Supreme Court Refuses to Review Reverse Payments

By Kevin E. Noonan --

The Supreme Court today denied certiorari in Louisiana Wholesale Drug Co. v. Bayer AG (decided below as In re Ciprofloxacin Antitrust Litigation; see also "Second Circuit Denies En Banc Reconsideration in Cipro® Case").  According to the Court's website, neither Justice Sotomayor nor Justice Kagan participated in the decision.

The case arose from the Second Circuit's decision that a "reverse payment" agreement between Bayer and Barr Laboratories was not illegal under the antitrust laws.  Bayer holds U.S. Patent No. 4,670,444 claiming generically certain antibiotic drugs, and specifically ciprofloxacin hydrochloride that Bayer sells as Cipro®.  Barr filed an Abbreviated New Drug Application (ANDA) containing a Paragraph IV certification that the '444 patent was invalid and unenforceable.  Before trial, Bayer and Barr settled the litigation, entering into agreements providing that none of the defendants would challenge the validity or enforceability of the '444 patent, and that Barr would convert its Paragraph IV certification to a Paragraph III and not market its generic Cipro® until the '444 patent expired.  Importantly, the agreements contained a provision that Bayer would sell Cipro® to Barr for resale or make quarterly payments ("reverse payments") until December 31, 2003.  In return, Barr agreed not to sell a generic version of Cipro® until at least six months before the '444 patent expired.  It is undisputed that Bayer had paid Barr a total of $398 million under this agreement.  Similar agreements were also made between Bayer and other generic drug makers, including The Rugby Group and Watson Pharmaceuticals, Inc.

The Federal Circuit heard a portion of this case under a Walker Process antitrust claim, based on the willful assertion of an unenforceable patent, pursuant to Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), finding that the "reverse payment" agreement was not per se illegal under antitrust law.  A coalition of patient groups, trade unions and pharmacies brought suit in the Eastern District of New York sounding solely in antitrust.  The Court, bound by the Second Circuit's precedential Tamoxifen decision (In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187, 208-12 (2d Cir. 2005)), that such reverse payments were not per se illegal, granted summary judgment to defendants.  The original appellate panel, similarly bound by the Tamoxifen precedent, affirmed (see Patent Docs post), in a decision that urged the plaintiffs to petition for rehearing en banc.  That petition was denied (see Patent Docs post), and the certiorari petition followed.

Several groups had filed amicus briefs recommending the certiorari petition be granted, including:

• The American Antitrust Institute (brief)

• States of California, Arizona, Arkansas, Delaware, Florida, Mawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Oklahoma, Ohio, Oregon, South Carolina, Tennessee, Texas, Utah, Vermont, Washington, Wet Virginia and Wyoming (brief)

• 86 Intellectual Property Law, Antitrust Law, Economics, Business and Public Health Professors, written by Mark Lemley (brief)

• Consumer Federation of America, Prescription Access Litigation LLP, The National legislative Association of Prescription Drug Prices and U.S. PIRG (brief)

• AARP (brief)

• Public Patent Foundation (brief)

• National Association of Chain Drug Stores, Inc. (brief)

The basis of many of these arguments is that so-called "reverse payments" should be per se illegal under the Sherman Act, a position also espoused by Federal Trade Commission.  (PubPat's brief, in keeping with a general theme, contains as a unique basis for opposing reverse payments the "extremely poor" quality of U.S. patents.)  Indeed, the Commission is almost monomaniacal on the subject, going so far as to manipulate venue in an attempt to create a circuit appellate court split to "encourage" the Court to hear their arguments (see "FTC Continues Attempt to Block Reverse Payments").  The FTC issued a Report (see "FTC Disapproves of 'Pay-for-Delay' Drug Deals"), which provided data that there have been 53 reverse payment-containing agreements that had cost consumers "approximately $3.5 billion per year" (by FTC estimates, which may be flawed; see Patent Docs report).

This stance is in contrast to the decisions of several courts of appeal, not only that these arrangements are not per se illegal, but that they frequently do not amount to an antitrust violation under the rule of reason (see "Reverse Payments in Generic Drug Settlements" - Part I, Part II, Part III).  Those decisions found that not only were these agreements not anticompetitive but, in many instances, resulted in generic versions of patented drugs being available to consumers earlier than they would have been if the patentee had prevailed at trial.

The Court's decision maintains the status quo tension between the exclusivity arising under patent law and its counter prohibitions on restraint of free competition under antitrust law.   Until the Court decides to hear a "reverse payment case," it can be expected that both the practice and the uncertainty about its legality will continue.

Comments

[patent litigation]

At first I was surprised to learn of the Court's denial of cert for this case; the fact pattern seemed almost to have "US Supreme Court" written all over it. But on reflection, I am no longer surprised. Patent law expert Gene Quinn and other pundits have noted that the Roberts Court is pro-big-business. This may present one explanation as to why the SCOTUS plans to review Microsoft v. i4i (particularly since Chief Justice Roberts is a Microsoft shareholder), but not the Bayer case. Perhaps Roberts is also a Bayer shareholder? :)
http://www.aminn.org/patent-reform-act-2011-s23