The Federal Circuit has weighed into the legal dispute over patent settlements with so-called “reverse payments,” holding that such settlements are lawful absent evidence that the branded manufacturer enforced its patents without a reasonable basis. See In re Ciprofloxacin Hydrochloride Antitrust Litig., Case No. 2008-1097 (Fed. Cir. Oct. 15, 2008) (Cipro). In so holding, the appeals court sided with several other courts, including the Second Circuit’s decision in In re Tamoxifen Citrate Antitrust Litig, and against the views of the Federal Trade Commission (FTC).

The patent settlement in Cipro involved an agreement between Bayer and several generic manufacturers, including Barr Pharmaceuticals, relating to Bayer’s drug Cipro. Pursuant to those agreements, Barr agreed not to enter the market until expiration of Bayer’s patent covering Cipro, and Bayer paid Barr $49.1 million. Subsequently, Bayer succeeded in defending its Cipro patent against four other generic challengers – two on summary judgment, one after trial, and one after the generic company withdrew its Paragraph IV certification. Private plaintiffs brought several antitrust class actions against Bayer and Barr challenging the agreements which were consolidated in the Eastern District of New York. After the District Court dismissed the case on motions for summary judgment, the plaintiffs appealed.  

On appeal, the Federal Circuit affirmed the District Court’s decision dismissing the action on summary judgment, finding that the plaintiffs could not show that the patent settlement impacted competition outside the scope of a valid patent of Bayer. The court noted the procompetitive benefits of litigation settlements, and a patentholder’s right to exclude would-be competitors from the market whose products infringe the patentholder’s patents. The court rejected the plaintiffs’ invitation to follow the views of the Federal Trade Commission, and instead followed the reasoning of the Second Circuit in Tamoxifen. Accordingly, the court held that a plaintiff challenging a reverse payment patent settlement under the antitrust laws needs to prove that the underlying patent litigation was objectively and subjectively baseless. Otherwise, it has failed to show that the settlement impacted competition outside the scope of a valid patent. Since the plaintiffs had not made such a showing, the case had properly been dismissed on summary judgment.  

The Cipro decision represents another example of the courts declining to accept the views and reasoning of the FTC and refusing to condemn reverse payment patent settlements except under vary narrow circumstances. In fact, the Cipro decision – like the Tamoxifen decision before it – takes a step further than some other courts (and the U.S. Department of Justice) have been willing to go because it declines to permit a plaintiff to prove its antitrust case even by presenting evidence that the generic company would ultimately have prevailed in the patent litigation. Even such proof, absent evidence of a sham, would be insufficient to prove an antitrust violation under the Cipro standard. Because the FTC continues to oppose vigorously this interpretation of the law, we can expect that this decision will not be the last word on this controversial topic.