Bottom line: Patent damages for patent infringement can be whittled down in circumstances where the patented invention is directed to only one component of a multi-component system, or the claimed invention contains both conventional and inventive elements. To increase the damage award, the inventive component or the essential part of the invention should be characterized as the key to the market success of the infringing product. The Astrazeneca opinion discussed below shows that the damages calculation is intricately related to the realities of the business environment (i.e., generics, governmental approvals, partnerships, other related patents and companies) in invention’s field of endeavor.
In Astrazeneca v. Apotex (Fed. Cir. 2015), Astrazeneca (patent owner), at the District Court level, obtained damages for the entire market value for its patented omeprazole (brand name is Prilosec or Nexium) for treating acid-related gastrointestinal disorders even though the patent at issue was not related to omeprazole, the active ingredient (i.e., conventional element) but to the formulation containing omeprazole (i.e., novel combination). The reason is that but for the formulation, the active ingredient would not have been commercially successful, because prior art formulations were problematic with respect to shelf life and absorption by the patient. The Federal Circuit affirmed.
Under the entire market value rule, when minor elements of multi-component products are accused of infringement, a patent owner may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts. In Astrazeneca, the invention was not directed to a sub-component of a system. Rather, it was directed to a drug or active ingredient formulated to optimize shelf life and absorption by the patient, not a subcomponent of the drug. The Astrazeneca fact pattern was thus deemed different in that the normal paradigm of component-system is not applicable.
Nevertheless, the Federal Circuit indicated that a similar inquiry must be made. In particular, when a patent covers an infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patented invention in comparison to the value of the conventional elements recited in the claim, standing alone. The law does not want to over compensate the patent owner by calculating damages based on the whole when the patented invention added only minor value to the product as a whole. The patent owner should only be compensated for the approximate incremental benefit derived from the invention.
In Astrazeneca, the question to determine such incremental benefit is based on how much new value was created by the novel combination, beyond the value conferred by the conventional elements alone. The patented formulation substantially created the value of the entire omeprazole product. That was because, despite the effectiveness of omeprazole, it was too difficult to formulate. Omeprazole is most effective when absorbed by the small intestine, but it is highly susceptible to degradation in the acidic environment of the stomach. In order to deliver the active ingredient to the part of the human body where it can take effect, scientists had to develop a formulation that would allow the drug to pass through the stomach and be absorbed by the small intestine, while ensuring adequate shelf life in a drug that is sensitive to heat, moisture, organic solvents, and light.
By inventing a structure in which a sub-coating separates the drug core, and thus the alkaline reacting compounds from the enteric coating, and finding the right subcoating material, Astrazeneca was able to achieve both storage stability and acid resistance. That combination of features made it possible for drug manufacturers to successfully commercialize omeprazole. Astrazeneca’s formulation thus created a new, commercially viable omeprazole drug.
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