Baker Hostetler Patent Watch: Merial Ltd. v. Cipla Ltd.

Alerts / June 4, 2012

[W]here a foreign party, with the requisite knowledge and intent, employs extraterritorial means to actively induce acts of direct infringement that occur within the United States, such conduct is not categorically exempt from redress under § 271(b).

On May 31, 2012, in Merial Ltd. v. Cipla Ltd., the U.S. Court of Appeals for the Federal Circuit (Lourie,* Schall, Reyna) affirmed the district court's order finding Cipla, Velcera and Fidopharm in contempt for violating an earlier injunction involving U.S. Patent 6,096,329, which related to spot-on compositions containing fipronil combined with an insect growth regulator for protecting domestic dogs and cats from flea and tick infestation. The Federal Circuit stated:

[C]ontempt requires proof that (1) the newly accused product is no more than colorably different from the previously adjudged infringing product, and (2) the newly accused product actually infringes the asserted patent. The district court found that Merial satisfied both requirements as to PetArmor Plus in the contempt proceedings. . . . At the outset, Velcera complains that -- as a non-party to the original default proceedings — it never received a full and fair opportunity to litigate various issues including whether the '329 patent is valid, whether Cipla's Protektor Plus product infringed the '329 patent, or whether Protektor Plus ever even existed. Those arguments are baseless. Velcera, as an unsolicited intervenor in this action, joined subject to all prior determinations of fact and law that preceded its intervention. Patent validity and infringement by an originally accused product are generally not open to challenge in contempt proceedings, and for purposes of this litigation, the 2008 default judgment against Cipla established, among other things, that the '329 patent was not invalid and was infringed by Cipla's Protektor Plus product. In short, the time for contesting those underlying determinations has passed, and we will not consider them anew in this appeal.

Appellants next argue that the district court could not competently evaluate whether colorable differences exist between PetArmor Plus and Protektor Plus because the default judgment allegedly offered no guidance on which specific features of Protektor Plus were focused on to establish infringement. In support of its position, Appellants [remind] that "one should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims." Again insisting that Merial never "proved" infringement by Protektor Plus, Appellants argue that the colorable differences analysis did not rest on affirmatively adjudged infringing features.

We conclude that the district court applied the correct standards and committed no clear error in finding no more than colorable differences between PetArmor Plus and Protektor Plus. In contempt proceedings following a contested infringement action, [it] will often be that the underlying infringement litigation focused detailed attention on a few heavily disputed claim limitations and certain corresponding elements of an infringing product, and the colorable differences analysis in such cases will benefit from that precision. But when, as here, infringement has been established through default, the judgment is no less binding or authoritative simply because comprehensive and painstaking factual analyses regarding every claim limitation may have been unnecessary or impractical at the time of the initial decision. As such, whether or not the default order here included an exhaustive infringement analysis, it necessarily and conclusively established that Protektor Plus met each limitation recited in the asserted claims of the '329 patent. . . . Furthermore, the court credited Merial's expert testimony that any two spot-on adjuvants would function interchangeably and that replacing one for another in any such pest control composition would not amount to a colorable difference. The district court thus had ample basis to conclude that PetArmor Plus and Protektor Plus are not more than colorably different.

Appellants also fault the district court's conclusion that PetArmor Plus infringes the '329 patent. Appellants argue that the district court relied on inadequate evidence and erroneously compared PetArmor Plus to Merial's Frontline Plus rather than the '329 patent claims themselves. It is undisputed that Merial's Frontline Plus product is covered by the '329 patent's claims, and, contrary to the Appellants' contentions, "[o]ur case law does not contain a blanket prohibition against comparing the accused product to a commercial embodiment" in an infringement analysis. The district court thus elected to compare the accused product to Frontline Plus, and we see no error in that decision, particularly given its context in a summary contempt proceeding where such an approach would be especially convenient or expeditious and the benchmark commercial product represents a recognized embodiment of the patent at issue. On the merits, the district court considered undisputed evidence that PetArmor Plus contains precisely the same concentrations of fipronil and methoprene as Frontline Plus, and that those concentrations constitute synergistically effective amounts as recited in the claims. Indeed, Velcera not only represented to the EPA that PetArmor Plus is essentially identical to Frontline Plus, but also explicitly traded on the products' equivalence. Further, Merial highlighted trial testimony in which Dennis Steadman, Velcera's CEO, "readily admitted at the hearing that if the '329 Patent is valid, then PetArmor Plus violates that Patent.". . . One would be hard-pressed to conceive of more compelling testimonial evidence on infringement, particularly when those statements come from the defendant's chief executive regarding his own product. In assessing whether PetArmor Plus infringes the '329 patent, the district court thus had before it considerable evidence indicating infringement, and we discern no error in its affirmative conclusion on the basis of that evidence. . .

Although we recognize the fundamental territoriality of U.S. patent law, Cipla's alleged foreign conduct is not necessarily outside the scope of § 271. To be sure, purely extraterritorial conduct cannot constitute direct infringement of a U.S. patent, as § 271(a) includes express language limiting its scope to domestic acts. [But] where a foreign party, with the requisite knowledge and intent, employs extraterritorial means to actively induce acts of direct infringement that occur within the United States, such conduct is not categorically exempt from redress under § 271(b). We therefore reject the Appellants' overbroad contention that acts outside of the United States cannot violate any provision of § 271. . . .

Velcera next contends that even if Cipla's conduct violated the 2008 injunction, the district court committed independent error by also finding Velcera -- a non-party to the 2008 default judgment -- in contempt for working in "active concert or participation" with Cipla to violate the 2008 injunction. We disagree. It is well recognized that courts may not enter injunctions against persons or entities that were not party to the litigation before them. A soundly issued injunction can, however, affect such non-parties in at least two important respects -- those who are legally identified with an enjoined party may be bound as if they themselves were named in the injunction, and those who act in concert with an enjoined party to assist in violating the injunction may also be held in contempt. For the latter "active concert" form of liability, a non-party to an injunction may not be held in contempt for its wholly independent conduct; the law limits contempt liability to non-parties that "act with an enjoined party to bring about a result forbidden by the injunction . . . if they are aware of the injunction and know that their acts violate the injunction."

Conclusive documentary evidence on issues rooted in subjective intent is not always readily apparent, but here the district court considered the complex, multilayered relationships that linked Velcera and Cipla in the production of PetArmor Plus. In view of both parties' admitted knowledge of the injunction and their obvious incentives to evade it, the district court interpreted those relationships as designed primarily to obfuscate illicit and intentional concerted action rather than as bona fide, constructive business arrangements. Having reviewed the same record, we do not view that conclusion as clearly erroneous, and Velcera's arguments and self-serving testimonial evidence to the contrary are insufficient to persuade us otherwise. Accordingly, we affirm the district court's decision to hold Velcera in contempt as a non-party working in active concert with Cipla to violate the 2008 injunction.

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