On October 9^th, we wrote about a potentially significant Federal Circuit decision concerning “skinny” labels in GSK v. Teva.  Today we write to discuss another important facet of this decision: guidance concerning the availability of lost profits in the generic drug context.  This case involved GlaxoSmithKline’s (“GSK’s”) patent covering the use of carvedilol (sold as Coreg®) to treat congestive heart failure.  Generic manufacturer Teva entered the market in 2007 with a “skinny label” in which the patented indication was carved out.  Teva marketed carvedilol in this manner until the FDA required Teva to amend its drug label to include the patented indication in 2011.

As Teva’s skinny label did not originally reference the patented indication, GSK did not initiate a traditional paragraph IV litigation.  Instead, years after Teva initiated marketing of the product, GSK sued Teva for induced infringement and alleged that damages began to accrue when Teva entered the market.  In response, Teva argued that at least its initial skinny label did not induce physicians to infringe, because the indication covered by GSK’s patent was not included.  The jury was not persuaded and found Teva liable for $235 million in damages, based on both lost profits and reasonable royalty.  But Judge Stark of the District of Delaware set aside the jury’s verdict, finding that Teva was entitled to judgment as a matter of law because the record did not indicate that Teva’s actions induced physicians to prescribe carvedilol for congestive heart failure.

Unfortunately for Teva, the Federal Circuit disagreed and reinstated the jury’s verdict and damage award.  Importantly, neither the jury nor the Federal Circuit differentiated between the period of time that Teva marketed carvedilol with a skinny label and when the label was amended to include congestive heart failure—instead, the damage award encompassed the entire time period.  As a result, the damage award was surprisingly large, particularly in light of the small percentage of sales attributed to the infringing use (which GSK and Teva both agreed was approximately 17%).

This decision has a number of implications for generic drug manufacturers considering pursuit of a section VIII carve-out.  First, it calls the utility of skinny labels into question by allowing damages to accrue during periods of time when the patented indication is specifically excluded from the label.  Second, there were other generic manufacturers on the market at the same time the Teva sales underlying the damages award occurred.  However, the Court did not consider these other generic versions of the drug to be acceptable non-infringing alternatives, rendering an award of lost profits available.  This was the outcome even though there was no evidence before the district court that the other generic companies had induced infringement as Teva (apparently) had.  In light of these concerns, what—if any—utility is left for skinny labels remains to be seen.  For now, we continue to await Teva’s response to this significant development by the Federal Circuit.  A petition for rehearing en banc is expected on or before December 2^nd.