Louisiana Wholesale Drug Co. v. Bayer AG

January 13, 2011 – Blog Post

In a case involving reverse payment settlements, the attorneys general of 32 states filed an amicus brief on Friday, January 7 arguing that the Supreme Court should grant a writ of certiorari in Louisiana Wholesale Drug Co. v. Bayer AG. Cases such as this one arise when a drug patent holder pays a generic drug company to keep the generic drug company from challenging patent validity, from entering the market for the patented drug, or both. The petition for a writ of certiorari here states that federal appellate courts disagree as to whether these reverse payments are anticompetitive behavior presenting antitrust problems.

In Louisiana Wholesale Drug Co. v. Bayer AG, Cipro antibiotic patent holder Bayer brought an infringement suit against Paragraph IV ANDA filer Barr, who then presented defenses of invalidity and inequitable conduct. According to the petition for a writ of certiorari, Bayer estimated that losing its patent rights to Cipro might have caused more then $1.6 billion in losses. Rather than risk losing valuable patent rights, Bayer settled with Barr, paying $398 million quarterly to keep Barr from challenging Bayer’s patent rights and from entering the Cipro market until the last six months of the patent term.

Petitioners, several Cipro-purchasing companies including CVS and Rite Aid, brought suit under the Sherman Antitrust Act. The district court ruled for Bayer and Barr on summary judgment, finding that the Sherman Act does not prohibit reverse payments unless the underlying patent was obtained fraudulently or the patent litigation was a sham. The Second Circuit affirmed, acknowledging that the ruling may protect patents that should be challenged, but adhering to Second Circuit case law approving of most reverse payments based on the presumption of patent validity (see 35 U.S.C. § 282).

Respondents first argued that the Supreme Court should grant their petition for a writ of certiorari to resolve a three-way split among the circuit courts as to whether reverse payments violate the Sherman Act. Respondents state that reverse payments are substantial evidence of patent weakness and anticompetitive behavior in the Sixth and D.C. Circuits, that reverse payment antitrust claims require relitigation of the patent issues in the Eleventh Circuit, and that reverse payments are not antitrust violations unless there is fraud at the PTO or sham litigation in the Second and Federal Circuits. This Second Circuit rule, respondents argue, further conflicts with Supreme Court patent and antitrust case law. The case at hand, respondents conclude, is free from procedural impediments that have hindered Supreme Court review of reverse payments in the past, and thus respondents ask the Supreme Court to review this case.

The recent amicus brief of 32 state attorneys general begins with an argument that the nature and quantity of reverse payments threatens competition in the drug market, resulting in an impact to drug consumers of between $3.5 billion and $14 billion annually. The attorneys general continue that a recent surge in reverse payment agreements is due to Second Circuit reverse payments rulings, including the ruling in the case at hand. They argue that these rulings run contrary to antitrust statutes, the Hatch-Waxman Act, and Supreme Court patent law precedent. The attorneys general argue that the Hatch-Waxman Act aims to encourage generic drug companies to compete in the pharmaceutical industry and challenge patent validity. The Second Circuit’s ruling here, the attorneys general argue, instead hinders competition through competitor collusion and monetary payoff, not by patent strength and validity. The amicus brief concludes with an argument that exclusive patent rights do not include any right to collude with a competitor and that extending patent rights beyond their scope violates the Sherman Antitrust Act.

Supreme Court review of Louisiana Wholesale Drug Co. v. Bayer AG could play a large role in the balance between drug affordability and pharmaceutical research incentivization. A ruling affirming the Second Circuit would allow patent-holding drug companies to monetarily discourage challenges to their exclusive rights, securing their market position and facilitating recovery of research investments. However, these costs would then fall to consumers in the form of higher drug prices for the full patent terms. On the other hand, a ruling reversing the Second Circuit may greatly limit opportunities to settle pharmaceutical patent litigation. Such a ruling could potentially result in greater competition from generic drug companies and lower drug prices for consumers, but would also decrease the value of pharmaceutical patents and increase uncertainty in pharmaceutical research investments.