Practice Points for the Hatch-Waxman Defendant Seeking Leave to Amend Contentions in the District of New Jersey

I. Introduction

On Dec. 23, 2008, the U.S. District Court for the District of New Jersey adopted local patent rules for managing patent litigations. Less than three years later, former Chief Judge Garrett E. Brown Jr. of that court declared the local patent rules a success: “Based on the experiences of members of the Committee from the Judiciary and the Bar, there was an unanimous view that the Local Patent Rules have served to benefit the Court and the parties in patent litigation.”¹Report of the Local Patent Rules Committee, Explanatory Notes for 2011 Amendments, http://www.njd.uscourts.gov/sites/njd/files/PatentRuleAmendment2011.pdf. Yet many defendants in Hatch-Waxman cases have decried the local rules, for two reasons. First, the rules reverse the typical sequence in patent litigations, by requiring Hatch-Waxman defendants to provide invalidity and noninfringement contentions before the plaintiff is required to provide its infringement contentions. Second, the rules make it difficult to amend those contentions. This article examines these issues, and reviews strategies and practical considerations for Hatch-Waxman defendants when amending their contentions.

II. Reversal of Disclosure Obligations

The local patent rules schedule Hatch-Waxman cases differently from conventional patent cases. In a conventional patent case, within 14 days after the initial scheduling conference, the plaintiff must serve a list of asserted claims and infringement contentions; the defendant then has 45 days to serve its invalidity and noninfringement contentions.²See L. Pat. R. 3.1-3.3. By contrast, in a Hatch-Waxman case, within seven days after the initial scheduling conference, the plaintiff must serve a list of asserted claims, and seven days later the defendant must serve its invalidity and noninfringement contentions; the plaintiff then has 45 days to serve its infringement contentions.³See L. Pat. R. 3.6(b)-(g). Thus, compared to a defendant in a conventional patent case, the Hatch-Waxman defendant must not only serve its contentions without knowledge of the plaintiff’s infringement contentions, it has 38 fewer days to do so.

Is the Hatch-Waxman defendant in a better position than the plaintiff to serve contentions first? In a conventional patent case, a patent holder controls the initiation and timing of the patent litigation, and thus has the opportunity to prepare and plan its infringement case in advance. By contrast, in a Hatch-Waxman case, a defendant seeking to market a generic drug arguably dictates the timing of the litigation through the filing of its abbreviated new drug application (ANDA). A Hatch-Waxman case is triggered by the filing of a paragraph IV certification in an ANDA that sets forth a “detailed statement of the factual and legal basis for the opinion of the applicant that the patent is invalid or will not be infringed.”⁴21 U.S.C. §355(j)(2)(B)(iv)(II). Hatch-Waxman defendants thus will have developed invalidity or noninfringement positions before a suit is filed. Therefore, while the patentee is indeed the plaintiff in a Hatch-Waxman action and must plead its causes of action for infringement or for a declaration of validity, the local patent rules look to the defendant to establish the litigation’s scope, by requiring the defendant to provide its invalidity and noninfringement contentions first.

Yet this assumption that the Hatch-Waxman defendant is in the better position to stake out its contentions at the case’s outset may not hold true in light of the requirement that contentions must be crystallized at the outset and adhered to throughout the course of the litigation.⁵See King Pharms., Inc. v. Sandoz, Inc., No. 08-5974 (D.N.J. May 19, 2010). Crystallization is what discovery is for. Requiring a party to forgo further development of its theories based on new information obtained in discovery would be contrary to the purpose and spirit of the Federal Rules of Civil Procedure.⁶See
Golden Hour Data Sys., Inc. v. Health Servs. Integration, Inc., No. 06-7477 (N.D. Cal. July 1, 2008). But under the local patent rules, as discussed in more detail below, a Hatch-Waxman defendant must include everything in its contentions to protect against preclusion and because a defendant has no guaranteed right to amend its contentions.

III. Standard of Amending Contentions

If a defendant wants to amend its contentions, it must first move for leave to do so. Unlike the liberal standard for amending the pleadings, though, the standard for amending contentions is “decidedly conservative.”⁷See Jazz Pharms., Inc. v. Roxane Labs., Inc., No. 10-6108 (D.N.J. Feb. 28, 2013). Indeed, Local Patent Rule 3.7 makes it difficult to amend contentions, because an amendment requires a “timely application and showing of good cause.” The rule contains a non-exhaustive list of examples “that may, absent undue prejudice to the adverse party, support a finding of good cause” to amend.

As its name betrays, the “good cause” standard contemplates a peculiarly context-specific inquiry. In reviewing motions for leave to amend, courts typically have pointed to four main factors: “(1) the reason for the delay and whether the party has been diligent; (2) the importance of what the court is excluding and the availability of lesser sanctions; (3) the danger of unfair prejudice; and (4) the availability of a continuance and the potential impact of a delay on judicial proceedings.”⁸Int’l Dev. LLC v. Richmond, No. 09-2495 (D.N.J. Oct. 4, 2010). Some courts have also considered other factors, such as gamesmanship⁹See
Acco Brands, Inc. v. PC Guardian Anti-Theft Prods., Inc., No. C04-03526 (N.D. Cal. May 22, 2008). The District of New Jersey developed its local patent rules by taking guidance from the local patent rules of the U.S. district courts for the Northern District of California and the Eastern District of Texas. It is thus “appropriate to consider decisions from these districts” on issues arising from the similar rules in New Jersey. King Pharms.. and the difficulty in locating prior art.¹⁰See
Yodlee, Inc. v. CashEdge, Inc., No. C 05-01550 (N.D. Cal. May 17, 2007).

Factor 1: Diligence

Diligence has two aspects. One aspect is whether the moving party acted diligently to discover that an amendment was necessary.¹¹See
AS Am., Inc. v. MASCO Corp., No. 13-05 (D.N.J. Aug. 13, 2013). This inquiry involves the thoroughness of the moving party’s initial investigations.¹²See, e.g.,
Jazz Pharms., Inc. v. Roxane Labs., Inc., No. 10-06108 (D.N.J. July 30, 2012) (finding no diligence where defendant sought to add prior art publications to its invalidity contentions that were referenced on the face of the patent-in-suit); King Pharms. (finding no diligence where defendant took 18 months to appreciate the materiality of a reference identified in a prior art search). The second aspect is whether the moving party promptly moved to amend its contentions after it learned that an amendment was necessary.¹³See, e.g.,
Nautilus Neurosciences, Inc. v. Wockhardt USA LLC, No. 11-1997 (D.N.J. Jan. 23, 2013) (finding no diligence where defendant waited six months to incorporate four prior art references after becoming aware of them); AstraZeneca AB v. Hanmi USA, Inc. (D.N.J. Jan. 23, 2013) (finding diligence where defendant waited 45 days after a summary judgment decision to move for an amendment). When considering these two aspects, courts have understood that perfect diligence is not required.¹⁴See
AS Am. (granting motion to amend contentions “even in the absence of perfect diligence”).

Courts have explained that diligence is the “key factor” for determining whether good cause exists.¹⁵Id. (“The key factor to look at to determine whether good cause exists is the diligence of the moving party.”). Some courts have gone further—requiring the moving party to first show diligence before the court will consider the other factors of the good cause standard.¹⁶See, e.g.,
Jazz Pharms., Inc. v. Roxane Labs., Inc., No. 10-6108 (D.N.J. Feb. 28, 2013) (“Only if the moving party is able to show diligence may the court consider the prejudice to the nonmoving party.”). Other courts, however, have recognized the importance of this factor but “where the movant has proffered a reason, albeit unpersuasive, for the untimeliness of the application and/or failure to illustrate good cause,” the court will still consider the other factors.¹⁷See, e.g., Shire, LLC v. Amneal Pharms, LLC, No. 11-cv-03781 (D.N.J. Dec. 26, 2013) (“Courts in this District, however, have addressed [prejudice] where the movant has proffered a reason, albeit unpersuasive, for the untimeliness of the application and/or failure to illustrate good cause.”).

Factor 2: Importance of the Amendment

The U.S. Court of Appeals for the Third Circuit has had a preference for deciding cases on the merits, rather than on procedural grounds.¹⁸See, e.g.,
Prof’l Cleaning & Innovation Building Servs., Inc. v. Kennedy Funding, Inc., 245 Fed. App’x 161, 165 (3d Cir. 2007) (explaining that “one of the basic objectives of the federal rules … [is] the determination of cases on their merits.”). District courts in New Jersey thus have considered this preference when deciding whether to grant a party’s motion for leave to amend contentions.¹⁹See Helsinn Healthcare S.A. v. Dr. Reddy’s Labs. Ltd., No. 11-3962 (D.N.J. July 2, 2013) (“[P]reventing Sandoz from presenting all of its defenses would not facilitate resolution on the merits.”); Warner Chilcott Co. v. Lupin Ltd., No. 11-7228 (D.N.J. Aug. 19, 2013) (“The Court is included, therefore, to permit reasonable modification to the existing schedule in order to ensure that this case is decided on the merits.”). A court likely will weigh this factor more heavily if the amended contentions are dispositive of many claims.

Factor 3: Prejudice

For the “prejudice” factor to have much weight, the nonmoving party must articulate a specific prejudice.²⁰See, e.g.,
AstraZeneca AB (finding no prejudice where plaintiff failed to “identify any specifics”). There is no prejudice if (1) the nonmoving party is not required to expend significant additional resources and (2) there would be no significant delay to the action.²¹See
TFH Pubs., Inc. v. Doskocil Mfg. Co., Inc., 705 F. Supp. 2d 361, 366 (D.N.J. April 5, 2012). Having to “change litigation strategies” or “amend validity contentions,” for example, does not constitute specific prejudice.²²See id. at 366; AstraZeneca AB (finding no prejudice where plaintiff failed to “identify any specifics” and stated only the general proposition that it was prejudiced because it had been “operating under the original non-infringement contentions”).

Factor 4: Potential Impact of a Delay on Judicial Proceedings

The fourth factor relates to whether an amendment would significantly delay the resolution of the dispute.²³See
United Therapeutics Corp. v. Sandoz, Inc., No. 12-1617 (D.N.J. Aug. 23, 2013). While courts will be “mindful of the pressing schedule for Hatch-Waxman cases,” common sense dictates whether this factor will weigh against amendment: the further along the case is, the more this factor will weigh against amendment.²⁴Id. Examples best highlight how courts have approached this factor. A court has granted an amendment where fact discovery remained open and expert reports were not due for two months.²⁵See id. By contrast, a court has denied an amendment where granting it would require changing a trial date.²⁶See
King Pharms. (denying motion for leave to amend invalidity contentions where defendant moved a few months before trial and permitting the amendment would delay the trial). Despite a general trend to prefer not delaying an action, some courts have been willing to extend discovery deadlines to accommodate discovery connected to a timely amendment.²⁷See
Acco Brands, Inc. v. PC Guardian Anti-Theft Prods., Inc., No. 04-03526 (N.D. Cal. May 22, 2008).

IV. Takeaways for Hatch-Waxman Defendants

So what can a Hatch-Waxman defendant take away from a review of the current case law? Beyond understanding that the local patent rules likely will cause more motion practice as parties seek leave to amend their contentions,²⁸Since 2010, defendants in Hatch-Waxman cases have moved to amend their contentions more than 20 times. Hatch-Waxman defendants should consider the following six practice points.

• Develop Your Defenses Early. The early disclosure requirements of the local patent rules accelerate the need for retaining experts, developing expert opinions and solidifying invalidity and noninfringement positions. Although the Hatch-Waxman defendant will have the paragraph IV detailed statement and any opinion of counsel on the patents-in-suit, it will need to invest up front in further developing its defenses to provide the most complete contentions possible.
• Do a Thorough Prior Art Search. Include it or lose it: A party must include every relevant published prior art reference in its contentions to protect against preclusion and because there is no guaranteed right to amend or supplement, so a thorough prior art search becomes more important. Consider hiring a prior art search firm or using a person who specializes in such searches. Further, Hatch-Waxman defendants should not rely on incorporating by reference prior art, because courts have held that such incorporations by reference do not provide requisite notice.²⁹See Nautilus Neurosciences. Consider also that some courts require each combination of prior art references to be disclosed in contentions.³⁰See, e.g., L.C. Eldridge Sales Co., Ltd. v. Azen Mfg. Pte., Ltd., No. 11-599 (E.D. Tex. Oct. 11, 2013) (excluding reference to prior art references and combinations not disclosed in defendants’ invalidity contentions). Thus, the Hatch-Waxman defendant should not only cite each relevant prior art reference but also all relevant combinations of references.
• Research Your Magistrate Judge. Under the local patent rules, the magistrate judge has taken on a critical role, controlling the parties’ ability to add new prior art and positions. Before deciding how to approach amendment, research your magistrate judge’s decisions. A magistrate judge may have a track record of siding for or against a Hatch-Waxman defendant seeking leave to amend its contentions. For example, out of the magistrate judges who have issued three or more decisions on whether a Hatch-Waxman defendant should be granted leave to amend its contentions, District of New Jersey Magistrate Judge Cathy L. Waldor rejected all three motions that were before her, whereas that district’s Magistrate Judge Douglas E. Arpert granted two out of the three motions that were before him.
• Work With Opposing Counsel. Although Hatch-Waxman actions can be highly adversarial, working with opposing counsel may make the local patent rules less burdensome. First, as with most procedures under the local patent rules, a defendant can, after meeting and conferring with the plaintiff, propose a modification of the Local Patent Rule 3.6 obligations or deadlines in the discovery plan submitted before the initial scheduling conference. Just as the burdens to develop and serve contentions fall on defendants, they also fall on plaintiffs. And thus plaintiffs also may appreciate a more relaxed schedule. Second, instead of moving for leave to amend, consider proposing to the plaintiff a consent order, permitting defendant to serve an amendment and providing the plaintiff with a set time for a response.³¹See, e.g.,
  Merck & Co., Inc. v. Sun Pharm. Indus., Ltd., No. 12-5374, Dkt. No. 37 (D.N.J. Jan. 8, 2013) (consent order permitting amendment to invalidity contentions). A consent order has potential advantages for both the Hatch-Waxman defendant and the plaintiff. For the defendant, it eliminates the risk that the magistrate judge will deny leave. And for the plaintiff, if the defendant arguably has shown diligence, it eliminates unnecessary motion practice, and can ensure that the plaintiff has enough time to respond.
• Consider the Best Timing for Amendment. Local Patent Rule 3.7 identifies “circumstances that may, absent undue prejudice to the adverse party, support a finding of good cause.” When deciding when to move for leave, the Hatch-Waxman defendant should try to tie its amendment to one of these circumstances, such as a court’s claim construction order. If an amendment cannot be tied to one, the phase of the litigation becomes a key consideration: as the litigation gets closer to trial, the less likely a court will grant leave. Indeed, seeking leave to amend after the filing of opening expert reports is unlikely to be granted. No matter when leave is sought, be diligent, and remember that diligence involves not only when a party determines that an amendment is necessary but how long after the determination the party takes to seek leave. In other words, once you discover new information, the clock starts ticking. If you are negotiating with counsel over a consent order, make sure that opposing counsel agrees not to count the negotiation time against your diligence if an agreement cannot be reached.
• Consider the Impact on Expert Reports. When preparing expert reports, check whether an expert report will contain prior art references or arguments not found in your contentions. If an expert report will contain such materials, the defendant should move for leave to amend its contentions before or simultaneously with serving the expert report. Otherwise, the plaintiff may move to strike reference to the previously undisclosed materials.³²See, e.g.,
  Merck Sharp & Dohme Corp. v. Sandoz, Inc., No. 12-3289 (D.N.J. Jan. 6, 2014) (striking references in expert report to prior art not disclosed in invalidity contentions).

V. Conclusion

New Jersey’s local patent rules have turned the order of serving contentions in Hatch-Waxman cases upside down, and have caused more motion practice, in which parties seek leave to amend their contentions. Hatch-Waxman defendants bear a particularly heavy burden, for they have to disclose their contentions under an “ultra early” deadline.³³See
Sanofi-Aventis v. Barr Labs., Inc., 598 F. Supp. 2d 632, 637 (D.N.J. 2009). Exacerbating this burden, the case law requires Hatch-Waxman defendants, by this “ultra early” deadline, to include everything potentially relevant—every prior art reference, every combination thereof and every defense based on publicly available information—in their contentions to protect against preclusion. While defendants may later seek leave to amend their contentions with additional theories or prior art, the “good cause” standard is highly conservative. To improve the likelihood of obtaining leave, the Hatch-Waxman defendant should keep in mind the relevant case law and the practice points identified above.