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SMITHKLINE BEECHAM CORP. v. PENTECH PHARMACEUTICALS

May 8, 2003

SMITHKLINE BEECHAM CORP. and BEECHAM GROUP, P.L.C., Plaintiffs,
v.
PENTECH PHARMACEUTICALS, INC., and ASAHI GLASS CO., LTD., Defendants.



The opinion of the court was delivered by: RICHARD A. POSNER, Circuit Judge, Sitting by Designation.

OPINION[fn*]

[fn*] In explanation of the rulings that I made on May 2, 2003, in open court, and that were embodied in an order issued the same day.

  These consolidated patent infringement suits were assigned to me under the authority of 28 U.S.C. § 291(b) because of their close relation to a previous patent infringement suit that had been assigned to and tried by me, SmithKline Beecham Corp. v. Apotex Corp., 247 F. Supp.2d 1011 (N.D.Ill. 2003), involving the identical plaintiffs and the identical patent. The patent (U.S. patent 4,721,723 — "723" for short) is for crystalline paroxetine hydrochloride hemihydrate, a pharmaceutical compound that the plaintiffs (two affiliated corporations that I shall refer to collectively as "SmithKline") sell under the trade name Paxil. The present suits (which, for simplicity, I shall treat as one) were filed in 2000 and charge that Pentech Pharmaceuticals, a manufacturer of generic pharmaceutical drugs, is producing — though not yet selling in the United States, because it has not yet obtained the Food and Drug Administration's approval of its Abbreviated New Drug Application — an amorphous paroxetime hydrochloride, in capsule form, that infringes patent 723. The active ingredient for Pentech's drug is made by a Japanese company, codefendant Asahi, that SmithKline charges has induced Pentech's infringement of patent 723, in violation of 35 U.S.C. § 271(b).

  After extensive discovery, the parties entered into negotiations that have resulted in a settlement of SmithKline's dispute with Pentech. A firm that has a contractual relation with Pentech, Par Pharmaceutical, Inc., is also a party to the agreement. Had all three parties to the lawsuit — SmithKline (remember that I'm treating the two plaintiffs, which are affiliates, as one, and that Par is not a party to the suit), Pentech, and Asahi — signed a stipulation of dismissal, the dismissal of the suit would have been automatic. No judicial action would have been required and neither the stipulation nor the settlement agreement motivating it would have been submitted to the court. Fed.R.Civ.P. 41(a)(1)(ii). But since only SmithKline and Pentech settled, Asahi refused to sign such a stipulation, and as a result SmithKline, pursuant to Rule 41(a)(2), has moved for an order dismissing its suit without prejudice (dismissals under Rule 41(a) are, with an immaterial exception, without prejudice unless otherwise agreed by the parties or ordered by the court) "upon such terms and conditions as the court deems proper." The rule does not permit the court to grant dismissal if an objecting defendant has filed a counterclaim, as Asahi has, and if in addition the counterclaim cannot remain pending in the court as an independent action; but Asahi's counterclaim can, so this is not an objection to my granting the order to dismiss.

  According to a press release issued by the settling parties, the settlement agreement on which the motion to dismiss is based (the agreement itself has not been made public) provides that Pentech shall be authorized to sell Paxil, though not under the Paxil trade name, in Puerto Rico beginning immediately and in the rest of the United States as soon as any other generic version of paroxetine hydrochloride comes on the market. Apotex, the defendant in the previous suit that I mentioned, expects to be the first company to market such a generic and it has moved to

[261 F. Supp.2d 1005]

      intervene in the present suit to oppose the motion to dismiss on the ground that the settlement agreement in effect makes unbranded Paxil a "fighting brand" that will thwart Apotex's effort to sell its own unbranded paroxetine hydrochloride. Asahi opposes the motion to dismiss on the ground that by permitting Pentech to obtain its paroxetine hydrochloride from SmithKline rather than from Asahi, the agreement forecloses Asahi from competing with SmithKline, and on the further ground that a provision of the license agreement that extends Pentech's royalty obligation beyond the expiration of patent 723 is patent misuse under Brulotte v. Thys, 379 U.S. 29, 32, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964), a much-criticized decision that remains, however, the law. Scheiber v. Dolby Laborotories, Inc., 293 F.3d 1014, 1017-18 (7th Cir. 2002). The settling parties, noting that the license agreement is not limited to patent 723 but embraces every SmithKline patent that might be a basis for charging Pentech with infringement, respond to the Brulotte charge by citing decisions that in the words of the Supreme Court in Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 138, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969), refuse to invalidate on the authority of the Brulotte case "a mere license provision measuring royalties by the licensee's total sales even if, as things work out, only some or none of the merchandise employs the patented idea or process, or even if it was foreseeable that some undetermined portion would not contain the invention it could easily be. . .that the licensee as well as the patentee would find it more convenient and efficient from several standpoints to base royalties on total sales than to face the burden of figuring royalties based on actual use." A similar case, decided before Brulotte, Antomatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950), had been distinguished in Brulotte as follows: "The petition for certiorari [in Automatic Radio] did not in the questions presented raise the question of the effect of the expiration of any of the patents on the royalty agreement." 379 U.S. at 33 n. 5, 85 S.Ct. 176. Thus, neither Hazeltine decision resolves a case in which some of the patents expire before the license agreement, yet the royalty is unchanged.

  Essentially, then, Apotex and Asahi ask me to deny the motion to dismiss on the ground that the settlement agreement that underlies the motion is either an antitrust violation or a patent misuse. Apotex has been handicapped in formulating its objections to the motion by the fact that it has not seen the actual settlement agreement but only the description of it in the press release and maybe the description found in a publicly disseminated transcript of an interview with Par by securities analysts in which the agreement was further, but still only sketchily, described. The agreement has, however, been submitted to me under seal, and I have read it and discussed it, also in camera, with the settling parties and with Asahi's outside counsel, who the settling parties authorized to read it.

  I have concluded that I have no authority to deny the motion to dismiss SmithKline's suit against Pentech on the basis of concerns, however substantial they may be (an issue on which I express no view), that the motion is based on a settlement agreement that may be contrary to public policy as expressed in the antitrust laws, the doctrine of patent misuse, or any other source of policy; that may in fact be illegal. The reason for my compelled forbearance lies in the structure of Rule 41. Had Asahi signed a stipulation of dismissal, the suit would have been dismissed without my seeing the agreement and without Apotex's having had any opportunity to oppose dismissal. Rule 41(a)(1)(ii).

[261 F. Supp.2d 1006]

      The only reason SmithKline had to file a motion to dismiss was that Asahi refused to go along with dismissal, and this implies that the only reason that court action is required to allow a plaintiff to dismiss his case when not all defendants agree to the dismissal is that dismissal might injure another party to the suit, a party that has not agreed to the settlement that may have induced the plaintiff to want to drop the suit. (Of course, there might be no settlement; the plaintiff might just have decided to abandon the suit. But that is not our case.) Rule 41(a)(1)(ii) gives only one illustration — the defendant filed a counterclaim that he will have to refile as a separate suit (if he can — the statute of limitations may have run) should the plaintiff's suit be dismissed. But neither the wording nor the sense of the rule implies that this is the only situation in which the court can refuse to grant an unconditional dismissal at the plaintiff's behest. Another and even more common case is where the suit that the plaintiff asks to dismiss is frivolous or otherwise abusive, and though the defendant obviously has no objection to its being dismissed he wants the dismissal to be with prejudice or to be conditioned on reimbursement of his attorneys' fees. Tolle v. Carroll Touch, Inc., 23 F.3d 174, 177-78 (7th Cir. 1994); Ratkovich v. Smith Kline, 951 F.2d 155, 157-59 (7th Cir. 1991); Grover by Grover v. Eli Lilly & Co., 33 F.3d 716, 718-19 (6th Cir. 1994); Kern v. TXO Production Corp., 738 F.2d 968, 970 (8th Cir. 1984).

  But the motion can be denied only if a party is hurt by dismissal, or by unconditional dismissal as in the attorneys'fees case, the harm there being that had the case gone to judgment the defendant could have moved for an award of attorneys' fees; the plaintiff must not be allowed to short circuit this right by dismissing the suit without cost when he sees the handwriting on the wall. This principle, clearly stated in such cases as Marlow v. Winston & Strawn, 19 F.3d 300, 303 (7th Cir. 1994), and United States v. Outboard Marine Corp., 789 F.2d 497, 502 (7th Cir. 1986); see also Quad/Graphics, Inc. v. Fass, 724 F.2d 1230, 1232-33 (7th Cir. 1983); cf. Agretti v. ANR Freight System, Inc., 982 F.2d 242, 246-48 (7th Cir. 1992), is inherent, as I have said, in the structure of Rule 41(a). (Incidentally, the reason I have cited Seventh Circuit cases, even though any appeal from this decision will go to the Federal Circuit because this is a patent infringement suit, is that the Federal Circuit applies the law of the circuit in which the district court is located to procedural matters that are not unique either to patent law or to appellate as distinct from trial procedure. See Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1574-75 (Fed. Cir. 1984) (per curiam); Biodex Corp. v. Loredan Biomedical, Inc., 946 F.2d 850, 858 (Fed. Cir. 1991). The standard for deciding whether to dismiss a suit on motion by the plaintiff satisfies these criteria for applying local circuit law.)

  Asahi acknowledges that only harm to a nonconsenting party is a permissible ground for the court's refusing to grant a plaintiff's motion to dismiss without imposing conditions. For it states that "the party opposing the motion to dismiss must demonstrate `plain legal prejudice' as a potential result of the dismissal" and that "the determination of `plain legal prejudice' involves evaluating the effect of the settlement on the nonmoving party's legal rights." But inconsistently it bases its opposition to SmithKline's motion to dismiss not on any such "plain legal prejudice" from the dismissal of the suit but on the alleged illegality of the ...


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