# United States **Court of Appeals**  **for the Federal Circuit**

______________________

ASTRAZENECA AB, a ka ASTRA ZENICA AB, AKTIEBOLAGET HASSLE, KBI

- E INC., KBI INC ., ASTRAZENECA LP,

Plaintiffs

- Appellees

v.

APOTEX CORP., APOTEX INC. , TORPHARM INC., Defendants

- Appellants

______________________

2014

- 1221

______________________ Appeal from the United States District Court for the Southern District of New York in No. 1:01

- cv

- 09351

- DLC

, Senior Judge Denise Cote.

______________________

Decided: April 7, 2015

______________________

C ONSTANTINE L. T RELA , J R ., Sidley Austin, LLP, Ch icago, I L

, argued for plain tiffs -appellees. Also represented by J OHN W. T REECE , D AVID C. G IARDINA ; J OSHUA E UGENE A NDERSON , Los Angeles, CA; P AUL Z EGGER , Washington, DC.

J AMES F. H URST , Winston & Strawn LLP, Chicago, IL,

arg ued for defendants

- appellants. A lso represented byASTRAZENECA AB v. APOTEX CORP

. 2

S TEFFEN N ATHANAEL J OHNSON , E IMERIC R EIG -P LESSIS , C HRISTOPHER E RNEST M ILLS , Washington , DC

.

______________________

Before O’M ALLEY , C LEVENGER , and B RYSON , Circuit Judges. B RYSON , Circuit Judge.
Apotex Corp., Apotex Inc., and Tor P harm Inc., (colle ctively, “Apotex”) appeal from a final judgment entered against them by the United States District Court for the Southern District of New York. We previously affirmed the district court’s decision in an earlier phase of the same litigation holding that Apotex had infringed cer tain patents held by Astr aZeneca AB and related parties (collectively, “Astra”). In re Omeprazole Patent Litig. , 536 F.3d 1361 (Fed. Cir. 2008). In the portion of the procee ding now under review , the district court awarded damages to Astra on a reasonable royalty theory of recov ery. We affirm in part, reverse in part, and r e mand.

I

A
The patents at issue in this case are U.S. Patent No. 4,786,505 (“the ’505 patent”) and U.S. Patent No. 4,853,230 (“the ’230 patent” ). The two patents relat e to pharmaceutical formulations containing omeprazole, the active ingredient in Astra’s highly successful prescription drug, Prilosec.
Omeprazole is a “proton pump inhibitor” (“PPI”) . It inhibits gastric acid secretion and for that reason is effective in treating acid

- related gastroi ntestinal disorders. However, the omeprazole molecule can be unstable in certain environments. I n particular, it is susceptible to degradation in acid ic and neutral media. Its stability is also affected by moisture and organic solvents.ASTRAZENECA AB v. APOTEX CORP

. 3

To protect the omeprazole in a pharmaceutical dosage from gastric acid in the stomach, formulators have tried covering the omeprazole with an enteric coating. Enteric coatings, however, contain acidic compounds, which can cause the omeprazole in the drug core to decomp ose while the dosage is in storage, resulting in discoloration and decreasing omeprazole content in the dosage over time. To enhance the storage stability of a pharmaceu tical dosage, alkaline reacting com pounds (“ARCs”) must be added to the drug core. Th e addition of ARC s , howe ver, can compromise a conventional enteric coating. Ordinar ily, an enteric coating allows for some diffusion of water from gastric juices into the drug core

. But when water enters the drug core , it dissolves parts of the core and produces an alkaline solution near the enteric coating

. Th e alkaline solution in turn can cause the enteric coating to dissolve.

The inventors of the ’505 and ’ 230 patents solved that problem by adding a water-soluble, inert subcoating that

sepa rates the drug core, and thus the alkaline material, from the enteric coating. The resulting formulation

, consisting of an active ingredient core with ARCs, a
water- soluble subcoating, and an enteric coating

, provides a dosage form of omeprazole that ha s both good storage stability and sufficient gastric acid resistance to prevent the active ingredient from degrading in the stomach

. Once the dosage reaches the small intestine, where the drug can be effectively absorbed, the solubility of the subcoating allows for r apid release of the omepra zole in the drug core.
Astra held pa tents on both the active ingredient

, omeprazole, and the formula tion for delivering it

. The active ingredient patent s expired in 2001, but several patents covering the formulation, including the patents at issue in this case, did not expire until April 20, 2007.ASTRAZENECA AB v. APOTEX CORP

. 4

Starting in 1997, anticipating the expiration of the a ctive ingredient patent s , eight generic drug manufacture rs, including Apotex, filed Abbreviated New Drug Applic ations (“ANDA s ”) with the F ood and Drug Administration (“F DA ”) , seeking permission to manufacture and sell omeprazole. Th o se applications were accompanied by what are known a s “ Paragraph IV certificat ions ,” in which the generic drug manufacturers asserted that their formulations did not infringe the ’505 and ’230 patents and that the patents were invalid. See 21 U.S.C. § 355(j)(2)(A)(vii)(IV). Astra subsequently sued all eight generic drug companies in the same district court . The lawsuits were divided into two groups

, each involving four defendants.
In the “first wave” litigation, the district court found that the ’505 and ’230 patents were not invalid and that three of the first wave defendants

— all except Kremers Urban Development Co. and Schwarz Pharma, Inc. (co llectively, “KUD Co”)— infringed the patents. We affirmed the district court’s decision in In re Omeprazole Patent Litig. , 84 F. App ’ x 76 (Fed. Cir. 2003) (“ Omeprazole I ”)

, and In re Omeprazole Patent Litig. , 483 F.3d 1364 (Fed. Cir. 2007) (“ Omeprazole II ”)

. On May 31, 2007, during the “second wave” litigation, the district court issued an opinion holding that the generic version of omeprazole manufactured by Mylan Laboratories, Inc.

, and Mylan Pharmaceuticals

, Inc

., (collectively, “Mylan”) did not infringe the patents. The district court also held that the generic version of omepr azole manufactured by Lek Pharmaceutical and Chemical Company D.D. and Lek USA, Inc.

, (collectively, “Lek”) did not infringe Astra’s patents

. The court , however, entered judgment of infringement against Apotex . We affirmed the judgment in favor of Mylan in In re Omepra zole Patent Litig. , 281 F. App’x 974 (Fed. Cir. 2008) (“ Omeprazo le III ”) . We affirmed the judg ment of infringementASTRAZENECA AB v. APOTEX CORP

. 5

against Apotex in In re Omeprazole Patent Litig. , 536 F.3d 1361 ( Fed. Cir. 2008) (“ Omeprazole IV ”).
Apotex started selling its generic omeprazole product in November 2003, during the pendency of the second wave litigation . It continued selling its generic product until 2007, when the district court held that Apotex ’s formulation infringed Astra’s patents. After we affirmed the district court’s judgment of liability against Apotex, the district court held a benc h trial to determine Astra’s damages.

B
Upon a finding of infringement, the patentee is ent itled to “damages adequate to compensate for the i nfringement, but in no event less than a reasonable royalt y for the use made of the invention by the infringer.” 35 U.S.C. § 284. The two “alternative categories of infring ement compensation” under section 284 are “the patentee’s lost profits and the reasonable royalty he would have received through arms

- length bargaining.” Lucent Techs., Inc. v. Gateway, Inc. , 580 F.3 d 1301, 1324 (Fed. Cir. 2009).
The parties in this case agreed that damages were to be assessed based on a reasonable royalty theory. The district court sought to determine the reasonable royalty by analyzing the royalty that would have been reached through a hypothetical negotiation between the parties in November 2003, when Apotex began to infringe. Follo wing the bench trial, the court held that Astra was entitled to 50 percent of Apotex’s gros s margin from its sales of omeprazole between 2003 and 2007.

In the course of its analysis, the court made detailed findings of fact

. In summary, the court’s findings wer e as follows:
Three generic companies launched their generic omeprazole products after the district court’s first waveASTRAZENECA AB v. APOTEX CORP

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opinion in 2002 and before Apotex launched its generic product. KUDCo, whose formulation had been found to be

non

- infringing, was first on the market, but it did not have the manufacturing capacity to supply the full needs of the market immediately, and it kept the price of its omeprazole product high. Lek and Mylan were second wave defendants, and at that time the district court had not yet ruled on Astra’s infringement claims against them. Nonetheless, they made the decision to launch their products in August 2003, knowing that they were at risk of later being held to infringe. In light of the risk that they might be held to be infringing Astra’s patents, Mylan and Lek di d not cut their prices a ggressively.

The district court found that after those generic ma nufacturers entered the market, the price of generic omeprazole declined, but not significantly

. However, the court found that the sales of Prilosec , As t ra’s prescription PPI drug, declined precipitously, both before 2002, when Prilosec was being replaced by Astra’s newer prescription PPI drug

, Nexium, and after 2002, when the generic manufacturers entered the market. Nonetheless, Astra continued to reap substantial revenues from Prilosec, which had net sales of $865 million in 2003, and $ 361 million in 2004.
After surveying the relevant data, the district court concluded that the price of generic omeprazole remained “relatively and uncharacteristically high” as of November 2003, due to the fact that only KUDCo was operating “freely and without the threat of litigation hanging over it.” The district court therefore concluded that if Apotex had obtained a license from Astra in N o vember 2003, it would have had “ a golden opportunity to take significant market share away from both other generic manufactu rers and perhaps even branded PPIs by launching at a lower price.”ASTRAZENECA AB v. APOTEX CORP

. 7

The district court found that Astra had anticipated the expiration of its patent on omeprazole

, and that before the omeprazole patent expired, it had introduce d Nexium, which it hoped would take the place of Prilosec over time

. Nexium quickly developed into a highly successful drug

. In 2003, Astra ’s net s ales of Nexium totaled $2.5 billion

. Astra’s strategy was to extend the period of market dominance for Prilosec through the strategic use of its patents and to attempt to trans ition Prilosec patients to Nexium , which was marketed as a superior drug that would offer relief to some patients who failed on Prilosec

. Astra believed that patients who remained on Prilosec were more likely to transition to Nexium than patients who switched to generic omeprazole.
At that time, the district court found, Ast ra was intent on seeing that Nexium remain ed an approved drug with a favorable reimbursement formula from third

- party
payers (“TPPs”), such as health insurance providers, who paid a share of patients’ prescription drug costs. As tra

was already effectively reducing the price of Nexium by offering rebates to the TPPs to ensure that the TPPs would continue to approve prescriptions for Nexium. In fact, between December 2002 and November 2003, the cost of Nexium therapy to the TPPs was actually lower than the cost of omeprazole therapy, both because of the rebates the TPPs received from Astra and because the price of generic omeprazole remained relatively high. Importantly, the modest decline in the price of omeprazole

a fter Mylan and Lek entered the market in August 2003

w as not sufficient to cause the TPPs to take steps to promote the use of generic omeprazole over Prilosec or Nexium.

The district court found that Astra had “every reason to expect that the launch of a fourth generic, particularly for a licensed product, would swiftly accelerate the decline in omeprazole prices” and would lead to the destruction ofASTRAZENECA AB v. APOTEX CORP

. 8

the remaining Prilosec market. In addition, the dis trict court found, Astra would have been very concerned about the effect that the entry of a fourth generic product would have on the TPPs’ willingness to continue t o support Prilosec and Nexium.
In fact, after Apotex entered the market in November 2003, A stra had to increase its Nexium rebates to the TPPs to cope with pricing pressures from generic omepr azole

. While prices declined even with Apotex’s “at risk” entry into the market, the district court found that Astra would have been concerned that with a licensed product Apotex would have felt freer to cut prices in order to gain market share . That, in turn

, would have caus ed an even more dramatic reduction in omeprazole prices

, with the accompanying threat to Prilosec and, especially, Nexium

. Previousl y, in an agreement reached in 1997, Astra had licensed Procter & Gamble (“P&G”) to market an

over- the

- counter version of Prilosec, known as Prilosec OTC , which was launched in September 2003

. Because the market for over

- the

- counter drugs is largely separate from the market for prescription drugs, Astra viewed the introduction of Prilosec OTC as a way to continue to sell Prilosec in the event the market for prescription omepr azole were to be completely “genericized.” 1 In addition, Astra believed that the availability of Prilosec OTC co u ld also help promote Nexium because, if a patient failed on Prilosec OTC, the patient would naturally proceed to Nexium, since it was the only PPI that had been s hown to be superior to Prilosec.

1 A market is considered “genericized” when the TPPs impose a “maximum allowable cost,” which is the

max i mum amount they will pay for a particular prescri ption drug. Typically, the maximum allowable cost is based on the generic price of the drug.ASTRAZENECA AB v. APOTEX CORP

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The introduction of Prilosec OTC caused a reduction in the market share of both Prilosec and the generic omeprazole products. Significantly, however, the court found that the introduction of Prilosec OTC did not have

any effect on omeprazole pricing, “because the systems through which prescription and OTC drugs are paid for are largely separate.”
Viewing the matter from Apotex’s perspective, the district court found that, as Apotex prepared to enter the market in 2003, i t expected to experience roughly $581 million in sales during its first five years on the market, and that in the first year it expected to earn profits of $27 million at a profit margin of 92.5 percent

. Moreover, the court found that Apotex knew that sales of its generic omeprazole would help Apotex sell its other pharmaceut ical products. Accordingly, the court found that because Apotex “expected to (and did) make substantial profits from its sale of o meprazole, it would have been wil l ing to pay a large share of those profits for the right to use [Astra’s formulation] patents in 2003.”
Contrary to Apotex’s argument at trial, the court found that as of November 2003, it was not likely that Apotex would be able to develop a non

- infringing version of an omeprazole formulation within a reasonable period of time . Nor , the court found, would Apotex have been able to copy the formulations of others. As of November 2003, only KUDCo’s patented formulation had been held not to infringe Astra’s patents ; the formulations used by Mylan and Lek had not yet been adjudged non

- infringing

. Moreover, the district court found that if Apotex had tried to copy either of those formulations, it would have i ncurred considerab le time and expense in research andASTRAZENECA AB v. APOTEX CORP

. 10

development, because of the very different technical approach es taken by Mylan and Lek. 2
With the background of those factual findings, the district court set about to determine what royalty rate Astra and Apotex would have agreed to if they had neg otiated a license to Astra’s patents in November 2003. In doing so, the court employed the so

- called Georgia

- Pacific factors, the set of 15 factors drawn from the frequently cited opi nion in Georgia

- Pacific Corp. v. U.S. Plywood Corp. , 318 F. Supp. 1116 (S.D.N.Y. 1970).

The court concluded that the parties would have settled on a royalty rate of 50 percent of Apotex’s gross margin from the sales of its omeprazole product

. The
court b ased that conclusion principally on these conside rations:
First, in November 2003 Apotex expected a gross margin on sales of its omeprazole product more than twice as large as the average gross margin on other generic products that it sold in the United States. The district court found that Apotex’s estimates of its profits would have been even higher if it had had a license to Astra’s patents, since the litigation would have ended and Apotex would not have had to act “ with the caution in pricing its

gen eric product that is customary for ‘at risk’ entrants into the generic market.”
Second, Apotex’s prospects of finding a non

- infringing omeprazole formulation were not good. Delays in ente ring the market and obtaining governmental approval for a new formulation, moreover, would have put Apotex at risk of being shut out of the generic market altogether . That

2 In addition, by 2003 Lek had already obtained a

pa tent relating to its formulation. Mylan obtained patent protection for its formulation the following year.ASTRAZENECA AB v. APOTEX CORP

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risk was enhanced , the district court noted, because of the practice among pharmacies of carrying only one generic version of a drug

, a practice that could have severe cons equences for late entrants into the market.
Third, Astra did not license generic manufacturers of prescription omeprazole, and it would have been especia lly reluctant to license Apot ex in 2003

, because Apotex’s entry would have altered the dynamics of the PPI market

, damaged Astra financially , and disrupted its long

- term PPI strategy . In particular, the entry of a licensed generic manufacturer would have risk ed the “genericization” o f the prescription ome pr azo le market, since the entry of low- priced generic drugs could have caused the TPPs to adopt a maximum allowable cost for prescription omepr azole or otherwise to restrict patients’ use of brand ed drugs such as Prilosec and Nexium.
Fourth, the district court examined other licenses and settlements entered into by Astra relating to omeprazole and determined that those settlements , although not a “perfect benchmark” for the outcome of a hypothetical negotiation between Astra and Apotex in November 2003, nonetheless provided support for the 50 percent royalty rate selected by the court in this case.
Based on its conclusion as to the likely effects of the hypothetical negotiation, the court entered final judgment against Apotex in the amo unt of $76,021,994.50 plus prejudgment interest. This appeal followed.

II

The issue before us is whether the district court co mmitted legal or factual error in concluding that

, in a hypothetical negotiation, Astra and Apotex would have agreed upon a licen se to Astra’s patents in exchange for a royalty rate of 50 percent of Apotex’s profits from the sales of its infringing omeprazole product during the period of its infringement , 2003 to 2007. The amount ofASTRAZENECA AB v. APOTEX CORP

. 12

damages awarded to a patentee, when fixed by the district court, is a factual finding reviewed for clear error, while the methodology underlying the court’s damages comp utation is reviewed for abuse of discretion. Aqua Shield v. Inter Pool Cover Team , 774 F.3d 766, 770 (Fed. Cir. 2014); Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys

. , LLC , 350 F.3d 1327, 1345 (Fed. Cir. 2003).

A
Apotex first contends that the district court’s damages award overcompensated Astra because the court “lost sight of the essential purpose of the exercise: to compe nsate Astra for harm actually suffered.” According to Apotex, t he court’s analysis (1) improperly discounted evidence that by November 2003 the market for omepr azole was “well on its way to full genericization” ; (2) placed undue emphasis on Astra’s ability to keep Apotex temp orarily off the market by refusing to grant a license; and (3)

g ave “short shrift to contemporaneous licensing agre ements that Astra entered with other companies ” for royalty rates lower than 50 percent

. With respect to the first issue, Apotex argues that it

wa s the fourth generic manufacturer to enter the omepr azole market

, and therefore its entry caused little marginal injury to Astra . Because Astra suffered “negligible harm” from Apotex’s infringement

, according t o Apotex, the damages award granted by the district court substantially overcompensated Astra for its loss.
Apotex’s argument ignores many of the detailed findings made by the district court in support of the court’s determination of the reasonable royalt y in this

case. For example, Apotex challenges the court’s finding that in November 2003, Astra would have been concerned that Apotex’s licensed entry would cause the price of generic omeprazole to plummet

, thereby triggering a “g enericization” of the omeprazole market. Apotex pointsASTRAZENECA AB v. APOTEX CORP

. 13

to the fact that

, in reality, it did not aggressively cut prices. The district court, however, explained that a licensed generic drug manufacturer would be able to launch at a lower price while an “a t- risk” entrant , with the threat of litigation hanging over it, would be forced to set an “uncharacteristically high” price on its generic product. Based on that distinction, the district court correctly concluded that Apotex’s actual pricing history shed s little light on how Apotex would have priced its

omepra zole if it had obtained a license from Astra.
Moreover, Apotex’s focus on what it refers to as “ the harm that Astra actually suffered” is more suited to a case involving lost profits

. Apotex argues , for example, that “if Apotex’s entry caused P r ilosec sales to implode, that would be evidence of significant harm for which Astra would be entitled to a higher royalty.”

Th at argument would be relevant in a lost profit s

case . Th e reasonable roya lty theory of damages, however, seeks to compensate the patentee not for lost sales caused by the infringement, but for its lost opportunity to obtain a reasonable royalty that the infringer would have been willing to pay if it had been barred from infring ing

. Lucent Techs.

, 580 F.3d at 1325. In determining what such a reasonable royalty would be , the district court was required to assess Astra’s injury not according to the number of sales Astra may have lost to Apotex , but a ccording to what Astra c ould h ave insisted on as compe nsation for licensing its patents to Apotex as of the beginning of Apotex’s infringement, in November 2003. 3

3 Apotex’s intermingling of the lost profits and the reasonable royalty methods of calculating damages is illustrated by its reliance on this court’s decision in Grain Processing Corp. v. American Maize

- Products Co. , 185 F.3d 1341 (Fed. Cir. 1999). The statement in GrainASTRAZENECA AB v. APOTEX CORP

. 14

As the district court explained in detail, the benefits to Apotex, and the costs to Astra, of a license to the fo rmu lation patents would have been considerable. For its part, Apotex stood to (and did) garner immense profits from selling its generic omeprazole product. The district
court found that even after a 50 percent royalty payment to Astra, Apotex would be left with a profit margin of 36 percent, which was “solidly in the range of 31 to 48% margins [Apotex] typically earned on its products at the time.”
For Astra, on the other hand, a license would have e ntailed risks to both of its highly successful bra nded PPI s, Prilosec and Nexium. As the district court found, Astra would reasonably have expected that Apotex’s entry into the market, armed with a license, “would swiftly accele rate the decline in omeprazole prices and lead to the d estruction of the rema ining Prilosec market” a s well as a decrease in Nexium sales or a forced increase in Ne x ium rebates to the TPPs. Under those circumstances, the district court was justified in concluding that a reasonable royalty rate of 50 percent would not overcompensat e Astra for Apotex’s infringement.

Processing that a district court must reconstruct the market “as it would have developed absent the infringing product, to determine what the patentee would have made,” is directed to a lost profits analysis, not to a re asonable royalty analysis, as the portion of the district court opinion quoted by the Grain Processing court makes clear. See id. at 1350 ( citing Grain Processing Corp. v. Am. Maize

- Prods. Co. , 979 F. Supp. 1233, 1236 (N.D. Ind. 1997)). The reasonable royalty analysis does not look to what would have happened absent the infringing product, but to what the parties would have agreed upon as a reasonable royalty on the sales made by the infringer.ASTRAZENECA AB v. APOTEX CORP

. 15

Apotex ’s second “overcompensation” argument is that a royalty rate that depends on the obstacles that would have “ke[pt] a competitor off the market, regardless of the actual harm the patentee suffers, ” is not reasonabl e. To the extent Apotex means to say that the costs the infrin ger would incur to produce a non

- infringing product are not relevant to the reasonable royalty for a license to sell a product covered by the patent, we disagree.

When an infringer can easily design around a patent and replace its infringing goods with non

- infringing goods, the hypothetical royalty rate for the product is typically low. See Grain Processing , 185 F.3d at 1347; see also Riles v. Shell Exploration & Prod. Co. , 298 F.3d 1302, 131 2 (Fed. Cir. 2002) (“The economic relationship between the patented method and non

- infringing alternative methods, of necessity, would limit the hypothetical neg otiation.”)

. There is little incentive in such a situation for the infringer to take a license rather than side

- step the patent with a simple change in its technology. By the same reasoning, if avoiding the patent would be difficult, expensive, and time

- consuming, the amount the infringer would be willing to pay for a license is likely to be great er.
The district court found that Apotex would have faced substantial technical and practical obstacles to marketing

a non

- infringing generic omeprazole formulation. Based on that finding, i t was proper for the court to hold that the difficulties Apotex would have encountered upon attempting to enter the omeprazole market with a non

- infringing product are relevant to the royalty rate a party in Ap otex’s position would have been willing to pay for a license to Astra’s patents.
Apotex takes issue with the district court’s consider ation of the FDA regulatory delay as one factor affecting the result of the hypothetical negotiation. The district court found that Apotex would have faced considerable difficulties in marketing a non -i nfringing product of itsASTRAZENECA AB v. APOTEX CORP

. 16

own, because Apotex ’s proposed changes to its existing infringing formulation either had been rejected for tec hnical reasons or were unlikely to result in a non

infringing product . In the alternative, the court found that even if Apotex could have successfully created an alternative, non

- infringing formulation that would have received FDA approval, the process of development and approval would have resulted in a delay of at least two
years before Apotex would have been able to mark et its

new , non

- infringing product . That two

- year period, according to the district court, would have included a pproximately a year for the completion of the FDA appro val process.
Apotex argues that the district court overcompensated Astra by consider ing the regulatory delay, which applies to every drug application and bears no relation to the value of Astra’s patents. Significantly, however, the district court’s principal finding was that as of November 2003 Apotex would have had little chance of dev eloping and marketing a non

- infringing product of its own, and the evidence at trial supports that finding. The evidence shows that none of Apotex’s proposed changes to its infringing formulation were feasible

. Indeed, by the end of the trial, Apotex had “largely abandoned its argument that it could have altered the infringing formulation successfully.” Simply put, in November 2003 Apotex’s prospect of developing its own non

- infringing alternative was bleak, with or without a period of FDA delay. The di strict court’s consideration of the regulatory delay , as an alternative ground for its conclusion that Apotex would not have been able to market a non

- infringing formulation within a reasonable period of time , therefore had no effect on the court’s damages calculation.
Apotex’s third claim regarding Astra’s alleged ove rcompensation is that the district court’s analysis of the evidence regarding settlement and licensing negotiations with omeprazole sellers other than Apotex was fund a-ASTRAZENECA AB v. APOTEX CORP

. 17

mentally flawed and that the court abused its discretion in the way it assessed th at evidence

. We do not agree. The district court analyzed th e pertinent settlement and licensing negotiations in detail and with close attention to the similarities and differences between those negoti ations and the hypothetical negotiation in this case. We are satisfied that the court fairly weighed those negoti ations in reaching its ultimate determin ation as to the reasonable royalty rate for damages purposes.
With regard to the settle ment and license negoti ations, Apotex focuses principally on Astra’s license to P& G for the rights to sell Prilosec OTC. Although the royalty formula in that case was complex, the district court found that the royalty rate turned out to be a blended rate of approximately 20 percent of P&G’s net sales, or 23 percent for the first three years of the license, counting P&G’s initial payment

. Apotex argues that because that rate is significantly below the 50 percent rate assessed by the district court, the district court’s royalty rate was plainly too high.

As the district court explained, and as Astra unde rscores in its brief, the P&G license for Prilosec OTC had

an economic impact on Astra very different from the impact a license to a generic manufacturer s uch as Apotex would have had. For reasons explained in detail by the district court, the over

- the

- counter drug market is largely distinct from the prescription drug market

. Astra did not expect Prilosec OTC to have a significant impact on the price and sales of its prescription drug, Prilosec. The risk to Prilosec from prescription generic omeprazole, by contrast, was much greater. Moreover, Astra expected sales of Prilosec OTC to be helpful to it by promot ing Nexium as a more effective drug for patien ts who had not obtained satisfactory results with Prilosec. As the district court summarized the situation, the P&G licensing a rrangement was especially favorable to Astra becauseASTRAZENECA AB v. APOTEX CORP

. 18

Astra “ received a handsome royalty for a product that was an essential part of its long

- term PPI strate gy.”
Besides criticizing the district court for giving insufficient weight to the P&G license, Apotex complains that the court gave too much weight to a settlement and offer of settlement between Astra and two other generic man ufacturers, Andrx Pharmaceuticals, Inc.

, and Teva Pha rmaceuticals USA, Inc

. The court found that the amount of Astra’s settlement with Teva represented 54 percent of Teva’s net profits on its omeprazole sales , and that the offer of settlement by Andrx was for 70 percent of Andrx’s profits on the 40mg omeprazole dosage and 50 percent of its profits on the 20mg and 10 mg dosages. Astra did not accept Andrx’s offer.
Apotex contends that the fact that the Teva and Andrx transactions occurred in the midst of litigation makes them irrelevant for purposes of determining a reasonable royalty rate in this case. That contention goes too far. While the fact that a settlement or settlement offer comes in the midst of litigation may affect the rel evance of the settlement or offer, there is no per se rule barring reference to settlements simply because they arise from litigation

. See ResQNet.com, Inc. v. Lansa, Inc. , 594 F.3d 860, 872 (Fed. Cir. 2010) ( noting that “the most reliable license in this record arose out of litigation ,” while also recognizing that in other instances, “litigation itself can skew the results of the hypothetical negoti ation” ) ; see also In re MSTG, Inc. , 675 F.3d 1337, 1348 (Fed. Cir. 2012).
In this case, Teva’s settlement and Andrx’s o ffer both arose only after the district court had held the patents valid and had made a finding of infringement as to both defendants. The setting in which those events took place

wa s therefore similar to the setting of a hypothetical negotiation in which infringement and patent validity are assumed. In that context, Andrx ’s willingness to take aASTRAZENECA AB v. APOTEX CORP

. 19

license for between 50 and 70 percent of its profits

, and Teva ’s agreement to settle the infringement action against it for 54 percent of its net sales

, constitu te persuasive evidence that a royalty rate in the neighborhood of 50 percent of net sales for a similarly situated party would be reasonable. See Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc.

, 862 F.2d 1564, 1570

- 72 (Fed. Cir. 1988); John M. Skenyon et al., Patent Damages Law and Practice § 1:15 , at 2 5 (20 13 ed. ) (“[L]icenses negotia ted to settle a case after a court has established validity and infringement of the patent are very probative of reasonable royalty. Such licenses duplica te the analytical process undertaken by the court in setting reasonable royalty damages in the ‘willing licensor

- willing licensee’ fictional negotiation.”). 4

4 In its reply brief, Apotex argues that Andrx’s sit ua tion at the time it made its offer was not comparable to Apotex’s situation in 2003 because Andrx would have been the sole generic seller of 40 mg omeprazole for 180 days and because Andrx sought to have Astra drop its claims for willful infri ngement, past damages, and atto rney fees. While those factors distinguish the Andrx offer from a pure license for future sales, the offer nonetheless served “as a marker of the value of licensing rights,” as the district court held. As for the Teva settle ment, Apotex points to evidence that the amount paid by Teva was in settlement of claims against both Teva and Impax, and that the settlement actually constituted only 39 percent of the collective profits of those two entities. That number, while lower th an the 54 percent royalty rate referenced by the district court, nonetheless demonstrates that generic manufa cturers attached a high premium to the right to sell gene ric omeprazole. Moreover, generic entrance is often a race to the market, because most pharmacies keep only oneASTRAZENECA AB v. APOTEX CORP

. 20

We therefore reject Apotex’s challenges to the district court’s evidentiary analysis and its conc lusion from that analysis that the 50 percent royalty rate constituted fair compensation to Astra under the reasonable royalty theory of damages.

B
Apotex next contends t ha t the district court improperly based its damages calculation on the value of the

om eprazole product as a whole . According to Apotex, because the active ingredient patents had expired at the ti me of the infringement and the active ingredient had thus become a “conventional element,” the district court should have calculate d damages by ap portion ing the relative contribution of value between the active ingred ient and the “inventive element” of the patents, i.e., the subcoating.
Apotex predicates its argument on this court’s cases applying the “entire market value rule .” The court has held that whe n small elements of multi

- component pro ducts are accused of infringement, a patentee may “assess damages based on the entire market value of the accused product only where the patented feature creates the basis

generic version of a drug on hand. In light of the fact that Teva/Impax were willing to pay at least a 39 percent rate on profits to become the fifth generic to enter the market, the district court’s finding that Apotex would have p aid a 50 percent rate to become the fourth generic entrant is reasonable. In a footnote, Apotex points to Astra ’s licensing agreements relating to PPI products other than omepr azole. Because those agreements did not involve omepr azole and contained cross

- licenses and other features, the district court properly found them irrelevant to the da mages determination.ASTRAZENECA AB v. APOTEX CORP

. 21

for customer demand or substant ially creates the value of the component parts.” Uniloc USA, Inc. v. Microsoft Corp. , 632 F.3d 1292, 1318 (Fed. Cir. 2011) ( internal quotation marks omitted); see also

. LaserDynamics, Inc. v. Quanta Computer, Inc. , 694 F.3d 51, 67 (Fed. Cir. 2012)

. A thr eshold question arose below regarding the a pplicability of the entire market value rule in this case. A s

a n initial matter, the district court noted that “there is little reason to import [the entire market value] rule for multi

- component products like ma chines into the generic pharmaceutical context.” W hile w e do not hold that the entire market value rule is per se inapplicabl e in the pharmaceutical context

, we concur with the district court that t he rule is inapplicable to the present case

. T he entire market value rule is derived from S u preme Court precedent requiring that the patent ee “ must in every case give evidence tending to separate or appo r tion the defendant’s profits and the patentee’s damages b etween the patented feature and unpatented feature s , and such evidence must be reliable and tangible, and not conjectural or speculative.” LaserDynamics , 694 F.3d at 67 ( quoting Garretson v. Clark , 111 U.S. 120, 121 (1884) ). We recently reiterated that principle, holding that even when the accused infri nging product is “the smallest salable unit,” the patentee “ must do more to estimate what portion of the value of that product is attributable to the patented technology” if the accused unit is “a multi

component product containing several non

- infringing features with no relation to the patented feature.” VirnetX , Inc. v. Cisco Sys., Inc. , 767 F.3d 1308, 1327 (Fed. Cir. 2014). Thus, the entire market value rule applies when the accused product consists of both a patented feature and unpatented features ; the rule is designed to account for the contribution of the patented feature to the entire product

.ASTRAZENECA AB v. APOTEX CORP

. 22

This case does not fit the pattern in which the entire market value rule applies. Astra’s formulation patent s claim three key elements

— the drug core, the enteric coating, and the subcoating . The combination of those elements constitutes the complete omeprazole product that is the subject of the claims

. Thus, Astra’s patents cover the infringing product as a whole , not a single component of a multi

- compon ent product

. There is no unpatented or non

- infringing feature in the product.
While the entire market value rule does not apply to this case, the damages determination nonetheless requires a related inquiry. When a patent covers the i nfringing product a s 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 patentee’s invention in comparison to the value of the conventional elements recited in the claim

, standing alone

. See Ericsson, Inc. v. D

- Link Sys., Inc.

, 773 F.3d 1201, 1233 (Fed. Cir. 2014) (“[T]he patent holder should only be compensated for the approximate incr emental benefit derived from his invention.”) (citing Ga rretson , 111 U.S. at 121).

Several of the factors set forth in the Georgia

- Pacific

case bear directly on this issue. Georgia

- Pacific f actors nine and ten refer to “the utility and advantages of the patent property over any old modes or devices that had been used” and “the nature of the patented invention, its character in the commercial embodiment owned and produced by the licensor, and the benefits to those who used it,” respectively. Factor thirteen , which refers to the “portion of the realizable profit that should be credited to the invention,” embodies the same principle. Thus, the standard Georgia

- Pacific reasonable royalty analysis takes account of the importance of the inventive contrib ution in determining the royalty rate that would have emerged from the hypothetical negoti ation. However, while it is important to guard against compensation forASTRAZENECA AB v. APOTEX CORP

. 23

more than the added value attributable to an inven tion , it is improper to assume that a conventional element can not be rendered more valuable by its use in combination with an invention.
In practice, “all inventions are for improvements; all involve the use of earlier knowledge; all stand upon accumulated stores of the past.” Cincinnati Car Co. v. N .Y. Rapid Transit Corp. , 66 F.2d 592, 593 (2d Cir. 1933)

. Yet it has long been recognized that a patent that co mbines “old elements” may “give[] the entire value to the combination” if the combination itself constitutes a co mpletely new and marketable article. Westinghouse Elec. & Mfg. Co. v. Wagner Elec. & Mfg. Co

. , 225 U.S. 604, 614 (1912) (citing Hurlbut v. Schillinger , 130 U.S. 456, 472 ( 1889) ); see also Seymour v. Osborne

, 78 U.S. 516, 542 (1870) (“ Improvements in machines protected by letters patent may also be mentioned, of a much more numerous class, where a ll the ingredients of the invention are old, and where the invention consists entirely in a new comb ination of the old ingredients, whereby a new and useful result is obtained, and many of them are of great utility and value, and are just as much entitled to protection as those of any other class .”).

It is not the case that the value of all conventional e lements must be sub tracted from the value of the patented invention as a whole when assessing damages . For a patent that combines “old elements,” remov i ng the value of all of those elements would mean that nothing would remain. In such cases, the question is how much new value is created by the novel combination, beyond the value conferred by the conventional elements alone

. 5

5 We recently made the same point in Univ ersity of Pittsburgh v. Varian Med ical Sys tems , Inc. , 561 F. App’ x 934, 947

- 50 (Fed. Cir. 2014) . In addressing the properASTRAZENECA AB v. APOTEX CORP

. 24

The district court addressed, and answered, that question. The court rejected Apotex’ s proposition that the patented formulation constituted only a minor , increme ntal improvement over the active ingre dient

. The court found instead that the formulation “substantial ly cr eate [d] the value” of the entire omeprazole product. Th at

was because , despite the effectiveness of omeprazole in reducing the production of gastric acid, it is notoriously difficult to formulate. O meprazole is most effective when absorbed by the small intes tine , but it is highly suscept ible to degradation in the acid ic environment of the sto mach. 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 inte stin e, while ensuring adequate shelf life in a drug that is sensitive to heat, moisture, organic solvents, and light.
After years of effort, Astra ’s scientists determined that a water -soluble subcoat helped solve many of these problems and allowed them to formulate a commercial ly viable drug. The district court found that Astra’s prior formulations , which lacked a subcoat, were not comme rcially viable.
The district court did not clearly err in concluding that the subcoat ing is so important to the viability of the commercial omeprazole product that it was substantially responsible for the value of the product. A commercially viable omeprazole drug requires both storage stability

calculation of the royalty base in a reasonable royalty determination, we declined the defendant’s invitation to remove the conventional elements from the overall value of the combination apparatus; we noted that guarding against compens ation for more than the added value attributable to the invention “is precisely what the Georgia

- Pacific factors purport to do.” Id. at 950.ASTRAZENECA AB v. APOTEX CORP

. 25

and gastric acid re sistance . The former may be achieved with the addition of ARCs to the drug core , and the latter with the enteric coating. Without the subcoating, howe ver, storage stability and acid resistance are irreconcilable

, because the addition of ARCs would co mpromis e the enteric coating. By inventing a structure in which a subcoat ing separates the drug core , and thus the ARCs

, from the enteric coating

, and finding the right subcoating material, Astra was able to achieve both storage stability and acid resista nce . That combination of features made it possible for drug manufacturers to commercialize omeprazole.

Astra’s formulation thus created a new

, commercial ly viable omeprazole drug. That product was previously unknown in the art and was novel in its own right. Accordingly, the district court permissibly found no re ason to exclude the value of the active ingredient when calculating damages in this case

. 6

C
Taking another tack in challenging the compensation awarded to Astra for Apotex ’s infringing sales, Apotex

argues that the value of the patented formula tion must be discounted in light of the non

- infringing alternative formulations in existence at the time of the infringement.

6 In support of its apportionment argument, Apotex relies on a license that Astra granted to Takeda Chemical Indu stries, Ltd. that included the ’230 patent, for Takeda to practice with a different PPI ingredient and formul ation. The license enabled Takeda to develop and ult imat e ly market its own formulation. The royalty rates paid by Takeda under that license do no t bear on whether the damages for infringing the omeprazole formulation patents must be apportioned between the active ingred ient and the formulation.ASTRAZENECA AB v. APOTEX CORP

. 26

T he district court examined th ose alleged non

- infringing alterna tives and concluded that none were available to Apotex as of the beginning of Apotex’s infringement in November 2003. Apotex did not have a non

- infringing alternative formulation at that time, and KUDCo wa s the only generic market entrant found to be non

- infringing. KUD C o’s formulation, however, was covered by its own patents, and the district court found that Apotex had failed to explain how it could copy that formulation wit hout infringing KUD C o’s patents. Finally, the district court found that the formulations used by two other generic manufacturers, Lek and Mylan, could not have been regarded as non

- infringing alternatives in November 2003, as they launched at risk in 2003 and their formul ations were not found to be non

- infringing until 2007.
Apotex does not challenge the finding that it had no

non

- infringing formulation of its own

, and we agree with the district court that the Lek and Mylan formulations, whi ch were launched at risk amid on- going litigation with Astra and were not found to be non

- infringing until 2007,

w ould not have been considered as non

- infringing altern atives in November 2003. See Pall Corp. v. Micron Separ ations, Inc. , 66 F.3d 1211, 1222 (Fed. Cir. 1995) ( an accused alternative product offered by a third party could not be considered as a non

- infringing alternative before the patentee and the third party voluntarily settled the ir litigation) ; Datascope Corp. v. SMEC, Inc. , 879 F.2d 820, 824 (Fed. Cir. 1989)

. The issu e is therefore whether the KUD C o formulation wa s available to Apotex in November 2003.

I n the district court, Apotex did not dispute that KUD Co ’s formulation was covered by KUDCo’s own patents. Apotex argues that it was not shown that the KUDCo formulation was unavailable at the tim e of the infringement because Astra did not prove that using the KUDCo formulation would have infringed the KUDCo patents. We disagree.ASTRAZENECA AB v. APOTEX CORP

. 27

The patents held by KUD C o were designed to protect its formulation. From that fact, the district court could reasonably infer that the KUDCo formulation was not available to Apotex as a non

- infringing alternative. Apotex’s conclusory assertion that it could have used KUDCo’s formulation without infringing KUDCo’s p atents does not suffic e to overcome that inference. See Grain Processing , 185 F.3d at 1353. Therefore, the di strict court did not clearly err by refusing to discount the value of Astra’ s patents based on the existence of altern atives to the infringing formulation that Apotex actually used.

III
Finally, Apotex objects to the district court’ s decision to award damages for sales of its generic omeprazole during the “ pediatric exclusivity ” period of the asserted patents. Under 21 U.S.C. § 355a , the FDA is authorize d to make a written request to the holder of an ap proved New Drug A pplication (“NDA”) for the holder to perform pediatric studies. See Omeprazole IV , 536 F.3d at 1368

. If the NDA holder agrees to the re quest and performs the pedi atric studies, and if the FDA considers the result s of the stud ies acceptab le , the statute extend s the period during which the FDA is barred from approv ing ANDA s filed by competing drug manufacturers for six months beyond the patent’s expiration date

. 21 U.S.C. § 355a(b)

- (c); Omeprazole IV , 536 F.3d at 1368. That six

- month
exte nsion is known as the pediatric exclusivity period.

Wh en a generic drug manufacturer files an ANDA with a Paragraph IV certification

, t he patent holder may then initiate a patent infringement suit against the ANDA applicant

. See 21 U.S.C. § 355(j)( 2)(A)(vii) ; 35 U.S.C. § 271(e)(2)(A) . If the district court determines that the patent is both valid and infringed

, the court is r equired to order the effec tive date of the ANDA approval to be a date “not earlier than” the expiration date of theASTRAZENECA AB v. APOTEX CORP

. 28

patent. 35 U.S.C. § 271(e)(4)(A). If the FDA has not approved the ANDA at the time of the district court’s decision, the FDA may not approve the ANDA (and the generic may not sell its drug) until after the patent e xpires. Omeprazole IV , 536 F.3d at 1367. If the FDA has already approved the ANDA, the district court’s order alters the effective date of that approval. Id. at 1367

- 68.

Astra obtained the right to a six

- month pediatric e xclusivi ty before the district court’s liability decision. Thus, although the ass erted patents expired on April 20

, 2007, the district court ordered that the effective date of Apotex’s ANDA approval be set six months later, on October 20, 2007. See Omeprazole IV

, 536 F.3d at 1376 (affirming the district court’s order reset ting Apotex’s ANDA effective date). On June 28, 2007, pursuant to the district court’s order, the FDA revoked its earlier approval of Apotex’s ANDA, forcing Apotex to cease distribution of its generic drug until the FDA re

- approved its ANDA on October 22, 2007. See Apotex Inc. v. U.S. Food & Drug Admin. , 508 F. Supp. 2d 78 , 80 ( D.D.C. 2007) . Apotex made some sales between April 20 , 2007

, and June 28, 2007, i.e., during the pediatric exclusivity period and before the FDA’s revoca tion order. The district court allowed Astra to recover a reason able royalty on tho se sales, even though the sales had occurred after the exp iration date of the patents.
The district court reasoned that the effect of the ped iatric exclusivity period, like that of th e patent term, is to bar the sale of a generic product until after the expiration of the exclusivity period. The court further noted that the FDA allows a party holding statutory exclusivity rights to waive those rights in favor of a nother drug manufactur er. See Boehringer Ingelheim Corp. v. Shalala , 993 F. Supp.
1 , 2 (D.D.C. 1997)

. The district court therefore concluded that if Apotex had obtained a license from Astra in 2003, the license would have included the right to sell omepr azole both during the original term of the asserted patentsASTRAZENECA AB v. APOTEX CORP

. 29

and during Astra’s pediatric exclusivity period. In e xchange, Astra would have re ceived both a royalty pa yment for sales made during the original patent term and a payment for its waiver of its pediatric exclusivity rights for sales made during the pediatric exclusivity period.
Apotex contends that the district court’s award of damages for the period after the expiration of Astra’s patents runs counter to the Supreme Court’s decision in Brulotte v. Thys Co. , 379 U.S. 29 (1964). In that cas e, the Court held that a royalty agreement that projects beyond the expiration date of the patent is unlawful per se. Id. at 32.

We d o not agree with Apotex that Brulotte control s the outcome in thi s case. In Brulotte

, the Supreme Court barred a patentee from using a licensing agreement to
extract royal ties after the patent had expired because the Court deemed such a practice to be a wrongful leverage of the patent monopoly, “ analogous to an effort to enlarge [ that ] monopoly” beyond its lawful duration. Brulotte , 379 U.S. at 32

- 33. The Court’s analysis in Brulotte , however, does not apply to a situation such as this one, in which Congress, by creating the pediatric exclusivity period

, explicitly a uthorize d additional market exclusivity to be granted to the patent owner beyond the life of the patent

. In Brulotte

, anyone was free to use the patented technol ogy after the patent expired. In this case

, by contrast, absent a waiver from Astra the FDA w as not free to

a uthorize the sale of a generic drug using the patented technology until the end of the pediatric exclusivity per iod

. Thus, Astra’s demand for royalty payments for post

expiration sales does not rest on its patent monopoly; the demand is based on th e fact of Astra’s legal entitlement to a pediatric exclusivity period

. The only issue here is whether the period during which damages are to be measured under section 284 may include the post

-ASTRAZENECA AB v. APOTEX CORP

. 30

expiration pediatric exclusivity period

. 7 We hold t hat it

may not

. For an act of infringe ment
, as defined in 35 U.S.C. § 271(e)(2), the Patent Act provides three type s of rem edies . They are as follows:
(A) the court shall order the effective date of any approval of the drug

. . . involved in the i nfringe ment to be a date which is not earlier than the date of the expiration of the patent which has been infringed,
(B) injunctive relief may be granted against an infringer to prevent the commercial manufacture,

us e, offer to sell, or sale within the United States or importation into the United States of an a pproved drug

. . . [ and ]
(C) damages or other monetary relief may be awarded against an infringer only if there has been commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of an approved drug

. . . . 35 U.S.C. § 271(e)(4).
While the remedy under sub paragraph (A) is unique to section 271(e)(2) infringement, subparagraphs (B) and (C) provide the “typical remedies ” for patent infringement: injunctive relief and money damages. Omeprazole IV

, 536 F.3d at 1367. When there has been “commercial man ufacture, use, or sale of an approved drug,” the patentee is

7 We do not decide whether the pediatric exclusivity period may be considered in determining the royalty rate that might be employed in a hypothetical negotiation. Neither party has raised that argument, and the district court made no finding reg arding the relationship between the royalty rate and the pediatric exclusivity period.ASTRAZENECA AB v. APOTEX CORP

. 31

entitled to “damages adequate to compensate for the infringem ent, but in no event less than a reasonable royalty for the use made of the invention b y the infrin ger.” 35 U.S.C. § § 271(e)(4)(C) , 284; see Eli Lilly and Co. v. Medtronic, Inc. , 496 U.S. 661

, 678 (1990) (section 271(e)(2) created a “highly artificial act of infringement” to enable “judicial adjudication” upon which the ANDA and paper NDA schemes depend; monetary damages, however, are permitted only if there has been “commercial manufa cture, use, or sale” of the patented invention)

. The district court f ound that in November 2003, the parties would have agreed to a license that would extend beyond the expiration date of the patent, because the FDA allows Astra to monetize its exclusivity right by waiving it in favor of a generic drug manufacturer, much as a p atentee may license the right to use its patent for a pa yment of royalty

. Indeed, when Andrx, one of the “first wave” defendants, attempted to settle its dispute with Astra in 2005, it offered precisely such a royalty payment covering both the original patent term and the pediatric exclusivity period. Thus, t he post

- expiration royalt y that the district court envisioned resulting from a hypothetical negotiation reflects what a generic drug manufacturer in Apotex’s position would have agreed to in a real licensing negotiation. Nevertheless, on the facts of this case it was error for the court to award that amount as part of Astra’s patent infringement damages under sections 271(e)(4)(C) and 284

. We have long held that “there can be no infringement once the patent expires,” because “the rights flowing from a patent exist only for the term of the patent.” Kearns v. Chrysler Corp. , 32 F.3d 1541, 1550 ( Fed. Cir. 1994) (citing Kinzenbaw v. Deere & Co. , 741 F.2d 383, 386 (Fed. C ir. 1984); Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo, Ltd. , 754 F.2d 345, 347 (Fed. Cir. 1985) ). The pediatric exclusivity period is not a n extension of the term of the patent. See 21 U.S.C. 355a(o)(1) (disti nguishingASTRAZENECA AB v. APOTEX CORP

. 32

patent exclusivity from non

- patent exclusivity); see also F DA

, Guidance for Industry Qualifying for Pediatric Exclusivity Under Section 505A of the Federal Food, Drug, and Cosmetic Act (Sept

. 1999) (“FDA Guidance”) , at 13 (“Pediatric exclusivity

. . . is not a patent term extens ion under 35 U.S.C. § 156. ”); Mylan Labs., Inc. v. Thompson

, 389 F.3d 1272, 1280 (D.C. Cir. 2004) (giving Chevron deference to the FDA’s interpretation of the pediatric exclusivi ty statute )

. For that reason, it is clear that Apotex did not infringe Astra’s patents during the excl usivity period , since those patents had expired ; if Apotex had launched its generic produc t during the exclusivity period, Astra could not have sued Apotex for patent infringement based on those sales.
The royalty base for r eason able royalty damages ca nnot include activities that do not constitute patent i nfringement , as patent damages are limited to those “adequate to compensate for the infringement .” 35 U.S.C. § 284 ; see Hoover Grp., Inc. v. Custom Metalcraft, Inc. , 66 F.3d 299, 304 (Fed. Cir. 1995) (“[A patentee] may of course obtain damages only for acts of infringement after the issuance of the [] patent.”) ; cf. Johns Hopkins Univ. v. CellPro, Inc. , 152 F.3d 1342, 1366 (Fed. Cir. 1998) (the district court abused its discretion in ordering the repa triation of the exported vials under section 283, because the injunction was directed at activities that did not constitute infringement).
For example, i n Gjerlov v. Schuyler Labs., Inc.

, 131 F.3d 1016 (Fed. Cir. 1997) , the paten t owner and the defendant had reached a settlement agreement under which the defendant agreed not to manufacture or sell certain products , including certain non

- infringing pro ducts, in exchange for a release from patent infringement liability. Upon a requ est of the patent owner to enforce the settlement agreement, the district court awarded reasonable royalty damages under section 284 for the defend ant’s sale s of a non

- infringing product that w ereASTRAZENECA AB v. APOTEX CORP

. 33

prohibited under the contract. We reversed and vacated th at portion of the district court’s judgment because the reasonable royalty award included damages for the sale of

non

- infringing products

. If the defendant had breached the contract by selling an infringing product, reasonable

r oyalty damages under sectio n 284 would have been the proper remedy. Gjerlov , 131 F.3d at 1022

- 23. We held, however, it was improper to award reasona ble royalt y damages for the defendant’s sale of the prohibited non

infringing product s , because acts that do not constitute patent in fringement cannot provide a proper basis for

recovery of damages under section 284. Id. at 1024.

Th at proposition follows from the familiar principle that the royalty due for patent infringement should be the

“‘ value of what was taken’

— the valu e of the use of the patented technology.” Aqua Shield

, 774 F.3d at 770 (quoting Dowagiac Mfg. Co. v. Minn. Moline Power Co.

, 235 U.S. 641, 648 (1915) (“As the exclusive right conferred by the patent was property, and the infringement was a tortious takin g of a part of that property, the normal measure of damages was the value of what was taken.”) ); Ericsson , 773 F.3d at 1226 (“As a substantive matter, it is the ‘ value of what was taken ’ that measures a ‘reasonable royalty ’ under 35 U.S.C. § 284.”)

. In this case, what was taken by Apotex was the excl usive right conferred by Astra’s patents up to the date that they expired. The damages determination should not include Apotex’s sales during the post

- expiration period of pediatric exclusivity, because Astra’s rights during that period were not attributable to its patents and were not invaded by Apotex’s infringement. Therefore

, even though a party in Apotex’s posi tion would have agreed to a license covering both the patent term and the pediatric exclusivit y period, determining damages adequate to compensate Astra for Apotex’s infringe ment requires that

we focus solely on those activities that constitute actual infringement , i.e., Apotex’s pre

- expiration sales

. Apotex’sASTRAZENECA AB v. APOTEX CORP

. 34

sales during the pediatric exclusivit y period cannot su pport Astra ’s claim for reasonable royalties under section 284 , be cause those sales d id not infringe Astra’s patents

. 8
Nor can the award of damages for post

- expiration sales be justified on the ground that those damages can be treated as “‘wa i ver’ payments made in exchange for Astra’s waiver of the pediatric exclusivity period ,” as the district court held. Astra did not assert a claim under the Federal Food, Drug, and Cosmetic Act; its sole claim for relief was predicate d on 35 U.S.C. § 271(a), and the scope of recoverable damages under that section is defined by section 284. Even if it had asserted such a claim, the statute provides no such remedy. See 21 U.S.C. § 337(a) (“Except as provided in subsection (b) of this s ection, all such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States. ”)

. By prohibiting the FDA from approving an ANDA for six months after the expiration of the patent, s ection 355 a in effect gives an NDA holder in Astra’s situation six additional months free from competition from ANDA applicants. See 21 U.S.C. § 355a(b)

- (c); FDA Guidance , at 13 (“Pediatric exclusivity

. . . extends the period during which the approval of an abbreviated new drug applic ation (ANDA) or 505(b)(2) application may not be made effective by FDA.”)

. But the statute does not create a damages remedy against an ANDA applicant who was authorized by the FDA to make sales during that period

, as Apotex was for the first two months following the expiration of Astra’s patents.

8 Astra also argues that reasonable royalties are r ecoverable for Apotex’s post

- expiration sales under the so

called “accelerated market entry” theory. The cases cited by Astra, however, were all directed at lost profits anal ysis and are therefore inapposite.ASTRAZENECA AB v. APOTEX CORP

. 35

The problem that arose in this case resulted from the timing of the district court’s infringement ruling. If the liability determination had been made before the expir ation date of the patents, the FDA would have revoked the approval of Apotex’s ANDA in time so that Apotex would have been barred from selling its generic product during the entire pediatric exclusivity period. However, because the district court’s ruling was issued after th e expiration date of the patent, there was a two

- month period during which Apotex was authorized to sell its generic products before the FDA withdrew its approval of Apotex’s ANDA. Although th e sales that Apotex was authorized to make during that two

- mont h period may have benefited Apotex and injured Astra, section 284 is not designed to compe nsate for those post

- expiration sales

. Given that section 284 fails to support Astra’s claim for royalty payments on Apotex’ s post

- expiration sales, w e

reverse th e portion of the district court’s damages award relating to the pediatric exclusivity period, and we remand for a recalculation of damage s.
Costs to Astra.
AFFIRMED IN PART, REVERSED IN PART, and REMANDED