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Second Circuit Denies Rehearing En Banc In Cipro Reverse-Payment Litigation

Posted  September 7, 2010

The U. S. Court of Appeals for the Second Circuit denied rehearing en banc today of its recent decision in the reverse-payment case of Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litigation) – despite the original three-judge appellate panel’s extraordinary invitation to the parties to submit briefs requesting rehearing by the entire court.

The case involves so-called “reverse payment” or “pay-for-delay” patent infringement settlements in which a brand-name pharmaceutical manufacturer pays the allegedly infringing generic manufacturer to settle claims that the generic product infringes the brand-name manufacturer’s patent, in exchange for which the generic agrees not to market its product.  Antitrust enforcement officials and consumer groups argue that such settlements cost consumers billions of dollars per year in the form of higher drug prices.

The plaintiffs sued Bayer and generic manufacturers of the blockbuster antibiotic Cipro, alleging that Bayer’s payment of hundreds of millions of dollars to the generics in settlement of patent infringement litigation violated the antitrust laws.  The trial court granted summary judgment for the defendants, which a three-judge panel upheld on appeal.

The three-judge panel, however, wrote – some might say reluctantly – that its decision was bound by a prior Second Circuit panel’s opinion upholding a similar patent settlement, In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).  Tamoxifen held that patent settlements are presumptively lawful, unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit (e.g., because the patent holder knew that the patent was invalid or unenforceable).

The Cipro panel described the anticompetitive effects of reverse payment settlements, and invited the parties to submit briefs to request rehearing of its decision and whether the Second Circuit sitting en banc should overrule Tamoxifen.  Today, the Second Circuit declined to do so, with only Judge Pooler dissenting, in an opinion.  Judge Pooler voted for rehearing because “the ‘enormous importance’ of the issues that this case raises is beyond dispute,” and “[i]t will be up to the Supreme Court or Congress to resolve” them.

Legislation to ban or strictly limit these kinds of settlements remains pending in Congress in the forms of S. 369 and H.R. 1706.  Supporters of the legislation continue to try to attach it to various legislative vehicles, and it may be considered again before the end of the year.

Tagged in: Antitrust Legislation, Intellectual Property Law and Antitrust,