Second Circuit Denies En Banc Reconsideration in Cipro® Case

In re Ciprofloxacin Antitrust Litigation

By Kevin E. Noonan --

The Second Circuit on Monday denied plaintiffs' petition for rehearing en banc of its decision that the "reverse payment" agreement between Bayer and Barr over ciprofloxacin hydrochloride (Cipro®) was not anticompetitive under the antitrust laws.  One judge, Rosemary S. Pooler, dissented from the decision, as she had dissented from the original panel decision.  And her dissent illustrates the point of disagreement, if not the flaw in her arguments (and that of others, including the Federal Trade Commission) that such agreements should be per se illegal.

To recap, 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, in a decision that urged the plaintiffs to petition for rehearing en banc.  That petition has now been denied, setting the stage for a certiorari petition to the Supreme Court.

Judge Pooler raises the many public policy positions taken by the FTC and others, regarding the effects on consumers and drug prices occasioned by such reverse payment agreements.  Her dissent notes that, in the five years prior to the Court's Tamoxifen decision, there were no settlement agreements containing reverse payment provisions, while since that decision there had been a "dramatic surge."  She cites the FTC Report (see "FTC Disapproves of 'Pay-for-Delay' Drug Deals") for the datum 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).

The significant statement in the dissent, that illustrates the underlying (flawed) rationale behind much of the opposition to reverse payment agreements, is this:

Further, such settlements serve no obvious redeeming social purpose.  Put simply, what the patent holder purchases by means of an exclusion payment settlement is the continuation of a patent the patent holder must have thought had some significant probability of being declared invalid.

And in a footnote, continuing:

Nor, it should be noted, are exclusion payments a patent holder's only means of hedging against this probability.  Instead, the probability of invalidation could be reflected in a settlement by means of which the patent holder agrees to some reduction in the unexpired term of the patent.

There are several assumptions behind this statement, not the least of which is contrary to the statutory presumption of validity (the dissent quotes an amicus brief by "the United States" to the effect that "[t]he presumption of patent validity is simply a procedural device that assigns burdens in litigation challenging the validity of an issued patent.  There is no basis for treating that presumption as virtually conclusive and allowing it to serve as a substantive basis to limit the application of the Sherman Act").  What is missing is the concept of risk and reward in the current Hatch Waxman regime, by which generic drug makers are in a position to attack a patent protecting a valuable pharmaceutical franchise while themselves taking no risk.  Indeed, the skewed nature of this relationship has been noted by courts (including the Second Circuit in this case:  "the Hatch-Waxman Act redistributes the relative risks between the patent holder and the generic manufacturer, allowing generic manufacturers to challenge the validity of the patent without incurring the costs of market entry or the risks of damages from infringement") and by a recent study in the journal Science, questioning the utility of the litigation provisions of Hatch Waxman (see "Maybe Hatch-Waxman Data Exclusivity Isn't So Good For Traditional Drugs After All").  It should be noted that these misgivings may be shared by members of Congress, who did not include Hatch Waxman-like litigation provisions in the recently-enacted follow-on biologics bill, instead opting for complicated negotiation provisions seemingly aimed at discouraging Hatch Waxman type litigation over biologic drugs (see "A First Look at the Abbreviated Follow-on Biologic Regulatory Pathway" snippets, pages 1-4).

The dissent also notes that while the Hatch Waxman Act does not prohibit reverse payment agreements, it also "does nothing to change the general rule that market-sharing agreements violate the antitrust laws."  This notion ignores the several decisions by other courts of appeal that reverse settlement agreements are not anticompetitive, when analyzed by the rule of reason (see "Reverse Payments in Generic Drug Settlements" - Part I, Part II, Part III).  Indeed, the dissent's position (and the FTC's and others) is that these agreements should be per se illegal under the Sherman Act.  The problem with this argument is that it is contrary to the legal determinations of several other courts of appeal that not only are these agreements not anticompetitive but, in many instances, result in generic versions of patented drugs being available to consumers earlier than they would have been if the patentee had prevailed at trial.

The dissent also (disturbingly) cites the several sources of "criticism" of the Court's Tamoxifen decision,  including "the majority of State Attorneys General, the Federal Trade Commission, the American Medical Association, and an impressive array of consumer groups and academic commentators."  This is legal decision by plebiscite, not law, and is possibly the worst way for this type of question to be decided.  The careful balancing of risks, rights, and responsibilities required to address this issue is not something that should be left to various interest groups with their various axes to grind.  This may be a question for Congress or the Supreme Court to address, but it is irresponsible for the dissent to suggest that popular opinion is the best way to come to the correct decision.

Comments

[senthil kumar]

The agreement between innovator and generic companies may look as though it is within the exclusive zone of patent law. This is so because the certification on product patent which claims per se the said drug is converted into para IV into Para III and constitutes well within the ambit of patent law. However,such agreement per se violates the trade principles and constitutes anti competitiveness.

[K.M.Senthil Kumar]

Any agreement between innovator and generic companies which denies affordability of generic drugs is against the public interest and contravenes and negates the competitive spirit and forms the basis for anti-trust violations.Any such agreement against public interest becomes anti-competitive and seen as a violation of anti trust priniciples.

[EG]

Kevin,

Again, another nice article on the "reverse-payment" issue. I especially like your comment that the reliance in Pooler's dissent on the "forum of public opinion" is "legal decision by plebiscite, not law." Or as others would say "judicial activism," not "judicial reasoning based on law."

[Kevin E. Noonan]

Dear Kumar:

Please read the opinions in the "Part I, Part II, and Part III" posts referenced in this one. The simple calculus you espouse simply does not comport with reality.

Thanks for the comments.

[K.M.Senthil Kumar]

Dear Kevin,
Thanks for your comments. Though, it may not go well with the reality, such agreements needs scrutiny through judicial review.

[Kevin E. Noonan]

Dear Kumar:

Agreed. But Judge Pooler and others believe these agreements are pet se illegal. Thus, no judicial review would be necessary. Tamoxifen and other decisions apply a rule of reason, which provides just the like of judicial scrutiny you support.

Thanks for the comment.

[patent litigation]

While I'm somewhat surprised by the Second Circuit's decision not to rehear the case en banc, I am looking forward to (potentially) having the Supreme Court weigh in on this issue. This case seems like prime SCOTUS material. If the Court does review the case, however, I find it rather unlikely that it would disregard the FTC's longtime hostility to pay-for-delay agreements; and the government's position tends to carry substantial weight with the SCOTUS. But then again, you never know.
http://www.generalpatent.com/media/videos/general-patent-gets-results-its-clients