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.

En Banc Rehearing Denied in Cipro Reverse Payment Patent Settlement Suit

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

Despite the urging of the federal antitrust enforcement agencies and 34 states, the full U.S. Court of Appeals in New York City will not consider an antitrust challenge to a settlement in a patent infringement lawsuit involving the antibiotic ciprofloxacin hydrochloride (Cipro).

The court on September 7 denied the petition filed by direct purchasers of Cipro for rehearing en banc of a three-judge panel's decision (2010-1 Trade Cases ¶76,989), which rejected antitrust claims based on a purported "pay-for-delay" settlement.

The Department of Justice, the FTC, and 34 states–led by Vermont, California, and Florida—had filed briefs with the court, calling for en banc review. (See June 8, 2010 posting on Trade Regulation Talk.)

Market-Sharing Agreement?

The plaintiffs 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. Under the settlement, Bayer, which holds the Cipro patent, agreed to pay Barr Labs—the alleged infringer—to settle the suit in exchange for Barr's agreement to stay out of the marketplace during the life of the patent, it was argued.

When the decision was handed down in April, the three-judge panel said 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.

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.

Dissent

Judge Rosemary Pooler, who also dissented in the Tamoxifen case, issued a dissent. She said that the Tamoxifen decision "unambiguously deserves reexamination." Following the Tamoxifen decision, there "was a dramatic surge in the practice of pharmaceutical patent holders paying potential competitors to concede the validity of their patents," according to the dissent.

The September 7, 2010, order, In re: Ciprofloxacin Hydrochloride Antitrust Litigation, 05-2851-cv(L), will appear in CCH Trade Regulation Reports.