News from recent US pharmaceutical patent cases - damages for infringement and reverse payment settlement

For readers interested in pharmaceutical patent litigation, here's a summary of two recent decisions from the United States. The first concerns the award of damages for the infringement of AstraZeneca's patents for Prilosec. The second deals with the final approval of a settlement between Bayer AG and California consumers, in an antitrust lawsuit targeting a reverse payment settlement concluded in 1997 between Bayer and Barr Laboratories. 

Damages awarded in AstraZeneca v Apotex - The Globe and Mail reports that the District Court for the Southern District of New York awarded $ 76 million in damages to AstraZeneca, in light of patent infringement committed by the generic manufacturer Apotex (AstraZeneca AB et al. v Apotex Corp. et al. - Docket No. 01-9351). In previous decisions, the same court and the Court of Appeals for the Federal Circuit (here) had already established that Apotex, in the period 2003-2007, infringed AstraZeneca's patents for Prilosec (omeprazole), a drug used for the treatment of gastroesophageal reflux and heartburn.

The judge, after a damage trial lasted two weeks, assessed the outcome of a hypothetical negotiation between AstraZeneca and Apotex, held on the date of the first act of infringement (November 2003), as taught by Georgia Pacific. According to the judgment, dated 26 November but kept sealed until yesterday, AstraZeneca ' was in the driver’s seat in the negotiations and would have required Apotex to pay a hefty portion of its profits for a license'. On one side, the generic manufacturer, which had failed to produce a non-infringing generic version of Prilosec, would have been willing to invest a significant amount of its profits to enter into a licensing agreement, since it 'expected to (and did) make substantial profits from its sales of omeprazole'. On the other, AstraZeneca would have demanded a high price, due to the risk of cannibalization arising from the commercialization of a generic version. The court also found that, although three generic manufacturers had already brought generic versions of Prilosec to the market by November 2003, two of them were under the threat of patent litigation, while the third was unable to meet the market's full demand. In light of these findings, the judge ruled that the generic manufacturer would have agreed to a license in exchange for a sum of about half of its yearly profits.

Bayer's Cipro settlement approved - On 18 November, the Superior Court of the State of California (San Diego) granted its final approval of a class action settlement between Bayer AG and the California consumers that bought Bayer's drug Cipro between 1997 and 2004. The court found the $ 74 million in cash consideration to be fair, reasonable and adequate, in light of the claims and defenses, the substantial litigation risks and the history of the class action. Notably, all the class members had strongly supported approval of the settlement.

The approval of the class action settlement is the final stage of a saga which entertained patent and antitrust lawyers for almost two decades. In 1984, Bayer filed a patent application for ciprofloxacin hydrochloride, which was granted as US Patent No. 4,670,444; Bayer commercialized its drug under the brand name 'Cipro'. Seven years later, in 1991, Barr Laboratories (BL) filed an Abbreviated New Drug Application, declaring that Bayer's patent was invalid and thus unenforceable (so called Paragraph IV certification). When Bayer sued BL for infringement, the generic manufacturer filed a counterclaim, alleging invalidity of the asserted patent. In 1996, the parties settled the lawsuit: BL accepted (i) to convert the Paragraph IV certification into a Paragraph III declaration (asking the FDA to approve its generic version of Cipro only after the expiry of the patent term), (ii) not to challenge the validity or enforceability of the patent, and (iii) not to sell its generic version until at least six months before the expiry of the patent term. In return, Bayer agreed (i) to pay BL $ 49.1 million, (ii) to provide BL with supplies of Cipro for resale or to make quarterly payments till 31 December 2003, and (iii) to allow BL to resell Cipro beginning six months before expiration of the patent. In total, Bayer payed BL almost $ 400 million between 1997 and 2003.

BL declared that its 'decision to settle the patent challenge assures that consumers have access to a more affordable generic ciprofloxacin at least six months ahead of the patent expiry', noting that there was no assurance that the court would have found the patent to be invalid. The generic manufacturer said that the 'settlement represents a substantial savings on a product with current annual brand sales in excess of $900 million' and added that other companies remained free to challenge the validity or enforceability of the patent. Several purchasers of Cipro, however, did not agree with BL's assessment. They filed numerous antitrust lawsuits, later consolidated in the Eastern District of New York, alleging a violation of Sections 1 and 2 of the Sherman Act and bringing a Walker Process claim. Both the district court and the Federal Circuit sided with Bayer and BL, ruling that the agreement was not unlawful under the rule of reason. Petitions for certiorari before the US Supreme Court were denied twice. 

In California, the Superior Court upheld the lawfulness of the settlement in 2009; on appeal, notwithstanding a brief amici curiae of 78 scholars in support of the appellants, the Court of Appeal of the State of California affirmed the judgment rendered at first instance. In 2012, the Supreme Court of California granted the petition for review, agreeing to hear the case on the merits (more information here).

Probably, the recent judgment of the US Supreme Court in FTC v Actavis, as well as the on-going litigation before the Supreme Court of California, created a pretty significant incentive for Bayer to finally settle the lawsuit. The $ 74 million settlement represents a reasonable compromise between the interests at stake. On one side, in light of the previous judgments on the matter, there was a moderately high likelihood that the lawfulness of the settlement between Bayer and BL would have been upheld once again. On the other, a finding of antitrust liability would have had a much higher cost for Bayer, in light of the payments made to BL under the reverse payment settlement (almost $ 400 million) and of the profits made through the sale of Cipro in 1997-2003 (worldwide, Cipro guaranteed profits of more than $ 1.4 billion in the year 2000 and approximately $ 8 billion in the whole period considered). The lawsuit remains pending against BL.