In re Ciprofloxacin hydrochloride Antitrust Litigation - A bunch of health & welfare funds and unions v. Bayer and a few generic drug makers (CAFC 2008-1097)

Barr tangled with Bayer in filing an ANDA. But they settled. The deal -

Under the Cipro Supply Agreement, Bayer agreed to either supply Barr with Cipro for resale or make quarterly payments (referred to as "reverse payments" or "exclusion payments") to Barr until December 31, 2003. In return, Barr agreed not to manufacture, or have manufactured, a generic version of Cipro in the United States. Beginning at least six months before the '444 patent expired, Bayer agreed to allow Barr to sell a competing ciprofloxacin product. Bayer and Barr then entered into a consent judgment, whereby Barr affirmed the validity and enforceability of the '444 patent and admitted infringement.

Thereafter, four other companies--Ranbaxy, Mylan, Schein, and Carlsbad--filed Paragraph IV ANDAs for a generic version of Cipro.

Bayer beat them off.

Then the antitrust suit started, the result being this appeal.

In 2000 and 2001, direct and indirect purchasers of Cipro and advocacy groups filed several antitrust actions in federal courts challenging the Agreements. The cases were consolidated in the Eastern District of New York pursuant to 28 U.S.C. § 1407. In re Ciprofloxacin Hydrochloride Antitrust Litig., No. 1383, 2001 WL 253240 (J.P.M.L. Jan. 10, 2001). Thereafter, the plaintiffs filed a consolidated complaint containing Counts I-IV, which alleged that the Agreements constituted an illegal market allocation in violation of the prohibition on contracts in restraint of trade contained in sections 1 and 2 of the Sherman Act and in violation of various state antitrust and consumer protection laws.

Patent law trumps antitrust law when no anticompetitive marketplace behavior is evident.

The United States District Court for the Eastern District of New York granted Bayer's and the generic defendants' motion for summary judgment, holding that any anti-competitive effects caused by the settlement agreements between Bayer and the generic defendants were within the exclusionary zone of the patent, and thus could not be redressed by federal antitrust law.

The Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1. Although by its terms, the Act prohibits any "restraint of trade," the Supreme Court "has long recognized that Congress intended to outlaw only unreasonable restraints." State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). Courts will presumptively apply a "rule of reason" analysis to determine whether an agreement imposes an unreasonable restraint on competition. Texaco, Inc. v. Dagher, 547 U.S. 1, 5 (2006). Only agreements that have a "predictable and pernicious anticompetitive effect, and . . . limited potential for procompetitive benefit" are deemed to be per se unlawful under the Sherman Act. State Oil, 522 U.S. at 10. A finding of per se unlawfulness "is appropriate '[o]nce experience with a particular type of restraint enables the Court to predict with confidence that the rule of reason will condemn it.'" Id. (quoting Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 344 (1982)). The Supreme Court has expressed reluctance to adopt per se rules where the economic impact is not immediately obvious. Id.

Under the Agreements, the appellants argue, Bayer is seeking not simply to enforce its patent rights, but to insulate itself from competition and avoid the risk that the patent is held invalid.

The district court did not treat the Agreements as per se legal. Rather, the court simply recognized that any adverse anti-competitive effects within the scope of the '444 patent could not be redressed by antitrust law. United States v. Gen. Elec. Co., 272 U.S. 476, 485 (1926); E. Bement & Sons v. Nat'l Harrow Co., 186 U.S. 70, 91 (1902); see In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 201-02 (2d Cir. 2006); Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294, 1312 (11th Cir. 2003); United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Cir. 1981). This is because a patent by its very nature is anticompetitive; it is a grant to the inventor of "the right to exclude others from making, using, offering for sale, or selling the invention . . . ." 35 U.S.C. § 154(a)(1); Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215 (1980) ("[T]he essence of a patent grant is the right to exclude others from profiting by the patented invention."). Thus, "a patent is an exception to the general rule against monopolies and to the right of access to a free and open market." Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 816 (1945). The district court appreciated this underlying tension between the antitrust laws and the patent laws when it compared the anti-competitive effects of the Agreements with the "zone of exclusion" provided by the claims of the patent. See In re Tamoxifen, 466 F.3d at 201-02; Andrx Pharms., Inc. v. Elan Corp., 421 F.3d 1227, 1235 (11th Cir. 2005); Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1066 (11th Cir. 2005); Valley Drug, 344 F.3d at 1312. Because the court found no anti-competitive effects outside the exclusionary zone of the patent, it concluded that the Agreements were not violative of section 1 of the Sherman Act. Cipro II, 363 F. Supp. 2d at 540-41.

Pursuant to the Agreements, the generic defendants agreed not to market a generic version of Cipro until the '444 patent expired and not to challenge the validity of the '444 patent, and Bayer agreed to make payments and optionally supply Cipro for resale. Thus, the essence of the Agreements was to exclude the defendants from profiting from the patented invention. This is well within Bayer's rights as the patentee. Furthermore, there is a long-standing policy in the law in favor of settlements, and this policy extends to patent infringement litigation. Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1368 (Fed. Cir. 2001); Foster v. Hallco Mfg. Co., 947 F.2d 469, 477 (Fed. Cir. 1991). Settlement of patent claims by agreement between the parties--including exchange of consideration--rather than by litigation is not precluded by the Sherman Act even though it may have some adverse effects on competition. Standard Oil Co. v. United States, 283 U.S. 163, 171 & n.5 (1931).

Settlements in patent cases, however, frequently provide that the alleged infringer will not challenge the validity of the patent. See, e.g., Flex-Foot, 238 F.3d at 1367, 1370; Diversey Lever, Inc. v. Ecolab, Inc., 191 F.3d 1350, 1351 (Fed. Cir. 1999); Interspiro USA, Inc. v. Figgie Int'l, Inc., 18 F.3d 927, 932 (Fed. Cir. 1994). Thus, the mere fact that the Agreements insulated Bayer from patent validity challenges by the generic defendants was not in itself an antitrust violation. Indeed, there is no evidence that the Agreements prevented challenges by other generic drug manufacturers to the validity of the '444 patent. In fact, four other generic manufacturers--Ranbaxy, Mylan, Schein, and Carlsbad--filed Paragraph IV ANDAs and initiated challenges of the validity of the patent.

Case dismissed affirmed.