United States Court of Appeals
`for the Federal Circuit
`______________________
`
`ASTRAZENECA AB, aka ASTRA ZENICA AB,
`AKTIEBOLAGET HASSLE, KBI-E INC., KBI INC.,
`ASTRAZENECA LP,
`Plaintiffs-Appellees
`
`v.
`
`APOTEX CORP., APOTEX INC.,
`TORPHARM INC.,
`Defendants-Appellants
`______________________
`
`2014-1221
`______________________
`
`Appeal from the United States District Court for the
`Southern District of New York in No. 1:01-cv-09351-DLC,
`Senior Judge Denise Cote.
`______________________
`
`Decided: April 7, 2015
`______________________
`
`CONSTANTINE L. TRELA, JR., Sidley Austin, LLP, Chi-
`cago, IL, argued for plaintiffs-appellees. Also represented
`by JOHN W. TREECE, DAVID C. GIARDINA; JOSHUA EUGENE
`ANDERSON, Los Angeles, CA; PAUL ZEGGER, Washington,
`DC.
`
`JAMES F. HURST, Winston & Strawn LLP, Chicago, IL,
`argued for defendants-appellants. Also represented by
`
`Exhibit 1098
`ARGENTUM
`IPR2017-01053
`
`000001
`
`

`

`2
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`STEFFEN NATHANAEL JOHNSON, EIMERIC REIG-PLESSIS,
`CHRISTOPHER ERNEST MILLS, Washington, DC.
`______________________
`
`Before O’MALLEY, CLEVENGER, and BRYSON, Circuit
`Judges.
`
`BRYSON, Circuit Judge.
`Apotex Corp., Apotex Inc., and TorPharm Inc., (collec-
`tively, “Apotex”) appeal from a final judgment entered
`against them by the United States District Court for the
`Southern District of New York. We previously affirmed
`the district court’s decision in an earlier phase of the same
`litigation holding that Apotex had infringed certain
`patents held by AstraZeneca AB and related parties
`(collectively, “Astra”). In re Omeprazole Patent Litig., 536
`F.3d 1361 (Fed. Cir. 2008). In the portion of the proceed-
`ing now under review, the district court awarded damages
`to Astra on a reasonable royalty theory of recovery. We
`affirm in part, reverse in part, and remand.
`I
`A
`The patents at issue in this case are U.S. Patent No.
`
`4,786,505 (“the
`’505 patent”) and U.S. Patent No.
`4,853,230 (“the ’230 patent”). The two patents relate to
`pharmaceutical formulations containing omeprazole, the
`active ingredient in Astra’s highly successful prescription
`drug, Prilosec.
`Omeprazole is a “proton pump inhibitor” (“PPI”). It
`inhibits gastric acid secretion and for that reason is
`effective in treating acid-related gastrointestinal disor-
`ders. However, the omeprazole molecule can be unstable
`in certain environments. In particular, it is susceptible to
`degradation in acidic and neutral media. Its stability is
`also affected by moisture and organic solvents.
`
`000002
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`3
`
`To protect the omeprazole in a pharmaceutical dosage
`from gastric acid in the stomach, formulators have tried
`covering the omeprazole with an enteric coating. Enteric
`coatings, however, contain acidic compounds, which can
`cause the omeprazole in the drug core to decompose while
`the dosage is in storage, resulting in discoloration and
`decreasing omeprazole content in the dosage over time.
`To enhance the storage stability of a pharmaceutical
`dosage, alkaline reacting compounds (“ARCs”) must be
`added to the drug core. The addition of ARCs, however,
`can compromise a conventional enteric coating. Ordinari-
`ly, an enteric coating allows for some diffusion of water
`from gastric juices into the drug core. But when water
`enters the drug core, it dissolves parts of the core and
`produces an alkaline solution near the enteric coating.
`The alkaline solution in turn can cause the enteric coating
`to dissolve.
`The inventors of the ’505 and ’230 patents solved that
`problem by adding a water-soluble, inert subcoating that
`separates the drug core, and thus the alkaline material,
`from the enteric coating. The resulting formulation,
`consisting of an active ingredient core with ARCs, a
`water-soluble subcoating, and an enteric coating, provides
`a dosage form of omeprazole that has both good storage
`stability and sufficient gastric acid resistance to prevent
`the active ingredient from degrading in the stomach.
`Once the dosage reaches the small intestine, where the
`drug can be effectively absorbed, the solubility of the
`subcoating allows for rapid release of the omeprazole in
`the drug core.
`Astra held patents on both the active ingredient,
`omeprazole, and the formulation for delivering it. The
`active ingredient patents expired in 2001, but several
`patents covering the formulation, including the patents at
`issue in this case, did not expire until April 20, 2007.
`
`000003
`
`

`

`4
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`Starting in 1997, anticipating the expiration of the ac-
`tive ingredient patents, eight generic drug manufacturers,
`including Apotex, filed Abbreviated New Drug Applica-
`tions (“ANDAs”) with the Food and Drug Administration
`(“FDA”), seeking permission to manufacture and sell
`omeprazole. Those applications were accompanied by
`what are known as “Paragraph IV certifications,” in
`which the generic drug manufacturers asserted that their
`formulations did not infringe the ’505 and ’230 patents
`and that the patents were invalid. See 21 U.S.C.
`§ 355(j)(2)(A)(vii)(IV). Astra subsequently sued all eight
`generic drug companies in the same district court. The
`lawsuits were divided into two groups, each involving four
`defendants.
`In the “first wave” litigation, the district court found
`that the ’505 and ’230 patents were not invalid and that
`three of the first wave defendants—all except Kremers
`Urban Development Co. and Schwarz Pharma, Inc. (col-
`lectively, “KUDCo”)—infringed the patents. We affirmed
`the district court’s decision in In re Omeprazole Patent
`Litig., 84 F. App’x 76 (Fed. Cir. 2003) (“Omeprazole I”),
`and In re Omeprazole Patent Litig., 483 F.3d 1364 (Fed.
`Cir. 2007) (“Omeprazole II”).
`On May 31, 2007, during the “second wave” litigation,
`the district court issued an opinion holding that the
`generic version of omeprazole manufactured by Mylan
`Laboratories, Inc., and Mylan Pharmaceuticals, Inc.,
`(collectively, “Mylan”) did not infringe the patents. The
`district court also held that the generic version of omepra-
`zole manufactured by Lek Pharmaceutical and Chemical
`Company D.D. and Lek USA, Inc., (collectively, “Lek”) did
`not infringe Astra’s patents. The court, however, entered
`judgment of infringement against Apotex. We affirmed
`the judgment in favor of Mylan in In re Omeprazole
`Patent Litig., 281 F. App’x 974 (Fed. Cir. 2008) (“Omepra-
`zole III”). We affirmed the judgment of infringement
`
`000004
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`5
`
`against Apotex in In re Omeprazole Patent Litig., 536 F.3d
`1361 (Fed. Cir. 2008) (“Omeprazole IV”).
`Apotex started selling its generic omeprazole product
`in November 2003, during the pendency of the second
`wave litigation. It continued selling its generic product
`until 2007, when the district court held that Apotex’s
`formulation infringed Astra’s patents. After we affirmed
`the district court’s judgment of liability against Apotex,
`the district court held a bench trial to determine Astra’s
`damages.
`
`B
`Upon a finding of infringement, the patentee is enti-
`tled to “damages adequate to compensate for the in-
`fringement, but in no event less than a reasonable royalty
`for the use made of the invention by the infringer.” 35
`U.S.C. § 284. The two “alternative categories of infringe-
`ment compensation” under section 284 are “the patentee’s
`lost profits and the reasonable royalty he would have
`received through arms-length bargaining.” Lucent Techs.,
`Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir.
`2009).
`The parties in this case agreed that damages were to
`be assessed based on a reasonable royalty theory. The
`district court sought to determine the reasonable royalty
`by analyzing the royalty that would have been reached
`through a hypothetical negotiation between the parties in
`November 2003, when Apotex began to infringe. Follow-
`ing the bench trial, the court held that Astra was entitled
`to 50 percent of Apotex’s gross margin from its sales of
`omeprazole between 2003 and 2007.
`In the course of its analysis, the court made detailed
`findings of fact. In summary, the court’s findings were as
`follows:
`Three generic companies launched their generic
`omeprazole products after the district court’s first wave
`
`000005
`
`

`

`6
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`opinion in 2002 and before Apotex launched its generic
`product. KUDCo, whose formulation had been found to be
`non-infringing, was first on the market, but it did not
`have the manufacturing capacity to supply the full needs
`of the market immediately, and it kept the price of its
`omeprazole product high. Lek and Mylan were second
`wave defendants, and at that time the district court had
`not yet ruled on Astra’s infringement claims against
`them. Nonetheless, they made the decision to launch
`their products in August 2003, knowing that they were at
`risk of later being held to infringe. In light of the risk
`that they might be held to be infringing Astra’s patents,
`Mylan and Lek did not cut their prices aggressively.
`The district court found that after those generic man-
`ufacturers entered the market, the price of generic
`omeprazole declined, but not significantly. However, the
`court found that the sales of Prilosec, Astra’s prescription
`PPI drug, declined precipitously, both before 2002, when
`Prilosec was being replaced by Astra’s newer prescription
`PPI drug, Nexium, and after 2002, when the generic
`manufacturers entered the market. Nonetheless, Astra
`continued to reap substantial revenues from Prilosec,
`which had net sales of $865 million in 2003, and $361
`million in 2004.
`After surveying the relevant data, the district court
`concluded that the price of generic omeprazole remained
`“relatively and uncharacteristically high” as of November
`2003, due to the fact that only KUDCo was operating
`“freely and without the threat of litigation hanging over
`it.” The district court therefore concluded that if Apotex
`had obtained a license from Astra in November 2003, it
`would have had “a golden opportunity to take significant
`market share away from both other generic manufactur-
`ers and perhaps even branded PPIs by launching at a
`lower price.”
`
`000006
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`7
`
`The district court found that Astra had anticipated
`
`the expiration of its patent on omeprazole, and that before
`the omeprazole patent expired, it had introduced Nexium,
`which it hoped would take the place of Prilosec over time.
`Nexium quickly developed into a highly successful drug.
`In 2003, Astra’s net sales of Nexium totaled $2.5 billion.
`Astra’s strategy was to extend the period of market
`dominance for Prilosec through the strategic use of its
`patents and to attempt to transition Prilosec patients to
`Nexium, which was marketed as a superior drug that
`would offer relief to some patients who failed on Prilosec.
`Astra believed that patients who remained on Prilosec
`were more likely to transition to Nexium than patients
`who switched to generic omeprazole.
`
`At that time, the district court found, Astra was
`intent on seeing that Nexium remained an approved drug
`with a favorable reimbursement formula from third-party
`payers (“TPPs”), such as health insurance providers, who
`paid a share of patients’ prescription drug costs. Astra
`was already effectively reducing the price of Nexium by
`offering rebates to the TPPs to ensure that the TPPs
`would continue to approve prescriptions for Nexium. In
`fact, between December 2002 and November 2003, the
`cost of Nexium therapy to the TPPs was actually lower
`than the cost of omeprazole therapy, both because of the
`rebates the TPPs received from Astra and because the
`price of generic omeprazole remained relatively high.
`Importantly, the modest decline in the price of omeprazole
`after Mylan and Lek entered the market in August 2003
`was not sufficient to cause the TPPs to take steps to
`promote the use of generic omeprazole over Prilosec or
`Nexium.
`The district court found that Astra had “every reason
`to expect that the launch of a fourth generic, particularly
`for a licensed product, would swiftly accelerate the decline
`in omeprazole prices” and would lead to the destruction of
`
`000007
`
`

`

`8
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`the remaining Prilosec market. In addition, the district
`court found, Astra would have been very concerned about
`the effect that the entry of a fourth generic product would
`have on the TPPs’ willingness to continue to support
`Prilosec and Nexium.
`In fact, after Apotex entered the market in November
`2003, Astra had to increase its Nexium rebates to the
`TPPs to cope with pricing pressures from generic omepra-
`zole. While prices declined even with Apotex’s “at risk”
`entry into the market, the district court found that Astra
`would have been concerned that with a licensed product
`Apotex would have felt freer to cut prices in order to gain
`market share. That, in turn, would have caused an even
`more dramatic reduction in omeprazole prices, with the
`accompanying threat to Prilosec and, especially, Nexium.
`
`Previously, in an agreement reached in 1997, Astra
`had licensed Procter & Gamble (“P&G”) to market an
`over-the-counter version of Prilosec, known as Prilosec
`OTC, which was launched in September 2003. Because
`the market for over-the-counter drugs is largely separate
`from the market for prescription drugs, Astra viewed the
`introduction of Prilosec OTC as a way to continue to sell
`Prilosec in the event the market for prescription omepra-
`zole were to be completely “genericized.”1 In addition,
`Astra believed that the availability of Prilosec OTC could
`also help promote Nexium because, if a patient failed on
`Prilosec OTC, the patient would naturally proceed to
`Nexium, since it was the only PPI that had been shown to
`be superior to Prilosec.
`
`
`1 A market is considered “genericized” when the
`TPPs impose a “maximum allowable cost,” which is the
`maximum amount they will pay for a particular prescrip-
`tion drug. Typically, the maximum allowable cost is
`based on the generic price of the drug.
`
`000008
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`9
`
`The introduction of Prilosec OTC caused a reduction
`
`in the market share of both Prilosec and the generic
`omeprazole products. Significantly, however, the court
`found that the introduction of Prilosec OTC did not have
`any effect on omeprazole pricing, “because the systems
`through which prescription and OTC drugs are paid for
`are largely separate.”
`
`Viewing the matter from Apotex’s perspective, the
`district court found that, as Apotex prepared to enter the
`market in 2003, it expected to experience roughly $581
`million in sales during its first five years on the market,
`and that in the first year it expected to earn profits of $27
`million at a profit margin of 92.5 percent. Moreover, the
`court found that Apotex knew that sales of its generic
`omeprazole would help Apotex sell its other pharmaceuti-
`cal products. Accordingly, the court found that because
`Apotex “expected to (and did) make substantial profits
`from its sale of omeprazole, it would have been willing to
`pay a large share of those profits for the right to use
`[Astra’s formulation] patents in 2003.”
`Contrary to Apotex’s argument at trial, the court
`found that as of November 2003, it was not likely that
`Apotex would be able to develop a non-infringing version
`of an omeprazole formulation within a reasonable period
`of time. Nor, the court found, would Apotex have been
`able to copy the formulations of others. As of November
`2003, only KUDCo’s patented formulation had been held
`not to infringe Astra’s patents; the formulations used by
`Mylan and Lek had not yet been adjudged non-infringing.
`Moreover, the district court found that if Apotex had tried
`to copy either of those formulations, it would have in-
`curred considerable time and expense in research and
`
`000009
`
`

`

`10
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`development, because of the very different technical
`approaches taken by Mylan and Lek.2
` With the background of those factual findings, the
`district court set about to determine what royalty rate
`Astra and Apotex would have agreed to if they had nego-
`tiated a license to Astra’s patents in November 2003. In
`doing so, the court employed the so-called Georgia-Pacific
`factors, the set of 15 factors drawn from the frequently
`cited opinion in Georgia-Pacific Corp. v. U.S. Plywood
`Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).
`
`The court concluded that the parties would have
`settled on a royalty rate of 50 percent of Apotex’s gross
`margin from the sales of its omeprazole product. The
`court based that conclusion principally on these consider-
`ations:
`
`First, in November 2003 Apotex expected a gross
`margin on sales of its omeprazole product more than twice
`as large as the average gross margin on other generic
`products that it sold in the United States. The district
`court found that Apotex’s estimates of its profits would
`have been even higher if it had had a license to Astra’s
`patents, since the litigation would have ended and Apotex
`would not have had to act “with the caution in pricing its
`generic product that is customary for ‘at risk’ entrants
`into the generic market.”
`Second, Apotex’s prospects of finding a non-infringing
`omeprazole formulation were not good. Delays in enter-
`ing the market and obtaining governmental approval for a
`new formulation, moreover, would have put Apotex at risk
`of being shut out of the generic market altogether. That
`
`
`In addition, by 2003 Lek had already obtained a
`2
`patent relating to its formulation. Mylan obtained patent
`protection for its formulation the following year.
`
`000010
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`11
`
`risk was enhanced, the district court noted, because of the
`practice among pharmacies of carrying only one generic
`version of a drug, a practice that could have severe conse-
`quences for late entrants into the market.
`Third, Astra did not license generic manufacturers of
`prescription omeprazole, and it would have been especial-
`ly reluctant to license Apotex in 2003, because Apotex’s
`entry would have altered the dynamics of the PPI market,
`damaged Astra financially, and disrupted its long-term
`PPI strategy. In particular, the entry of a licensed generic
`manufacturer would have risked the “genericization” of
`the prescription omeprazole market, since the entry of
`low-priced generic drugs could have caused the TPPs to
`adopt a maximum allowable cost for prescription omepra-
`zole or otherwise to restrict patients’ use of branded drugs
`such as Prilosec and Nexium.
`Fourth, the district court examined other licenses and
`settlements entered into by Astra relating to omeprazole
`and determined that those settlements, although not a
`“perfect benchmark” for the outcome of a hypothetical
`negotiation between Astra and Apotex in November 2003,
`nonetheless provided support for the 50 percent royalty
`rate selected by the court in this case.
`Based on its conclusion as to the likely effects of the
`hypothetical negotiation, the court entered final judgment
`against Apotex in the amount of $76,021,994.50 plus
`prejudgment interest. This appeal followed.
`II
`The issue before us is whether the district court com-
`mitted legal or factual error in concluding that, in a
`hypothetical negotiation, Astra and Apotex would have
`agreed upon a license to Astra’s patents in exchange for a
`royalty rate of 50 percent of Apotex’s profits from the
`sales of its infringing omeprazole product during the
`period of its infringement, 2003 to 2007. The amount of
`
`000011
`
`

`

`12
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`damages awarded to a patentee, when fixed by the district
`court, is a factual finding reviewed for clear error, while
`the methodology underlying the court’s damages compu-
`tation is reviewed for abuse of discretion. Aqua Shield v.
`Inter Pool Cover Team, 774 F.3d 766, 770 (Fed. Cir. 2014);
`Ferguson Beauregard/Logic Controls, Div. of Dover Res.,
`Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1345 (Fed. Cir.
`2003).
`
`A
`Apotex first contends that the district court’s damages
`award overcompensated Astra because the court “lost
`sight of the essential purpose of the exercise: to compen-
`sate Astra for harm actually suffered.” According to
`Apotex, the court’s analysis (1) improperly discounted
`evidence that by November 2003 the market for omepra-
`zole was “well on its way to full genericization”; (2) placed
`undue emphasis on Astra’s ability to keep Apotex tempo-
`rarily off the market by refusing to grant a license; and (3)
`gave “short shrift to contemporaneous licensing agree-
`ments that Astra entered with other companies” for
`royalty rates lower than 50 percent.
` With respect to the first issue, Apotex argues that it
`was the fourth generic manufacturer to enter the omepra-
`zole market, and therefore its entry caused little marginal
`injury to Astra. Because Astra suffered “negligible harm”
`from Apotex’s infringement, according to Apotex, the
`damages award granted by the district court substantially
`overcompensated Astra for its loss.
`
`Apotex’s argument ignores many of the detailed
`findings made by the district court in support of the
`court’s determination of the reasonable royalty in this
`case. For example, Apotex challenges the court’s finding
`that in November 2003, Astra would have been concerned
`that Apotex’s licensed entry would cause the price of
`generic omeprazole to plummet, thereby triggering a
`“genericization” of the omeprazole market. Apotex points
`
`000012
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`13
`
`to the fact that, in reality, it did not aggressively cut
`prices. The district court, however, explained that a
`licensed generic drug manufacturer would be able to
`launch at a lower price while an “at-risk” entrant, with
`the threat of litigation hanging over it, would be forced to
`set an “uncharacteristically high” price on its generic
`product. Based on that distinction, the district court
`correctly concluded that Apotex’s actual pricing history
`sheds little light on how Apotex would have priced its
`omeprazole if it had obtained a license from Astra.
`Moreover, Apotex’s focus on what it refers to as “the
`harm that Astra actually suffered” is more suited to a
`case involving lost profits. Apotex argues, for example,
`that “if Apotex’s entry caused Prilosec sales to implode,
`that would be evidence of significant harm for which
`Astra would be entitled to a higher royalty.”
`That argument would be relevant in a lost profits
`case. The reasonable royalty theory of damages, however,
`seeks to compensate the patentee not for lost sales caused
`by the infringement, but for its lost opportunity to obtain
`a reasonable royalty that the infringer would have been
`willing to pay if it had been barred from infringing.
`Lucent Techs., 580 F.3d at 1325. In determining what
`such a reasonable royalty would be, the district court was
`required to assess Astra’s injury not according to the
`number of sales Astra may have lost to Apotex, but ac-
`cording to what Astra could have insisted on as compen-
`sation for licensing its patents to Apotex as of the
`beginning of Apotex’s infringement, in November 2003.3
`
`
`3 Apotex’s intermingling of the lost profits and the
`reasonable royalty methods of calculating damages is
`illustrated by its reliance on this court’s decision in Grain
`Processing Corp. v. American Maize-Products Co., 185
`F.3d 1341 (Fed. Cir. 1999). The statement in Grain
`
`000013
`
`

`

`14
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`As the district court explained in detail, the benefits
`
`to Apotex, and the costs to Astra, of a license to the for-
`mulation patents would have been considerable. For its
`part, Apotex stood to (and did) garner immense profits
`from selling its generic omeprazole product. The district
`court found that even after a 50 percent royalty payment
`to Astra, Apotex would be left with a profit margin of 36
`percent, which was “solidly in the range of 31 to 48%
`margins [Apotex] typically earned on its products at the
`time.”
`For Astra, on the other hand, a license would have en-
`tailed risks to both of its highly successful branded PPIs,
`Prilosec and Nexium. As the district court found, Astra
`would reasonably have expected that Apotex’s entry into
`the market, armed with a license, “would swiftly acceler-
`ate the decline in omeprazole prices and lead to the de-
`struction of the remaining Prilosec market” as well as a
`decrease in Nexium sales or a forced increase in Nexium
`rebates to the TPPs. Under those circumstances, the
`district court was justified in concluding that a reasonable
`royalty rate of 50 percent would not overcompensate
`Astra for Apotex’s infringement.
`
`
`Processing that a district court must reconstruct the
`market “as it would have developed absent the infringing
`product, to determine what the patentee would have
`made,” is directed to a lost profits analysis, not to a rea-
`sonable royalty analysis, as the portion of the district
`court opinion quoted by the Grain Processing court makes
`clear. See id. at 1350 (citing Grain Processing Corp. v.
`Am. Maize-Prods. Co., 979 F. Supp. 1233, 1236 (N.D. Ind.
`1997)). The reasonable royalty analysis does not look to
`what would have happened absent the infringing product,
`but to what the parties would have agreed upon as a
`reasonable royalty on the sales made by the infringer.
`
`000014
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`15
`
`Apotex’s second “overcompensation” argument is that
`
`a royalty rate that depends on the obstacles that would
`have “ke[pt] a competitor off the market, regardless of the
`actual harm the patentee suffers,” is not reasonable. To
`the extent Apotex means to say that the costs the infring-
`er would incur to produce a non-infringing product are not
`relevant to the reasonable royalty for a license to sell a
`product covered by the patent, we disagree.
`When an infringer can easily design around a patent
`and replace its infringing goods with non-infringing
`goods, the hypothetical royalty rate for the product is
`typically low. See Grain Processing, 185 F.3d at 1347; see
`also Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302,
`1312 (Fed. Cir. 2002) (“The economic relationship between
`the patented method and non-infringing alternative
`methods, of necessity, would limit the hypothetical nego-
`tiation.”). There is little incentive in such a situation for
`the infringer to take a license rather than side-step the
`patent with a simple change in its technology. By the
`same reasoning, if avoiding the patent would be difficult,
`expensive, and time-consuming, the amount the infringer
`would be willing to pay for a license is likely to be greater.
`The district court found that Apotex would have faced
`substantial technical and practical obstacles to marketing
`a non-infringing generic omeprazole formulation. Based
`on that finding, it was proper for the court to hold that the
`difficulties Apotex would have encountered upon attempt-
`ing to enter the omeprazole market with a non-infringing
`product are relevant to the royalty rate a party in Apo-
`tex’s position would have been willing to pay for a license
`to Astra’s patents.
`Apotex takes issue with the district court’s considera-
`tion of the FDA regulatory delay as one factor affecting
`the result of the hypothetical negotiation. The district
`court found that Apotex would have faced considerable
`difficulties in marketing a non-infringing product of its
`
`000015
`
`

`

`16
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`own, because Apotex’s proposed changes to its existing
`infringing formulation either had been rejected for tech-
`nical reasons or were unlikely to result in a non-
`infringing product. In the alternative, the court found
`that even if Apotex could have successfully created an
`alternative, non-infringing formulation that would have
`received FDA approval, the process of development and
`approval would have resulted in a delay of at least two
`years before Apotex would have been able to market its
`new, non-infringing product. That two-year period,
`according to the district court, would have included ap-
`proximately a year for the completion of the FDA approv-
`al process.
`Apotex argues that the district court overcompensated
`Astra by considering the regulatory delay, which applies
`to every drug application and bears no relation to the
`value of Astra’s patents. Significantly, however, the
`district court’s principal finding was that as of November
`2003 Apotex would have had little chance of developing
`and marketing a non-infringing product of its own, and
`the evidence at trial supports that finding. The evidence
`shows that none of Apotex’s proposed changes to its
`infringing formulation were feasible. Indeed, by the end
`of the trial, Apotex had “largely abandoned its argument
`that it could have altered the infringing formulation
`successfully.” Simply put, in November 2003 Apotex’s
`prospect of developing its own non-infringing alternative
`was bleak, with or without a period of FDA delay. The
`district court’s consideration of the regulatory delay, as an
`alternative ground for its conclusion that Apotex would
`not have been able to market a non-infringing formulation
`within a reasonable period of time, therefore had no effect
`on the court’s damages calculation.
`
`Apotex’s third claim regarding Astra’s alleged over-
`compensation is that the district court’s analysis of the
`evidence regarding settlement and licensing negotiations
`with omeprazole sellers other than Apotex was funda-
`
`000016
`
`

`

`ASTRAZENECA AB v. APOTEX CORP.
`
`17
`
`mentally flawed and that the court abused its discretion
`in the way it assessed that evidence. We do not agree.
`The district court analyzed the pertinent settlement and
`licensing negotiations in detail and with close attention to
`the similarities and differences between those negotia-
`tions and the hypothetical negotiation in this case. We
`are satisfied that the court fairly weighed those negotia-
`tions in reaching its ultimate determination as to the
`reasonable royalty rate for damages purposes.
` With regard to the settlement and license negotia-
`tions, Apotex focuses principally on Astra’s license to P&G
`for the rights to sell Prilosec OTC. Although the royalty
`formula in that case was complex, the district court found
`that the royalty rate turned out to be a blended rate of
`approximately 20 percent of P&G’s net sales, or 23 per-
`cent for the first three years of the license, counting
`P&G’s initial payment. Apotex argues that because that
`rate is significantly below the 50 percent rate assessed by
`the district court, the district court’s royalty rate was
`plainly too high.
`
` As the district court explained, and as Astra under-
`scores in its brief, the P&G license for Prilosec OTC had
`an economic impact on Astra very different from the
`impact a license to a generic manufacturer such as Apotex
`would have had. For reasons explained in detail by the
`district court, the over-the-counter drug market is largely
`distinct from the prescription drug market. Astra did not
`expect Prilosec OTC to have a significant impact on the
`price and sales of its prescription drug, Prilosec. The risk
`to Prilosec from prescription generic omeprazole, by
`contrast, was much greater. Moreover, Astra expected
`sales of Prilosec OTC to be helpful to it by promoting
`Nexium as a more effective drug for patients who had not
`obtained satisfactory results with Prilosec. As the district
`court summarized the situation, the P&G licensing ar-
`rangement was especially favorable to Astra because
`
`000017
`
`

`

`18
`
`
`
` ASTRAZENECA AB v. APOTEX CORP.
`
`Astra “received a handsome royalty for a product that was
`an essential part of its long-term PPI strategy.”
`
`Besides criticizing the district court for giving insuffi-
`cient weight to the P&G license, Apotex complains that
`the court gave too much weight to a settlement and offer
`of settlement between Astra and two other generic manu-
`facturers, Andrx Pharmaceuticals, Inc., and Teva Phar-
`maceuticals USA, Inc. The court found that the amount
`of Astra’s settlemen