Court: Drug patent settlements may be illegal

Patent settlements reached by drug companies including Bayer AG may violate antitrust laws, a U.S. appeals court said, citing a rise in cases in which makers of brand-name medicines pay rivals to delay generic products.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York made the determination today in saying it was reluctantly upholding dismissal of a challenge to a deal between Bayer and Teva Pharmaceutical Industries Ltd.'s Barr over the anthrax treatment Cipro because of legal precedent.

Courts have upheld "pay-to-delay" agreements as long as they don't prevent introduction of the generic drug beyond the terms of the patents. The panel today urged objectors to that precedent, including pharmacy chain CVS Caremark Corp. and labor unions, to ask the full court to look deeper into the issue. Locally, CVS has operations in Northbrook, Mt. Prospect, Bannockburn and Lincolnshire.

The panel cited "the 'exceptional importance' of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits."

The Justice Department said last year the payments may be illegal and Federal Trade Commission Chairman Jonathan Leibowitz in January argued that the courts are allowing these agreements without regard for the merit of the patents. He said pay-to- delay deals limit the availability of lower-cost generic versions of medicines, costing American consumers $3.5 billion a year in higher prescription drug prices.

'Turning Point'

The judges' comments today may be "the turning point," said Steve Shadowen, a lawyer who represents CVS and Rite Aid Corp. in the case.

"The panel seemed to be very troubled by the prior decision and laid out very specific reasons why it might well be wrong and why the full court should look at it," Shadowen said. "In the end, the courts are going to get this right."

Had Barr continued to fight the patent and won, consumers could have saved as much as $3.9 billion on the price of Cipro between 1998 and 2004, Shadowen said.

The settlements are known as reverse payments because the patent owner typically provides the company it sued some financial consideration, such as a marketing license, to stop producing the generic drug.

In the Cipro case, Bayer paid $398.1 million beginning in 1997 for Barr to drop its challenge and agree not to enter the market with a generic until the patent expired in 2003. An appeals court later upheld the patent in a separate challenge brought by Mylan Inc., and both Bayer and Barr cite that ruling as proof there was nothing wrong with their agreement.

Tamoxifen, AndroGel

Marcy Funk, a spokeswoman for Bayer, said the Leverkusen, Germany-based company was pleased the court affirmed dismissal of the case and has "no further comment on the ruling."

The appeals court in 2005 rejected a challenge to an agreement between AstraZeneca Plc and Barr over the breast cancer treatment tamoxifen. Before that decision, 14 settlements were reached without any payment involved, the panel said. Since the tamoxifen ruling, 20 of 27 settlements involved some sort of payment, according to the court.

In suggesting a fuller review, the panel cited opposition by economists, one of the senators who sponsored the federal law that established the rules for patent disputes in drug cases, and the Justice Department. The department last year altered its position and said the drug companies should be forced to justify why the agreements were reached.

Protecting Settlements

CVS and Rite Aid have joined with drug wholesalers and labor union health plans in challenging other settlements, including ones over Bristol-Myers Squibb Co.'s blood-thinner Plavix; Cephalon Inc.'s sleep-disorder drug Provigil; and the testosterone ointment AndroGel now made by Libertyville Township-based Abbott Laboratories. Since February, district courts have thrown out antitrust lawsuits over Plavix and AndroGel, and said the suit against Cephalon can proceed.

Eric Grannon, a lawyer with White & Case LLP in Washington who successfully argued for dismissal of the AndroGel case, said the panel "oddly ignores" the fact that other appeals courts have used the same standard in rejecting settlement challenges and focuses instead on the Justice Department's position.

"I would guess that the full 2nd Circuit will care more about what other judges have held than a recent political reversal," Grannon said in an e-mail. "No court of appeals has ever invalidated a final patent settlement within the scope of the patent."

The case today is In Re Ciprofloxacin Hydrochloride Antitrust Litigation, 05-2851 and 05-2852, 2nd U.S. Circuit Court of Appeals (New York).