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.

After much confusion in the lower courts – but no actual split among the appeals courts – the Supreme Court has agreed to hear a case about whether consumer goods manufacturers can use copyright law to stop sales of “grey market” imports (goods sold legally abroad and imported into the U.S.), where they compete with the same goods sold through the manufacturer’s authorized channels.

In this case, Costco Wholesale Corp. v. Omega S.A., Omega manufactured watches in Switzerland and sold them to unnamed third parties in Egypt and Paraguay, who resold them to U.S. importers.  The watches appeared on the shelves of discount warehouse store Costco, which sold them for about 30% less than Omega’s authorized sellers in the U.S.  To prevent this, Omega began engraving a small copyrighted logo on the back casing of its watches, and then sued Costco for violating Omega’s exclusive right to distribute its copyrighted work (the logo) in the U.S.

The Copyright Act has a defense called “first sale,” analogous to the “exhaustion” doctrine in patent law.  It says that once a copyright owner has sold a particular copy of its work, it loses the power to control any further distribution, sale, or rental of that copy, so long as the copy was “lawfully made under this title,” i.e., the Copyright Act.  This provision is what enables libraries and video rental stores to lend copyrighted materials, and it is what allows anyone to sell used books or videos without permission from the copyright owner.

The Ninth Circuit Court of Appeals held that “lawfully made under this title” means manufactured in the United States, so that whenever copyrighted items are manufactured abroad and imported, the first sale defense would not apply, and the copyright owner could control all future sales, rentals, or transfers of the goods – in this case, preventing Costco from selling the watches. 

Costco, and numerous amici (friends of the court), argued that Congress knew how to distinguish foreign and domestic manufacturing when it wanted to, and in fact had done so elsewhere in the Copyright Act.  Because the first sale rule does not mention the place of manufacture, they argued, it should be irrelevant.  They also pointed out the practical consequences of the Ninth Circuit’s decision: manufacturers may move their factories abroad in order to get more control over the chain of distribution in the U.S., while retailers may be wary of selling imported goods because they may contain a copyrighted symbol, label or packaging that would create liability for the retailer.

The Supreme Court asked the Justice Department’s Solicitor General for her opinion on whether to grant certiorari.  Although the Solicitor General advised the Court not to take the case, they have now done so.  The case will be heard next term.

Sports leagues and other joint ventures may score an antitrust victory in the Supreme Court this term that makes the Baseball Antitrust Exemption look strictly minor league.

The Supreme Court will hear the case of American Needle, Inc. v. National Football League, which concerns the NFL’s practice of licensing NFL and team logos and other intellectual property exclusively through the NFL’s wholly-owned subsidiary, NFL Properties LLC.

At issue is the extent to which joint ventures, like the NFL, can be considered “single entities” under antitrust law—as opposed to multiple, collectively-acting ball clubs—and thus not held subject to the anticonspiracy prohibitions of § 1 of the Sherman Act.  American Needle thus has the potential to be a watershed case in antitrust analysis of sports leagues and other joint ventures. click here for more »

Many of us think the U.S. health care sector will withstand today’s economy because it supplies important consumer products and services.  Politicians and economists expect pharmaceutical companies to employ scientists, develop medically necessary products, and lead our nation to economic health.  But we must also safeguard companies’ incentive to innovate.  Otherwise we risk losing potentially large sources of employment that will keep our nation competitive in the global economy. click here for more »