically, the district court characterized it as a "significant deficiency" that he had not examined the "actual market" because he did not consider the impact of another test, sold by another company, Verinata Health, Inc. (Verinata). Yet, the district court found that Verinata's tests did not compete in the actual market, but only "may eventually" do so. Further, even if Verinata were actually in the same market, the "fact that other infringers may be in the marketplace does not negate irreparable harm." Third, the district court found that a preliminary injunction would put Ariosa out of business. A record showing that the infringer will be put out of business is a factor, but does not control the balance of hardships factor. This court can easily imagine a situation where the loser on either side may have to close its doors. At this point, however, this court has seen no comparison of difficulties or losses Ariosa might experience weighed against the harms Sequenom might suffer without protection of its legal exclusive rights. For example, the district court made no findings on the harm that would accrue to Sequenom's R&D and investment in the technology, undermining work and money spent developing, validating, and commercializing any covered product. These issues also await remand. Finally, the district court reasoned that the public interest favored denial of the preliminary injunction. Sequenom marketed its tests only to women over 35 and at high risk both of having a fetus with Down's Syndrome and of losing a fetus through invasive testing, but Ariosa marketed its products to both high-and low-risk women. Ariosa argued there was "no reason" to refuse to serve the 3,550,000 women in the low risk category, instead of only the 750,000 in the high risk category. After the preliminary injunction hearing, this court took judicial notice that an expert organization had warned that cffDNA tests should not, yet, be used in low-risk women. On remand, if necessary the district court should consider this and any other evidence pertaining to the public interest anew.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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