Opinion ID: 804422
Heading Depth: 2
Heading Rank: 2

Heading: The Schering-Upsher Litigation and

Text: Settlement In August 1995, Upsher filed the first ANDA seeking approval to produce a generic version of K-Dur to be called Klor-Con M20. Upsher provided a paragraph IV certification to Schering in November 1995, certifying that its generic would not infringe Schering’s ‘743 patent. On December 15, 1995, within the forty-five-day window provided by HatchWaxman, Schering sued Upsher in the District of New Jersey for patent infringement, triggering the 30-month automatic stay in FDA approval of Upsher’s generic. Upsher’s defense against Schering’s patent infringement suit was based on differences between the chemical composition of the controlled release coating in its generic product and that of the invention claimed in the ‘743 patent. Throughout the litigation, Upsher vigorously defended against Schering’s infringement claims, at one point telling the court that Schering’s claims of infringement “are baseless and could not have been made in good faith.” App. at 3610. The parties began trying to settle the infringement case at least as early as May 1997. During settlement negotiations, Upsher requested both a cash payment and an early entry date for its generic product. However, Schering expressed concern about possible antitrust problems that might arise if it made a reverse payment. In the early morning of June 18, 1997, just hours before the District Court was to rule on the pending cross motions for summary judgment and begin, if necessary, a patent trial, Upsher and Schering agreed to settle the case. The settlement was memorialized in an eleven-page short-form agreement dated June 17, 1997 (“the Schering-Upsher agreement”). That agreement provided that, while Upsher did not concede the validity, infringement, or enforceability of the ‘743 patent, it would refrain from marketing its generic potassium chloride supplement or any similar product until September 1, 2001, at which point it would receive a non-royalty non-exclusive license 11 under the ‘743 patent to make and sell a generic form of KlorCon. Additionally, Upsher granted Schering licenses to make and sell several pharmaceutical products Upsher had developed, including Niacor-SR, a sustained-release niacin product used to treat high cholesterol. In return, Schering promised to pay Upsher sixty million dollars ($60,000,000) over three years, plus additional smaller sums depending upon its sales of Niacor-SR in defined markets. While the parties to this litigation dispute whether the payment was solely for the licensing of Upsher products or instead formed part of the consideration for dropping the patent action, the agreement lists Upsher’s promises to dismiss the patent infringement action and not to market any sustained-release microencapsulated potassium chloride tablet until September 1, 2001, as part of the consideration for the payment. The settlement agreement and the acquisition of licenses from Upsher were ratified by Schering’s board of directors on June 24, 1997. Subsequent to the settlement, Upsher and Schering abandoned plans to make and market Niacor-SR. In this action, the parties dispute the facts related to the Niacor-SR license. Plaintiffs contend that the license was a sham and that the $60 million paid as royalties for Niacor-SR was actually compensation for Upsher’s agreement to delay the entry of its generic extended-release potassium tablet. On the other hand, defendants contend that Schering’s board valued the license deal separately and that $60 million was its good faith valuation of the licenses at the time.