In a case involving the settlement of patent infringement litigation, in which consumers of tamoxifen (a drug used to treat breast cancer), third-party payors and consumer advocacy groups asserted the settlement violated the antitrust laws, the U.S. Court of Appeals for the Second Circuit affirmed the settlement. In re Tamoxifen Citrate Antitrust Litig., Case No. 03-7641 (2nd Cir. Nov. 2, 2005) (Sack, J.; Pooler, J. dissenting). In affirming the decision, the court held that a settlement of patent infringement litigation would not run afoul of the antitrust laws provided the settlement agreement did not expand the patent rights beyond the scope of the patents at issue in the case. In a vociferous dissent, Judge Pooler argued the strength of the patent should be "central to any antitrust analysis involving a patent" in addition to other factors. The majority’s holding places the Second Circuit in line with cases decided by the Eleventh Circuit in Valley Drug and Schering Plough.
In 1993, Zeneca and Barr Laboratories settled patent infringement litigation stemming from Barr’s efforts to provide a generic form of the drug tamoxifen. Zeneca marketed the drug under the brand name Novadex. Barr filed an abbreviated new drug application (ANDA) with the U.S. Food and Drug Administration (FDA) to begin the process of approving its generic version of the drug. Included with its ANDA, Barr filed certification that claimed the patent held by Zeneca was invalid. Predictably, Zeneca filed a patent infringement suit against Barr. After the district court held the patent invalid, the parties settled.
Under the terms of the settlement, Zeneca agreed to pay Barr $21 million and licensed Barr to supply tamoxifen for resale under Zeneca’s label. Barr agreed to amend its ANDA in order to remove Barr’s claim the tamoxifen patent was invalid. Barr also agreed not to market its generic version of tamoxifen. Other generic companies sought ANDAs for their versions of tamoxifen, and Zeneca successfully sued each of them for infringement. The district court, after concluding the settlement did not restrain trade in violation of the antitrust laws and did not impose antitrust injury on the plaintiffs (a consortium of third-party payors and consumer advocacy groups), dismissed the case. The plaintiffs appealed.
The Second Circuit held that for a settlement agreement to be unlawful under the antitrust laws, the "exclusionary effects of the agreement [must] exceed the scope of the patent’s protection." If the settlement agreement does not expand the scope of the patent, the only available antitrust challenges would be to claim the patent was procured by fraud or the enforcement suit was objectively baseless. On the first part, the Second Circuit analyzed the plaintiffs’ argument that Zeneca’s payment to Barr was "excessive" and indicative of a weak patent. The Second Circuit rejected this argument because even "excessive" payments are permissible as they do not represent an expansion of patent rights. With respect to fraud and baseless enforcement, the court reasoned the plaintiffs never alleged fraud, and subsequent enforcement of the patent by Zeneca (in which courts found other generic companies infringed the tamoxifen patent) indicated the Barr litigation was not objectively baseless.
The dissent focused on the strength of the patent as an important factor in determining whether a settlement was reasonable under the antitrust laws. Other factors the dissent would include in the analysis are: "(a) the amount the patent holder paid to keep the generic manufacturer from marketing its product, (b) the amount the generic manufacturer stood to earn during its period of exclusivity, and (c) any anticompetitive effects of the agreement including the presence or absence of a provision allowing the parties to manipulate the generic’s exclusivity period."
Practice Note
The standard urged by the dissent is similar to the one rejected by the Eleventh Circuit in Schering Plough,a case the U.S. Federal Trade Commission is seeking review by certiorari at the Supreme Court.
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