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.

Amici challenge pharma pay-for-delay

Readers may recall our earlier report that, in April, a Second Circuit panel grudgingly ruled for Bayer and Barr pharmaceutical companies in In re Ciprofloxacin Hydrochloride Antitrust Litigation. Bound by Tamoxifen, the panel determined that reverse payment ("pay-for-delay") arrangements between branded and generic pharmaceutical companies did not violate antitrust laws. But, apparently swayed by the plaintiffs' public interest arguments, and moved by the "'exceptional importance" of the antitrust implications," the panel invited the plaintiffs to request an en banc Tamoxifen rehearing.

The wheels have started turning. Last month the U.S. government's Federal Trade Commission (FTC) and a group of 86 professors filed separate amicus curiae briefs asking the court to grant en banc review. Long opposed to reverse payment deals, the FTC argues in its brief that the Tamoxifen decision "protect[s] undeserved patent monopolies" and "improperly undermines the balance ... between the public interest in encouraging innovation and the public interest in competition." The FTC also cites studies indicating that getting rid of pay-for-delay could save consumers roughly $3.5 billion annually, and that "a one-year delay in generic entry represents ... a transfer from consumers to producers of about $14 billion."

For their part, the professors (represented by Stanford law professor and Durie Tangri partner Mark A. Lemley) argue that reverse payment arrangements are per se illegal. They also point out that an issued patent carries only a presumption of validity that does not grant a patentee "an absolute right to enter into a settlement that excludes competitors from the market." Moreover, the professors hint that, in In re Cipro and other reverse payment cases, the patentee's massive payout to the generic may indicate that the patent holder believed its own patent was invalid.

Pharma pay-for-delay OK?

Bound by precedent, last month a U.S. Court of Appeals (2d Cir. E.D.N.Y.) panel decided in In re Ciprofloxacin Antitrust Litigation that Bayer AG and several generic drug makers did not violate antitrust laws when they agreed to a reverse exclusionary payment -- or "pay-for-delay" -- settling a patent infringement suit. However, seemingly unhappy with its own decision, the panel encouraged plaintiffs to request re-examination of the case before the full court, in order to address public interest concerns.

In the original infringement suit, generic drug makers (including Barr Laboratories, The Rugby Group, and Watson Pharmaceuticals) had filed Abbreviated New Drug Applications (ANDAs), in order to obtain federal approval to sell generic versions of Bayer's patented antibiotic ciprofloxacin ("Cipro"). Bayer then sued to prevent such approval. As so often happens, Bayer and the generics settled the case with a pay-for-delay arrangement in which Bayer agreed to give Barr more than $398 million in exchange for the generics' promise to delay introduction of generic versions of Cipro. In response, several trade unions and pharmacies slapped Bayer and the generics with over 30 antitrust lawsuits, which the New York trial court consolidated and eventually dismissed in favor of defendants. Citing In re Tamoxifen Citrate Antitrust Litigation, the District Court ruled that pay-for-delay did not violate antitrust laws, and explained,

"The ultimate question ... is not whether Bayer and Barr had the power to adversely affect competition for ciprofloxacin as a whole, but whether any adverse effects on competition stemming from the Agreements were outside the exclusionary zone of the '444 Patent. It goes without saying that patents have adverse effects on competition. However, any adverse effects within the scope of a patent cannot be redressed by antitrust law." (emphasis added)

Interestingly, this case showcases a conflict between the Federal Trade Commission, which views reverse payment agreements as per se illegal, and the courts' more pragmatic approach. At present, Tamoxifen remains judicially binding; unless a patent or its enforcement is fraudulent or "baseless," then no antitrust laws are broken -- "as long as competition is restrained only within the scope of the patent." 

The panel declared itself unable to review plaintiffs' additional argument that reverse-payment agreements violate public policy by depriving consumers of lower-cost generic drugs. Notably, the U.S. government filed an amicus brief urging the Court to overturn Tamoxifen and deem pay-for-delay settlements presumptively illegal, on public interest grounds. Apparently somewhat swayed, the panel suggested:

"[W]e believe there are compelling reasons to revisit Tamoxifen with the benefit of the full Court's consideration of the difficult questions at issue and the important interests at stake. We therefore invite the plaintiffs-appellants to petition for rehearing in banc."