Group of State AGs Urges High Court To Hear Case on Rx Reverse Payments

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A group of 32 state attorneys general, led by California Attorney General Kamala D. Harris (D), Jan. 7 pressed the U.S. Supreme Court to review an appeals court decision that held that “reverse payments” in drug patent settlements do not constitute per se violations of antitrust law (Louisiana Wholesale Drug Co. v. Bayer AG, U.S., No. 10-762, amicus brief filed 1/7/11).

Reverse payment settlements, which often include payments from brand-name drug manufacturers to generic drug manufacturers in an effort to delay competition from generic drugs, have been challenged in the courts as anticompetitive by the Federal Trade Commission and by drug payers.

Citing the threat that these so-called “pay-for-delay” agreements pose to the availability of affordable medications to states and their citizens, the state amici--among them Arizona, Florida, Illinois, Massachusetts and Texas--called the deals “anticompetitive schemes … that drive up drug prices in order to protect pharmaceutical companies' profits.”

“Keeping generic drugs off the market forces Californians to pay artificially high prices and denies many access to the medication they need,” Harris said in a Jan. 7 statement about the multi-state amicus filing.

Among the chief interest the states have in the case, according to the amici brief, is their interest in access to lower-cost generic drugs because the states--through their state Medicaid programs--“are significant third-party payors for, and direct purchasers of pharmaceuticals.” In 2008, state and local governments spent $14.5 billion for prescription drugs, and health care spending gobbled up 24 percent of state revenues, the brief said.

In addition, the states said they want to protect state consumers and businesses from anticompetitive conduct that delays the entry of cheaper generic drugs from the market and enforce federal and state antitrust laws against anticompetitive reverse payment agreements of the kind found legal in case from the lower court.

“When, as here, the legal standard as to reverse payment agreements is subject to widely differing interpretations and results,” the brief said, “State antitrust enforcers need clear guidance to fulfill their role to protect their consumers and businesses from anticompetitive agreements.”

“The Attorneys General,” the brief continued, “need guidance as to the legality of reverse payment agreements that clearly eliminate generic competition and impact our States' budgets and citizens.”

December Review Petition.

The AGs' brief supports a petition for a writ of certiorari filed Dec. 6, 2010, by drug purchasers Arthur's Drug Store Inc., Louisiana Wholesale Drug Co., CVS, and Rite Aid. The purchasers seek review of a decision of the U.S. Court of Appeals for the Second Circuit known as Arkansas Carpenters Health and Welfare Fund v. Bayer, 604 F.3d 98 (2d Cir. 2010). En banc rehearing of the Second Circuit decision was denied in September 2010.

In their amicus brief, the attorneys general argue that the Second Circuit's decision wrongly ”establishes almost irrebuttable presumptions of patent validity and infringement based solely on the patent holder's untested assertions of validity and infringement.”

But, the amici argued, these presumptions are “judicially-made” and “have no basis in law or fact.” Indeed, the amici argued that “Reverse payment agreements are a species of horizontal market allocation agreements, under which competing drug companies collude and allocate 100% of the market to the branded company.” Such agreements, they said, are not eligible for immunity from judicial scrutiny under the antitrust law.

In addition, the amici states argued that allowing “such collusive competitor agreements” undermines the intent of the Drug Price Competition and Patent Term Restoration Act of 1984 (known as the Hatch-Waxman Act), 21 U.S.C. § 355(j) (2006), which was enacted to improve consumer access to generic drugs.

Patent rights, the amici claimed, do not encompass the right to pay competitors not to compete.

Cipro Settlement.

The case involves a challenge to a patent settlement between Bayer AG, owner of a patent (4,670,444) on ciprofloxacin (the active ingredient in Cipro), and prospective generic Cipro makers Barr Laboratories Inc., Hoechst Marion Roussel Inc., the Rugby Group Inc., and Watson Pharmaceuticals Inc.

Pursuant to the settlement, the generic drug firms conceded the validity of Bayer's patent and agreed not to manufacture or sell competing versions of the drug during the patent term. In return, Bayer agreed to pay and eventually paid the manufacturers almost $400 million for the duration of the patent minus six months. It further agreed to a license whereby the generic firms could sell brand-name Cipro at a reduced rate during those last six months of the patent term.

Subsequently, approximately 38 class action complaints were filed against Bayer and Barr by direct and indirect purchasers of Cipro, including the Arkansas Carpenters Health and Welfare Fund, as well as by individual plaintiffs. The plaintiffs alleged that the agreement unlawfully restrained trade in ciprofloxacin. The cases were consolidated, and Judge David G. Trager of the U.S. District Court for the Eastern District of New York granted summary judgment in favor of the defendants. The plaintiffs appealed to the Second Circuit.

In deciding the case, the Second Circuit panel said it was bound by prior precedent in In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006), a decision in which a Second Circuit panel also deemed legal such settlements and payment arrangements, unless they exceed the scope of the drug patent's protection.

The case widened an existing split in the federal circuits on the issue of the legality of reverse payment agreements. The U.S. Court of Appeals for the Eleventh Circuit's decision in Schering-Plough Corp. v. FTC (3 PLIR 243, 3/11/05), the U.S. Court of Appeals for the Federal Circuit's decision in In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008) (6 PLIR 1199, 10/24/08), and the U.S. Court of Appeals for the Second Circuit's ruling in In re Tamoxifen Citrate allowed such settlements unless they exceed the scope of the patent's protection.

However, the U.S. Court of Appeals for the Sixth Circuit in In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003) (1 PLIR 666, 6/20/03) held that these deals are per se illegal.

Experts Weigh In.

James M. Burns, a partner with the Washington office of Williams Mullen, told BNA Jan. 10 that the state AGs' brief filing, coupled with Federal Trade Commission support for review of the case, “certainly enhance the chances of obtaining Supreme Court review” of the case. Nonetheless, he said, obtaining Supreme Court review is always an uncertain prospect.

Meanwhile, Eric Grannon, a partner with White & Case LLP's Washington office, took a different view. “The three circuits that have addressed final settlements of patent litigation have all come out the same way,” he said, holding that “antitrust scrutiny is inappropriate for settlements within the scope of the patent.”

“Amici piling on to a cert petition and breathlessly arguing that the unanimous view of the courts of appeals is wrong is not likely to persuade the Court,” Grannon told BNA Jan. 10. Moreover, he said, “Congress's repeated refusals to amend the Hatch Waxman Act [to inlcude a ban on reverse payment settlements] do not help the chances for cert.”

The amici states include California, Arizona, Arkansas, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Oklahoma, Ohio, Oregon, South Carolina, Tennessee, Texas, Utah, Vermont, Washington, West Virginia and Wyoming.

Lead counsel for amici states are California Attorney General Kamala D. Harris; Manuel M. Medeiros, state solicitor general of California; J. Matthew Rodriquez, chief assistant AG; Kathleen E. Foote, senior assistant AG; and Cheryl L. Johnson, deputy attorney general counsel, in Los Angeles.

By Dana A. Elfin

The amicus brief is available at