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If no anticompetitive effect outside exclusionary zone of patent, reverse payment OK in ANDA cases

October 29, 2008
Post by Blog Staff

In a recent decision, the Federal Circuit upheld the district court's grant of summary judgment in an antitrust case. At issue was whether reverse payments (from the patentee to the accused infringer) in the context of the Hatch-Waxman Act violated antitrust laws. The Federal Circuit observed that "[t]he essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent," and that "in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment." Based on this standard, the Federal Circuit affirmed the district court's grant of summary judgment of no antitrust violation.

Bayer owns U.S. Patent No. 4,670,444, which is directed to quinoline and napthyridine-carboxylic acid compounds which exhibit antibacterial properties, specifically ciprofloxacin hydrochloride, the active ingredient in Cipro®. Barr Labs, a generic drug manufacturer, filed an Abbreviated New Drug Application (ANDA) for a generic version of Cipro®. Included in the ANDA was a Paragraph IV certification, which indicated that Barr was seeking to market its product prior to the expiration of the '444 patent because the patent was invalid. As the first Paragraph IV ANDA filer, Barr was entitled to a 180-day period of market exclusivity under the Hatch-Waxman Act. In response, Bayer sued Barr for infringement; Barr counterclaimed for a declaratory judgment of invalidity. Prior to trial, Bayer and Barr, as well as various companies related to Barr, signed a series of settlement agreements. Barr agreed to not challenge the validity or enforceability of the '444 patent and convert its Paragraph IV ANDA into a Paragraph III ANDA (meaning that Barr certified that its generic product would not be marketed until after the '444 patent expired). In turn, Bayer agreed to either supply Barr with Cipro® for resale or to make quarterly payments to Barr in exchange for Barr not manufacturing a generic version of Cipro®. In the end, Bayer paid Barr $398 million under this agreement. In addition to these payments, Bayer agreed to let Barr sell a competing product at least six months prior to the expiration of the '444 patent, and the parties entered into a consent judgment affirming the validity and enforceability of the '444 patent.

Four other generic drug manufacturers later filed Paragraph IV ANDAs seeking to market generic versions of Cipro®. Bayer sued each for infringement, but none successfully proved the '444 patent invalid. Thereafter, purchasers of Cipro® and various advocacy groups filed several antitrust actions challenging the settlement agreements. The consolidated complaint alleged various antitrust violations, including that Bayer unlawfully monopolized the ciprofloxacin market by enforcing a fraudulently obtained patent, and engaged in sham litigation against Barr, largely because the case ended in payment from the Bayer to Barr in exchange for not marketing its generic product. The district court, applying rule of reason analysis, determined that any adverse effects on competition that were a result of the settlement agreements were within the exclusionary zone of the '444 patent, and therefore could not be redressed by antitrust law. The Federal Circuit affirmed. The court first addressed the argument that the settlement agreements allowed Bayer to exclude a competitor from the market by ceasing to enforce its rights as a patentee and paying a competitor. The court noted the district court applied a correct rule of reason analysis, determining that the relevant market was ciprofloxacin and that Bayer had power in that market. The court also agreed the settlement agreements did not have "an anti-competitive effect on the market for ciprofloxacin beyond that permitted by the patent," because "a patent by its very nature is anticompetitive."The court further noted that the settlement agreements excluded the defendants from making a profit on the patented invention, which was well within Bayer's rights as a patentee. The court pointed to the fact that four additional generic drug manufactures later challenged the validity of the '444 patent as evidence that the settlement agreements did not prevent others from challenging the patent's validity. The Federal Circuit additionally noted that the application of a rule of reason analysis to settlement agreements "involving an exclusion payment in the Hatch-Waxman context" was affirmed by the Second Circuit and advocated for by the FTC and the Solicitor General. The court distinguished a Sixth Circuit case which found a similar agreement per se unlawful, because in that case, the generic manufacturer agreed to not give up its 180-day exclusivity period as the first Paragraph IV ANDA filer and not to market a noninfringing version of the generic drug. As a result, that agreement clearly had anti-competitive effects outside the exclusionary zone of the patent. As stated by the Federal Circuit, in these cases "[t]he essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent." Additionally, the court noted that "in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment." Accordingly, the court affirmed the district court's conclusion that there was no antitrust violation.To read the full decision in In re Ciprofloxacin Hydrochloride Antitrust Litig., click here.


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