In re Ciprofloxacin Hydrochloride Antitrust Litigation (Fed. Cir. 2008)

By Kevin E. Noonan --

The Federal Circuit today issued its decision in the Ciprofloxacin antitrust litigation, in an opinion that addressed the extent to which a patent-holding innovator drug company can enter into an agreement with a generic competitor that keeps the generic drug off the market.

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.  During the course of the ensuing litigation, the other named defendants became involved through agreements with Barr.  Before trial, Bayer and Barr settled the litigation, with the various parties entering into several agreements.  These agreements provided 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.

The most significant provision of these agreements provided 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.  In a footnote, the Court noted that Bayer had paid Barr a total of $398 million under this agreement.

After entering into these settlement agreements, Bayer filed for re-exam, and although some claims were amended or cancelled, the claim to the Cipro® drug product was not changed.  Thereafter, four other generic drug companies (Schein, Mylan, Carlsbad, and Ranbaxy) filed ANDAs on the re-examined '444 patent.  Bayer prevailed over Schein and Mylan on summary judgment, and won a bench trial against Carlsbad.  (Ranbaxy's suit was dismissed when it withdrew its Paragraph IV certification.)  Inequitable conduct was not raised in any of these actions.

The underlying District Court litigation was a consolidation of several antitrust actions by patient advocacy groups and both direct and indirect Cipro® purchasers.  In this suit, the plaintiffs raised four counts under Federal antitrust law, as well as a fifth count under state antitrust and consumer protection laws; these state law claims were based on the allegation that the '444 patent was obtained through fraud on the Patent Office and the actions were sham litigations.  The District Court granted summary judgment for Bayer on the antitrust counts, and dismissed the state law claims as being barred by preemption.  This decision was based on the District Court's determination that all of the misconduct alleged involved misconduct before the PTO (as opposed to misconduct in the marketplace, for example).

The Federal Circuit affirmed, in an opinion by Judge Prost joined by Judge Schall and Judge Ward of the Eastern District of Texas, sitting by designation.  The plaintiffs made the following allegations of error by the District Court that were addressed in Judge Prost's opinion:

(1) that the Agreements were per se unlawful, or were unlawful under a properly-applied rule of reason analysis;
(2) that the Agreements did not fall within the "exclusionary zone" of the '444 patent;
(3) that the district court did not consider the law of the regional circuits and government agencies in evaluating the Agreements;
(4) that the district court did not appreciate the (negative) effects of the Agreements on other generic manufacturers; and
(5) that the district court did not consider evidence showing that the Agreements preserved Barr's claim to the 180-day exclusivity period.

The CAFC began its analysis by reminding the plaintiffs that the Supreme Court had interpreted the Sherman Act's prohibition on restraint of trade to include only unreasonable restraints, and that this was the proper context for assessing whether the Agreements were per se illegal or illegal under a rule of reason.  In order for these Agreements to be per se illegal under the Sherman Act, they would need to have a "predictable and pernicious anticompetitive effect, and . . . limited potential for procompetitive benefit."  The Federal Circuit said the District Court had "no basis" for finding such a predictably anticompetitive effect, and thus properly applied a rule of reason approach.  Using Second Circuit law, the CAFC set out a three-step process for applying the rule of reason:

First, the plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market.  Then, if the plaintiff succeeds, the burden shifts to the defendant to establish the pro-competitive redeeming virtues of the action.  Should the defendant carry this burden, the plaintiff must then show that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition.

The District Court, applying these rubrics, found that the relevant market was ciprofloxacin and that Bayer had market power in that market.  However, the District Court also found that there was "no evidence that the Agreements created a bottleneck on challenges to the '444 patent or otherwise restrained competition outside the 'exclusionary zone' of the patent."  Under these circumstances the District Court found, and the Federal Circuit affirmed, that the plaintiffs had not established the first prong of the test, that there was an anticompetitive effect of the Agreements.

The opinion addressed the plaintiffs' further contention that the Agreements represented an abuse of the patent right, by using the patents to insulate Bayer from competition and avoid the risk of having the '444 patent invalidated.  "[A] patent by its very nature is anticompetitive," according to Judge Prost's opinion, constituting "'an exception to the general rule against monopolies and to the right of access to a free and open market.'"  The District Court properly recognized "this underlying tension between the antitrust laws and the patent laws," according to the Federal Circuit, and further recognized that "any adverse anti-competitive effects within the scope of the '444 patent could not be addressed by antitrust law," citing Supreme Court and several regional circuit court of appeals opinions for this proposition.

Judge Prost's opinion also cited the "long-standing policy" in favor of settlements, including in patent litigation, and that preventing a competitor from entering the market, and using a patent to do so, was within the patentee's right to exclude.  Nor were the provisions in the agreement that Barr and the other generic company defendants would not challenge the validity or enforceability of the '444 patent sufficient to raise antitrust liability, according to the Federal Circuit.  These are common provisions in patent litigation settlement agreements, and the record showed that four other generic companies filed ANDA's with Paragraph IV certifications, illustrating that the Agreements did not prevent the validity or enforceability of the '444 patent from being challenged.

The opinion then turned to the allegation that the District Court should have considered the legal standards used by the various regional circuit courts of appeal and by government agencies such as the Federal Trade Commission in assessing antitrust liability for such exclusionary agreements under Hatch-Waxman.  Most significantly, the CAFC distinguished the Agreements and the conduct of the parties in this case with those in the In re Cardiezem CD Antitrust Litigation.  These distinctions included that the Agreement in the Cardiezem case involved restrictions on sales of non-infringing versions of the generic drug, and an agreement whereby the generic manufacturer did not relinquish its 180-day exclusivity period, thus creating a real impediment and delay in the ability of other generic manufacturers from entering the marketplace.  These provisions created anticompetitive effects outside the exclusion zone of the patent in that case, which were not features of the Agreements at issue here.  Moreover, the opinion voiced its agreement with the Second Circuit (In re Tamoxifen) and Eleventh Circuit (In re Schering-Plough) that a court need not consider the validity of a patent underlying an ANDA settlement agreement unless there is evidence of inequitable conduct or sham litigation.  The CAFC agreed with Judge Posner (in Asahi Glass Co. v. Pentech Pharms., Inc., 289 F. Supp. 2d 986 (N.D. Ill. 2003)) that "if 'there is nothing suspicious about the circumstances of a patent settlement, then to prevent a cloud from being cast over the settlement process a third party should not be permitted to haul the parties to the settlement over the hot coals of antitrust litigation.'"

The Federal Circuit also rejected the plaintiffs' contention that antitrust liability arose under the Agreements because they had the effect of delaying challenges by other generic drug manufacturers, in view of the evidence that there was no "bottleneck" that inhibited other generic manufacturers from filing ANDAs in the face of these Agreements.  The Court also rejected the contention that the Agreements were unlawful because Barr retained its claim to the 180-day exclusivity period.  The Court noted that these Agreements were in effect prior to amendments to the Hatch-Waxman Act that removed the requirement that a first ANDA filer must "successfully defend" the patent infringement suit brought by the patent holder under the Hatch-Waxman regime.  Accordingly, Barr did not retain the right to the 180-day exclusivity period because it settled rather than prevailed in its lawsuit with Bayer, something the Court noted Barr acknowledged in the consent judgment that concluded its ANDA litigation with Bayer as part of the settlement agreement.

The Federal Circuit also affirmed dismissal of Count V of plaintiffs' complaint, based on state antitrust law, under the doctrine of federal preemption.  The Court agreed with the District Court that any misconduct alleged by plaintiffs in support of this claim was misconduct that occurred before the Patent Office, and that the issue was one of patent law which fell exclusively under federal law.

This case illustrates once again the "tension," even in a legal scheme as comprehensive as Hatch-Waxman, between the exclusivity arising under patent law and its counter prohibitions on restraint of free competition under antitrust law.  The Federal Circuit's decision here clarifies the types of behavior that fall within the protections of patent law and those that do not and thus raise antitrust liability.

In re Ciprofloxacin Hydrochloride Antitrust Litigation (Fed. Cir. 2008)
Panel: Circuit Judges Schall and Prost and District Court Judge Ward
Opinion by Circuit Judge Prost