On June 26, 2007, the U.S. Supreme Court denied certiorari in the latest “reverse payment” patent settlement case to reach it Joblove v. Barr Laboratories (Tamoxifen). The decision let stand a Second Circuit decision upholding the dismissal of a class action complaint filed against AstraZeneca Plc and Barr Laboratories. The Supreme Court followed the Department of Justice’s (DOJ) recommendation not to grant cert. (See Issue 6 at page 2). The decision was not unexpected as the Court had recently denied cert. in a similar case, Schering-Plough v. FTC. (See Issue 3 at page 1). Interestingly, however, the DOJ’s amicus brief in Tamoxifen also took the position that – although the case was not a good one for review – the Second Circuit had adopted too permissive of a standard in reviewing the reverse payment patent settlement at issue.
The Tamoxifen case arose out of a 1993 agreement between Barr Laboratories and a predecessor of AstraZeneca settling patent litigation brought by AstraZeneca to prevent Barr from marketing a generic equivalent of AstraZeneca’s Nolvadex drug. The generic form of Nolvadex, which is used to treat breast cancer, is tamoxifen citrate. At the time of the settlement, the district court hearing the patent litigation had issued a decision holding AstraZeneca’s Nolvadex patent invalid, and AstraZeneca had appealed. Pursuant to the settlement, among other things, Barr agreed that until expiration of AstraZeneca’s patent it would only market tamoxifen citrate that it purchased from AstraZeneca, the infringement litigation was dropped, and AstraZeneca paid Barr $21 million. The parties also agreed to (and did) obtain a consent judgment by the district court vacating its prior decision on invalidity. Also important, in subsequent litigation AstraZeneca successfully obtained three judgments against other generic companies upholding its Tamoxifen patent.
As we have explained in prior issues of this Update, the Federal Trade Commission (FTC) and civil plaintiffs have taken the position that patent settlements that contain a restriction on generic entry as well as a reverse payment violate the antitrust laws in most cases. Indeed, the FTC submitted an amicus brief to the Second Circuit supporting en banc review and reversal of the decision granting AstraZeneca’s motion to dismiss in Tamoxifen. A speech earlier this year by FTC Chairman Majoras confirms that the commission maintains this position. Although the FTC was not directly involved in the Tamoxifen litigation, the Court’s decision to deny certiorari is another setback to the Commission’s efforts to reverse legal precedents in this area that take a deferential view towards reverse payment patent settlements.
The DOJ has generally agreed with the more permissive view on reverse payment patent settlements that has been taken by the courts and, Issue 3 (page 1), even took the unusual step of opposing the FTC’s petition for certiorari in Schering-Plough. The DOJ amicus brief in Tamoxifen, however, indicates that the Department does have concerns about the antitrust implications of reverse payment patent settlements and shares the view of the Commission that at least some courts have adopted too lenient a standard in reviewing such agreements. The Second Circuit had upheld the dismissal of the Tamoxifen case, among other reasons, on the grounds that the plaintiffs had failed to allege adequately that AstraZeneca’s infringement case against Barr was a “sham.”
The DOJ interpreted the Second Circuit decision to mean that absent such allegations, AstraZeneca and Barr could lawfully agree to a settlement that restricted competition within the scope of AstraZeneca’s patent, which was presumed valid (after all, AstraZeneca could have succeeded in appealing the adverse district court decision). In its Tamoxifen amicus brief, however, the DOJ took issue with that standard, contending that it was “insufficiently stringent.” Instead, the Department stated that the settlement agreement could have violated the antitrust laws if AstraZeneca’s patent claim was very weak – even if not objectively baseless – and the court should therefore have conducted a “limited inquiry” into the strength of AstraZeneca’s patent prior to dismissing the lawsuit.
The DOJ’s position in Tamoxifen appears consistent with the view it took in its Schering-Plough amicus brief that evaluating a reverse payment patent settlement will generally require some direct inquiry into the merits of the patent litigation. In some ways, the DOJ may be attempting to portray itself as staking out the “middle ground” on this issue, objecting to arguments that the legality of such settlements can be decided upon without conducting such an inquiry -- a view that has been advanced both by the FTC (which attempts to condemn such settlements without regard to the merits of the patent litigation) and defendants (which have argued that such settlements must be viewed as lawful absent evidence of a sham).