“This court has explained that when a sufficiently comparable license is used as the basis for determining the appropriate royalty, further apportionment may not necessarily be required.” – Circuit Judge William C. Bryson
On November 19, the U.S. Court of Appeals for the Federal Circuit issued a precedential decision in Vectura Limited v. GlaxoSmithKline LLC in which the appellate court affirmed a judgment entered against GlaxoSmithKline in the District of Delaware finding that GSK’s Ellipta-brand inhalers infringed patent claims asserted by Vectura. On appeal, GSK had argued that it was entitled to new trials on infringement and damages, but the Federal Circuit found both substantial evidence supporting the infringement ruling and that there was no improper prejudicial effect regarding Vectura’s references to GSK’s inhaler sales, including what GSK argued was an improper “pennies on the dollar” argument offered by Vectura.
Delaware Court Denies JMOL Motions by GSK on Infringement, Damages
The present appeal stems back to 2016 when Vecture filed a complaint in U.S. district court asserting claims of U.S. Patent No. 8303991, Method of Making Particles for Use in a Pharmaceutical Composition. The claims cover a method for making composite active particles used in a pharmaceutical composition for pulmonary administration, such as by inhalation. The claimed method involves the milling of solid active particles so that additive particles promoting pulmonary dispersion are fused onto the active particles.
Vectura alleged that GSK’s Ellipta inhalers, including the Breo, Anoro, and Incruse devices, infringed upon claim 3 of the ‘991 patent, which claims the use of magnesium stearate as an additive material. Each of the accused inhalers includes blisters, or sealed receptacles containing a single active ingredient and additive material, containing magnesium stearate. At trial, Vectura prevailed on its claims of validity, infringement and willful infringement, earning a jury verdict awarding nearly $90 million in damages based on a 3 percent royalty base of $2.99 billion in sales of GSK’s accused inhalers.
Following the verdict, GlaxoSmithKline filed various motions for judgment as a matter of law (JMOL) on several issues, requesting new trials on both infringement and damages. After the Delaware district court denied this series of post-trial motions, GSK brought the present appeal to the Federal Circuit. On infringement, GSK argued that Vectura did not present substantial evidence that the accused inhalers used additive material that “promotes the dispersion” of the active material. GSK also argued that the district court used an erroneous construction of the claim term “composite active particles.” On damages, GSK challenged both the royalty calculation employed by Vectura’s damages expert and the prejudicial effect of Vectura’s references to GSK’s sales in comparison to Vectura’s own royalty request.
Substantial Evidence Overcomes Flaws in Use of GSK Vilanterol Study
GlaxoSmithKline’s argument about Vectura’s lack of substantial evidence centered on the patent owner’s use of a GSK study in which the pharmaceutical giant examined dispersion rates of experimental blends of vilanterol, an active ingredient used in inhalers; lactose, which serves as an excipient in inhaler blisters; and magnesium stearate. GSK challenged Vectura’s use of this study at trial, arguing that it did not examine every mixture contained in GSK’s inhalers, including those using umeclidinium as the active ingredient, and because the study involved different mixing processes than used to create the blister mixtures for the accused inhalers, making it improper for Vectura to extrapolate the study results to GSK’s accused inhalers.
“The principal flaw in GSK’s argument is that Vectura did not rely solely on [GSK’s vilanterol study] to prove that the accused inhalers satisfy the dispersion limitation,” wrote Circuit Judge William C. Bryson in the unanimous CAFC panel opinion. Despite any shortcomings in the GlaxoSmithKline study, the record included evidence, much of which comes from other GSK documents, showing that vilanterol and umeclidinium behave similarly when coated with magnesium stearate and that both active ingredients achieve better dispersion via inhalation when so coated.
The Federal Circuit similarly was not swayed by GlaxoSmithKline’s argument that the district court improperly construed “composite active particles” by refusing to include a “high energy milling” process limitation as discussed by the ‘991 patent’s specification. On appeal, GSK cited both to the specification as well as the ‘991 patent’s prosecution history, which includes patentee references to “aggressive milling procedures” to distinguish the invention covered by the ‘991 patent from a prior art reference. While the Federal Circuit disagreed with Vectura, who argued that GSK waived their claim construction challenge, the appellate court found that the patent’s specification mainly “indicat[ed] that high-energy milling is merely a preferred process” and not required to produce the claimed particles. Further, the Federal Circuit panel found that the cited statements from the ‘991 patent’s prosecution history “merely sought to demonstrate” differences in the active particles produced by the prior art, distinguishing them from the unique structure of the claimed composite particles and not the disclosed milling method.
Built-In Apportionment in 2010 License Enables Vectura’s Use of GSK’s Entire Market Value for Inhalers
As for GlaxoSmithKline’s arguments on damages, Judge Bryson noted that Vectura’s damages theory presented an unusual circumstance as it was based on a prior 2010 license between the two companies and applied by Vectura’s damages expert to the entire market value of the accused inhalers:
Ordinarily, an entire-market-value royalty base is appropriate only when the patented feature creates the basis for customer demand or substantially creates the value of the component parts, and apportionment is required when an entire-market-value royalty base is inappropriate. However, this court has explained that when a sufficiently comparable license is used as the basis for determining the appropriate royalty, further apportionment may not necessarily be required. That is because a damages theory that is dependent on a comparable license (or a comparable negotiation) may in some cases have ‘built-in apportionment.’ This is one such case.”
As Judge Bryson noted, the kind of built-in apportionment present in the prior license between Vectura and GSK “effectively assumes that the negotiators of a comparable license settled on a royalty rate and royalty base combination embodying the value of the asserted patent.” GSK’s own damages expert noted that the 2010 license was a very close comparable to the agreement that would have been struck during the 2016 hypothetical negotiation underpinning Vectura’s damages theory. Further evidence also showed that the 2010 license and the 2016 hypothetical negotiation were very similar in scope as both covered roughly the same technologies. Although the 2010 license contained a royalty cap that Vectura’s damages expert excluded from her calculations, the Federal Circuit found it was permissible for the jury to award damages without applying a royalty cap based on testimony from Vectura’s damages expert that changed circumstances, including a greater degree of commercial success for the infringing inhalers by 2016.
Finally, the Federal Circuit dismissed GlaxoSmithKline’s arguments that it was entitled to a new trial on damages because of improper references to GSK’s $3.8 billion in U.S. sales of infringing inhalers. While the appellate court noted that GSK filed a motion in limine on the issue of sales, the company admitted at trial that U.S. sales were not excluded by the motion. Still, GSK’s counsel did object to the use of U.S. sales figures at trial, arguing that it was “inflammatory ‘to put up billion dollars on the screen, and then do the math from that, or worse to do what we heard a little bit in the opening of, and I expect to hear in closing, all we want is three percent of the billions of dollars that GSK made.’”
In denying GlaxoSmithKline’s motion for JMOL on damages, the Delaware district court noted that Vectura’s repeated emphasis on GSK’s revenues and the relative smallness of damages requested, while it may have been prejudicial in cases where there was no legitimate reason to present large revenue numbers to the jury, was permissible here because there was no smallest salable patent-practicing unit and the jury needed information on GSK’s total revenues to understand analysis from Vectura’s damages expert. While the Federal Circuit found that Vectura did make prejudicial “pennies on the dollar” arguments three times during trial, the appellate court upheld the district court’s findings that such references were not so prejudicial in light of Vectura’s proper uses of GSK’s total revenues on infringing inhalers that a new trial on damages was required.