CIPRO Patent Settlement Case is Appealed to the California Court of Appeal

May 20, 2010

By Kurt R. Karst –   

Last fall, we reported on a decision from Judge Richard E. L. Strauss of the Superior Court of California, County of San Diego, in which he granted motions for summary judgment ruling that Bayer AG and several generic drug manufacturers did not violate the Cartwright Act – California’s antitrust law and an analogue to Section 1 of the federal Sherman Act – when Bayer settled patent infringement litigation with respect to generic versions of its antibiotic drug CIPRO (cirprofloxacin HCl).  The case, In re: Cipro Cases I & II, is a proceeding of nine coordinated cases brought by indirect CIPRO purchasers almost ten years ago. 

In his decision, Judge Strauss determined that the court must turn “to federal decisions concerning the Sherman Act as persuasive authority to guide its decision,” because “there is no California authority evaluating whether a Hatch Waxman reverse payment settlement agreement violates state antitrust law (Cartwright Act or otherwise),” and that  “Federal case law is not only instructive in this regard, it is dispositive.”  Relying heavily on federal court decisions, such as the Federal Circuit’s decision in In Re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008), and the U.S. Court of Appeals for the Second Circuit’s decision in Joblove v. Barr Labs., Inc., (In re Tamoxifen Citrate Antitrust Litig.), 466 F.3d 187 (2d Cir. 2005), which “uniformly held that settlements within the scope of the patent do not violate antitrust laws,” Judge Strauss concluded that “the result should be no different under the Cartwright Act, as we are dealing with the exact same settlement agreement, involving the same type of Plaintiffs (indirect purchasers), and the same theories of liability.”  Accordingly, Judge Strauss granted the defendants’ motions for summary judgment finding that the agreements do not violate the Cartwright Act, because “as a matter of law, Plaintiffs cannot establish the agreement unreasonably restrains trade because no triable issue of material fact exists that there are no anticompetitive effects on competition beyond the exclusionary scope of the patent itself.” 

Enter the April 29, 2010 decision from a 3-judge panel of the U.S. Court of Appeals for the Second Circuit in In re: Ciprofloxacin Hydrochloride Antitrust Litigation.  As we previously reported, although the Second Circuit affirmed a 2005 decision by the U.S. District Court for the Eastern District of New York to grant summary judgment for defendants (i.e., manufacturers of Ciprofloxacin HCl) in an antitrust challenge to certain patent settlement agreements, the Court did so because it believed it was compelled to do so – “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.” 

The Second Circuit went on to state in its opinion, however, that “because of the ‘exceptional importance’ of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits,” plaintiffs-appellants should petition for rehearing en banc, and cited four reasons why the case might be appropriate for reexamination by the full Court, including that the U.S. has submitted amicus briefs arguing that Tamoxifen “adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny,” and proposing 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.”

With this backdrop, the indirect CIPRO purchaser plaintiffs in In re: Cipro Cases I & II have appealed Judge Strauss’ decision to the California Court of Appeal, Fourth Appellate District (Division I).  Among other things in the 84-page, 6-part appelllate brief, the indirect CIPRO purchasers argue that the Superior Court adopted a flawed and highly criticized line of federal authority:

Instead of applying the per se rule or the rule of reason under California law, the Superior Court adopted a rule unprecedented in California jurisprudence: the analysis of the Second Circuit Court of Appeals in Tamoxifen.  Not only has this standard been criticized by the United States Department of Justice, the Federal Trade Commission, the majority of state antitrust enforcement agencies including the California Attorney General, numerous professors of law, business and economics, major consumer organizations, and the American Medical Association, but, after the Superior Court adopted this standard, the Second Circuit itself questioned whether Tamoxifen should be reversed in the context of the Cipro Agreements.

The appeal is yet another sign of the reinvigorated effort by opponents of patent settlement agreements – most notably the Federal Trade Commission – to subject such agreements to a high degree of antitrust scrutiny and make them presumptively unlawful.

Categories: Hatch-Waxman