Opinion ID: 1190929
Heading Depth: 1
Heading Rank: 6

Heading: Reverse Exclusionary Payment Settlements, Antitrust Law, and Tamoxifen

Text: Plaintiffs argue that when Bayer paid Barr to withdraw its challenge to the Cipro patent, defendants effectively entered into a market-sharing agreement in restraint of trade. Patent settlements, like all private contracts, are subject to antitrust scrutiny. Cf. Standard Oil Co. v. United States, 283 U.S. 163, 169, 51 S.Ct. 421, 75 L.Ed. 926 (1931) (The limited monopolies granted to patent owners do not exempt them from the prohibitions of the Sherman Act ....); see also B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1426-27 (Fed.Cir.1997) (the Sherman Act prevents patentees from obtaining a greater monopoly than was inherent in the relevant patent grant). Thus, like ordinary contracts, patent settlements cannot take the form of market-sharing agreements. See Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990) (per curiam) (market-sharing agreement is unlawful on its face); United States v. Sealy, Inc., 388 U.S. 350, 357-58, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967) (same); see also 12 Herbert Hovenkamp, Antitrust Law ¶ 2030b, at 213 (2d ed. 2005) ([T]he law does not condone the purchase of protection from uncertain competition any more than it condones the elimination of actual competition). The question, therefore, is whether patent settlements in which the generic firm agrees to delay entry into the market in exchange for payment fall within the scope of the patent holder's property rights, or whether such settlements are properly characterized as illegal market-sharing agreements. Authorities are divided on this question. The Federal Trade Commission (FTC), the U.S. antitrust enforcement agency charged with supervising the pharmaceutical industry, has long insisted that reverse exclusionary payment settlements violate antitrust law and has challenged numerous agreements as unreasonable restraints of trade. [11] Although it initially took a different view, the United States has since maintained that reverse exclusionary payment settlements may violate antitrust laws. See Brief for the United States as Amicus at 12, JOBLOVE v. BARR LABS., INC., No. 06-830, 2007 WL 1511527 (U.S. May 23, 2007). Many academic commentators share the United States's view. [12] Most courts, by contrast, including this Court, Joblove v. Barr Labs. Inc, (In re Tamoxifen Citrate Antitrust Litig.), 466 F.3d 187, 216 (2d Cir.2006) ( Tamoxifen ), have held that the right to enter into reverse exclusionary payment agreements fall within the terms of the exclusionary grant conferred by the branded manufacturer's patent. See In re Ciprofloxacin Antitrust Litig., 544 F.3d at 1333; Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1076 (11th Cir.2005). But see La. Wholesale Drug Co. v. Hoechst Marion Roussel, Inc. (In re Cardizem CD Antitrust Litig.), 332 F.3d 896, 908 (6th Cir.2003) (holding such agreements to be per se illegal); In re Terazosin Hydrochloride Antitrust Litig., 352 F.Supp.2d 1279 (S.D.Fla.2005) (same). Particularly relevant here is this Court's decision in Tamoxifen. The plaintiffs in Tamoxifen challenged a reverse exclusionary payment settlement between Zeneca and Barr that the parties entered into after a district court had declared Zeneca's patent invalid. 466 F.3d at 193. At the 12(b)(6) stage, Tamoxifen rejected as speculative plaintiffs' allegation that Barr would have prevailed on appeal but for the settlement agreement. Id. at 203-04. Assuming the truth of plaintiffs' allegation that the exclusion payments exceeded the profits Barr would have obtained upon entering the market as a generic competitor, the Tamoxifen court determined that the plaintiffs had no antitrust claim because a patent holder is entitled to protect its lawful monopoly over the manufacture and distribution of the patented product. Id. at 205, 208-09. Notably, Tamoxifen expressly adopted aspects of the lower court's summary judgment decision in this case, holding: Unless and until the patent is shown to have been procured by fraud, or a suit for its enforcement is shown to be objectively baseless, there is no injury to the market cognizable under existing antitrust law, as long as competition is restrained only within the scope of the patent. Id. at 213 (citing Cipro III, 363 F.Supp.2d at 535). The Tamoxifen court ruled that the settlement agreement did not exceed the scope of the patent where (1) there was no restriction on marketing non-infringing products; (2) a generic version of the branded drug would necessarily infringe the branded firm's patent; and (3) the agreement did not bar other generic manufacturers from challenging the patent. Id. at 213-15; cf. Cipro III, 363 F.Supp.2d at 540-41; Cipro II, 261 F.Supp.2d at 241-47. Since Tamoxifen rejected antitrust challenges to reverse payments as a matter of law, we are bound to review the Cipro court's rulings under the standard adopted in Tamoxifen. See 466 F.3d at 208-12. We therefore proceed to evaluate plaintiffs' claims under Tamoxifen. [13] Plaintiffs do not argue that the patent infringement lawsuit was a sham or that the Cipro patent was procured by fraud. Thus, the only reasonable basis for distinguishing Tamoxifen would be if plaintiffs demonstrated that the settlement agreement here, unlike in Tamoxifen, exceeded the scope of the Cipro patent. Plaintiffs cannot establish this because a generic version of Cipro would necessarily infringe Bayer's patent. Tamoxifen explained that unlike formulation patents, which cover only specific formulations or delivery methods for a compound, a compound patent by its nature, excludes all generic versions of the drug. 466 F.3d at 214. Bayer's Cipro patent is a compound patent. Id. Thus, Barr's agreement to refrain from manufacturing generic Cipro encompasses only conduct that would infringe Bayer's patent rights. Plaintiffs also claim that the challenged agreements contained ancillary restraints outside the scope of the patent: (1) Barr was permitted under the agreements to manipulate its rights to the 180-day market exclusivity period; and (2) Barr and HMR agreed to refrain from filing future ANDA-IV certifications related to Cipro. [14] Tamoxifen recognized that a plaintiff can have antitrust claims where a Hatch-Waxman settlement allows the generic manufacturer to manipulate the 180-day exclusivity period in a manner that bars subsequent challenges to the patent or precludes the generic manufacturer from marketing non-infringing products unrelated to the patent. See Tamoxifen, 466 F.3d at 213-19; see also Cardizem CD, 332 F.3d at 907-09. In this case, however, plaintiffs have not shown that the settlement agreements allowed manipulation of the exclusivity period or prohibited the marketing of non-infringing products. Plaintiffs contend that Barr's insistence on its right to reclaim the 180-day exclusivity period caused other generic manufacturers to delay subsequent challenges. Specifically, they maintain that Mylan delayed its challenge because it perceived Barr's continued assertion of a right to the 180-day exclusivity as an obstruction to their entry into the market. This argument is unpersuasive. Although the settlement agreement allows Barr to reinstate its ANDA-IV if a subsequent patent challenge were successful, a reinstated ANDA-IV certification would not have entitled Barr to the 180-day exclusivity period based on the law in effect at the time of settlement. [15] Thus, the district court properly determined that Barr forfeited its challenge to the patent and thus any right to 180-day exclusivity, and that other generic manufacturers were able to subsequently challenge the Cipro patent. See Cipro II, 261 F.Supp.2d at 243; [16] cf. Tamoxifen, 466 F.3d at 218-19 (rejecting a claim that Barr manipulated the 180-day exclusivity period based on similar analysis). Finally, plaintiffs argue that Barr and HMR unlawfully agreed to refrain from filing ANDA-IVs even after the Cipro patent expired. The agreement states that Barr and HMR are not to ... file any [ANDA] relating to Cipro with ... a certification made pursuant to Paragraph IV of the Act. The district court reasonably interpreted the agreement to mean that Barr and HMR would not file any ANDA-IV certifications challenging the validity of the Cipro patent. See Cipro II, 261 F.Supp.2d at 253. This reading was consistent with Barr's concession of validity and with the fact that there could not be an ANDA-IV certification for a non-infringing version of the drug since Bayer had a compound patent. Plaintiffs contend that Tamoxifen is distinguishable because, by relying on the district court's Cipro III decision, Tamoxifen adopted an erroneous view of the facts of this case i.e.22, Tamoxifen was based on an erroneous view of the facts of Cipro. This argument is not persuasive. Tamoxifen relied on Cipro III not for its facts, but rather for its legal and policy analysis. The Tamoxifen majority urged against addressing the probability that a patent was invalid and deferred to a patent holder's desire to settle patent challenges, concluding that a patent holder could reasonably decide to pay money, even more than a generic manufacturer would make on the market, to guarantee protection of its patent. See Tamoxifen, 466 F.3d at 210 ([A] rule [limiting the amount of exclusion payments] would ... fail to give sufficient consideration to the patent holder's incentive to settle ....). Plaintiffs and amici also argue that Tamoxifen runs afoul of the purpose of the Hatch-Waxman Act. The purpose of the Hatch-Waxman Act, 21 U.S.C. § 355, was to make available more low cost generic drugs. H.R.Rep. No. 98-857, pt. 1, at 14 (1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647. The Act sought to accomplish this objective by providing an incentive through the ANDA-IV certification procedure for generic manufacturers to challenge presumptively valid patents, which, if successful, would result in exclusivity for the first successful challenger and the entry of generic drugs into the market. The market entry of generic drugs arising from successful Hatch-Waxman challenges can result in significant savings to consumers. See Brief for AARP as Amicus at 8-9 (discussing generic manufacturers' challenges to the Prozac patent and Paxil patent where generic entry resulted in $2.5 and $2 billion in consumer savings, respectively). [17] These policy arguments cannot be addressed here. As defendants note, this panel is bound by Tamoxifen absent a change in law by higher authority or by way of an in banc proceeding. United States v. Snow, 462 F.3d 55, 65 n. 11 (2d Cir.2006). However, there are several reasons why this case might be appropriate for reexamination by our full Court. 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. Brief for the United States as Amicus at 6, 14-15; [18] see also Brief for the United States as Amicus in JOBLOVE v. BARR LABS., INC., No. 06-830, 2007 WL 1511527, at  (U.S. May 23, 2007) (describing the Tamoxifen standard as incorrect). In the pending case, the United States argues: This Court's Tamoxifen standard inappropriately permits patent holders to contract their way out of the statutorily imposed risk that patent litigation could lead to invalidation of the patent while claiming antitrust immunity for that private contract.... [T]his standard effectively bars considering whether the agreement might violate the antitrust laws, and so offers no protection to the public interest in eliminating undeserved patents. Brief for the United States as Amicus at 14-15. [19] While acknowledging that patent-holders are entitled to settle disputes over the validity of their patent, the United States proposes that excessive reverse payment settlements be deemed presumptively unlawful unless a patent-holder can show that settlement payments do not greatly exceed anticipated litigation costs. Id. at 27-32. Second, there is evidence that the practice of entering into reverse exclusionary payment settlements has increased since we decided Tamoxifen. Prior to our Tamoxifen decision, there were fourteen settlements of Hatch-Waxman lawsuits, none of which involved reverse payments to a generic manufacturer. Brief for American Antitrust Institute as Amicus at 3 (citing Fed. Trade Comm'n, Generic Drug Entry: Prior to Patent Expiration 31-32, 34 (July 2002), available at http://www.ftc.gov/os/ 2002/07/genericdrugstudy.pdf). After Tamoxifen, however, plaintiffs represent that twenty of twenty-seven Hatch-Waxman settlements have involved reverse payments. Third, after Tamoxifen was decided, a principal drafter of the Hatch-Waxman Act criticized the settlement practice at issue here. See 148 Cong. Rec. S7565 (July 30, 2002) (remarks of Sen. Hatch) (As coauthor of the [Hatch-Waxman Act], I can tell you that I find these type[s] of reverse payment collusive arrangements appalling); see also 146 Cong. Rec. E1538-02 (Sept 20, 2000) (remarks of Rep. Waxman) ([R]equir[ing] companies seeking to reach secret, anticompetitive agreements to disclose them to the FTC .... [would] ensure that existing antitrust and drug approval laws are enforced to the letter.). [20] Fourth and finally, Tamoxifen relied on an unambiguous mischaracterization of the Hatch-Waxman Act. Tamoxifen was based in no small part on the panel majority's belief that reverse exclusionary settlements open[] the [relevant] patent to immediate challenge by other potential generic manufacturers ... spurred by the additional incentive ... of potentially securing the 180-day exclusivity period available upon a victory in a subsequent infringement lawsuit. 466 F.3d at 214. The panel majority's claim that the statutory exclusivity period cedes to the first ANDA filer to successfully defend was erroneous. See C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement As a Regulatory Design Problem, 81 N.Y.U. L.Rev. 1553, 1583-86 (2006). Contrary to our suggestion in Tamoxifen, later ANDA-IV filers are not eligible for the 180-day exclusivity period. Id. at 1584; cf. 21 C.F.R. § 314.107(c)(1)-(2) (only first-filer eligible for exclusivity period); 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed. Reg. 42,873, 42,874 (Aug. 6, 1999) (revisiting and re-endorsing FDA interpretation of exclusivity provisions); 21 U.S.C. § 355(j)(5)(D)(iii) (codifying FDA interpretation). In addition, unlike Tamoxifen, which was decided at the 12(b)(6) stage, this case involves a summary judgment decision based on a full record. This case could provide our full Court with an opportunity to revisit the issues in play in Tamoxifen and to analyze the competing interests that underlie antitrust challenges to reverse payment settlements in light of the full record and the arguments of the parties and amici, including the United States, that have been raised in this appeal. We therefore invite plaintiffs-appellants to petition for in banc rehearing.