States Urge High Court to Take Up “Pay-for-Delay” Drug Patent Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Attorneys general from 32 states have filed a friend-of-the-court brief with the U.S. Supreme Court, urging the Court to accept for review a case that seeks to end reverse-payment or "pay-for-delay" settlement agreements. Under these patent litigation settlements, a drug company pays competitors not to market generic versions of its brand-name drug.

The states contend that they "need guidance as to the legality of reverse payment agreements that clearly eliminate generic competition and impact our States’ budgets and citizens."

Direct purchasers of the antibiotic ciprofloxacin hydrochloride (Cipro)—including large drug wholesalers, pharmacies, unions and health care plans—have asked the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in New York City (2010-1 Trade Cases ¶76,989), rejecting their antitrust challenge to settlements in a patent infringement lawsuit involving Cipro.

The direct purchasers had sued drug makers Bayer Corporation, Barr Laboratories, and others, alleging that the exclusion payment agreement in the patent settlements violated the antitrust laws. Bayer allegedly paid its competitors $400 million in exchange for agreements not to market generic versions of Cipro, which is used to prevent and treat a variety of bacterial infections.

The Second Circuit rejected the purchasers' claims, after determining that it was bound by an earlier decision—Joblove v. Barr Labs., Inc. (In re Tamoxifen Citrate Antitrust Litig.), 2006-2 Trade Cases ¶75,382. In Tamoxifen, a divided court held that a reverse payment settlement of a patent lawsuit involving a drug used to treat breast cancer did not violate the antitrust laws.

Under Tamoxifen, a settlement agreement did not exceed the scope of the patent and was valid where:

(1) There was no restriction on marketing noninfringing products;

(2) A generic version of the branded drug would necessarily infringe the branded firm’s patent; and

(3) The agreement did not bar other generic manufacturers from challenging the patent.

In their petition, the drug purchasers asked whether, absent patent fraud or sham litigation, a brand drug maker’s substantial payment to a competing generic drug maker to forgo judicial testing of the patent and restrict entry is per se lawful under the Sherman Act.

The states contend that the Cipro decision, by "allowing courts to conclusively presume that patents are valid and infringed renders most, if not all, reverse payment agreements per se legal." The states reject the standard as too lax.

The petition is Louisiana Wholesale Drug Co., Inc. v. Bayer AG, Dkt. 10-762. California Attorney General Kamala D. Harris is the lead on the amicus brief.