Patent holders seeking to settle patent infringement cases are breathing a little easier today as a result of yesterday’s decision by the Supreme Court not to review the ruling of the Second Circuit Court of Appeals in Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 05-2851-cv(L) (2d Cir. 2010) (“Cipro”).

The Supreme Court thereby leaves undisturbed the Second Circuit’s rule that payments by brand name pharmaceutical companies to generics in settlement of patent infringement litigation – pursuant to which the allegedly infringing generic agrees not to market its drug product prior to patent expiration – do not violate the antitrust laws unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit.

Notwithstanding a three-way split on this issue among federal courts of appeals, the Supreme Court was unpersuaded by petitioners’ argument to hear the case because such settlements allegedly cost government agencies and consumers billions of dollars per year in the form of higher drug prices.

The Cipro defendants argued that the issue was one of patent law, not antitrust law, and therefore the Supreme Court should not disturb the Second Circuit’s ruling on antitrust grounds.  The Supreme Court apparently accepted the defendants’ argument, although it gave no reasons for denying review.

In January, 32 state attorneys general filed an amicus brief in the U.S. Supreme Court, urging the Court to hear and overturn Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 05-2851-cv(L) (2d Cir. 2010) (“Cipro”).  In Cipro, the Second Circuit affirmed its legal standard governing so-called “reverse payments,” which are payments by a brand name drug manufacturer to a generic drug manufacturer in settlement of patent infringement litigation brought by the brand name manufacturer against the generic.  In exchange, the generic agrees not to market its allegedly infringing product.  Because the generic product has yet to be marketed, the generic does not face the risk of paying damages if its product is found to infringe.   

The Second Circuit affirmed its previous holdings that such settlements do not constitute a per se antitrust violation, and that patent settlements are presumptively lawful (unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit).  The state AGs argue in their brief that such settlements cost government agencies and consumers billions of dollars per year in the form of higher drug prices, and that “[m]aintaining open competition in pharmaceutical markets is critical to the States’ ability to provide drugs to their consumers at a reasonable cost, and to control escalating drug costs that threaten to swamp already strained budgets.”  Further, “the legal standard as to reverse payment agreements is subject to widely differing interpretations and results, [and] State antitrust enforcers need clear guidance.” 

The defendants opposed the plaintiffs’ petition for certiorari and the attorneys general’s brief, stating that it was principally a patent case that did not involve “any claims under federal antitrust laws,” thereby presenting “a poor vehicle for” the Supreme Court “to construe those laws.”  The defendants further argue that the “petitioners’ rhetoric about the importance of competition is out of place with respect to competition within the scope of a patent, which by definition grants an inventor freedom from competition within that limited scope for a limited time, in order to promote and reward invention.”

For a detailed discussion of the Cipro case, see this blog’s prior entries on the Second Circuit’s opinions.

The Supreme Court case docket is No. 10-762.

An article detailing the history of reverse-payment antitrust litigation is available here.

The U. S. Court of Appeals for the Second Circuit denied rehearing en banc today of its recent decision in the reverse-payment case of Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litigation) – despite the original three-judge appellate panel’s extraordinary invitation to the parties to submit briefs requesting rehearing by the entire court.

The case involves so-called “reverse payment” or “pay-for-delay” patent infringement settlements in which a brand-name pharmaceutical manufacturer pays the allegedly infringing generic manufacturer to settle claims that the generic product infringes the brand-name manufacturer’s patent, in exchange for which the generic agrees not to market its product.  Antitrust enforcement officials and consumer groups argue that such settlements cost consumers billions of dollars per year in the form of higher drug prices. 

The plaintiffs sued Bayer and generic manufacturers of the blockbuster antibiotic Cipro, alleging that Bayer’s payment of hundreds of millions of dollars to the generics in settlement of patent infringement litigation violated the antitrust laws.  The trial court granted summary judgment for the defendants, which a three-judge panel upheld on appeal.

The three-judge panel, however, wrote – some might say reluctantly – that its decision was bound by a prior Second Circuit panel’s opinion upholding a similar patent settlement, In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).  Tamoxifen held that patent settlements are presumptively lawful, unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit (e.g., because the patent holder knew that the patent was invalid or unenforceable). 

The Cipro panel described the anticompetitive effects of reverse payment settlements, and invited the parties to submit briefs to request rehearing of its decision and whether the Second Circuit sitting en banc should overrule Tamoxifen.  Today, the Second Circuit declined to do so, with only Judge Pooler dissenting, in an opinion.  Judge Pooler voted for rehearing because “the ‘enormous importance’ of the issues that this case raises is beyond dispute,” and “[i]t will be up to the Supreme Court or Congress to resolve” them. 

Legislation to ban or strictly limit these kinds of settlements remains pending in Congress in the forms of S. 369 and H.R. 1706.  Supporters of the legislation continue to try to attach it to various legislative vehicles, and it may be considered again before the end of the year. 

An article detailing the history of reverse-payment antitrust litigation is available here.

Reverse payment settlements, which have inhibited the use of generic drugs, may be alive and well for now, but the United States Court of Appeals for the Second Circuit is recommending that unsuccessful plaintiffs challenging such a settlement seek a second opinion.

On Thursday, a panel for the Second Circuit reluctantly upheld a so-called reverse payment settlement in In re Ciprofloxacin Hydrochloride Antitrust Litigation, but took the extraordinary step of recommending the unsuccessful challengers petition for rehearing in banc.

In the settlement, Bayer, the patent holder for ciprofloxacin hydrocloride (“Cipro”) – the most prescribed antibiotic in the world – agreed to pay Barr Laboratories to drop its validity challenge to the Bayer patent and not enter the Cipro market.  Barr had filed an abbreviated new drug application (“ANDA”), with the FDA to supply a generic form of Cipro.  Under the the Hatch-Waxman Act, ANDA filers do not have to prove to the FDA that their generic drugs are safe and effective, inasmuch as these drugs are bioequivalents of previously approved drugs.

Stating that it was bound by the Second Circuit’s 2005 ruling in In re Tamoxifen Citrate Antitrust Litigation, the panel held per curium that it is presumed that such reverse payment settlements do not offend antitrust norms, as “the right to enter into reverse exclusionary payment agreements fall within the terms of the exclusionary grant conferred by the branded manufacturer’s patent.”  As a result, it found the Cipro reverse payment settlement to be legal. 

However, the Court also noted that such reverse payment settlements have been criticized by the FTC (and virulently criticized by the FTC Chairman, Jonathan Leibowitz), the Antitrust Division, scholars and a number of courts.  Indeed, while noting that it did not have the authority to overrule Tamoxifen, the panel noted that there were “compelling reasons to revisit Tamoxifen.”  The panel thus “invited” the plaintiffs to file a petition for an en banc rehearing so that Tamoxifen could be thoroughly examined by the full Second Circuit.

If the Second Circuit reverses Tamoxifen and sets a more liberal standard for finding reverse payment settlements anticompetitive, such as a standard that would invalidate such settlements when patent challengers are paid amounts that have no relation to the risk that they face or the attendant costs of continuing with litigation, there would be a “split in the Circuits” that would make Supreme Court review of this issue ripe for Supreme Court review.

As the issue of reverse payments was recently debated as part of the federal health care reform overall, but was not ultimately dealt with in that legislation, there is a very good chance that this issue will ultimately be headed for Supreme Court.