Ark. Carpenters Health And Welfare Fund v. Bayer Ag

Decision Date29 April 2010
Docket NumberDocket No. 05-2851-cv(L),05-2852-cv(CON).
Citation604 F.3d 98
PartiesARKANSAS CARPENTERS HEALTH AND WELFARE FUND, Maria Locurto, Paper, Allied-Indus, United Food and Commercial Workers Union-Employer, Louisiana Wholesale Drug Co., Inc., CVS Pharmacy, Inc., Rite Aid Corporation, Arthur's Drug Store, Inc., Plaintiffs-Appellants,v.BAYER AG, Bayer Corp., formerly doing business as Miles Inc., Hoechst Marion Roussel, Inc., The Rugby Group, Inc., Watson Pharmaceuticals, Inc., Barr Laboratories Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit


Steve D. Shadowen, (Monica L. Rebuck, on the brief), Hangley Aronchick Segal & Pudlin, Harrisburg, PA (Bruce E. Gerstein, Barry S. Taus, and Jan Bartelli, Garwin, Gerstein, & Fisher LLP, New York, NY, on the brief), for Plaintiffs-Appellants.

Paul E. Slater, Sperling & Slater, P.C., of counsel to Amicus Curiae American Antitrust Institute, Chicago, IL, in support of Plaintiffs-Appellants.

Stacy J. Canan, (Bruce Vignery, on the brief), AARP Foundation Litigation, (Michael Schuster, AARP, on the brief), Washington, D.C., as Amici Curiae for Plaintiffs-Appellants.

Don L. Bell, II, National Association of Chain Drug Stores, Inc., Alexandria, VA, as Amicus Curiae for Plaintiffs-Appellants.

Fred H. Bartlit, Jr., (Peter B. Bensinger, Jr., Michael J. Valaik, and Paul J. Skiermont, on the brief), Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL, (Philipp A. Proger, Kevin D. McDonald, and Lawrence D. Rosenberg, Jones Day, Washington, DC), for Defendants-Appellees Bayer AG and Bayer Corporation.

Karen N. Walker, (Edwin John U, Bridget K. O'Connor, and Gregory L. Skidmore, on the brief), Kirkland & Ellis LLP, Washington, DC, (David E. Everson, Heather S. Woodson, and Victoria L. Smith, Stinson Morrison Hecker LLP, Kansas City, MO, on the brief), for Defendants-Appellees Barr Laboratories, Inc., Hoechst Marion Roussel, Inc., The Rugby Group, Inc., and Watson Pharmaceuticals, Inc.

Christine A. Varney, Assistant Attorney General, (Philip J. Weiser, Deputy Assistant Attorney General, and Catherine G. O'Sullivan and David Seidman, Attorneys), U.S. Department of Justice, Washington, D.C., for the United States.

Before NEWMAN, POOLER, PARKER, Circuit Judges.


Plaintiffs appeal from a judgment of the United States District Court for the Eastern District of New York (Trager J.) granting summary judgment for defendants. Defendants Bayer AG and its subsidiary Bayer Corporation (collectively Bayer) own the patent for the active ingredient in the antibiotic ciprofloxacin hydrochloride (“Cipro”). Defendants Barr Laboratories, Inc. (Barr), Hoechst Marion Roussel, Inc. (HMR), and Watson Pharmaceuticals, Inc. (Watson) were potential generic manufacturers of Cipro. Plaintiffs are direct purchasers of Cipro who allege that defendants violated federal antitrust law when they settled a patent infringement lawsuit by entering into collusive agreements that blocked the entry of low-cost generic versions of Cipro into the prescription drug market.

Hatch-Waxman Settlement Agreements

Bayer is the owner of the patent relating to the active ingredient in Cipro, which has been described as the most prescribed antibiotic in the world. The Cipro patent, U.S. Patent No. 4,670,444, was issued on June 2, 1987, and was scheduled to expire on December 9, 2003.1

In 1991, Barr sought to market a generic version of Cipro pursuant to the expedited FDA approval process established by the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), Pub.L. No. 98-417, 98 Stat. 1585. Under the Hatch-Waxman Act, a pharmaceutical company can seek approval to market generic versions of an approved branded drug without having to re-establish the drug's safety and effectiveness by filing an Abbreviated New Drug Application (“ANDA”). 21 U.S.C. § 355(j)(2)(A), (8)(B). Where, as here, a generic manufacturer seeks to enter the market before the expiration of the branded firm's patent, it must file a pre-expiration challenge (paragraph IV or “ANDA-IV” certification). 21 U.S.C. § 355(j)(2)(A)(vii)(IV). The ANDA-IV certification requires the generic firm to demonstrate the bioequivalence of its proposed version of the drug see 21 C.F.R. § 314.94(a)(9), and to state the basis for its claim of invalidity or noninfringement of the branded firm's patent see 21 U.S.C. § 355(j)(2)(B)(iv)(II).

An ANDA-IV certification itself constitutes an act of infringement, triggering the branded manufacturer's right to sue. 35 U.S.C. § 271(e)(2)(A). Indeed, the branded manufacturer must sue within 45 days of receiving notice of the ANDA-IV in order to stay the generic firm's entry into the market. 21 U.S.C. § 355(j)(5)(B)(iii).2 Thus, the Hatch-Waxman Act redistributes the relative risks between the patent holder and the generic manufacturer, allowing generic manufacturers to challenge the validity of the patent without incurring the costs of market entry or the risks of damages from infringement. See Ark. Carpenters Health & Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 544 F.3d 1323, 1338 (Fed.Cir.2008).

The first generic firm to file an ANDA-IV is rewarded with a 180-day exclusive right to market its generic version of the drug. 21 U.S.C. § 355(j)(5)(B)(iv).3 However only the first-filed ANDA-IV is eligible for the 180-day exclusivity period: even if the first filer loses, withdraws, or settles its challenge, subsequent filers do not become eligible for the exclusivity period.4

The Bayer-Barr Lawsuit

Barr filed an ANDA-IV challenging Bayer's Cipro patent in October 1991. 5 Bayer sued Barr for patent infringement in the Southern District of New York within 45 days of its receipt of notice of Barr's filing, triggering the Hatch-Waxman statutory stay.6 Barr subsequently entered into an agreement with other defendants herein, also potential generic manufacturers of Cipro, to share the costs and benefits of the patent litigation.

In June 1996, the district court denied the parties' cross-motions for summary judgment. In January 1997-approximately two weeks prior to the scheduled trial-Bayer and Barr entered into a “reverse exclusionary payment” (or “pay-for-delay”) settlement: that is, the patent holder (Bayer) agreed to pay the alleged infringer to settle the lawsuit, and in exchange, the alleged infringer agreed not to enter the market.7 Under the terms of the settlement agreement, Bayer agreed to (1) pay $49.1 million immediately; (2) make quarterly payments of between $12.5 and $17.125 million for the duration of the patent except for the last six months prior to the patent's expiration; 8 and (3) provide the generic manufacturers a guaranteed license to sell brand-name Cipro at a reduced rate for six months prior to the patent's expiration. In exchange, Barr conceded the patent's validity and agreed not to market a generic version of Cipro prior to the patent's expiration.9

Plaintiffs' Antitrust Lawsuit

In 2000, direct and indirect purchasers of Cipro filed over thirty antitrust lawsuits against Bayer under federal and state law. These cases were consolidated by the Multi-District Litigation Panel in the Eastern District of New York. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 166 F.Supp.2d 740, 745 (E.D.N.Y.2001) (“ Cipro I ”). Plaintiffs allege that defendants' settlement exceeded the scope of Bayer's patent rights because Bayer effectively paid its potential competitors hundreds of millions of dollars not to challenge its patent. Plaintiffs also allege that the agreements were unlawful because Barr was permitted to reclaim the 180-day market exclusivity period if a subsequent challenger was successful in having the patent invalidated, and because the generic manufacturers agreed not to file any ANDA-IV certifications for products that relate to Cipro. But for the challenged agreements, plaintiffs assert that (1) Barr would have entered the market pending resolution of the patent litigation; (2) Barr would have prevailed in the litigation and entered the market; or (3) Bayer would have granted Barr a license to market a generic version of Cipro to avoid a trial on the patent's validity. On cross-motions for summary judgment, the district court granted summary judgment for the defendants. In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F.Supp.2d 514, 548 (E.D.N.Y.2005) (“ Cipro III ”). The court stated:

The ultimate question-and this is the crux of the matter-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.

Id. at 523-24 (citations omitted). In eschewing a post hoc determination of the potential validity of the underlying patent,” the court reasoned that “such an approach would undermine the presumption of validity of patents in all cases, as it could not logically be limited to drug patents, and would work a revolution in patent law.” Id. at 529.

The district court also found that the agreements did not allow Barr to manipulate the exclusivity period to obstruct subsequent challengers of the patent. Id. at 540-41; see also Cipro II, 261 F.Supp.2d at 243-47. The court summarized as follows:

[I]n the absence of any evidence that the Agreements created a bottleneck on challenges to the '444 Patent, or that they otherwise restrained competition beyond the scope of the claims of the '444 Patent, the Agreements have not had any anti-competitive effects on the market for ciprofloxacin beyond that which are permitted under the '444 Patent. The fact that Bayer paid what in

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