IP News

Reverse Payments Do Not Violate Antitrust Laws

In In re Ciproflaxin Hydrochloride Antitrust Litigation, 2008-1097 (Fed. Cir. Oct. 15, 2008), the Federal Circuit affirmed the U.S. District Court for the Eastern District of New York's grant of summary judgment that agreements settling a patent infringement lawsuit that provide for reverse payments from the patent holder to a generic drug manufacturer did not violate the antitrust laws when the generic drug manufacturer relinquished the 180-day marketing exclusivity granted to the first Paragraph IV abbreviated new drug application (“ANDA”) filer.

In October 1991, Barr Labs, Inc. (“Barr”) filed an ANDA for a generic version of Bayer AG and Bayer Corp.'s (collectively “Bayer”) patented ciprofloxacin hydrochloride (“Cipro”). The ANDA included a Paragraph IV certification indicating that Barr sought to market its generic drug before expiration of Bayer's U.S. Patent 4,670,444 (“the '444 patent”).

On Jan. 16, 1992, Bayer sued Barr for infringement of the '444 patent. Barr answered and counterclaimed for a declaratory judgment that the patent was invalid and unenforceable. Soon thereafter, The Rugby Group, Inc. (“Rugby”), a subsidiary of Hoechst Marion Roussel, Inc. (“HMR”), agreed to share Barr's litigation costs in return for half of Barr's realized profits from the sale of generic Cipro.

Just before trial, Bayer, Barr, HMR, and Rugby entered into several agreements settling the litigation. The agreements provided that Barr, HMR, and Rugby would not challenge the validity or enforceability of Bayer's patent, that Barr would convert its Paragraph IV ANDA to a Paragraph III ANDA (thus certifying that it would not market generic Cipro prior to expiration of the '444 patent), that Bayer would pay Barr $49.1 million, and that Bayer would either supply Barr with Cipro for resale or make quarterly payments to Barr until the end of the fourth quarter of 2003 ' the quarter in which the '444 patent expired. These quarterly payments eventually totaled nearly $350 million.

Following settlement, the validity of Bayer's claims to Cipro were confirmed during re-examination. Bayer then brought suit against four other ANDA filers. The '444 patent was found to be valid and infringed by three of the ANDA filers, while the fourth filer withdrew its Paragraph IV certification.

In 2000 and 2001, purchasers of Cipro and advocacy groups filed several antitrust actions challenging the agreements, which were consolidated. Bayer and the generic defendants moved for summary judgment. Employing a rule of reason analysis, the district court first determined that the relevant market is ciprofloxacin and that Bayer had market power within that market. The court then determined that any adverse effects on competition stemming from the agreements were within the exclusionary zone of the '444 patent, and hence could not be redressed by antitrust law. Given the absence of evidence that the agreements created a bottleneck on challenges to the '444 patent or otherwise restrained competition beyond the scope of the patent, the district court concluded that the antitrust plaintiffs had failed to show that the agreements had any anti-competitive effects on the market for ciprofloxacin beyond that permitted under the patent.

The Federal Circuit affirmed. The court found no error in the district court's determination that anticompetitive effects within the scope of the '444 patent could not be redressed by the antitrust laws, and that there were no anticompetitive effects outside the exclusionary zone of the '444 patent. The Federal Circuit reasoned that the essence of the agreements was to exclude the generic drug manufacturers from profiting from the patented invention and that this was well within Bayer's rights as the patentee. The court disagreed with the antitrust plaintiffs that the generic drug manufacturers' agreement not to challenge the '444 patent's validity violated the antitrust laws since settlements in patent cases frequently provide that the alleged infringer will not challenge the validity of the patent, and there was no evidence that the agreements precluded validity challenges by other non-party generic drug manufacturers.

The Federal Circuit also distinguished contrary holdings by other regional circuits faced with application of the antitrust laws to reverse royalty payment situations. Specifically, the court distinguished the Sixth Circuit's decision in In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003) (holding a reverse payment agreement per se illegal) on the grounds that the generic manufacturer in that case did not relinquish its 180-day marketing exclusivity period granted to the first ANDA filer, thereby delaying entry of other generic manufacturers ' an effect outside the exclusionary zone of the patent at issue.

The court further held that in the absence of evidence of fraud before the PTO or sham litigation, courts need not consider the validity of the patent in the antitrust analysis of a settlement involving a reverse payment since patents are presumed valid. Finally, the Federal Circuit rejected appellants' argument that Barr had manipulated, and retained some right to, the 180-day exclusivity period granted to the first ANDA filer. The court reasoned that FDA regulations condition the 180-day exclusivity period on a “successful defense” of an ANDA filer's Paragraph IV ANDA against the patent holder. Since Barr consented to infringement and validity following settlement, and converted its Paragraph IV ANDA to a Paragraph III ANDA, it had failed to satisfy the successful defense requirement.

Oral Arguments Heard in Tafas v. Dudas

The Federal Circuit recently heard oral arguments in Tafas v. Dudas, Fed. Cir., No. 2008-1352. By way of background, the case concerns a USPTO rules reform package that would impose additional limits on an applicant's ability to procure patent claims. The reforms were introduced in a purported attempt to reduce the backlog of patent applications. According to plaintiffs Tafas and GlaxoSmithKline (“GSK”), the rules package would contravene many sections of the Patent Act thereby rendering the rules package a “substantive” change that is outside the bounds of the USPTO's 35 U.S.C. '2(b)(2) authority, which is limited to rule making consistent with the law. The district court agreed, and the PTO (Dudas) appealed.

During oral argument, the court expressed doubt as to whether precedent really supported the proposition that a federal agency should have the unilateral power to deem its own proposed rules “procedural” and therefore subject to deference, as defendant's counsel argued, instead of vesting that power in the courts at the outset. In discussing whether the PTO's rules would be contrary to 35 U.S.C. '120, counsel for Dudas responded that 35 U.S.C. '120 was not unequivocally contrary, an assertion met with incredulity. Likewise, the court poked fun at counsel's contentions that the proposed limits to the allowable number of claims would not unequivocally abrogate the Patent Act. The panel also suggested that the proposed rules would be pragmatically untenable for business sectors reliant on the patent system to reward them for innovation.

Matthew Berkowitz and J. Ryan Yates are associates in the New York office of Kenyon & Kenyon LLP.

Reverse Payments Do Not Violate Antitrust Laws

In In re Ciproflaxin Hydrochloride Antitrust Litigation, 2008-1097 (Fed. Cir. Oct. 15, 2008), the Federal Circuit affirmed the U.S. District Court for the Eastern District of New York's grant of summary judgment that agreements settling a patent infringement lawsuit that provide for reverse payments from the patent holder to a generic drug manufacturer did not violate the antitrust laws when the generic drug manufacturer relinquished the 180-day marketing exclusivity granted to the first Paragraph IV abbreviated new drug application (“ANDA”) filer.

In October 1991, Barr Labs, Inc. (“Barr”) filed an ANDA for a generic version of Bayer AG and Bayer Corp.'s (collectively “Bayer”) patented ciprofloxacin hydrochloride (“Cipro”). The ANDA included a Paragraph IV certification indicating that Barr sought to market its generic drug before expiration of Bayer's U.S. Patent 4,670,444 (“the '444 patent”).

On Jan. 16, 1992, Bayer sued Barr for infringement of the '444 patent. Barr answered and counterclaimed for a declaratory judgment that the patent was invalid and unenforceable. Soon thereafter, The Rugby Group, Inc. (“Rugby”), a subsidiary of Hoechst Marion Roussel, Inc. (“HMR”), agreed to share Barr's litigation costs in return for half of Barr's realized profits from the sale of generic Cipro.

Just before trial, Bayer, Barr, HMR, and Rugby entered into several agreements settling the litigation. The agreements provided that Barr, HMR, and Rugby would not challenge the validity or enforceability of Bayer's patent, that Barr would convert its Paragraph IV ANDA to a Paragraph III ANDA (thus certifying that it would not market generic Cipro prior to expiration of the '444 patent), that Bayer would pay Barr $49.1 million, and that Bayer would either supply Barr with Cipro for resale or make quarterly payments to Barr until the end of the fourth quarter of 2003 ' the quarter in which the '444 patent expired. These quarterly payments eventually totaled nearly $350 million.

Following settlement, the validity of Bayer's claims to Cipro were confirmed during re-examination. Bayer then brought suit against four other ANDA filers. The '444 patent was found to be valid and infringed by three of the ANDA filers, while the fourth filer withdrew its Paragraph IV certification.

In 2000 and 2001, purchasers of Cipro and advocacy groups filed several antitrust actions challenging the agreements, which were consolidated. Bayer and the generic defendants moved for summary judgment. Employing a rule of reason analysis, the district court first determined that the relevant market is ciprofloxacin and that Bayer had market power within that market. The court then determined that any adverse effects on competition stemming from the agreements were within the exclusionary zone of the '444 patent, and hence could not be redressed by antitrust law. Given the absence of evidence that the agreements created a bottleneck on challenges to the '444 patent or otherwise restrained competition beyond the scope of the patent, the district court concluded that the antitrust plaintiffs had failed to show that the agreements had any anti-competitive effects on the market for ciprofloxacin beyond that permitted under the patent.

The Federal Circuit affirmed. The court found no error in the district court's determination that anticompetitive effects within the scope of the '444 patent could not be redressed by the antitrust laws, and that there were no anticompetitive effects outside the exclusionary zone of the '444 patent. The Federal Circuit reasoned that the essence of the agreements was to exclude the generic drug manufacturers from profiting from the patented invention and that this was well within Bayer's rights as the patentee. The court disagreed with the antitrust plaintiffs that the generic drug manufacturers' agreement not to challenge the '444 patent's validity violated the antitrust laws since settlements in patent cases frequently provide that the alleged infringer will not challenge the validity of the patent, and there was no evidence that the agreements precluded validity challenges by other non-party generic drug manufacturers.

The Federal Circuit also distinguished contrary holdings by other regional circuits faced with application of the antitrust laws to reverse royalty payment situations. Specifically, the court distinguished the Sixth Circuit's decision in In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003) (holding a reverse payment agreement per se illegal) on the grounds that the generic manufacturer in that case did not relinquish its 180-day marketing exclusivity period granted to the first ANDA filer, thereby delaying entry of other generic manufacturers ' an effect outside the exclusionary zone of the patent at issue.

The court further held that in the absence of evidence of fraud before the PTO or sham litigation, courts need not consider the validity of the patent in the antitrust analysis of a settlement involving a reverse payment since patents are presumed valid. Finally, the Federal Circuit rejected appellants' argument that Barr had manipulated, and retained some right to, the 180-day exclusivity period granted to the first ANDA filer. The court reasoned that FDA regulations condition the 180-day exclusivity period on a “successful defense” of an ANDA filer's Paragraph IV ANDA against the patent holder. Since Barr consented to infringement and validity following settlement, and converted its Paragraph IV ANDA to a Paragraph III ANDA, it had failed to satisfy the successful defense requirement.

Oral Arguments Heard in Tafas v. Dudas

The Federal Circuit recently heard oral arguments in Tafas v. Dudas, Fed. Cir., No. 2008-1352. By way of background, the case concerns a USPTO rules reform package that would impose additional limits on an applicant's ability to procure patent claims. The reforms were introduced in a purported attempt to reduce the backlog of patent applications. According to plaintiffs Tafas and GlaxoSmithKline (“GSK”), the rules package would contravene many sections of the Patent Act thereby rendering the rules package a “substantive” change that is outside the bounds of the USPTO's 35 U.S.C. '2(b)(2) authority, which is limited to rule making consistent with the law. The district court agreed, and the PTO (Dudas) appealed.

During oral argument, the court expressed doubt as to whether precedent really supported the proposition that a federal agency should have the unilateral power to deem its own proposed rules “procedural” and therefore subject to deference, as defendant's counsel argued, instead of vesting that power in the courts at the outset. In discussing whether the PTO's rules would be contrary to 35 U.S.C. '120, counsel for Dudas responded that 35 U.S.C. '120 was not unequivocally contrary, an assertion met with incredulity. Likewise, the court poked fun at counsel's contentions that the proposed limits to the allowable number of claims would not unequivocally abrogate the Patent Act. The panel also suggested that the proposed rules would be pragmatically untenable for business sectors reliant on the patent system to reward them for innovation.

Matthew Berkowitz and J. Ryan Yates are associates in the New York office of Kenyon & Kenyon LLP.