Implied License Limited to Continuation Applications, Not to Provisionals

by McDermott Will & Emery

Endo Pharmaceuticals Inc. v. Actavis, Inc.

Addressing the issue of implied license, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a lower court’s denial of a preliminary injunction, finding that defendant did not have an implied license to practice the asserted patents, because none of the asserted patents was a continuation of the licensed patents and a broader interpretation would allow defendant/licensee to capture via implied license subject matter beyond what it had bargained. Endo Pharmaceuticals Inc. v. Actavis, Inc., Case No. 13-1658 (Fed. Cir., Mar. 31, 2014) (Moore, J.) (Dyk, J., dissenting-in-part).

Endo sells branded oxymorphone extended release tablets, Opana® ER. Roxane and Actavis filed an Abbreviated New Drug Application (ANDA) to sell generic version of Opana® ER, and Endo thereupon sued for patent infringement under the provisions of the Hatch-Waxman Act.  The parties settled, Endo granting both Roxane and Actavis a license to sell their ANDA products and a covenant not to sue for infringement of a specified licensed patent, and any patent applications that claimed priority to the licensed patent “including any continuation, continuation-in-part and divisional applications” that claimed priority to the licensed patent. The agreements also contained a “no implied rights” provision.

Subsequently, two additional patents to Endo covering Opana® ER issued. Both patents claimed priority to the same provisional application as the licensed patent. Endo asserted the newly issued patents against Roxane and Actavis, moving for a preliminary injunction to prevent sale of their ANDA products. The defendants opposed, citing express and implied license, arguing as to the latter that legal estoppel applied because Endo was trying to deprive them of the benefit of the earlier bargain. The district court did not reach the issue of express license but held that Endo was estopped as a matter of law from claiming that the sale of defendants’ ANDA product was barred by the new patents.  Endo appealed.

The Federal Circuit reversed, concluding that Endo/Roxane had no express license and finding no merit in appellees argument that the term “including” in the definition of “licensed patents” showed that more than continuation, continuation-in-part and divisional applications were covered. The Court found that no reasonable argument could support that the newly issued patents claimed priority to the licensed patents and that no reading of the agreement extended coverage to patents that merely had a provisional application in common with the licensed patent.  The Federal Circuit explained that the district court erred in finding an implied license when the specifications of the newly-issued patents were different from the licensed patent and the claims covered different subject matter. The Court cited its seminal TransCore decision for the proposition of expressly limiting implied license to the scope of the licensed patent to avoid creating a windfall situation for licensees but agreed only that its cases stand for the rule that a license or a covenant not to sue enumerating specific patents may legally estop the patentee from asserting continuations of the licensed patents in the absence of mutual intent to the contrary.

Judge Dyk dissented in part, concluding that Actavis had an implied license to the newly issued patents because Endo did not disclose the applications to those patents to Actavis and licensed Actavis to produce its ANDA product. Judge Dyk also found no meaningful difference between the provisional patent relationship at issue in the case and the continuation patent relationship in the Federal Circuit’s earlier decisions.

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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