In re Ciprofloxacin Hydrochloride Antitrust Lit., No. 2008-1097.

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Prost
• Citation: 544 F.3d 1323
• Parties: In re CIPROFLOXACIN HYDROCHLORIDE ANTITRUST LITIGATION. Arkansas Carpenters Health and Welfare Fund, Paper, A.F. of L.—A.G.C. Building Trades Welfare Plan, Mark Aston, Board of Trustees of the United Food & Commercial Workers of Arizona Health and Welfare Fund, Adele Brody, Michelle Cross, Donna Franck, Kristine Gaddis, David Green, IBEW-Neca Local 505 Health & Welfare Plan, John H. Irons, Local 1199 National Benefit Fund for Health and Human Services Employees, Maria Locurto, Caroline M. Loesch, Kimberly McCullar, Linda K. McIntyre, Mechanical Contractors—UA Local 119 Welfare Plan, Theresa Meyers, Patricia Nelson, Frances Norris, Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC, Mary Ann Scott, Sheet Metal Workers Local 441 Health & Welfare Plan, Maurice Stewart, Ann Stuart, United Food & Commercial Workers and Participating Food Industry Employers Tri-State Health & Welfare Fund, and Vistahealthplan, Inc., Plaintiffs-Appellants, v. Bayer AG and Bayer Corp., Defendants-Appellees, and Hoechst Marion Roussel, Inc., The Rugby Group, Inc. (doing business as Rugby Laboratories, Inc.), and Watson Pharmaceuticals, Inc., Defendants-Appellees, and Barr Laboratories, Inc., Defendant-Appellee.
• Docket Number: No. 2008-1097.
• Decision Date: 15 October 2008

544 F.3d 1323 In re CIPROFLOXACIN HYDROCHLORIDE ANTITRUST LITIGATION.
Arkansas Carpenters Health and Welfare Fund, Paper, A.F. of L.—A.G.C. Building Trades Welfare Plan, Mark Aston, Board of Trustees of the United Food & Commercial Workers of Arizona Health and Welfare Fund, Adele Brody, Michelle Cross, Donna Franck, Kristine Gaddis, David Green, IBEW-Neca Local 505 Health & Welfare Plan, John H. Irons, Local 1199 National Benefit Fund for Health and Human Services Employees, Maria Locurto, Caroline M. Loesch, Kimberly McCullar, Linda K. McIntyre, Mechanical Contractors—UA Local 119 Welfare Plan, Theresa Meyers, Patricia Nelson, Frances Norris, Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC, Mary Ann Scott, Sheet Metal Workers Local 441 Health & Welfare Plan, Maurice Stewart, Ann Stuart, United Food & Commercial Workers and Participating Food Industry Employers Tri-State Health & Welfare Fund, and Vistahealthplan, Inc., Plaintiffs-Appellants,

[544 F.3d 1324]

v.
Bayer AG and Bayer Corp., Defendants-Appellees, and
Hoechst Marion Roussel, Inc., The Rugby Group, Inc. (doing business as Rugby Laboratories, Inc.), and Watson Pharmaceuticals, Inc., Defendants-Appellees, and
Barr Laboratories, Inc., Defendant-Appellee. No. 2008-1097. United States Court of Appeals, Federal Circuit. October 15, 2008.

[544 F.3d 1326]

Christopher J. McDonald, Labaton Sucharow LLP, of New York, NY, and Patrick E. Cafferty, Cafferty Faucher LLP, of Ann Arbor, MI, Of counsel were Dan Drachler, Zwerling, Schachter & Zwerling, LLP, of Seattle, WA; Robert S. Schachter and Joseph Lipofsky, of New York, NY; Eric B. Fastiff and Joseph R. Saveri, Lieff Cabraser Heiman & Bernstein, LLP, of San Francisco, CA; and David Kalow and Scott D. Locke, Kalow & Springut LLP, of New York, NY.

Fred H. Bartlit, Jr., Bartlit Beck Herman Palenchar & Scott LLP, of Chicago, IL, argued for all defendants-appellees. With him on the brief were Peter B. Bensinger, Jr., Michael J. Valaik, and Paul J. Skiermont, for Bayer AG, et al. Of counsel on the brief were Phillip A. Proger, Kevin D. McDonald, and Lawrence D. Rosenberg, Jones Day, of Washington, DC.

Karen N. Walker, Kirkland & Ellis LLP, of Washington, DC, for defendant-appellee Barr Laboratories, Inc. With her on the brief were Edwin John U, Bridget K. O'Connor and Gregory L. Skidmore.

David E. Everson, Stinson Morrison Hecker LLP, of Kansas City, MO, for defendants-appellees Hoechst Marion Roussel, Inc., et al. With himon the brief were Heather S. Woodson and Victoria L. Smith.

Cheryl L. Johnson, Deputy Attorney General, United States Department of Justice,

[544 F.3d 1327]

of Los Angeles, CA, for amici curiae The State of Alabama, et al. With her on the brief were Manuel Medeiros, Solicitor General; Janet Gaard, Chief Assistant Attorney General; Kathleen Foote, Senior Assistant Attorney General; and Edmund G. Brown, Jr., Attorney General, of The State of California, of Sacramento, CA.

Professor Mark A. Lemley, Stanford Law School, of Stanford, CA, for amici curiae, Law Professors John R. Allison, et al.

Imad D. Abyad, Attorney, Federal Trade Commission, of Washington, DC, for amicus curiae Federal Trade Commission. With him on the brief were William Blumenthal, General Counsel; John D. Graubert, Principal Deputy General Counsel, and John F. Daly, Deputy General Counsel for Litigation. Of counsel were Jeffrey Schmidt, Director, Suzanne T. Michel, Assistant Director; and Elizabeth R. Hilder, Attorney.

Bruce B. Vignery, AARP Foundation Litigation, of Washington, DC, for amici curiae AARP, et al.

Don L. Bell, II, National Association of Chain Drug Stores, of Alexandria, Virginia, for amicus curiae National Association of Chain Drug Stores.

Elizabeth M. Locke, Kirkland & Ellis LLP, of Washington, DC, for amicus curiae Generic Pharmaceutical Association. With her on the brief was Susan E. Engel.

Before SCHALL and PROST, Circuit Judges, and WARD, District Judge.^*

PROST, Circuit Judge.

This case under the Hatch-Waxman Act presents the issue of whether a settlement agreement between a patent holder and a generic manufacturer violates the antitrust laws. The agreements here involve a reverse payment from the patent holder to the generic manufacturer, but do not implicate the 180-day exclusivity period. Indirect purchasers of Cipro and several advocacy groups ("appellants") appeal the grant of summary judgment of their federal antitrust claims and dismissal of their state antitrust claims against the patent holders and brand-name manufacturers, Bayer AG and Bayer Corp. (collectively "Bayer"), and the generic manufacturers, Barr Labs., Inc. ("Barr"), Hoechst Marion Roussel, Inc. ("HMR"), The Rugby Group, Inc. ("Rugby"), and Watson Pharmaceuticals, Inc. ("Watson") (collectively "generic defendants"). The United States District Court for the Eastern District of New York granted Bayer's and the generic defendants' motion for summary judgment, holding that any anti-competitive effects caused by the settlement agreements between Bayer and the generic defendants were within the exclusionary zone of the patent, and thus could not be redressed by federal antitrust law. In re Ciprofloxacin Hydrochloride Antitrust Litigation, 363 F.Supp.2d 514 (E.D.N.Y.2005) ("Cipro II"). The court further granted Bayer's motion to dismiss the state antitrust claims. For the reasons set forth below, we affirm.

I A

Bayer is the owner of U.S. Patent No. 4,670,444 ("the '444 patent"). The patent relates to certain quinoline- and napthyridine-carboxylic acid compounds with antibacterial properties and methods of administering the compounds to combat bacterial illnesses. '444 patent, col.1 ll.13-17, col.2

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ll.28-32, claims 1, 21. More particularly, the patent is directed to ciprofloxacin hydrochloride, the compound that is the active ingredient in Cipro® ("Cipro"). Id., claim 12. The patent issued on June 2, 1987, and Bayer's predecessor obtained approval from the Food and Drug Administration ("FDA") to market Cipro in October 1987. The FDA granted Bayer an additional six-month period of marketing exclusivity (pediatric exclusivity) following the expiration of the patent on December 9, 2003.

In October 1991, Barr filed an abbreviated new drug application ("ANDA") for a generic version of Cipro. The ANDA included a Paragraph IV certification¹ indicating that Barr sought to market its generic drug before expiration of the '444 patent on the grounds that the patent was invalid and unenforceable.² Specifically, Barr asserted that the patent was invalid based on obviousness under 35 U.S.C. § 103 and obviousness type double patenting under 35 U.S.C. § 101, and unenforceable due to inequitable conduct. Under the Hatch-Waxman Act, the first filer of a Paragraph IV ANDA is automatically entitled to a 180-day period of market exclusivity, which, in the version of the Act in effect at the time, begins to run either on the date that the first ANDA filer begins to market its drug or on the date of a final court decision finding the patent to be invalid or not infringed, whichever is earlier. 21 U.S.C. § 355(j)(4)(B)(iv) (1988). Thus, as the first Paragraph IV ANDA filer, Barr was entitled to the 180-day exclusivity period.

On January 16, 1992, Bayer sued Barr for patent infringement in the Southern District of New York. Barr answered and counterclaimed for a declaratory judgment that the '444 patent is invalid and unenforceable and that its generic ciprofloxacin would not infringe the '444 patent. In 1996, Rugby (a subsidiary of HMR) and Barr entered into the "Litigation Funding Agreement," in which Rugby agreed to help Barr fund its litigation against Bayer in exchange for half of any profits realized from Barr's sale of ciprofloxacin. Also, in 1996, Bayer entered into settlement discussions with HMR and Barr.

Just before trial, Bayer, Barr, HMR, and Rugby entered into the following agreements (collectively "the Agreements"): (1) the "Barr Settlement Agreement" between Bayer and Barr; (2) the "HMR/Rugby Settlement Agreement" among Bayer, HMR, and Rugby; (3) the "Apotex Settlement Agreement" among Bayer, Bernard Sherman (Barr's principal shareholder), and Apotex (another company controlled by Sherman); and (4) the "Cipro Supply Agreement" among Bayer, Barr, and HMR.³

The first three agreements provided that Barr, HMR, Rugby, Apotex, and Bernard Sherman would not challenge the validity or enforceability of the '444 patent. Pursuant to the Barr Settlement Agreement, Barr agreed to convert its Paragraph IV ANDA to a Paragraph III ANDA, thus certifying that it would not

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market its generic version of Cipro until after the '444 patent expired.⁴ See 21 U.S.C. § 355(j)(2)(A)(vii)(III). In exchange, Bayer agreed to make a settlement payment to Barr of $49.1 million.

Under the Cipro Supply Agreement, Bayer agreed to either supply Barr with Cipro for resale or make quarterly payments (referred to as "reverse payments" or "exclusion payments") to Barr until December 31, 2003.⁵ In return, Barr agreed not to manufacture, or have manufactured, a generic version of Cipro in the United States. Beginning at least six months before the '444 patent expired, Bayer agreed to allow Barr to sell a competing ciprofloxacin product. Bayer and Barr then entered into a consent judgment, whereby Barr affirmed the validity and enforceability of the '444 patent and admitted infringement.

On July 25, 1997, Bayer filed for reexamination. Bayer cancelled and amended certain claims, and the validity of the remaining claims of the '444 patent was reaffirmed by the Patent and Trademark Office ("PTO") in the reexamination certificate. In particular, the patentability of claim 12, directed to ciprofloxacin hydrochloride, was confirmed.

Thereafter, four other companies—Ranbaxy, Mylan, Schein, and Carlsbad—filed Paragraph IV ANDAs for a generic version of Cipro. Bayer sued each of them for infringement of...