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Did Corcept and Teva tell the Court they are about to settle the Korlym patent dispute?

Zachary Silbersher

On January 10, counsel for Corcept ($CORT) filed a letter with the Court in the pending patent litigation against Teva ($TEVA) over its proposed generic for Korlym®.  (See Dkt. 49).  Within that letter, Corcept requested an extension of one week to respond to Teva’s Answer to the Amended Complaint.  Corcept’s letter further stated that the “parties are currently discussing a potential agreement that would eliminate the need for Corcept to respond to Teva’s Answer . . . .”  Is that potential “agreement” a resolution to the litigation?

January 17 came and went without any response filed by Corcept to Teva’s Answer.  Having now foregone filing a response to Teva’s Answer, does that mean the parties have settled the case?

Unlikely.  Corcept’s complaint within the litigation is what is known as a “pleading.”   Pleadings must be responded to at the risk of default.  Teva was obligated to respond to Corcept’s complaint, otherwise risking defaulting in the case.  First, Teva moved to dismiss, which is one form of response.  When that failed, Teva filed an Answer, which is another form of response. 

Sometimes the defendant’s Answer also contains counterclaims.  Counterclaims are essentially relief sought by the defendant against the plaintiff.  Thus, they are also “pleadings” to which there must a response. 

Here, in the Korlym® patent litigation, Teva filed an Answer, but its Answer did not include any counterclaims.  Rather, Teva’s Answer included “Affirmative Defenses.”  Affirmative defenses are essentially defenses to the litigation that are preserved by the defendant.  But they do not seek relief independent from the plaintiff’s relief.  Thus, there is no obligation to respond to an Answer that does not include counterclaims.  In other words, because affirmative defenses do not seek independent relief, there is no risk of defaulting by not responding to them.

On the other hand, a plaintiff may respond to affirmative defenses.  Specifically, a plaintiff can file a motion to strike an affirmative defense.  That’s a bit like a motion to dismiss, but for an affirmative defense.  If a plaintiff can successfully strike an affirmative defense, then the defendant loses the right to argue that defense during trial. 

Presumably, that is what Corcept was contemplating doing in this case.  Teva filed eight affirmative defenses.  The first seven affirmative defenses are relatively pro forma, wherein Teva simply alleges that the patents are not infringed and are invalid.  Moving to strike those affirmative defenses would likely be futile.

Yet, the eighth affirmative defense is different.  Teva included a lengthy and detailed affirmative defense that Corcept has allegedly misused its patents for the purpose of improperly delaying generic competition.  The thrust of Teva’s eighth affirmative defense is that Corcept’s infringement allegations based upon the ‘495, ‘348 and ‘526 patents are so frivolous that they amount to patent misuse.   

Corcept was likely contemplating whether it is worth moving to strike this defense.  Importantly, Teva’s patent misuse defense will open up whole new avenues of discovery that will increase the burden on both parties to this litigation.  Perhaps more troubling, Teva’s patent misuse defense opens up the possibility that Corcept could be liable for attorneys’ fees or some other type of sanction if the Court finds that Corcept did, in fact, engage in patent misuse.  Therefore, striking the defense decisively and early would have been a big win for Corcept.

On the other hand, prevailing on a motion to strike an affirmative defense is an uphill battle.  They are generally disfavored, which means courts do not like to see them.  That is why more often than not, defendants do not move to strike affirmative defenses.  If Corcept were to have made such a motion, it would have had to show that even accepting all of Teva’s allegations as true, it has not made out a case for patent misuse.  That is a tall order.   

Given that, Corcept may have negotiated an agreement regarding the facts underlying Teva’s patent misuse defense.  Perhaps, Corcept offered to waive its right to file a motion to strike if Teva agrees to stipulate to certain clarifications of the facts set forth in Teva’s affirmative defense.  Alternatively, perhaps Corcept and Teva agreed to narrow the grounds or reasons on which Teva will argue patent misuse in exchange for Corcept waiving a motion to strike.  Or perhaps they agreed to some other stipulation regarding Teva’s patent misuse defense in exchange for avoiding Corcept’s motion to strike. 

 Alternately, some State laws require a plaintiff to affirmatively plead facts that negate the affirmative defenses, or they will be waived.  Corcept may have contemplated protecting against that possibility, given that the eighth affirmative defense has some fairly strong allegations.  Perhaps, therefore, Corcept broached a stipulation with Teva to shore up this issue without having to file a response.

Exactly what the agreement is, is not clear from the January 10 letter.  But the agreement itself, more likely, appears to relate to Teva’s eighth affirmative defense than to a global settlement of the litigation.  Moreover, because Corcept had no obligation to respond to Teva’s Answer, it is unlikely any stipulation worked out between the parties will be filed with the Court.

But wait a minute.  Corcept recently defeated Teva’s motion to dismiss.  Doesn’t that show, indisputably, that Corcept’s claims are not frivolous and that Corcept cannot be misusing its patents? 

No, not at all.  The Court denied Teva’s motion to dismiss on primarily procedural grounds.  The Court held that to state a claim in a Hatch-Waxman case requires very little more than identifying the asserted patents.  The Court did not engage the merits of case, and it did not in any way bless Corcept’s allegations as non-frivolous. 

Before the decision on the motion to dismiss, we identified this as a possible outcome:  We wrote, “[t]here is precedent holding that a patent plaintiff in a Hatch-Waxman case does not need to allege much beyond the patent number and that a Paragraph IV certification was filed to make it past a motion to dismiss.” 

Indeed, Teva was no doubt aware that the Court may decide its motion to dismiss on this ground.  But the Federal Circuit has not ruled decisively on this issue, there is precedent going the other way, and Teva was aware that there was a non-negligible chance that the Court would take up Teva’s motion.  That, presumably, is why Teva chose to dedicate resources to such a motion.  Moreover, it was also likely part of a common litigation tactic to preview for the Court the reasons the defendant believes the plaintiff’s case is a dog.

 But wait just another minute.  If the parties are negotiating a settlement to the entire litigation, wouldn’t that also obviate the need for Corcept to respond to Teva’s Answer?  So, could a settlement still be a possibility? 

Yes, to both questions.  But it is very rare for the parties to announce a settlement before there is actually a settlement.  We discussed this previously in connection with Celgene’s Revlimid® patent case, when the market believed the parties were on the verge of settlement.  To date, the parties in that case have yet to settle.

Put simply, the upside of publicly disclosing the possibility of a settlement before there is actually a settlement is very small, and the downside is very big.  This is especially so for publicly-traded companies, which have heightened duties regarding how they disclose material information to the public.  A settlement of the Teva Korlym® patent litigation would almost certainly be an 8-k event for Corcept.  It is unlikely Corcept would disclose such information to the public so casually in a letter to the Court.

More importantly, litigation settlements fall through all the time.  That is why, especially for publicly-traded companies that are litigating Hatch-Waxman patent cases related to the entry of a proposed generic, the parties typically continue litigating full-force up until the time they are prepared to formally announce the settlement via a press release. 

In short, there is always the possibility that Corcept and Teva are on the verge of settling the Korlym® patent litigation.  Indeed, they may announce a settlement any minute.  But we do not view the January 10, 2019 letter to the Court, or the referenced “agreement” in that letter, to be a indication of a possible settlement, one way or the other.