Plexxikon Inc. v. Novartis Pharmaceuticals Corporation

Background

This patent-infringement case concerns Plexxikon’s patents for kinase inhibitors. Plexxikon accused Novartis’s melanoma drug Tafinlar of infringing those patents. The asserted patents had never been licensed. Both sides’ damages experts nevertheless relied on allegedly comparable licenses under a hypothetical-negotiation approach to calculate a reasonable royalty.

Plexxikon’s expert, Dr. Leonard, relied in part on the Roche collaboration agreement covering Zelboraf, another B-Raf inhibitor that competes with Tafinlar. He considered the royalties Plexxikon might lose from Zelboraf sales if it licensed the patents to Novartis and concluded that Plexxikon would not have accepted less than a 5.5% royalty rate. He also calculated an effective royalty rate of 6.26% to 12.52% after accounting for other parts of the Roche collaboration.

Novartis’s expert, James E. Malackowski, disputed the comparability of the Roche agreement because it identified a particular compound and included broad collaboration benefits. He instead relied on license agreements involving Rigel Pharmaceuticals, Curis, and Harvard Corporation. Those agreements were described as “freedom to operate” licenses, and Malackowski used them to support a lump-sum reasonable-royalty opinion of $3.5 million.

Legal Standard

Federal Rule of Evidence 702 allows qualified expert testimony when the expert’s specialized knowledge will help the factfinder, the testimony rests on sufficient facts or data, the methods are reliable, and the expert reliably applied those methods. The court explained that patent-damages evidence must be tied to the facts of the case and must account for the value of the patented features rather than unrelated aspects of an accused product.

The court also explained that disagreements about the comparability of licenses generally affect the weight of admissible evidence rather than its admissibility when the testimony meets the minimum requirements of case-specific data and sound methodology. Such disagreements may be tested through cross-examination and opposing evidence.

Novartis’s Motion to Exclude Dr. Leonard

Novartis argued that Dr. Leonard’s analysis was unreliable because it valued Plexxikon’s right to exclude rather than the incremental value of the patented inventions. Novartis also argued that Leonard improperly used potential lost Zelboraf royalties to establish a minimum royalty without satisfying the test for recovering lost profits.

The court recognized that patent damages must be apportioned to reflect the value of the patented invention, including the patented invention’s contribution compared with conventional or separately developed features. The court agreed that focusing only on the right to exclude could fail to account for Novartis’s contribution in identifying and developing the specific molecule used in Tafinlar. The Roche agreement also involved different technology, so it could not by itself establish the value of Plexxikon’s asserted inventions.

Nevertheless, the court found that Plexxikon had provided enough evidence that the asserted patents and the Roche patents were comparable for purposes of the damages analysis. The products operated in the same competitive space and served the same patient populations, and the evidence indicated that the relevant intellectual property was important to the effectiveness of the respective products. The court therefore concluded that the concerns were best addressed through cross-examination rather than exclusion.

The court also rejected Novartis’s challenge to Leonard’s use of potential lost Zelboraf royalties in the hypothetical negotiation. The court distinguished a lost-profits claim, which requires proof of causation under the applicable test, from a reasonable-royalty analysis. It held that a patent owner participating in a hypothetical negotiation may consider profits it expects to lose from granting a license. The relevant question was what Plexxikon would reasonably have believed during the negotiation, not whether Roche would actually have made Tafinlar’s sales.

The court denied Novartis’s motion to exclude Dr. Leonard’s opinions and testimony.

Plexxikon’s Motion to Exclude Mr. Malackowski

Plexxikon sought to exclude Malackowski’s opinions about the Rigel, Curis, and Harvard licenses. Plexxikon argued that the licenses involved different technologies and markets and reflected Novartis’s desire to avoid litigation. Plexxikon also sought to prevent Malackowski from testifying that broad genus patents are less valuable than narrower patents identifying specific compounds.

The court held that settlement licenses may be admitted when they are sufficiently probative of the value of the asserted patents. But the three licenses here did not involve the asserted patents, and Novartis had not shown that their technology was comparable. The licenses were also negotiated early or under circumstances focused on avoiding litigation, and the evidence did not show that Novartis had infringed the licensed patents or that the potential infringement value was comparable to the value at issue in this case. The court further noted evidence that the patents in the Curis license were considered invalid, which could have reduced that license’s royalty amount.

The court found that the licenses had limited probative value and that their admission risked unfairly prejudicing the jury by presenting damages figures shaped by litigation costs, uncertainty, and differences in the products and technologies. It therefore granted Plexxikon’s motion to exclude Mr. Malackowski’s testimony regarding the Rigel, Curis, and Harvard licenses.

The court separately considered Malackowski’s proposed testimony that broad genus patents are less valuable than narrower patents identifying specific compounds. It held that the issue should be evaluated using the Georgia-Pacific factors, which are factors used to estimate what reasonable parties would have agreed to as a royalty. The value of a patent requiring further development depends on the stage of development and commercialization at the time of the hypothetical negotiation. Because the parties appeared to agree that the negotiation would occur after Novartis had developed Tafinlar, the court found Malackowski’s testimony relevant to apportioning value and distinguishing Novartis’s contribution from Plexxikon’s contribution.

The court denied this part of Plexxikon’s motion.

Disposition

The court denied Novartis’s motion to exclude Dr. Leonard’s testimony and granted in part and denied in part Plexxikon’s motion to exclude Mr. Malackowski’s testimony. This order addressed the admissibility of damages experts’ opinions; it did not decide the ultimate patent-infringement or damages questions.