[Market Watch] Split Decision

For nearly two years all eyes have been on the U.S. District Court of North Carolina, where lawyers representing some of the largest chemical companies in the world have engaged in a pitched legal battle before Judge William L. Osteen, Jr., with millions of dollars of potential business hanging in the balance. The high-stakes litigation, with significant ramifications for the pest management industry, involves two patent infringement lawsuits filed by BASF on April 8, 2010, against Cheminova A/S and Makhteshim Agan of North America (MANA), along with its U.S. subsidiary, Control Solutions Inc. (CSI).

At the center of the proceedings are several fipronil-related patents, the broad-spectrum phenylpyrazole insecticide found in Termidor, the most widely used liquid termiticide in the United States. One of those patents (’940), covering the fipronil molecule itself, expired on Aug. 3, 2010. Two additional manufacturing process patents (’943 and ’945) remain in force, while the method-of-use patents – sometimes referred to as “perimeter use patents” (’010 and ’743) – will expire in 2017. The “perimeter use patents” are owned by Bayer S.A.S. and exclusively licensed to BASF Agro.

Since BASF originally filed suit, both cases have taken numerous twists and turns, but after dozens of depositions, thousands of pages of legal documents, and more than 250 different motions, court orders and other related legal filings, Judge Osteen and the North Carolina District Court officially closed the books on their role in the litigation in early January, although the final chapter in one case remains to be written. An overview of the status of the two cases follows.
 

Cheminova Litigation. On Oct. 3, Judge Osteen announced that BASF and Cheminova had reached a settlement “in principle” on all matters relating to the case, with the court granting 60 days to conclude the settlement talks and file a notice or stipulation of dismissal. At the conclusion of those settlement talks, which were extended to Dec. 19, Cheminova acknowledged the validity and enforceability of BASF’s patents relating to the manufacture and use of fipronil-based termiticide products.

In addition, it was agreed Cheminova would be restricted from “using, selling, or offering to sell in the United States any fipronil or fipronil-containing product” until the application patents expire in 2017. According to the stipulation order, Cheminova also agreed not to make, sell, offer to sell, or import any fipronil or fipronil-containing product into the United States “until the expiration of the ’943 patent on Oct. 22, 2019.”

As part of the settlement agreement, BASF, Merial and Cheminova each waived “any and all of their respective appellate rights as to the instant civil action in the United States District Court for the Middle District of North Carolina” and agreed to cover the cost of their own attorneys’ fees, the order states. Specific terms of the settlement were not disclosed.

“Cheminova determined that, after close to two years of expansive, and expensive, litigation, the matter should be resolved, if at all possible, short of trial and subsequent appeals,” a Cheminova spokesperson told PCT. “The principal factors that led to resolution from Cheminova’s perspective were continued costs, as well as the uncertainties and vagaries of any litigation. Cheminova is looking forward to 2012 and beyond where it will be able to focus on its core businesses.”

As a result of the agreement, “this chapter (of the litigation) is completely settled and closed,” observed Jan Buberl, director of specialty products, BASF North America Crop Protection. “Both of these intellectual properties have been validated and acknowledged by Cheminova.”
 

Mana Litigation. The second case – BASF Agro and Bayer S.A.S. vs. Makhteshim Agan of North America and CSI – resulted in a very different outcome.

On Jan. 9, Judge Osteen ruled that Makhteshim Agan had not infringed upon the BASF method-of-use patents, granting a summary judgment in the case. (Editor’s note: Earlier in the proceedings, the parties already had agreed to a consent judgment dismissing the claim that MANA and Control Solutions had infringed on the manufacturing patent for fipronil.)

According to court documents, “Inventor Yasuo Kimura acquired the ’010 patent in 2002 and the ’743 patent in 2004. Both patents are entitled ‘Pesticidal Pyrazoles and Derivatives,’ and both teach a method of using certain insecticidal compounds in order to protect a building or future building against damage caused by insects.” (See “The Disputed Patents” on page 46.)

Judge Osteen determined the patents in question describe a method of use that results in the deliberate creation of untreated zones around the perimeter of a structure (i.e., “loopholes”), what inventor Kimura described in his patents as “a termite treatment without barrier.”

Control Solutions’ Taurus label, on the other hand, recommends creating a “continuous treated zone” around the exterior of the structure to effectively prevent termites from infesting wood. “Because Defendants’ Taurus SC label instructs users to apply the product without loopholes around a building and thus requires a treatment method that Mr. Kimura specifically disclaimed, this court concludes as a matter of law that the label does not infringe, or induce infringement of, the Kimura patents,” the Memorandum Opinion and Order signed by Judge Osteen states. Based on these findings, the court ruled Makhteshim had not infringed the BASF patents.

Following the court’s ruling, BASF said in a statement it would appeal the case to the U.S. Circuit Court of Appeals for the Federal Circuit in Washington, D.C., which has exclusive jurisdiction over patent appeals, and the decision did not affect the validity or enforceability of BASF manufacturing patents for fipronil.

“The rodeo continues but the trophy has been presented,” observed Mark Boyd, president and CEO, Control Solutions. “We are delighted that the North Carolina court has ruled in our favor, confirming that our products do not infringe on the patents of any of our competitors. We are proud to lead the industry by offering simple, effective solutions for all uses and pleased with the market reception so far.”

In late May, following the court’s decision to deny BASF’s bid for a preliminary injunction in the case, Control Solutions introduced Taurus SC Termiticide/Insecticide, a 9.1% formulation of fipronil.

“The addition of fipronil to our product portfolio has strengthened our position as a comprehensive provider of simple effective crop protection and related solutions, and has further broadened our capabilities to supply more solutions to our customers,” added Shaul Friedland, head of Makhteshim Agan Industries’ (MAI) Americas region. “In creating Taurus, MAI has taken advantage of novel, advanced technologies to design a new manufacturing process (and) these capabilities will continue to support our portfolio expansion.”

In a letter to customers following the court ruling, Boyd wrote, “BASF indicated that it will appeal the court’s decision, which is routinely the case for losing parties in lawsuits. MANA and CSI are confident that the original judgment will hold up on appeal.” In addition, he stated “all Taurus SC will now be labeled with EP/LI applications (language pending in CA and exempt in LA).”

Buberl said while BASF “respectfully disagrees” with the court’s latest ruling, the company is undeterred in its efforts to defend its intellectual property and remains committed to its innovation strategy. “From our standpoint, this is just another milestone in the journey,” he said.

In addition, Buberl said he’s confident BASF will prevail on appeal, in part, because of the nature of the appeals court. “The United States Circuit Court of Appeals for the Federal Circuit has an exclusive jurisdiction over the patent appeals, so they are really IP [intellectual property] specialists – so there is certainly a different discussion around the subject matter due to the experience of the court. They really start with a blank piece of paper.”

Despite the decision of the lower court, Buberl said BASF has no plans to “change its litigation strategy” and the company is convinced it has a strong case “as was demonstrated in the settlement discussion” (with Cheminova). Buberl added that should the lower court’s ruling be reversed upon appeal, there is the “same (legal) risk” associated with violating BASF’s intellectual property as “before this decision of the court in North Carolina.” In other words, until there is a final abjudication on the merits of the case through the appeal process, end user customers may infringe BASF’s patents by purchasing and using MANA’s products.

Interestingly, two days after Judge Osteen filed his Memorandum Opinion and Order granting summary judgment in the Makhteshim case, he filed an Amended Memorandum Opinion and Order, striking his original opinion and providing additional background facts and supporting evidence, perhaps anticipating an appeal to the Federal Circuit Court. In the amended document, Judge Osteen provided additional background about his reasoning for awarding defendants’ Modified Motion for summary judgment, focusing largely on the “localized interior treatment” portion of the Taurus SC label.

“Plaintiffs do not contend that the Taurus SC exterior perimeter instructions, standing alone, infringe the patents at issue in this case,” stated the order by Judge Osteen. “Instead, it is the Taurus SC ‘Localized Interior Treatment’ portion of Defendants’ EP/LI instructions that leads to the alleged infringement of the Kimura patents.”

Since language on the Taurus label “implies that a ‘continuous treated zone’ is unnecessary on the structure’s interior and the formation of discrete untreated locations is acceptable,” the plaintiffs “assert that these instructions constitute, or induce, infringement of the Kimura patents, as the asserted claims of the Kimura patents specifically teach the purposeful formation of ‘untreated locations,’” according to the order.

The court went on to say, “Plaintiffs argue that Defendants’ Taurus SC label instructs users to practice the Kimura patents’ invention and merely adds prior art to that invention. Plaintiffs’ argument is premised upon their belief that the claims of the Kimura patents are open-ended ‘comprising’ claims and that ‘the addition of elements or steps to [such a] claim is still an infringement.’”

Ultimately, Judge Osteen concluded: “…even assuming…that Defendants’ Taurus SC label instructs users to practice the invention that is claimed in the Kimura patents on the interior of a building, this court must find the Taurus SC label to be non-infringing if that label also instructs users to apply the product in a manner which has been clearly and unmistakably disclaimed…that is, without loopholes around a building, under a building, or both around and under a building.”

The U.S. Circuit Court of Appeals for the Federal Circuit in Washington, D.C., will either affirm, reverse, amend or remand (i.e., send the case back to the District Court for further proceedings with specific instructions) the District Court’s ruling, a process which could take up to 12 to 18 months, meaning PMPs likely haven’t heard the last of fipronil-related litigation. 

Despite the District Court’s recent decision and the time and effort required to defend its intellectual property, Buberl said BASF remains focused on the future, eager to make its case to the appellate court, while continuing to introduce innovations to its Termidor product line, like the recent announcement that the company has received federal registration for its new termiticide, Termidor H·E High-Efficiency Termiticide Copack with Termidor HE Technology (see related story on page 60). Termidor HE Copack expands upon the Termidor SC formulation and application standard with the addition of a BASF proprietary molecule that temporarily “boosts” the transport of fipronil into the soil and creates an enhanced protection zone around the structure being treated, the company says, resulting in less water usage and less labor (for most label applications).

“Innovation is a way of life at BASF that has led to significant improvement in the products we can offer pest control professionals,” Buberl said. “We are confident in our intellectual property rights and are committed to vigorously protecting our investments in innovation for this marketplace.”