Second Circuit Hints At Reversing Course On Reverse Payments

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.