  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
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.
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.
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
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
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.”
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
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.
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
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



     2  In addition, by 2003 Lek had already obtained a
patent relating to its formulation. Mylan obtained patent
protection for its formulation the following year.
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
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
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
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.
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
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-
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
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 settlement with Teva represented 54 percent of
Teva’s net profits on its omeprazole sales, and that the
offer of settlement by Andrx was for 70 percent of Andrx’s
profits on the 40mg omeprazole dosage and 50 percent of
its profits on the 20mg and 10 mg dosages. Astra did not
accept Andrx’s offer.
    Apotex contends that the fact that the Teva and
Andrx transactions occurred in the midst of litigation
makes them irrelevant for purposes of determining a
reasonable royalty rate in this case. That contention goes
too far. While the fact that a settlement or settlement
offer comes in the midst of litigation may affect the rele-
vance of the settlement or offer, there is no per se rule
barring reference to settlements simply because they
arise from litigation. See ResQNet.com, Inc. v. Lansa,
Inc., 594 F.3d 860, 872 (Fed. Cir. 2010) (noting that “the
most reliable license in this record arose out of litigation,”
while also recognizing that in other instances, “litigation
itself can skew the results of the hypothetical negotia-
tion”); see also In re MSTG, Inc., 675 F.3d 1337, 1348
(Fed. Cir. 2012).
    In this case, Teva’s settlement and Andrx’s offer both
arose only after the district court had held the patents
valid and had made a finding of infringement as to both
defendants. The setting in which those events took place
was therefore similar to the setting of a hypothetical
negotiation in which infringement and patent validity are
assumed. In that context, Andrx’s willingness to take a
ASTRAZENECA AB   v. APOTEX CORP.                         19



license for between 50 and 70 percent of its profits, and
Teva’s agreement to settle the infringement action
against it for 54 percent of its net sales, constitute per-
suasive evidence that a royalty rate in the neighborhood
of 50 percent of net sales for a similarly situated party
would be reasonable.        See Studiengesellschaft Kohle,
m.b.H. v. Dart Indus., Inc., 862 F.2d 1564, 1570-72 (Fed.
Cir. 1988); John M. Skenyon et al., Patent Damages Law
and Practice § 1:15, at 25 (2013 ed.) (“[L]icenses negotiat-
ed to settle a case after a court has established validity
and infringement of the patent are very probative of
reasonable royalty. Such licenses duplicate the analytical
process undertaken by the court in setting reasonable
royalty damages in the ‘willing licensor-willing licensee’
fictional negotiation.”). 4



   4    In its reply brief, Apotex argues that Andrx’s situ-
ation at the time it made its offer was not comparable to
Apotex’s situation in 2003 because Andrx would have
been the sole generic seller of 40 mg omeprazole for 180
days and because Andrx sought to have Astra drop its
claims for willful infringement, past damages, and attor-
ney fees. While those factors distinguish the Andrx offer
from a pure license for future sales, the offer nonetheless
served “as a marker of the value of licensing rights,” as
the district court held.
    As for the Teva settlement, Apotex points to evidence
that the amount paid by Teva was in settlement of claims
against both Teva and Impax, and that the settlement
actually constituted only 39 percent of the collective
profits of those two entities. That number, while lower
than the 54 percent royalty rate referenced by the district
court, nonetheless demonstrates that generic manufac-
turers attached a high premium to the right to sell gener-
ic omeprazole. Moreover, generic entrance is often a race
to the market, because most pharmacies keep only one
20                          ASTRAZENECA AB   v. APOTEX CORP.



    We therefore reject Apotex’s challenges to the district
court’s evidentiary analysis and its conclusion from that
analysis that the 50 percent royalty rate constituted fair
compensation to Astra under the reasonable royalty
theory of damages.
                             B
    Apotex next contends that the district court improper-
ly based its damages calculation on the value of the
omeprazole product as a whole. According to Apotex,
because the active ingredient patents had expired at the
time of the infringement and the active ingredient had
thus become a “conventional element,” the district court
should have calculated damages by apportioning the
relative contribution of value between the active ingredi-
ent and the “inventive element” of the patents, i.e., the
subcoating.
    Apotex predicates its argument on this court’s cases
applying the “entire market value rule.” The court has
held that when small elements of multi-component prod-
ucts are accused of infringement, a patentee may “assess
damages based on the entire market value of the accused
product only where the patented feature creates the basis



generic version of a drug on hand. In light of the fact that
Teva/Impax were willing to pay at least a 39 percent rate
on profits to become the fifth generic to enter the market,
the district court’s finding that Apotex would have paid a
50 percent rate to become the fourth generic entrant is
reasonable.
    In a footnote, Apotex points to Astra’s licensing
agreements relating to PPI products other than omepra-
zole. Because those agreements did not involve omepra-
zole and contained cross-licenses and other features, the
district court properly found them irrelevant to the dam-
ages determination.
ASTRAZENECA AB   v. APOTEX CORP.                         21



for customer demand or substantially creates the value of
the component parts.” Uniloc USA, Inc. v. Microsoft
Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011) (internal
quotation marks omitted); see also. LaserDynamics, Inc. v.
Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012).
     A threshold question arose below regarding the ap-
plicability of the entire market value rule in this case. As
an initial matter, the district court noted that “there is
little reason to import [the entire market value] rule for
multi-component products like machines into the generic
pharmaceutical context.” While we do not hold that the
entire market value rule is per se inapplicable in the
pharmaceutical context, we concur with the district court
that the rule is inapplicable to the present case.
    The entire market value rule is derived from Supreme
Court precedent requiring that the patentee “must in
every case give evidence tending to separate or apportion
the defendant’s profits and the patentee’s damages be-
tween the patented feature and unpatented features, and
such evidence must be reliable and tangible, and not
conjectural or speculative.” LaserDynamics, 694 F.3d at
67 (quoting Garretson v. Clark, 111 U.S. 120, 121 (1884)).
We recently reiterated that principle, holding that even
when the accused infringing product is “the smallest
salable unit,” the patentee “must do more to estimate
what portion of the value of that product is attributable to
the patented technology” if the accused unit is “a multi-
component product containing several non-infringing
features with no relation to the patented feature.” Vir-
netX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1327 (Fed.
Cir. 2014). Thus, the entire market value rule applies
when the accused product consists of both a patented
feature and unpatented features; the rule is designed to
account for the contribution of the patented feature to the
entire product.
22                          ASTRAZENECA AB   v. APOTEX CORP.



    This case does not fit the pattern in which the entire
market value rule applies. Astra’s formulation patents
claim three key elements—the drug core, the enteric
coating, and the subcoating. The combination of those
elements constitutes the complete omeprazole product
that is the subject of the claims. Thus, Astra’s patents
cover the infringing product as a whole, not a single
component of a multi-component product. There is no
unpatented or non-infringing feature in the product.
    While the entire market value rule does not apply to
this case, the damages determination nonetheless re-
quires a related inquiry. When a patent covers the in-
fringing product as a whole, and the claims recite both
conventional elements and unconventional elements, the
court must determine how to account for the relative
value of the patentee’s invention in comparison to the
value of the conventional elements recited in the claim,
standing alone. See Ericsson, Inc. v. D-Link Sys., Inc.,
773 F.3d 1201, 1233 (Fed. Cir. 2014) (“[T]he patent holder
should only be compensated for the approximate incre-
mental benefit derived from his invention.”) (citing Gar-
retson, 111 U.S. at 121).
    Several of the factors set forth in the Georgia-Pacific
case bear directly on this issue. Georgia-Pacific factors
nine and ten refer to “the utility and advantages of the
patent property over any old modes or devices that had
been used” and “the nature of the patented invention, its
character in the commercial embodiment owned and
produced by the licensor, and the benefits to those who
used it,” respectively. Factor thirteen, which refers to the
“portion of the realizable profit that should be credited to
the invention,” embodies the same principle. Thus, the
standard Georgia-Pacific reasonable royalty analysis
takes account of the importance of the inventive contribu-
tion in determining the royalty rate that would have
emerged from the hypothetical negotiation. However,
while it is important to guard against compensation for
ASTRAZENECA AB   v. APOTEX CORP.                          23



more than the added value attributable to an invention, it
is improper to assume that a conventional element cannot
be rendered more valuable by its use in combination with
an invention.
    In practice, “all inventions are for improvements; all
involve the use of earlier knowledge; all stand upon
accumulated stores of the past.” Cincinnati Car Co. v.
N.Y. Rapid Transit Corp., 66 F.2d 592, 593 (2d Cir. 1933).
Yet it has long been recognized that a patent that com-
bines “old elements” may “give[] the entire value to the
combination” if the combination itself constitutes a com-
pletely new and marketable article. Westinghouse Elec. &
Mfg. Co. v. Wagner Elec. & Mfg. Co., 225 U.S. 604, 614
(1912) (citing Hurlbut v. Schillinger, 130 U.S. 456, 472
(1889)); see also Seymour v. Osborne, 78 U.S. 516, 542
(1870) (“Improvements in machines protected by letters
patent may also be mentioned, of a much more numerous
class, where all the ingredients of the invention are old,
and where the invention consists entirely in a new combi-
nation of the old ingredients, whereby a new and useful
result is obtained, and many of them are of great utility
and value, and are just as much entitled to protection as
those of any other class.”).
    It is not the case that the value of all conventional el-
ements must be subtracted from the value of the patented
invention as a whole when assessing damages. For a
patent that combines “old elements,” removing the value
of all of those elements would mean that nothing would
remain. In such cases, the question is how much new
value is created by the novel combination, beyond the
value conferred by the conventional elements alone. 5



    5   We recently made the same point in University of
Pittsburgh v. Varian Medical Systems, Inc., 561 F. App’x
934, 947-50 (Fed. Cir. 2014). In addressing the proper
24                          ASTRAZENECA AB   v. APOTEX CORP.



     The district court addressed, and answered, that
question. The court rejected Apotex’s proposition that the
patented formulation constituted only a minor, incremen-
tal improvement over the active ingredient. The court
found instead that the formulation “substantially cre-
ate[d] the value” of the entire omeprazole product. That
was because, despite the effectiveness of omeprazole in
reducing the production of gastric acid, it is notoriously
difficult to formulate. Omeprazole is most effective when
absorbed by the small intestine, but it is highly suscepti-
ble to degradation in the acidic environment of the stom-
ach. In order to deliver the active ingredient to the part of
the human body where it can take effect, scientists had to
develop a formulation that would allow the drug to pass
through the stomach and be absorbed by the small intes-
tine, while ensuring adequate shelf life in a drug that is
sensitive to heat, moisture, organic solvents, and light.
     After years of effort, Astra’s scientists determined
that a water-soluble subcoat helped solve many of these
problems and allowed them to formulate a commercially
viable drug. The district court found that Astra’s prior
formulations, which lacked a subcoat, were not commer-
cially viable.
    The district court did not clearly err in concluding
that the subcoating is so important to the viability of the
commercial omeprazole product that it was substantially
responsible for the value of the product. A commercially
viable omeprazole drug requires both storage stability


calculation of the royalty base in a reasonable royalty
determination, we declined the defendant’s invitation to
remove the conventional elements from the overall value
of the combination apparatus; we noted that guarding
against compensation for more than the added value
attributable to the invention “is precisely what the Geor-
gia-Pacific factors purport to do.” Id. at 950.
ASTRAZENECA AB   v. APOTEX CORP.                          25



and gastric acid resistance. The former may be achieved
with the addition of ARCs to the drug core, and the latter
with the enteric coating. Without the subcoating, howev-
er, storage stability and acid resistance are irreconcilable,
because the addition of ARCs would compromise the
enteric coating. By inventing a structure in which a
subcoating separates the drug core, and thus the ARCs,
from the enteric coating, and finding the right subcoating
material, Astra was able to achieve both storage stability
and acid resistance. That combination of features made it
possible for drug manufacturers to commercialize
omeprazole.
    Astra’s formulation thus created a new, commercially
viable omeprazole drug. That product was previously
unknown in the art and was novel in its own right.
Accordingly, the district court permissibly found no rea-
son to exclude the value of the active ingredient when
calculating damages in this case. 6
                             C
    Taking another tack in challenging the compensation
awarded to Astra for Apotex’s infringing sales, Apotex
argues that the value of the patented formulation must be
discounted in light of the non-infringing alternative
formulations in existence at the time of the infringement.



    6   In support of its apportionment argument, Apotex
relies on a license that Astra granted to Takeda Chemical
Industries, Ltd. that included the ’230 patent, for Takeda
to practice with a different PPI ingredient and formula-
tion. The license enabled Takeda to develop and ulti-
mately market its own formulation. The royalty rates
paid by Takeda under that license do not bear on whether
the damages for infringing the omeprazole formulation
patents must be apportioned between the active ingredi-
ent and the formulation.
26                          ASTRAZENECA AB   v. APOTEX CORP.



The district court examined those alleged non-infringing
alternatives and concluded that none were available to
Apotex as of the beginning of Apotex’s infringement in
November 2003. Apotex did not have a non-infringing
alternative formulation at that time, and KUDCo was the
only generic market entrant found to be non-infringing.
KUDCo’s formulation, however, was covered by its own
patents, and the district court found that Apotex had
failed to explain how it could copy that formulation with-
out infringing KUDCo’s patents. Finally, the district
court found that the formulations used by two other
generic manufacturers, Lek and Mylan, could not have
been regarded as non-infringing alternatives in November
2003, as they launched at risk in 2003 and their formula-
tions were not found to be non-infringing until 2007.
     Apotex does not challenge the finding that it had no
non-infringing formulation of its own, and we agree with
the district court that the Lek and Mylan formulations,
which were launched at risk amid on-going litigation with
Astra and were not found to be non-infringing until 2007,
would not have been considered as non-infringing alterna-
tives in November 2003. See Pall Corp. v. Micron Separa-
tions, Inc., 66 F.3d 1211, 1222 (Fed. Cir. 1995) (an accused
alternative product offered by a third party could not be
considered as a non-infringing alternative before the
patentee and the third party voluntarily settled their
litigation); Datascope Corp. v. SMEC, Inc., 879 F.2d 820,
824 (Fed. Cir. 1989). The issue is therefore whether the
KUDCo formulation was available to Apotex in November
2003.
    In the district court, Apotex did not dispute that
KUDCo’s formulation was covered by KUDCo’s own
patents. Apotex argues that it was not shown that the
KUDCo formulation was unavailable at the time of the
infringement because Astra did not prove that using the
KUDCo formulation would have infringed the KUDCo
patents. We disagree.
ASTRAZENECA AB   v. APOTEX CORP.                          27



     The patents held by KUDCo were designed to protect
its formulation. From that fact, the district court could
reasonably infer that the KUDCo formulation was not
available to Apotex as a non-infringing alternative.
Apotex’s conclusory assertion that it could have used
KUDCo’s formulation without infringing KUDCo’s pa-
tents does not suffice to overcome that inference. See
Grain Processing, 185 F.3d at 1353. Therefore, the dis-
trict court did not clearly err by refusing to discount the
value of Astra’s patents based on the existence of alterna-
tives to the infringing formulation that Apotex actually
used.
                             III
     Finally, Apotex objects to the district court’s decision
to award damages for sales of its generic omeprazole
during the “pediatric exclusivity” period of the asserted
patents. Under 21 U.S.C. § 355a, the FDA is authorized
to make a written request to the holder of an approved
New Drug Application (“NDA”) for the holder to perform
pediatric studies. See Omeprazole IV, 536 F.3d at 1368.
If the NDA holder agrees to the request and performs the
pediatric studies, and if the FDA considers the results of
the studies acceptable, the statute extends the period
during which the FDA is barred from approving ANDAs
filed by competing drug manufacturers for six months
beyond the patent’s expiration date. 21 U.S.C. § 355a(b)-
(c); Omeprazole IV, 536 F.3d at 1368. That six-month
extension is known as the pediatric exclusivity period.
    When a generic drug manufacturer files an ANDA
with a Paragraph IV certification, the patent holder may
then initiate a patent infringement suit against the
ANDA applicant. See 21 U.S.C. § 355(j)(2)(A)(vii); 35
U.S.C. § 271(e)(2)(A). If the district court determines that
the patent is both valid and infringed, the court is re-
quired to order the effective date of the ANDA approval to
be a date “not earlier than” the expiration date of the
28                          ASTRAZENECA AB   v. APOTEX CORP.



patent. 35 U.S.C. § 271(e)(4)(A). If the FDA has not
approved the ANDA at the time of the district court’s
decision, the FDA may not approve the ANDA (and the
generic may not sell its drug) until after the patent ex-
pires. Omeprazole IV, 536 F.3d at 1367. If the FDA has
already approved the ANDA, the district court’s order
alters the effective date of that approval. Id. at 1367-68.
     Astra obtained the right to a six-month pediatric ex-
clusivity before the district court’s liability decision.
Thus, although the asserted patents expired on April 20,
2007, the district court ordered that the effective date of
Apotex’s ANDA approval be set six months later, on
October 20, 2007. See Omeprazole IV, 536 F.3d at 1376
(affirming the district court’s order resetting Apotex’s
ANDA effective date). On June 28, 2007, pursuant to the
district court’s order, the FDA revoked its earlier approval
of Apotex’s ANDA, forcing Apotex to cease distribution of
its generic drug until the FDA re-approved its ANDA on
October 22, 2007. See Apotex Inc. v. U.S. Food & Drug
Admin., 508 F. Supp. 2d 78, 80 (D.D.C. 2007). Apotex
made some sales between April 20, 2007, and June 28,
2007, i.e., during the pediatric exclusivity period and
before the FDA’s revocation order. The district court
allowed Astra to recover a reasonable royalty on those
sales, even though the sales had occurred after the expi-
ration date of the patents.
    The district court reasoned that the effect of the pedi-
atric exclusivity period, like that of the patent term, is to
bar the sale of a generic product until after the expiration
of the exclusivity period. The court further noted that the
FDA allows a party holding statutory exclusivity rights to
waive those rights in favor of another drug manufacturer.
See Boehringer Ingelheim Corp. v. Shalala, 993 F. Supp.
1, 2 (D.D.C. 1997). The district court therefore concluded
that if Apotex had obtained a license from Astra in 2003,
the license would have included the right to sell omepra-
zole both during the original term of the asserted patents
ASTRAZENECA AB   v. APOTEX CORP.                         29



and during Astra’s pediatric exclusivity period. In ex-
change, Astra would have received both a royalty pay-
ment for sales made during the original patent term and a
payment for its waiver of its pediatric exclusivity rights
for sales made during the pediatric exclusivity period.
    Apotex contends that the district court’s award of
damages for the period after the expiration of Astra’s
patents runs counter to the Supreme Court’s decision in
Brulotte v. Thys Co., 379 U.S. 29 (1964). In that case, the
Court held that a royalty agreement that projects beyond
the expiration date of the patent is unlawful per se. Id. at
32.
    We do not agree with Apotex that Brulotte controls
the outcome in this case. In Brulotte, the Supreme Court
barred a patentee from using a licensing agreement to
extract royalties after the patent had expired because the
Court deemed such a practice to be a wrongful leverage of
the patent monopoly, “analogous to an effort to enlarge
[that] monopoly” beyond its lawful duration. Brulotte, 379
U.S. at 32-33. The Court’s analysis in Brulotte, however,
does not apply to a situation such as this one, in which
Congress, by creating the pediatric exclusivity period,
explicitly authorized additional market exclusivity to be
granted to the patent owner beyond the life of the patent.
In Brulotte, anyone was free to use the patented technolo-
gy after the patent expired. In this case, by contrast,
absent a waiver from Astra the FDA was not free to
authorize the sale of a generic drug using the patented
technology until the end of the pediatric exclusivity peri-
od. Thus, Astra’s demand for royalty payments for post-
expiration sales does not rest on its patent monopoly; the
demand is based on the fact of Astra’s legal entitlement to
a pediatric exclusivity period. The only issue here is
whether the period during which damages are to be
measured under section 284 may include the post-
30                           ASTRAZENECA AB   v. APOTEX CORP.



expiration pediatric exclusivity period. 7 We hold that it
may not.
    For an act of infringement, as defined in 35 U.S.C.
§ 271(e)(2), the Patent Act provides three types of reme-
dies. They are as follows:
         (A) the court shall order the effective date of
     any approval of the drug . . . involved in the in-
     fringement to be a date which is not earlier than
     the date of the expiration of the patent which has
     been infringed,
         (B) injunctive relief may be granted against an
     infringer to prevent the commercial manufacture,
     use, offer to sell, or sale within the United States
     or importation into the United States of an ap-
     proved drug . . . [and]
        (C) damages or other monetary relief may be
     awarded against an infringer only if there has
     been commercial manufacture, use, offer to sell, or
     sale within the United States or importation into
     the United States of an approved drug . . . .
35 U.S.C. § 271(e)(4).
    While the remedy under subparagraph (A) is unique
to section 271(e)(2) infringement, subparagraphs (B) and
(C) provide the “typical remedies” for patent infringement:
injunctive relief and money damages. Omeprazole IV, 536
F.3d at 1367. When there has been “commercial manu-
facture, use, or sale of an approved drug,” the patentee is


     7  We do not decide whether the pediatric exclusivity
period may be considered in determining the royalty rate
that might be employed in a hypothetical negotiation.
Neither party has raised that argument, and the district
court made no finding regarding the relationship between
the royalty rate and the pediatric exclusivity period.
ASTRAZENECA AB   v. APOTEX CORP.                          31



entitled to “damages adequate to compensate for the
infringement, but in no event less than a reasonable
royalty for the use made of the invention by the infring-
er.” 35 U.S.C. §§ 271(e)(4)(C), 284; see Eli Lilly and Co. v.
Medtronic, Inc., 496 U.S. 661, 678 (1990) (section 271(e)(2)
created a “highly artificial act of infringement” to enable
“judicial adjudication” upon which the ANDA and paper
NDA schemes depend; monetary damages, however, are
permitted only if there has been “commercial manufac-
ture, use, or sale” of the patented invention).
    The district court found that in November 2003, the
parties would have agreed to a license that would extend
beyond the expiration date of the patent, because the FDA
allows Astra to monetize its exclusivity right by waiving it
in favor of a generic drug manufacturer, much as a pa-
tentee may license the right to use its patent for a pay-
ment of royalty. Indeed, when Andrx, one of the “first
wave” defendants, attempted to settle its dispute with
Astra in 2005, it offered precisely such a royalty payment
covering both the original patent term and the pediatric
exclusivity period. Thus, the post-expiration royalty that
the district court envisioned resulting from a hypothetical
negotiation reflects what a generic drug manufacturer in
Apotex’s position would have agreed to in a real licensing
negotiation. Nevertheless, on the facts of this case it was
error for the court to award that amount as part of Astra’s
patent infringement damages under sections 271(e)(4)(C)
and 284.
    We have long held that “there can be no infringement
once the patent expires,” because “the rights flowing from
a patent exist only for the term of the patent.” Kearns v.
Chrysler Corp., 32 F.3d 1541, 1550 (Fed. Cir. 1994) (citing
Kinzenbaw v. Deere & Co., 741 F.2d 383, 386 (Fed. Cir.
1984); Standard Oil Co. v. Nippon Shokubai Kagaku
Kogyo, Ltd., 754 F.2d 345, 347 (Fed. Cir. 1985)). The
pediatric exclusivity period is not an extension of the term
of the patent. See 21 U.S.C. 355a(o)(1) (distinguishing
32                          ASTRAZENECA AB   v. APOTEX CORP.



patent exclusivity from non-patent exclusivity); see also
FDA, Guidance for Industry Qualifying for Pediatric
Exclusivity Under Section 505A of the Federal Food, Drug,
and Cosmetic Act (Sept. 1999) (“FDA Guidance”), at 13
(“Pediatric exclusivity . . . is not a patent term extension
under 35 U.S.C. § 156.”); Mylan Labs., Inc. v. Thompson,
389 F.3d 1272, 1280 (D.C. Cir. 2004) (giving Chevron
deference to the FDA’s interpretation of the pediatric
exclusivity statute). For that reason, it is clear that
Apotex did not infringe Astra’s patents during the exclu-
sivity period, since those patents had expired; if Apotex
had launched its generic product during the exclusivity
period, Astra could not have sued Apotex for patent
infringement based on those sales.
    The royalty base for reasonable royalty damages can-
not include activities that do not constitute patent in-
fringement, as patent damages are limited to those
“adequate to compensate for the infringement.” 35 U.S.C.
§ 284; see Hoover Grp., Inc. v. Custom Metalcraft, Inc., 66
F.3d 299, 304 (Fed. Cir. 1995) (“[A patentee] may of
course obtain damages only for acts of infringement after
the issuance of the [] patent.”); cf. Johns Hopkins Univ. v.
CellPro, Inc., 152 F.3d 1342, 1366 (Fed. Cir. 1998) (the
district court abused its discretion in ordering the repat-
riation of the exported vials under section 283, because
the injunction was directed at activities that did not
constitute infringement).
    For example, in Gjerlov v. Schuyler Labs., Inc., 131
F.3d 1016 (Fed. Cir. 1997), the patent owner and the
defendant had reached a settlement agreement under
which the defendant agreed not to manufacture or sell
certain products, including certain non-infringing prod-
ucts, in exchange for a release from patent infringement
liability. Upon a request of the patent owner to enforce
the settlement agreement, the district court awarded
reasonable royalty damages under section 284 for the
defendant’s sales of a non-infringing product that were
ASTRAZENECA AB   v. APOTEX CORP.                        33



prohibited under the contract. We reversed and vacated
that portion of the district court’s judgment because the
reasonable royalty award included damages for the sale of
non-infringing products. If the defendant had breached
the contract by selling an infringing product, reasonable
royalty damages under section 284 would have been the
proper remedy. Gjerlov, 131 F.3d at 1022-23. We held,
however, it was improper to award reasonable royalty
damages for the defendant’s sale of the prohibited non-
infringing products, because acts that do not constitute
patent infringement cannot provide a proper basis for
recovery of damages under section 284. Id. at 1024.
    That proposition follows from the familiar principle
that the royalty due for patent infringement should be the
“‘value of what was taken’—the value of the use of the
patented technology.” Aqua Shield, 774 F.3d at 770
(quoting Dowagiac Mfg. Co. v. Minn. Moline Power Co.,
235 U.S. 641, 648 (1915) (“As the exclusive right conferred
by the patent was property, and the infringement was a
tortious taking of a part of that property, the normal
measure of damages was the value of what was taken.”));
Ericsson, 773 F.3d at 1226 (“As a substantive matter, it is
the ‘value of what was taken’ that measures a ‘reasonable
royalty’ under 35 U.S.C. § 284.”).
     In this case, what was taken by Apotex was the exclu-
sive right conferred by Astra’s patents up to the date that
they expired. The damages determination should not
include Apotex’s sales during the post-expiration period of
pediatric exclusivity, because Astra’s rights during that
period were not attributable to its patents and were not
invaded by Apotex’s infringement.          Therefore, even
though a party in Apotex’s position would have agreed to
a license covering both the patent term and the pediatric
exclusivity period, determining damages adequate to
compensate Astra for Apotex’s infringement requires that
we focus solely on those activities that constitute actual
infringement, i.e., Apotex’s pre-expiration sales. Apotex’s
34                          ASTRAZENECA AB   v. APOTEX CORP.



sales during the pediatric exclusivity period cannot sup-
port Astra’s claim for reasonable royalties under section
284, because those sales did not infringe Astra’s patents. 8
     Nor can the award of damages for post-expiration
sales be justified on the ground that those damages can be
treated as “‘waiver’ payments made in exchange for
Astra’s waiver of the pediatric exclusivity period,” as the
district court held. Astra did not assert a claim under the
Federal Food, Drug, and Cosmetic Act; its sole claim for
relief was predicated on 35 U.S.C. § 271(a), and the scope
of recoverable damages under that section is defined by
section 284. Even if it had asserted such a claim, the
statute provides no such remedy. See 21 U.S.C. § 337(a)
(“Except as provided in subsection (b) of this section, all
such proceedings for the enforcement, or to restrain
violations, of this chapter shall be by and in the name of
the United States.”).
     By prohibiting the FDA from approving an ANDA for
six months after the expiration of the patent, section 355a
in effect gives an NDA holder in Astra’s situation six
additional months free from competition from ANDA
applicants. See 21 U.S.C. § 355a(b)-(c); FDA Guidance, at
13 (“Pediatric exclusivity . . . extends the period during
which the approval of an abbreviated new drug applica-
tion (ANDA) or 505(b)(2) application may not be made
effective by FDA.”). But the statute does not create a
damages remedy against an ANDA applicant who was
authorized by the FDA to make sales during that period,
as Apotex was for the first two months following the
expiration of Astra’s patents.


     8  Astra also argues that reasonable royalties are re-
coverable for Apotex’s post-expiration sales under the so-
called “accelerated market entry” theory. The cases cited
by Astra, however, were all directed at lost profits analy-
sis and are therefore inapposite.
ASTRAZENECA AB   v. APOTEX CORP.                        35



    The problem that arose in this case resulted from the
timing of the district court’s infringement ruling. If the
liability determination had been made before the expira-
tion date of the patents, the FDA would have revoked the
approval of Apotex’s ANDA in time so that Apotex would
have been barred from selling its generic product during
the entire pediatric exclusivity period. However, because
the district court’s ruling was issued after the expiration
date of the patent, there was a two-month period during
which Apotex was authorized to sell its generic products
before the FDA withdrew its approval of Apotex’s ANDA.
Although the sales that Apotex was authorized to make
during that two-month period may have benefited Apotex
and injured Astra, section 284 is not designed to compen-
sate for those post-expiration sales.
      Given that section 284 fails to support Astra’s claim
for royalty payments on Apotex’s post-expiration sales, we
reverse the portion of the district court’s damages award
relating to the pediatric exclusivity period, and we re-
mand for a recalculation of damages.
    Costs to Astra.
  AFFIRMED IN PART, REVERSED IN PART, and
                REMANDED
