A New Hope? Second Circuit Invites Further Review in CIPRO Patent Settlement Case

By Kurt R. Karst –   

Last week’s decision by a 3-judge panel of the U.S. Court of Appeals for the Second Circuit in In re: Ciprofloxacin Hydrochloride Antitrust Litigation affirming a 2005 decision by the U.S. District Court for the Eastern District of New York to grant summary judgment for defendants (i.e., manufacturers of CIPRO (ciprofloxacin HCl) or generic versions of CIPRO) in an antitrust challenge to certain patent settlement agreements gave the Federal Trade Commission (“FTC”) a reason to cheer.  The Circuit Court’s decision invites further review of the case by the full Court, and comes on the heels of the publication of the FTC’s annual report, which, as we previously reported, highlights the Commission’s efforts to stop allegedly anticompetitive “pay-for-delay” patent settlement agreements. 

Although the Second Circuit, in its 3-0 decision, affirmed the district court’s 2005 decision in In re Ciprofloxacin Hydrochloride Antitrust Litig., 363 F. Supp. 2d 514 (E.D.N.Y. 2005) (“Cipro III”), it did so because the Court’s 2005 decision in Joblove v. Barr Labs., Inc., (, compelled it to do so: “Since Tamoxifen rejected antitrust challenges to reverse payments as a matter of law, we are bound to review the Cipro court’s rulings under the standard adopted in Tamoxifen.”  The Court states in its decison, however, that “because of the ‘exceptional importance’ of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits,” plaintiffs-appellants should petition for rehearing in banc, and offers four reasons why the case might be appropriate for reexamination by the full Court:

(1) The Court cites amicus briefs (here and here) submitted by the U.S. arguing that Tamoxifen “adopted an improper standard that fails to subject reverse exclusionary payment settlements to appropriate antitrust scrutiny,” and proposing that “excessive reverse payment settlements be deemed presumptively unlawful unless a patent-holder can show that settlement payments do not greatly exceed anticipated litigation costs.”

(2) The Court notes that “there is evidence that the practice of entering into reverse exclusionary payment settlements has increased” since the Tamoxifen decision.  In January 2010, the FTC issued a report showing evidence of that increase.

(3) Citing July 30, 2002 remarks from Senator Orrin Hatch (R-UT) that “[a]s coauthor of the [Hatch-Waxman Act], I can tell you that I find these type[s] of reverse payment collusive arrangements appalling,” the Court states that “after Tamoxifen was decided, a principal drafter of the Hatch-Waxman Act criticized the settlement practice at issue here.

(4) Finally, the Court states that “Tamoxifen relied on an unambiguous mischaracterization of the Hatch-Waxman Act.  Tamoxifen was based in no small part on the panel majority’s belief that reverse exclusionary settlements ‘open[] the [relevant] patent to immediate challenge by other potential generic manufacturers . . . spurred by the additional incentive . . . of potentially securing the 180-day exclusivity period available upon a victory in a subsequent infringement lawsuit.’  .  The panel majority’s claim that the statutory exclusivity period cedes to the first ANDA filer to successfully defend was erroneous. . . .  Contrary to our suggestion in Tamoxifen, later ANDA [Paragraph IV] filers are not eligible for the 180-day exclusivity period.”

The FTC quickly issued a press release exclaiming that the Court’s invitation for the plaintiffs-appellants to seek further review “is further evidence that courts are rethinking their approach to pay-for-delay settlements.”  Rutgers University School of Law (Camden) professor Michael A. Carrier commented that “this is the best opportunity for an appellate court to critically review these agreements in quite some time.”