A unanimous panel of the U.S. Court of Appeals for the Federal Circuit affirmed a district court's grant of summary judgment granted to Bayer, holding that reverse payment settlements of a bona fide patent litigation are within the exclusionary zone of the patent and not redressable by federal antitrust law. In re Ciprofloxacin Hydrochloride Antitrust Litigation, Case Nos. 08-1907 (Fed. Cir., Oct. 15, 2008) (Prost, J.).
Bayer owns a patent directed to compounds that 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 Bayer 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. Bayer sued Barr for infringement and Barr counterclaimed for a declaratory judgment of invalidity. On the eve of trial, the parties entered a settlement agreement wherein Barr agreed not to challenge the validity of the Cipro patent and not to manufacture a generic version of the drug until six months before the patent expired. In exchange, Bayer agreed to make payments (characterized as "reverse payments") to Barr that totaled $398 million.
Thereafter, various plaintiffs filed suit, arguing that the settlement constituted an illegal market allocation in violation of Sections 1 and 2 of the Sherman Act because the reverse payments represented payments not to compete. On cross-motions for summary judgment, the district court ruled that the settlement did not violate the antitrust laws because the settlement excluded no competition beyond the exclusionary scope of the patent.
On appeal, the Federal Circuit held that under paragraph 1 of the Sherman Act, the potential anti-competitive effects of the settlements were correctly subject to a "rule of reason" analysis to determine whether they constituted an unreasonable restraint of trade. The Court stated that a finding of a per se violation of the antitrust laws is only appropriate if a court could "predict with confidence" that the settlement agreement would be found to violate the antitrust laws under a "rule of reason" analysis. The essence of the inquiry was whether the agreement restricted competition beyond the exclusionary zone of the patent. According to the Court, there was no evidence that the agreements created a bottleneck preventing generic challenges to the patent. The Court noted that the patent had subsequently been challenged by four other generic manufacturers and was upheld as valid. The Federal Circuit concluded that in cases such as this, wherein all anticompetitive effects of a settlement agreement are within the exclusionary power of the patent, the outcome is the same whether a court begins its analysis under antitrust law or under patent law. The Federal Circuit also concluded that, in the absence of evidence of fraud before the U.S. Patent and Trademark Office (USPTO) or sham litigation, a court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment. The Court noted a long-standing policy favoring settlements that extends to patent infringement litigation. Thus the Court concluded that settlement of patent claims by payments rather than by litigation is not precluded by the federal antitrust laws even though it may have some adverse effects on competition.
Practice Note: The Federal Trade Commission (FTC), which has consistently taken the position that reverse payment settlements violate antitrust laws, filed an amicus brief in this case arguing that the district court erred by holding that patent law immunizes the challenged pharmaceutical settlement agreement from antitrust scrutiny on the ground that the agreement's exclusionary terms are within the scope of the patent.
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