Patent Settlements: 2nd Circuit Okays Bayer's Cipro Deal But Doesn't Want To

While the U.S. Court of Appeals for the Second Circuit found that a reverse settlement agreement involving Bayer's antibiotic Cipro did not violate antitrust laws, it invited the plaintiffs to seek a reexamination of the case by the full court.

The plaintiffs' attorney, Steve Shadowen, said his clients, direct purchasers including CVS Pharmacy and Rite Aid, plan to do so. The filing to request an en banc hearing is due May 13.

In its April 29 opinion, the three-judge panel concluded that it had no choice but to follow the reasoning it applied in its 2005 ruling in the reverse settlement case Joblove v. Barr (In re Tamoxifen Citrate Antitrust Litigation). But the court said there are several reasons why its decision in the current case, Arkansas Carpenters Health and Welfare Fund v. Bayer, should be reconsidered.

"First, the United States has itself urged us to repudiate Tamoxifen, arguing that Tamoxifen adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny," the court stated.

The Second Circuit ruled in Tamoxifen that reverse settlements do not violate antitrust laws unless the agreement extends the monopoly beyond the scope of the patent, the patent was procured by fraud, or the infringement suit was objectively baseless. At the request of the Second Circuit, the Department of Justice filed an amicus brief in the Cipro case in which it said excessive reverse payment settlements from the patentee to the generic challenger are presumptively unlawful (¹ (Also see "Reverse Settlements Are Acceptable Under Certain Conditions, DoJ Says" - Pink Sheet, 7 Jul, 2009.)).

Court Cites Surge In Reverse Settlements

The plaintiffs are challenging Bayer's $398 million payment to Barr and Hoechst Marion Rossel to delay marketing a generic version of Cipro (ciprofloxacin). Their case originally was combined with suits brought by indirect purchasers. But when the parties appealed the district court's ruling granting summary judgment for Bayer and the generic manufacturers, the Second Circuit sent the indirect purchasers' case to the U.S. Court of Appeals for the Federal Circuit.

In 2008, the Federal Circuit upheld the lower court's ruling that the reverse settlement was not inherently anticompetitive because it did not exceed the scope of Bayer's patent.

The Second Circuit noted several other reasons why the full court might take up the Cipro case, including the surge in settlements involving reverse payments after the Tamoxifen decision. The court also cited criticism of reverse settlements by Sen. Orrin Hatch.

Shadowen, of Hangley Aronchick Segal & Pudlin, said it is unusual to have all three judges on a panel suggest a case can be heard. He said the ruling is remarkable in two ways. First, "this panel really grasps the public significance of the case," he said. "It's rare you see a direct connection between what a court does and what happens to consumers after Tamoxifen," when the vast number of settlements between brand and generic companies involved exclusionary payments.

Second, he said, "the court came close to saying Tamoxifen is flat-out wrong."

Bayer said in a statement that it was pleased by the Second Circuit's decision to affirm the trial court's decision dismissing the case and had no further comment on the ruling.

FTC Praises Ruling

The Federal Trade Commission, which has been unsuccessful in challenging reverse settlements, is hopeful that the Second Circuit's ruling may reverse the trend. "This is further evidence that courts are rethinking their approach to pay-for-delay settlements, which cost American consumers $3.5 billion a year in higher prescription costs," FTC Chairman Jon Leibowitz said in a statement. "In the meantime, the FTC will continue to explain, in court and in the halls of Congress, why these sweetheart deals for drug companies are such a bad deal for American consumers and taxpayers."

In February, a Georgia federal court dismissed the Federal Trade Commission's complaint against Solvay and three generic manufacturers over their agreement to delay launch of generic versions of AndroGel . But in March another court ruled that litigation against Cephalon over reverse payments involving its narcolepsy drug Provigil (modafinil) could proceed (² (Also see "Patent Round-Up: Sanofi Settles Eloxatin Suits; Lilly Continues Gemzar Fight" - Pink Sheet, 5 Apr, 2010.)).

- Brenda Sandburg ( ³ [email protected] )