Last week, the Federal Circuit affirmed a jury verdict against Baxalta Inc., Baxalta US Inc., and Nektar Therapeutics for infringing Bayer Healthcare's patent to human blood clotting factor conjugates in Bayer Healthcare LLC v. Baxalta Inc.

Bayer Healthcare sued Defendants on U.S. Patent No. 9,364,520, alleging willful infringement by Baxalta's product, Adynovate®.  This product is a recombinant human Factor VIII (the blood clotting factor responsible for causing Hemophilia A) having the protein structural domains A1-A2-B-A3-C1-C2, wherein the B portion was specifically modified by addition of polyethylene glycol (PEG).  PEGylation is important because Factor VIII has an 11-hour half-life which requires frequent injections and leads to reduced patient compliance.  The prior art had disclosed "random" modification of Factor VIII with PEG, which had "several drawbacks" due to the multiplicity of PEGylations sites ("158 lysines, the two N-termini, and multiple histidines, serines, threonines, and tyrosines") in the Factor VIII protein, which led to heterogeneity in the species produced, including ones having deleterious effects on Factor VIII activity and ones having a multiplicity of PEG residues conjugated to the protein.

The '520 patent specification disclosed site-specific PEGylation at a site not at an N-terminal amine; claim 1 is representative:

1.  An isolated polypeptide conjugate comprising a functional factor VIII polypeptide and one or more biocompatible polymers, wherein the functional factor VIII polypeptide comprises the amino acid sequence of SEQ ID NO: 4 or an allelic variant thereof and has a B-domain, and further wherein the biocompatible polymer comprises polyalkylene oxide and is covalently attached to the functional factor VIII polypeptide at the B-domain.

(wherein the italicized portions of the claim identify claim language disputed in the litigation).

At trial, the District Court construed the term "isolated polypeptide conjugate" to mean "a polypeptide conjugate where conjugation was not random."  Specifically, the District Court held that during prosecution of the '520 patent, Bayer had disclaimed embodiments having random PEGylation.  Further, the District Court construed the term "at the B-domain" to mean "attachment at the B-domain such that the resulting conjugate retains functional factor VIII activity," rejecting Baxalta's proposed construction that the phrase should be construed to mean "at a site that is not any amine or carboxy site in factor VIII and is in the B-domain."  The District Court granted Defendants' pre-trial motion as a matter of law that there was no willful infringement, and a jury found that Defendants infringed claims 1-3 and 8 of the '520 patent.  The jury found against Defendants' counterclaim of non-enablement, and awarded Bayer $155,190,264 in reasonable royalty damages, based on a 17.78% royalty rate for $872,836,128 in Defendants' profits.  The District Court also denied Defendants' JMOL motions on the issues of infringement, enablement, and damages.  Bayer filed a motion under Federal Rule of Civil Procedure 59(a) for pre-verdict supplemental damages, which the District Court granted and awarded Bayer another $18,324,562.  The District Court also denied Bayer's motion for JMOL on willful infringement.  Both parties appealed.

The Federal Circuit affirmed, in an opinion by Judge Stoll, joined by Judges Newman and Linn.  The opinion first opined on the District Court's claim construction, which (because the District Court had not relied upon extrinsic evidence) was performed de novo, with regard to the interpretation of the terms "at the B-domain" and "random" PEGylation of the B portion of Factor VIII.  The opinion rejected Defendants' argument that the term "at the B-domain" should have been interpreted to exclude amine/lysine PEG conjugation.  The opinion sets forth its claim construction analysis by way of the factors enunciated in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc):  plain meaning of the claim terms, the specification, and the prosecution history.  The Federal Circuit found the plain meaning of the term "'[a]n isolated polypeptide conjugate' in which PEG 'is covalently attached to the functional factor VIII polypeptide at the B-domain'" does not require any particular amino acid residue to be PEGylated, saying that the claim "broadly requires PEGylation at the B-domain as a region."  The panel identified statements in the specification that supported this construction, and while acknowledging that PEGylation at cysteine residues was expressly disclosed, held that this disclosure did not limit the scope of site-specific PEGylation to just cysteine residues.  The Federal Circuit also disagreed with Defendants that the specification disparaged amine/lysine PEG conjugation, expressly based on Indivior Inc. v. Dr. Reddy's Laboratories, S.A., 930 F.3d 1325 (Fed. Cir. 2019); Gaus v. Conair Corp., 363 F.3d 1284 (Fed. Cir. 2004); and SciMed Life Systems, Inc. v. Advanced Cardiovascular Systems, Inc., 242 F.3d 1337 (Fed. Cir. 2001) (although the opinion states that it was a close question).  Rather than disparaging or disclaiming any particular type of conjugation with PEG, the panel held that the '520 patent specification disparaged random PEGylation (which is not the same thing).  Finally, the opinion held that nothing in the prosecution history was to the contrary, specifically in that it did not contain "a clear and unmistakable surrender of claims directed to non-random amine/lysine PEGylation."  While art cited by the USPTO included amine/lysine conjugation sites, taken as a whole and as understood by a person of ordinary skill in the art, the Federal Circuit held the rejection and cited art was directed to random PEGylation.  (And Defendants' citation of statements made in the prosecution of related European Patent Application No. 11153287.4 were unavailing, both on the merits and, in agreement with the District Court, "varying legal and procedural requirements for obtaining patent protection in foreign countries might render consideration of certain types of representations inappropriate for consideration in a claim construction analysis of a United States counterpart.")

With regard to the term "random," the Federal Circuit rejected Defendants' argument that the District Court had erred by not expressly defining the term, thus improperly leaving construction of this term to the jury.  The panel held that the District Court had "resolved the parties' differences" with regard to this term by addressing (and rejecting) Defendants' arguments that "(1) that 'random' conjugation means any conjugation at amines or carboxy sites; and (2) that 'random' conjugation means all heterogenous conjugation."  The Federal Circuit understood the District Court's construction did not exclude any degree of heterogeneity from PEG conjugation but rather that Bayer had disparaged embodiments with "a high degree of heterogeneity" (which was the problem with prior art embodiments of PEGylated Factor VIII preparations that distinguished Bayer's invention).  Reciting the District Court's construction, the opinion states that the District Court found (correctly) that "non-random conjugation neither required that each FVIII protein in a product such as Adynovate® be PEGylated in the same places (homogeneity among conjugates in the product) nor required that every PEG on each FVIII protein be in the B-domain (homogeneity within each conjugate)."  Accordingly, the Federal Circuit held that limiting the term "random" with reference to construction of the term "isolated polypeptide conjugate" to mean "a polypeptide conjugate where conjugation was not random" sufficiently defined the meaning of the word "random" in the claimed context, and that this was consistent with other district court decisions, including denial of Defendants' motion in limine on this issue.

The panel also affirmed as being supported by substantial evidence the jury's infringement decision, and consequently, that the District Court did not err in denying Defendants' motion for JMOL.  The opinion provided a synopsis of the parties' evidence, including differing expert witnesses on infringement, supported by Baxalta's submissions to FDA regarding the specificity with which its Factor VIII product comprised "controlled, targeted chemical addition of 20 [kilodalton] PEG conjugates to this FVIII B-domain" (emphasis in opinion), statements inconsistent with random PEGylation.

Similarly, the Federal Circuit held that there was substantial evidence for the jury's rejection of Defendants' non-enablement defense, particularly with regard to embodiments comprising non-random lysine PEGylation.  According to the opinion, "Bayer presented substantial evidence from which a reasonable juror could find that the specification's disclosure of instructions as to the reaction conditions required to practice the claimed invention using cysteine PEGylation were sufficient to enable not only non-random cysteine PEGylation at the B-domain, but also non-random lysine PEGylation at the B-domain."  Somewhat in contrast to recent, more stringent applications of the Federal Circuit's standards for enablement (see Amgen Inc. v. Sanofi and Idenix Pharmaceuticals LLC v. Gilead Sciences Inc.), this panel held that "the specification need not include a working example of every possible embodiment to enable the full scope of the claims," citing Alcon Rsch. Ltd. v. Barr Labs., Inc., 745 F.3d 1180, 1189–90 (Fed. Cir. 2014), and Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313, 1336–37 (Fed. Cir. 2003).

Defendants also appealed the jury's damages calculations and the basis thereof.  While agreeing with the District Court in rejecting Bayer's expert's 50-50 split royalty rate, the panel disagreed with several other assertions of error by Defendants.  These included the basis for the 17.78% reasonable royalty rate, which Defendants' argued relied on a "a flawed and speculative methodology—namely, asking the jury to pick a rate between the range of feasible rates presented by [Bayer's expert] as the reasonable rate."  The Federal Circuit held that "[t]he district court properly exercised its discretion in allowing Bayer to ask the jury to select a rate between the range presented," within the confines of a damages expert using "reliable methodology for determining the range of possible hypothetical negotiation royalty rates."  When, as here, a jury's damages award "fell within the range suggested by the patentee's damages expert" the Federal Circuit stated it was supported by substantial evidence, citing Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., 853 F.3d 1370, 1382 (Fed. Cir. 2017), and that the District Court had not erred in permitting the jury to received Bayer's damage expert's testimony.  Defendants had had (and had exercised) the opportunity to cross-examine Bayer's expert on his methodology and damaged calculation, according to the opinion, and "ultimately, the jury evaluated his opinions and adopted a rate within his proposed range."  In the Federal Circuit's opinion there was nothing improper about the jury's damages calculation or award.

Finally, Defendants argued that the District Court had violated their Seventh Amendment rights by awarding pre-judgment damages under Fed R Civ Pro 59.  In doing so, according to the Federal Circuit, the District Court used actual sales data instead of projected amounts and applied the same 17.78% royalty rate on the amount of these actual sales.  "Under these circumstances," said the Federal Circuit, "we are not persuaded that the District Court's award constitutes an impermissible additur or an otherwise 'bald addition of something which in no sense can be said to be included in the verdict,'" citing Dimick v. Schiedt, 293 U.S. 474, 486 (1935) (the remainder of the Court's opinion making it clear that its judgment was limited to the facts in this case).

Regarding Bayer's appeal on the District Court's grant of Defendants' motion for JMOL on willful infringement, the panel held that there was insufficient evidence of the necessary "state of mind" having "a specific intent to infringe at the time of the challenged conduct" to support willfulness, citing Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1933 (2016) ("willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate").  The panel affirmed the District Court's decision even though "there was no dispute that Baxalta was 'aware of the '520 patent,'" because "Bayer merely 'assume[d] that [Baxalta] knew Adynovate[®] infringed because it involved pegylation at the B-domain of factor VIII."  The Federal Circuit rendered this opinion even in the face of testimony by Defendants' witnesses "concerning their awareness of the patent application that issued as the '520 patent" and representations to FDA regarding non-random PEGylation in Defendants' Adynovate® product.

Bayer Healthcare LLC v. Baxalta Inc. (Fed. Cir. 2021)
Panel: Circuit Judges Newman, Linn, and Stoll
Opinion by Circuit Judge Stoll