California Court Rules that Bayer AG, et al. Did Not Violate State Antitrust Law in CIPRO Reverse Payment Case

By Kurt R. Karst –      

In a recent opinion, Judge Richard E. L. Strauss of the Superior Court of California, County of San Diego, granted motions for summary judgment ruling that Bayer AG and several generic drug manufacturers, including Barr Pharmaceuticals Inc.,  The Rugby Group, Inc., and Hoechst Marion Roussel, Inc. (“HMR”), did not violate the state’s antitrust law – the Cartwright Act, California’s 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).  The decision follows in the footsteps of an October 2008 decision by the U.S. Court of Appeals for the Federal Circuit also concerning CIPRO reverse payments. 

The California case, In re: Cipro Cases I & II, JCCP Proceeding Nos. 4154 & 4220, was initiated in late 2000, and is a proceeding of nine coordinated cases brought by indirect CIPRO purchasers (i.e., individuals and not-for-profit entities): McGaughey v. Bayer Corporation (Super. Ct. San Diego County, No. GIC752290); Relles v. Bayer Corporation (Super. Ct. L.A. County, No. BC239083); Samole v. Bayer AG (Super. Ct. S.F. City and County, No. 316349); Garber v. Bayer AG (Super. Ct. S.F. City and County, No. 316518); Lee v. Bayer AG (Super. Ct. S.F. City and County, No. 316670); Patane v. Bayer AG (Super. Ct. S.F. City and County, No. 318457); Moore v. Bayer Corporation (Super. Ct. Sonoma County, No. SCZ228356); Moore v. Bayer Corporation (Super. Ct. Sonoma County, No. 228384); Senior Action Network v. Bayer AG (Super. Ct. S.F. City and County, No. 400750). 

The consolidated complaint alleged three causes of action: (1) per se violation of the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.); (2) unfair competition in violation of the Unfair Competition Act (Bus. & Prof. Code, § 17200 et seq.); and (3) the common law tort of monopolization.  The allegations stem from the 1997 settlement of Hatch-Waxman patent infringement litigation concerning an Orange Book-listed patent covering CIPRO.  Under the terms of those agreements, the validity of the CIPRO patent was acknowledged, and Barr, HMR, and Rugby agreed to refrain from selling or marketing a generic CIPRO in exchange for a lump sum of $49.1 million and quarterly payments to Barr and HMR that have totalled several hundred million dollars.  Essentially, the plaintiffs alleged that in the absence of the CIPRO agreements, a generic version of the drug would have been available no later than January 1997, and that the purpose of the agreements was to allocate to Bayer the entire ciprofloxacin market for at least six years, to restrain market competition, and to grant Bayer an unlawful monopoly with the concomitant ability to charge supra-competitive prices.

Noting that “the Cartwright Act is patterned after the federal Sherman Act and both have their roots in the common law, [that] federal cases interpreting the Sherman Act are applicable in construing the Cartwright Act,” and that “there is no California authority evaluating whether a Hatch Waxman reverse payment settlement agreement violates state antitrust law (Cartwright Act or otherwise),” Judge Strauss determined that the court must turn “to federal decisions concerning the Sherman Act as persuasive authority to guide its decision.”  And on this point, Judge Strauss wrote that “Federal case law is not only instructive in this regard, it is dispositive.”  Relying heavily on the Federal Circuit’s 2008 decision in In Re Ciprofloxacin Hydrochloride Antitrust Litigation (“Cipro III”), Judge Strauss stated:

The federal court cases dealing generally with Hatch Waxman settlements, and specifically with this agreement, have uniformly held that settlements within the scope of the patent do not violate antitrust laws. . . .  In Cipro III, the Federal Circuit affirmed the district court's holding that there was no antitrust violation because the settlement agreement fell within the “exclusionary zone” of the patent.  The Federal Circuit Court found that because patents are presumed valid and provide the patentee with the right to exclude others (infringers) from the market, the challenged anticompetitive effects of the agreement at issue here were directly attributable to the patent, and therefore, no antitrust remedy was available. . . .  The Court finds 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, the court granted 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.”  Judge Strauss’ finding precluded Plaintiffs’ Unfair Competition Act and common law monopoly claims because they are based on the same factual allegations that supported the Cartwright Act claim.

The Federal Trade Commission (“FTC”), along with the Department of Justice’s Antitrust Division, have opposed reverse payment agreements.  The FTC has has filed complaints (here and here) in the U.S. District Court for the Central District of California and the U.S. District Court for the Eastern District of Pennsylvania opposing reverse payment arrangements concerning generic ANDROGEL (testosterone gel) and PROVIGIL (modafinil), respectively.  Cephalon, the maker of PROVIGIL, filed a motion to dismiss the FTC’s complaint just a few days ago. 

Several drug retailers, including Rite Aid, Eckerd, CVS, Walgreen, Kroger, and Safeway have also decided to take action with respect to the generic ANDROGEL and PROVIGIL reverse payment arrangements by filing their own complaints (see, e.g., here and here) in the U.S. District Court for the Eastern District of Pennsylvania.  Similar complaints have been filed in other courts.

As we previously reported, legislation is pending in Congress that would effectively outlaw reverse payment agreements by making it unlawful for any person from being a party to any agreement resolving or settling a patent infringement claim in which an ANDA applicant receives anything of value, and the ANDA applicant agrees not to research, develop, manufacture, market or sell the generic drug that is the subject of a patent infringement claim.  Congress is expected to further consider the legislation when it reconvenes later this month.