On October 15, 2008, the Federal Circuit joined the growing list of federal courts to hold that the use of cash payments to settle Hatch-Waxman patent infringement suits does not violate the antitrust laws as long as (1) the settlement excludes no more competition than would the patent itself and (2) the claim for patent infringement and/or validity is not a "sham," that is, not "objectively baseless." The Court affirmed the grant of summary judgment in favor of Jones Day’s client Bayer AG and against a class of Indirect Purchaser plaintiffs who claimed that a patent settlement involving Bayer’s former blockbuster antibiotic, Cipro, violated the Sherman Act. In re Ciprofloxacin, No. 2008-1097 (Fed. Cir., October 15, 2008). This decision strengthens the position of patent holders in antitrust challenges to settlements of patent litigation.
Under the federal "Hatch-Waxman Act" procedures, which govern FDA approval of generic versions of branded drugs, Barr Laboratories sought permission to market a generic version of Cipro prior to the expiration of Bayer’s patent on Cipro’s active ingredient. As required to do so under Hatch-Waxman, Barr certified that Bayer’s patent was invalid. Bayer then filed a patent infringement suit against Barr, which by statute stayed the FDA approval for 30 months. The parties later settled the patent suit. Bayer made cash payments to Barr and granted it a license to enter the market with a generic version six months before the patent expired, while Barr dropped its challenge to the validity of Bayer’s patent. After the settlement with Barr, Bayer had the Cipro patent successfully reexamined by the PTO, and then litigated the validity of the patent against three other generic challengers, winning each time. Nonetheless, private plaintiffs later brought over 40 separate class action complaints against Bayer and Barr, asserting that the use of "reverse payments" from patent holder to challenger in the settlement was illegal under the antitrust laws. Similar cases were brought against other Hatch-Waxman litigants around the country.
During years of ensuing litigation, Bayer and similar defendants persuaded most courts that the focus on cash payments in such settlements is wrongheaded. The Hatch-Waxman procedures create a scenario in which the generic challenger can potentially invalidate a valuable patent without even entering the market. The generic thus has everything to gain (free entry) and the patent holder everything to lose (the patent). As a result, the consideration required to settle such a case, whether in the form of cash, a license, or something else, necessarily flows from the patent holder to the generic challenger. The real question for antitrust purposes is whether the settlement keeps out any lawful (that is, non-infringing) competition. Because the antitrust laws do not protect competition that infringes a patent, the Federal Circuit concluded – like the Second and Eleventh Circuits before it – that the settlement of a patent claim brought in good faith (not a "sham") that is no broader than the exclusionary scope of the patent itself cannot harm competition.
The FTC has taken the position that all of these court decisions are wrong, and has sought Congressional legislation to overturn them. The plaintiffs in Cipro may ask the Supreme Court to review the case, although the Court has denied certiorari in all four of the Circuit Court cases previously decided. In one of those cases, In re Schering-Plough, the FTC filed its own cert petition after losing in the 11th Circuit, whereupon the Solicitor General and the DOJ, when asked by the Supreme Court for their views, opposed the FTC’s petition.