District Court Overrules Defendants' Objections to Magistrate's Report on Lost Profits

Earlier this month, in GlaxoSmithKline LLC v. Glenmark Pharmaceuticals Inc., U.S. District Judge Leonard P. Stark of the U.S. District Court for the District of Delaware issued a Memorandum Order that, inter alia, overruled objections by Defendants Glenmark Pharmaceuticals Inc., USA and Teva Pharmaceuticals USA, Inc. to a Report and Recommendation issued by Magistrate Judge Burke and adopted the Report.  The Report had recommended, in part, that the District Court deny Defendants' motion for summary judgment related to a claim for lost profits by Plaintiffs GlaxoSmithKline LLC and SmithKline Beecham (Cork) Ltd.

Glenmark and Teva had objected to the Magistrate's Report on two grounds, the first of which is relevant to this discussion.  In particular, Defendants argued that the Report wrongly permitted GlaxoSmithKline to present a lost profits calculation that contemplates a "but-for" world that excludes non-party manufacturers' generic products (in this case, generic carvedilol products).  In summarizing Defendants' argument, the Court noted that:

Defendants insist that the but-for world to which comparisons must be made in order to assess GSK's claim for lost profits damages is a world in which non-party manufacturers of generic carvedilol would have existed, and from which direct infringers (i.e., physicians) would have obtained carvedilol.  It follows, then, that GSK lost no profits due to Defendants' allegedly infringing conduct, because even absent Defendants' infringement, GSK would still have lost those same sales -- albeit to non-party manufacturers, rather than to Defendants.

The District Court, however, found Defendants' argument to be unpersuasive.  Although the Court noted that "at all times relevant to the lost profits analysis, there were generic carvedilol tablets available from at least eight different generic manufacturers," the Court also noted that the Report had properly explained that "the law is clear that a lost profits analysis must be based on a world in which infringement of the asserted patent does not exist, and therefore it does not allow for infringing alternatives to be available in the hypothetical 'but for' world."  The Court indicated that "the generic carvedilol of these non-party manufacturers is an infringing alternative -- and not a non-infringing alternative," and therefore concluded that "[t]hese non-parties' products, thus, would not exist in the but-for world, which must be constructed to include 'likely outcomes with infringement factored out of the economic picture'" (emphasis in Memorandum Order).

The Court also stated that "[t]he issue for the lost profits calculation is whether the product is non-infringing, not whether the alternative supplier has been, or could be, successfully sued for infringement," agreeing with GlaxoSmithKline that "[i]t doesn't matter whether the sales by other generic suppliers would be non-infringing, because the ultimate use of those products by doctors would be infringing and thus not a permissible consideration" (emphasis in Memorandum Order).  In denying Defendants' objections to the Report and adopting the Report, the Court concluded that "because the but-for world is one in which no infringing alternatives exist, other generic carvedilol products that directly infringe [GlaxoSmithKline's patent] must be excluded, even if the sales of those products are not induced by Defendants."