Recent district court_auerbach 6-03.doc

Reproduced with permission from Pharmaceutical Law & Industry Report , Vol. 1, No. 23 (June 20, 2003), p. 666. Copyright 2003 by The Bureau of National Affairs, Inc. (800-372-1033) <> Recent District Court Rulings Support Brand/Generic Patent Settlements
By Pamela J. Auerbach & Christopher M. Grengs1
Generic pharmaceuticals account for 50% of the pharmaceuticals sold in the United States. Remarkably, generics account for less than 10% of the dollar cost of those sales. The low price tag of generics makes them extremely popular with consumers. This popularity, in turn, means that actions perceived to delay or prevent generic market entry -- such as the settlement of a patent infringement lawsuit between a brand and generic pharmaceutical company -- are likely to receive intense scrutiny by regulators and private parties under federal and state antitrust laws, as well as under state consumer protection laws. Recent rulings from the United States District Court for the Eastern District of New York, In re Tamoxifen2 and In re Ciprofloxacin,3 support the long-standing position of the pharmaceutical industry that settlements of patent infringement disputes between a generic and a branded pharmaceutical company are not presumptively anticompetitive. After several unfavorable rulings from other district courts, these lengthy, detailed, and well-reasoned opinions suggest that courts are beginning to understand the pro -competitive benefits of these settlements. Patent infringement settlements arise out of the Hatch-Waxman Act,4 the same statute that fueled the extraordinary growth of generics over the past 20 years. Under Hatch-Waxman, a generic company files a “Paragraph IV certification” with the Food and Drug Administration (“FDA”), claiming that its generic product either does not infringe the pertinent patent or that the pertinent patent is invalid. A Paragraph IV certification is considered a technical infringement of the brand’s patent. (Hatch-Waxman puts the cart -before-the-horse: in an ordinary patent case, there is no standing to challenge a patent until the product is marketed.) In creating this artificial act of infringement, Hatch-Waxman positions generics to resolve their patent dispute before the generic incurs the costs of entry or risks damages from allegedly infringing sales. Assuming the brand sues the generic for patent infringement within 45 days of when the Paragraph IV certification is filed, the FDA approval process for the generic is stayed for 30 months, unless
the suit is resolved. If the generic ultimately prevails in the patent infringement dispute, the 30 month stay
expires, and the generic receives 180 days of market exclusivity for its product. As with any complex and
expensive litigation, the pressure to settle before trial is substantial. Here, timely settlement has the added
consumer benefit of bringing brand-licensed or brand-equivalent generics to market months or years before
the relevant patent expires.

In re Tamoxifen Citrate Antitrust Litigation.

In re Tamoxifen consolidated thirty private party lawsuits in the Eastern District of New York. These lawsuits alleged that Zeneca, Inc. (the successor-in-interest to Imperial Chemical Industries, Inc.’s tamoxifen patent) and Barr Laboratories, Inc. illegally monopolized and allocated the market for tamoxifen, in violation of the Sherman Act. The authors are, respectively, a partner and an associate in the Antitrust and Competition Group of Kirkland & Ellis LLP. Both authors are located in Washington, D.C. 2 2003 WL 21196817 (E.D.N.Y., May 15, 2003). 2003 WL 21146562 (E.D.N.Y., May 20, 2003). Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417 (codified as The Zeneca/Barr settlement occurred after Barr successfully argued at trial that the tamoxifen patent was invalid. While Zeneca’s appeal of this decision was pending before the Federal Circuit, the
parties agreed that Barr would withdraw its challenge to the tamoxifen patent and not market a generic
version until patent expiry in 2002. In exchange, Zeneca paid Barr $21 million and granted it a license to
sell Zeneca’s tamoxifen in the U.S. Also, Zeneca and Barr agreed to seek to have the trial court ruling of
invalidity vacated, which they accomplished. Plaintiffs claimed that, absent the Zeneca/Barr settlement, the
Federal Circuit would have affirmed the trial court ruling on the invalidity of the tamoxifen patent, clearing
the way for competition in the tamoxifen market.

Plaintiffs’ claims were dismissed in their entirety on May 13, 2003. Judge I. Leo Glasser’s analysis focused on the fact that the Zeneca/Barr settlement “cleared the field” of the entire patent dispute. This left other generic companies “free to litigate” the validity of the tamoxifen patent.5 Importantly, Judge Glasser found that neither Zeneca nor Ba rr had acted in bad faith. Judge Glasser rejected plaintiffs’ claim of injury, namely, payment of higher tamoxifen prices. In order to recover on a Sherman Act claim, a plaintiff must show an injury of the type that the antitrust laws
were designed to prevent -- known as “antitrust injury.” Judge Glasser found that the price of tamoxifen
was not inflated due to the Zeneca/Barr settlement, as plaintiffs claimed. Instead, the “lack of [tamoxifen]
competition” was caused “by the inability of the generic companies to invalidate or design around the
[tamoxifen] patent.”6 In other words, even assuming tamoxifen prices were higher than they would have
been with generic competition, those higher prices would be the result of a lawful patent monopoly, not
fro m any anticompetitive actions by Zeneca or Barr.
In re Ciprofloxacin Hydrochloride Antitrust Litigation.

Plaintiffs in In re Ciprofloxacin Hydrochloride challenged the validity of agreements between Bayer AG and its American subsidiary Bayer Corp. (“Bayer”), the brand manufacturer of the widely-used antibiotic commonly known as “Cipro,” and a group of generic manufacturers. Plaintiffs alleged these agreements are inherently anticompetitive under the Sherman Act and violate state antitrust and consumer protection laws. In 1991, Barr filed a Paragraph IV certification for generic Cipro, claiming that Bayer’s patent was invalid. In response, Bayer sued for infringement, triggering the 30-month stay under the Hatch-Waxman Act. Thereafter, Barr entered into an agreement with The Rugby Group, Inc. (a subsidiary of Hoechst Marion Roussel, Inc. later acquired by Watson Pharmaceuticals, Inc.), to share equally rights and profits from any eventual marketing or distribution of Cipro. In exchange, Rugby agreed to help finance the patent litigation against Bayer. Bayer and Barr ultimately settled their dispute, averting a costly trial. Under the settlement, Barr and Rugby acknowledged the validity of the Cipro patent. Barr agreed to amend its Paragraph IV certification, so that it could market generic Cipro only after Bayer’s patent expired in December 2003. In exchange, Bayer made a $49.1 million payment to Barr and Rugby. Bayer also agree to license Barr and Rugby to market a competing ciprofloxacin product six months prior to patent expiration. Further, Bayer agreed to either supply Cipro to Barr (and Rugby) for U.S. distribution, or to make quarterly payments of $15-17 million to Barr until December 2003. Finally, Bayer agreed to license Cipro to Barr and Rugby, if another generic company successfully challenged the Cipro patent. In a 123-page memorandum issued on May 20, 2003, Judge David G. Trager rejected plaintiffs’ theory that the underlying settlements were per se illegal, particularly noting, as in Tamoxifen, that the challenged settlements resolved the entire patent dispute, without creating a “bottleneck” for subsequent generics. The Court also rejected, as speculative, plaintiffs’ theories that: (1) Barr would have prevailed in its patent litigation with Bayer; and (2) Barr would have entered the sale of generic Cipro pending the resolution of litigation. The Court allowed plaintiffs’ lawsuit to survive based on “one viable theory of injury . . . namely that but for the challenged agreements Bayer would have issued a license for generic Cipro to Barr and/or HMR and Rugby at a price that would have resulted in a substantially lower cost to Cipro purchasers.”7 In the Court’s view, this single allegation was not so speculative as to merit dismissal. Significantly, plaintiffs’ sole surviving theory remains subject to fact-specific scrutiny going forward. However, Judge Trager expressed some doubt as to whether plaintiffs ultimately can meet their burden of proof. In its opinion, the Court emp hasized that “the American legal process encourages the settlement of lawsuits,” including of suits under the Hatch-Waxman Act.8 A contrary rule would limit the options of
brands and generics. Ultimately, brands might invest less in research and development if they could not
“control or limit their risk” through settlements. The Court cautioned that reduced research and
development can have “severe consequences for consumers.”9 According to the Court, the “potential[ ]
chilling” of research and development and challenges to brand-name patents “does competition -- and thus,
the Sherman Act -- a disservice.”10

After In re Tamoxifen Citrate and In re Ciprofloxacin Hydrochloride, plaintiffs may face higher hurdles in proving that a brand/generic patent settlement harms competition. District court rulings are, of course, vulnerable to reversal on appeal, and these recent decisions did issue from the same federal district court. However, both decisions rely on settled patent law principles, valid ate the critical role of settlements in resolving complex litigation, and set forth the complicated interplay between the Hatch-Waxman Act and antitrust law. These factors should make reversal less likely. Moreover, these factors make the recent decisions highly persuasive authority for other district courts that may review challenges to brand/generic settlements.


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