For the third time the U.S. Supreme Court is being asked to determine whether reverse settlements between brand name and generic manufacturers are lawful. The case also will provide the Obama administration its first chance to weigh in on the issue.

A group of indirect purchasers filed a certiorari petition with the court seeking review of a case involving Bayer's Cipro (ciprofloxacin). Last year the U.S. Court of Appeals for the Federal Circuit upheld a district court finding that Bayer's $398 million payment to Barr and Hoechst Marion Roussel (now Sanofi-Aventis) to delay marketing a generic version of the drug did not violate federal antitrust laws.

In Arkansas Carpenters Health and Welfare Fund v. Bayer, petitioners ask the court to determine if such agreements to settle patent litigation are per se lawful without regard to the amount of cash paid or the strength of the underlying patent challenge.

In 2007 the Supreme Court denied a cert petition in a similar suit challenging an agreement between AstraZeneca and Barr to delay marketing of generic tamoxifen. In that case, Joblove v. Barr, the Second Circuit ruled that reverse payment agreements are per se legal. And in 2006 the Supreme Court declined to consider a ruling on Schering-Plough's settlements with Upsher-Smith and ESI Lederle to block entry of generic K-Dur (potassium chloride). In that case the Eleventh Circuit considered the underlying validity of the patent at issue in ruling in favor of the agreements.

The Sixth Circuit has also weighed in on the issue, ruling in 2003 in In re Cardizem CD Antitrust Litigation that reverse payments are per se illegal. In the Cipro case, the Federal Circuit concluded that agreements to settle patent litigation do not violate antitrust law as long as the suit is not a sham or otherwise baseless and the settlement does not impose restrictions on the alleged infringer that extend beyond the scope of the patent.

The Solicitor General advised the Supreme Court not to review the tamoxifen and Schering cases, arguing that they were not the right vehicle (¹ [A#00690220013] p. 21). "The court will likely invite the Solicitor General to express her views about certiorari, as it has in the past, and will likely be guided by her as to whether certiorari should be granted," said petitioners' counsel J. Douglas Richards, of Cohen Milstein Sellers & Toll.

The change in administrations might weigh in their favor. During her Senate confirmation hearing, Christine Varney, assistant attorney general in charge of the antitrust division, said she was concerned that reverse settlements could negatively impact consumers and that she would work with the FTC to develop a unified approach by government agencies to the issue.

The Cipro litigation is currently running on two tracks. A case brought by indirect purchasers had been combined with a complaint by direct purchasers in In re Ciprofloxacin Hydrochloride Antitrust Litigation. A district judge granted Bayer's motion for summary judgment in both cases. On appeal the Second Circuit sent the indirect purchasers case to the Federal Circuit while keeping the direct purchasers case.

Solicitor General To Weigh In

The Second Circuit is seeking input from the government before ruling on the case. In a letter to the Office of the Solicitor General, it asked that the Executive Branch address whether settlements of patent infringement lawsuits violate antitrust laws. The court also sent an April 28 letter to Acting Assistant Attorney General Scott Hammond asking if it has jurisdiction over the appeal when the probability of invalidity of the ciprofloxacin patent may be an issue.

Several people are urging the government to support the Cipro plaintiffs. Sen. Herb Kohl, chairman of the Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent an April 21 letter to Attorney General Eric Holder asking the Justice Department to advise the Second Circuit that reverse settlements violate antitrust law. Kohl, D-Wis., is among the legislators who have introduced bills aimed at stopping reverse payments (² Also see "Brand/Generic Settlement Bill May Need Help From Authorized Generics Limits" - Pink Sheet, 6 April, 2009., p. 21). Former FTC attorney David Balto made a similar request of Holder on behalf of several consumer rights organizations, including AARP, Consumers Union and Public Citizen.

Stanford Law professor Mark Lemley submitted an amicus brief on behalf of 54 professors, The American Antitrust Institute, the Public Patent Foundation and AARP urging the Supreme Court to take up the case. Lemley said that while academic commentators are divided on how settlements should be treated, "they uniformly agree they should not be considered per se legal" as the Federal Circuit decided. Bayer's response to the petition is due May 26.

- Brenda Sandburg (b.sandburg@elsevier.com)

Supreme Court Asked to Rule on Legality of Reverse Settlements

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