Smithkline Beecham Consumer Healthcare, L.P., Plaintiffappellant v. Watson Pharmaceuticals, Inc., Watson Laboratories, Inc., and Circa Pharmaceuticals, Inc., Defendantsappellees

Citation: 211 F.3d 21Docket: 1999

Court: Court of Appeals for the Second Circuit; April 4, 2000; Federal Appellate Court

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In the case 211 F.3d 21 (2nd Cir. 2000), SmithKline Beecham Consumer Healthcare, L.P. appealed a district court ruling that dissolved a preliminary injunction against Watson Pharmaceuticals, which had been preventing Watson from using SmithKline's copyrighted label for its Nicorette gum in marketing a competing product. The district court found that the FDA's requirement for Watson to use the similar labeling effectively barred its sales, leading to the injunction's dissolution.

The appellate court held that the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act mandate that generic drug manufacturers use labeling that may infringe on the copyright of the pioneer drug's labeling. Consequently, copyright liability could not be imposed on Watson for its use of SmithKline's label. The court affirmed the district court's decision, emphasizing that the balance of hardships favored Watson and upheld the principle that FDA requirements override copyright claims in this context.

SmithKline Beecham Consumer Healthcare, L.P. (SmithKline) manufactures Nicorette nicotine polacrilex gum, an over-the-counter product aimed at helping smokers quit. The FDA granted SmithKline approval for 2 mg Nicorette for prescription use in 1984 and for 4 mg in 1992. Both strengths were approved for OTC sale in 1996, granting SmithKline a three-year exclusivity period under 21 U.S.C. 355(c)(3)(D)(iv) due to additional clinical testing. To support its OTC application, SmithKline developed a user guide and audiotape, making approximately 70 changes requested by the FDA between 1993 and 1996. These materials were included in Nicorette's approved labeling. SmithKline registered copyrights for the guide and tape in 1998 and for the tape’s music and lyrics in 1999, coinciding with the expiration of its exclusivity.

Subsequently, Watson Pharmaceuticals and its affiliates obtained FDA approval for a generic nicotine gum, which required that their labeling be identical to Nicorette's per the Hatch-Waxman Amendments. Watson's generic product included user materials nearly identical to SmithKline’s. SmithKline filed a copyright infringement lawsuit against Watson, leading to a preliminary injunction prohibiting Watson from selling its product. The district court referenced an FDA letter indicating that the requirement for "same labeling" allows generic sponsors to create different behavioral support materials. The court concluded that the FDA would have permitted Watson to use materials that differed sufficiently from SmithKline's to avoid copyright issues.

The FDA changed its stance regarding Watson's user guide and tape, which were initially revised to be similar but not identical to SmithKline's materials. On November 23, 1999, the FDA rejected Watson's revised user guide and insisted Watson replicate most of the text from SmithKline’s guide, providing minimal room for modifications. During a subsequent court conference, the FDA declined to reconsider its position, stating it had no mandate from Congress to account for copyright issues when approving generic drug labeling. Following this, the district court dissolved the preliminary injunction against Watson, taking into account Watson's attempts to revise its materials, the delays' impact on Watson, and the public interest in a generic nicotine gum. The appeal was expedited after SmithKline sought a stay. The legal standards for issuing a preliminary injunction require proof of irreparable harm and either a likelihood of success on the merits or serious questions favoring litigation. The court may only overturn a district's decision to dissolve such injunctions if there is an abuse of discretion. In this case, SmithKline has shown significant copyright concerns, as its materials are creative works integral to its product marketing, and Watson’s proposed materials largely copy SmithKline's content, indicating a clear basis for a preliminary injunction.

Watson claims that copying SmithKline's materials for FDA approval constitutes 'fair use' under 17 U.S.C. 107. However, the United States contends that by submitting copyrighted materials for FDA approval, SmithKline granted an implied, nonexclusive license for generic drug applicants to replicate its labeling. The court finds neither fair use nor implied license applicable in this case, as Watson's copying does not align with traditional fair use purposes such as criticism or education. Furthermore, implied licenses apply only in limited scenarios where one party creates a work at another's request, and the current situation does not fit this criterion. 

The case can be resolved more straightforwardly under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act (FFDCA), which require that generic drug producers use the same labeling as the pioneer drug, even if it is copyrighted. These Amendments were enacted to facilitate the approval and sale of generic drugs, making SmithKline's copyright claim invalid. The FFDCA mandates FDA approval for drug sales, with new drug applications (NDAs) needing to demonstrate safety and efficacy. Generic drugs, being identical to previously approved pioneer drugs, can be marketed once the pioneer drug's patent and exclusivity periods expire. The Hatch-Waxman Amendments allow generic manufacturers to submit abbreviated new drug applications (ANDAs), leveraging existing clinical data and labeling, thus expediting the approval process and enhancing market competition.

The ANDA (Abbreviated New Drug Application) requires manufacturers to submit similar items to the FDA as those required for an NDA (New Drug Application), except for human clinical trials. A generic manufacturer must show that its drug has the same active ingredients, administration methods, dosage forms, strengths, pharmacological classes, labeling, and that it does not infringe on any patents. The Hatch-Waxman Amendments stipulate that the labeling for a generic drug must match that of the pioneer drug, with exceptions for approved differences or variations due to different manufacturers. The definitions of 'label' and 'labeling' under the FFDCA encompass various forms of promotional materials. 

In the context of SmithKline's copyright claim, the user's guide and audiotape are deemed 'labeling' as defined by the statute and were submitted to the FDA for OTC sales approval of Nicorette. These materials underwent extensive revisions at the FDA's request. The FDA's requirement for Watson to utilize SmithKline's copyrighted materials does not misapply the Hatch-Waxman Amendments, as the requirement for sameness in labeling is inherent in the law. While 'same' may not mean 'identical,' the use of identical language can lead to copyright infringement, which requires proof of copying and substantial similarity. The legislative history indicates that minor differences are acceptable, primarily to avoid misstatements, rather than to create legal distinctions in copyright.

If SmithKline's copyright claim is valid, Watson would be unable to effectively use the ANDA process to market its generic nicotine gum due to potential label changes that could jeopardize FDA approval or risk infringing on SmithKline's copyright. This situation presents a legal conflict between the Hatch-Waxman Amendments, which mandate that generic drug labels match those of pioneer drugs, and the Copyright Act, which prohibits such copying. Courts typically resolve conflicts between statutes by interpreting them in a manner that preserves their primary purposes, unless Congress specifies otherwise.

The Hatch-Waxman Amendments aim to facilitate the entry of generics post-patent expiration by allowing them to leverage existing FDA approvals, thus avoiding redundant testing and labeling processes. If generic producers are forced to avoid labels that are "substantially similar" to those of pioneer drugs due to copyright concerns, it would significantly burden the FDA and delay the introduction of generics, contrary to public health goals. The FDA's ability to meet the "same" labeling requirement is compromised if copyright law takes precedence, leading to delays in generic drug availability.

Conversely, rejecting SmithKline's copyright claim would not severely undermine copyright law, as the labels created for FDA approval are secondary to the drug's primary purpose. The creativity involved in label creation and approval is aimed at consumer satisfaction and regulatory compliance, not at undermining copyright protections. Thus, the Hatch-Waxman framework and the need for timely access to generics would be better served by favoring the resolution that allows for the use of similar labels despite copyright concerns.

Congress did not explicitly state that the Hatch-Waxman Amendments would override copyright laws, but such an intention is evident given the context of the current legal conflict. The primary profits for the creator of a pioneer drug label arise from the drug’s administrative approval and the subsequent patent and exclusivity periods, which are not significantly threatened by generic manufacturers copying the labeling. The purpose of copyright law is to incentivize the creation of original works, which is not jeopardized by allowing the Hatch-Waxman requirements to take precedence over copyright claims regarding labeling. Dismissing SmithKline's claim will not weaken copyright protections, while recognizing it would undermine the Hatch-Waxman framework. SmithKline retains valid copyright claims in other contexts, such as non-labeling advertisements, despite not being able to enforce those claims against generic manufacturers required to replicate labels under Hatch-Waxman. The court affirms the dismissal of SmithKline's complaint due to failure to state a claim, lifting any stays. The discussion of implied licenses is deemed unnecessary since the Hatch-Waxman requirement implies that copyright labels can be infringed. Additionally, while some courts require verbatim copying for copyright infringement in commercial labeling, the case at hand does not necessitate a decision on the applicable standard of similarity due to the clear statutory requirement for generic drug manufacturers to copy pioneer drug labeling nearly verbatim to obtain approval.

Courts prioritize the principal purposes of conflicting statutes, along with the order of enactment and specificity, when resolving legal conflicts. The implications of a statute may be modified by a later statute, especially when the earlier statute is broad and the latter is specific. The Hatch-Waxman Amendments, enacted after the Copyright Act of 1976, exemplify this principle. The Amendments are more specific, addressing generic drug approvals, while the Copyright Act is more general. Congress intended the Hatch-Waxman Amendments to partially amend patent laws, extending patent durations and allowing preliminary testing for generic drugs before the expiration of pioneer drug patents. 

While commercial labeling is copyrightable, 17 U.S.C. § 102(a)(5) protects prints and labels used for merchandise as pictorial, graphic, and sculptural works. The intent is not to restrict the scope of such protections. However, concerns arise that copyright protection for labels can lead to monopolistic practices, where copyright is improperly used to extend control over uncopyrightable products, often resulting in competitive harassment. In the case at hand, although the labeling is more creative than typical cases, the copyright claim is arguably weaker since the copyrighted text was submitted for FDA approval to secure market exclusivity.