Antitrust Enforcers Support Rehearing in Cipro Reverse Payment Patent Suit

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

The Department of Justice Antitrust Division, the FTC, and 34 states have asked the U.S. Court of Appeals in New York City for an en banc hearing to consider a three-judge panel’s decision (2010-1 Trade Cases ¶76,989) rejecting an antitrust challenge to a settlement in a patent infringement lawsuit involving the antibiotic ciprofloxacin hydrochloride (Cipro).

In that decision, the court—noting that it was bound by an earlier Second Circuit decision, Joblove v. Barr Labs., Inc. (In re Tamoxifen Citrate Antitrust Litig.), 2006-2 Trade Cases ¶75,382—invited the plaintiffs to petition for rehearing en banc so that the full appeals court might consider the issue.

The plaintiffs, indirect purchasers of Cipro, had challenged the patent settlement agreement between the owner of the patent for the active ingredient in Cipro and potential generic manufacturers of Cipro as an illegal market-sharing agreement.

In separate briefs, the Antitrust Division, the FTC, and the states asked the Second Circuit to reconsider the Tamoxifen standard.

Department of Justice Brief

According to the Justice Department’s June 3 amicus brief, the Tamoxifen standard “has encouraged ‘pay for delay’ settlements in the pharmaceutical industry . . . [b]y shielding most private reverse payment settlement agreements from antitrust liability.”

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.

FTC Arguments

The FTC contended in its brief that the Tamoxifen decision “shields a pernicious practice, which imposes enormous costs on American consumers of pharmaceutical drugs, from robust antitrust scrutiny.”

The agency cited three additional reasons for granting rehearing en banc:

(1) the Tamoxifen decision made “mistaken assumptions about the pharmaceutical industry”;

(2) five years of empirical evidence confirmed delayed generic entry and increased consumer costs resulting from the challenged conduct; and

(3) the Tamoxifen rule threatens to undermine congressional policy against agreements between big pharmaceutical firms and generic drug companies intended to keep lower-cost drugs out of the market.

States’ Views

Thirty-four states, led by Vermont, California, and Florida, said in their brief that “the Tamoxifen Court’s endorsement of reverse payment agreements to thwart generic competition requires further review to avoid continued undue financial hardship on both consumers and the states.”

The states also suggested that a rehearing en banc in the Cipro case might provide more certainty in the law in light of the U.S. Supreme Court’s refusal to review the split among the circuits on the issue.

The case is Arkansas Carpenters Health Welfare Fund v. Bayer AG, Bayer Corp., Civ. Nos. 05-2851-CV(L) and 05-2852-CV(CON).

Sham Drug Patent Litigation, Not Reverse Payments, Could Have Violated Antitrust Law

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The manufacturer of a branded drug used to treat male hypogonadisma and three generic drug manufacturers could have conspired to restrain trade in violation of federal antitrust law by entering into settlements of sham patent infringement litigation under which the generic drug makers kept their versions off the market in exchange for a portion of the branded manufacturer's monopoly profits, the federal district court in Atlanta has ruled.

However, several other antitrust claims brought by the FTC and putative classes of direct and indirect purchasers were not similarly viable.
Specifically, the court rejected claims that the reverse payment aspect of the settlements rendered them illegal and the drug makes had violated antitrust law by agreeing not to compete.

Also rejected were (1) claims by all of the plaintiffs that the drug companies had attempted to monopolize the market for the generic version through an overall scheme that included improper patent listing in the Food and Drug Administration's Orange Book, the filing of sham litigation, and the reverse payment settlements and (2) claims by indirect purchasers that the defendants' actions violated the common law and antitrust laws of 40 states.

Therefore, the defendants' motions to dismiss were granted as to the claims of the FTC and indirect purchasers and granted in part and denied in part as to the claims of the direct purchasers.

Noerr-Pennington Immunity

Three of the defendants asserted immunity under the Noerr-Pennington doctrine, which provides that no antitrust liability may arise from petitioning the government for an anticompetitive outcome. Immune petitioning activity may include legislative lobbying and administrative and judicial proceedings. However, there is a well-established exception to the Noerr-Pennington doctrine for sham litigation.

In this case, the complaining putative class of direct purchasers sufficiently alleged that the branded manufacturer's infringement actions were objectively baseless on the grounds that the generic versions clearly did not infringe the original patent covering the drug and the patent clearly did not meet the written description requirement as to the drug's composition ranges, the court reasoned.

The drug manufacturers did not unreasonably restrain trade simply by entering into settlements under which the generic drug makers were paid to keep their generic versions off the market, the court found. Because the complaining drug purchasers and FTC did not allege that the settlements exceeded the scope of the manufacturer's patent on the drug, it did not matter that the companies settled their patent disputes with reverse payments.

By their nature, patents created an environment of exclusion and crippled competition. Thus, the anticompetitive effect was already present. It was irrelevant whether the patent might ultimately be found invalid. Moreover, the conduct was not illegal per se. Per se illegality analysis did not apply to reverse payments, the court noted.

The February 22 decision is In re: Androgel Antitrust Litigation (No. II), 2010-1 Trade Cases ¶76,914.

New Administration Signals New Enforcement Priorities for 2009 Antitrust Division

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

A new administration meant new leadership and new enforcement priorities at the Department of Justice Antitrust Division in 2009.

Former FTC Commissioner Christine A. Varney was confirmed by the Senate in April to serve as Assistant Attorney General in charge of the Department of Justice Antitrust Division. Soon thereafter, Varney took steps to reverse some of the policies set by the prior administration.

First, in May, Varney withdrew a September 2008, Antitrust Division report, entitled “Competition and Monopoly: Single-Firm Conduct Under Section 2 of theSherman Act” (CCH Trade Regulation Reporter ¶50,231), which examined whether and when specific types of single-firm conduct violate Section 2 of the Sherman Act.

The antitrust chief said that withdrawing the report “is a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.”

Patent “Reverse Payments”

The current Antitrust Division has also taken a tougher stand on patent litigation settlements involving a “reverse payments.” In July, the Department of Justice filed a brief with the U.S. Court of Appeals in New York City, considering an action challenging a settlement agreement between drug maker Bayer AG and the generic defendant Barr Laboratories, Inc.

The Justice Department said that a patent litigation settlement involving a “reverse payment” to the alleged drug patent infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to market should be viewed as presumptively unlawful.

The move brings the Justice Department’s position closer to that espoused by the FTC on “pay-for-delay” patent settlement agreements between drug makers.

Horizontal Merger Guidelines

Another example of increased coordination between the Antitrust Division and the FTC was the September announcement to explore the possibility of revising the agencies’ joint horizontal merger guidelines. The agencies kicked off workshops in December to consider changes to the guidelines. The workshops will continue in January 2010.

Mergers and Acquisitions

Despite the Antitrust Division’s efforts to strengthen antitrust enforcement, the agency still faced criticism. Some in the tech sector took issue with the Justice Department’s decision in August not to challenge the merger of Oracle Corporation and Sun Microsystems Inc., which is valued at $7.4 billion.

Since the Justice Department’s announcement approving the deal, Oracle has offered some proposed remedies in an effort to satisfy the competition concerns of the European Commission regarding the maintenance of MySQL as an open source database in competition with Oracle’s proprietary databases following the merger.

Cartel Enforcement

In 2009, as in past years, the Justice Department continued to make cartel enforcement a priority. The Justice Department continued to obtain guilty pleas from companies and executives in connection with investigations into conspiracies to fix cargo rates for international air shipments and to fix prices for Thin Film Transistor-Liquid Crystal Display panels.

A new focus for the Antitrust Division in 2009 was bid rigging in the municipal bonds industry

Justice Department Calls “Reverse Payments” in Patent Settlements Presumptively Illegal

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

A patent litigation settlement involving a “reverse payment” to the alleged drug patent infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to market is presumptively unlawful under the antitrust law, according to a July 6 brief filed by the Department of Justice with the U.S. Court of Appeals in New York City.

The brief was filed in an action challenging a settlement agreement between drug maker Bayer AG and the generic defendant Barr Laboratories, Inc. regarding the antibiotic drug ciprofloxacin. The case is Arkansas Carpenters Health and Welfare Fund v. Bayer, AG, 05-2851-cv(L).

Alignment of Antitrust Division, FTC Positions

The Justice Department’s brief reflects a move toward an alignment of the Antitrust Division and FTC positions on reverse payment settlements.

In its brief, the Justice Department cites an FTC opinion, In the Matter of Schering-Plough Corp. (CCH Trade Regulation Reporter ¶15,525), which states that “the possible existence of a so-called ‘reverse payment’ raises a red flag that . . . mandates a further inquiry.”

That opinion was later vacated by the U.S. Court of Appeals in Atlanta in Schering-Plough Corp. v. FTC (2005-1 Trade Cases ¶74,716), which concluded that the FTC failed to establish that settlements of patent infringement litigation restrained trade.

When the FTC asked for U.S. Supreme Court review of the federal appellate court’s decision in 2006, the Solicitor General recommended that the Court deny the petition for review, saying that the case did not present “an appropriate opportunity . . . to determine the proper standards for distinguishing legitimate patent settlements, which further the important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade in violation of the antitrust laws.”

Text of the Justice Department brief appears here on the Department of Justice Antitrust Division website.