Drug Purchasers Petition U.S. Supreme Court to Consider CIPRO Patent Settlement Case

December 8, 2010

By Kurt R. Karst –      

Speculation was running high that the U.S. Supreme Court would be petitioned on whether a patent settlement agreement (what opponents call “pay-for-delay” agreements or “reverse payments”) involving manufacturers of Ciprofloxacin HCl (CIPRO) is per se lawful under the Sherman Act after the U.S. Court of Appeals for the Second Circuit denied earlier this year a Petition for Rehearing and Rehearing En Banc filed on behalf of certain plaintiffs-appellants in In Re Ciprofloxacin Hydrochloride Antitrust Litig.  That Petition for Writ of Certiorari was filed with the U.S. Supreme Court earlier this week.

As we previously reported (here and here), in September 2010, the Second Circuit denied without comment a Petition for Rehearing and Rehearing En Banc that a panel of the judges on the Court invited in their April 2010 decision affirming (3-0) a 2005 decision by the U.S. District Court for the Eastern District of New York granting summary judgment for defendants (i.e., Ciprofloxacin HCl manufacturers) (In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514 (E.D.N.Y. 2005)).  In the April decision, the Court affirmed the district court decision because the Court believed its 2005 decision in Joblove v. Barr Labs., Inc., (In re Tamoxifen Citrate Antitrust Litig.), 466 F.3d 187 (2d Cir. 2005), compelled it to do so.  According to the Court, “[s]ince 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 Department of Justice and the Federal Trade Commission (“FTC”), which has been a vocal opponent of patent settlement agreements, filed amicus briefs in the Cipro case advocating that the Second Circuit grant rehearing en banc and apply an “inherently suspect” standard to patent settlement agreements, under which such agreements would be considered presumptively unlawful, but could nevertheless be proven to be procompetitive.  (This standard is similar to that in legislation introduced in Congress to address patent settlement agreements.)  The government is sure to actively support the petition to the U.S. Supreme Court.

According to the Petitioners, a group or purchasers including Louisiana Wholesale Drug Company, Inc. and Arthur’s Drug Store, Inc.:

This Court has repeatedly “emphasized the necessity of protecting our competitive economy by keeping open the way for interested persons to challenge the validity of patents which might be shown to be invalid.”  The Second Circuit nevertheless held, contrary to the decisions of three other circuits and the views of the United States and the [FTC], that, except in very limited circumstances, a pharmaceutical patentee may lawfully pay a generic drug manufacturer to forgo judicial testing of the patent’s validity and stay out of the market.  The Second Circuit’s decision cannot be squared with those of other circuits or with this Court’s prohibition on patentees “muzzling” those who otherwise would have an “economic incentive to challenge the patentability of an inventor’s discovery.” . . . .

The Court should grant review to resolve the circuit split, reject the Second Circuit’s precedents that favor judicial testing of patent validity, and restore the Hatch-Waxman Act balance by prohibiting brand manufacturers from paying competitors to forgo judicial examination of patents and thereby preserve unwarranted monopolies. [(internal citations omitted)]

The circuit split over the proper standard for determining whether an exclusion payment is actually a three-way split. . . .

The Sixth Circuit and the D.C. Circuit have adopted (and the FTC has applied) a “patent strength” standard, “which bases the but-for amount of competition on the patent litigants’ own view of the likely outcome of the litigation, as reflected in their objective conduct,” according to the petition.  This standard was applied by the Sixth Circuit in In re Cardizem CD Antitrusty Litig., 332 F.3d 896 (6th Cir. 2003), relied on by the D.C. Circuit in Andrx Pharm. Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001), and applied by the FTC in an administrative proceeding – In re Schering-Plough Corp., F.T.C. Docket No. 9297 (Dec. 8, 2003). 

The Eleventh Circuit has rejected the “patent strength” standard and instead applies a “patent relitigation” standard, under which “it determines the amount of but-for competition by engaging in an ex-post judicial determination of the patent issues as part of the antitrust case,” according to the petition.  The Eleventh Circuit applied this standard in Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294, 1303 (11th Cir. 2003) and in Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056 (11th Cir. 2005). 

Finally, the Second Circuit and the Federal Circuit, which have rejected the “patent strength” standard and have refused to apply the “patent relitigation” approach, apply a “sham litigation” standard, under which “[t]hey have conclusively presumed for purposes of the antitrust case that the patent was valid, and thus that no competition was likely to result from the patent litigation, unless the patent was obtained by fraud or the patent cliam was a graud,” according to the petition.  This is the standard applied by the Second Circuit in Tamoxifen and Cipro, and by the Federal Circuit in In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008).

The U.S. Supreme Court has previously denied certiorari in several of the cases mentioned above, but perhaps this will be the time that it is granted.