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California Revives 'Pay for Delay' Cipro Antitrust Lawsuit

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By Casey C. Sullivan, Esq. on May 11, 2015 4:06 PM

If you've gotten sick in the past 30 or so years, odds are that you've been prescribed Cipro, the antibiotic that is one of the most commonly used drugs in the world. From 1987 to 2003, Bayer was the sole producer of Cipro in the United States -- a position which helped it generate billions of dollars in gross sales until its patent expired in 2003.

Part of the reason Bayer was able to maintain such a lucrative position, according to an antitrust class action suit, was because the company paid a manufacturer $398 million to keep a generic version off the market until Bayer's patent expired. The Supreme Court of California reversed a dismissal of that class action on Thursday, reviving the "pay for delay" lawsuit.

The First "Pay for Delay" Ruling Since SCOTUS

In 1991, Barr Laboratories filed an application to market a generic version of Cipro. At that time, to avoid having to repeat the drug approval process already completed by Cipro, Barr was able to submit a streamlined application asserting that its generic drug would be the equivalent of Cipro and would be marketable because Cipro's patent was invalid. Bayer sued, and the companies settled, for $398 million. Barr agreed to wait until Bayer's patent expired to market its generic version. Bayer made over $1 billion in Cipro sales in the meantime.

That settlement brought about several antitrust suits. Here, plaintiffs alleged the settlement violated California's Cartwright Act. Their case was dismissed in 2009, but subsequently the Supreme Court ruled, in FTC v. Actavis, that such settlements may be anticompetitive, incentivizing collusion between companies to delay competition. The California Supreme Court's unanimous ruling reviving the antitrust suit is the first significant state decision since Actavis. As such, it's likely to impact not just Bayer, but similar state suits throughout the nation.

Structured Rule of Reason

The California Supreme Court's ruling sought to reconcile the protections of patent law with state antitrust doctrine. As the court held, the fact that Bayer had a patent on Cipro alone did not mean that an agreement between Bayer and Barr did not violate antitrust law. So long as those "pay-for-delay" settlements are unreasonable restraints on trade, they may violate antitrust laws.

The California court went farther than SCOTUS had, creating a full "structured rule of reason" test for assessing whether the settlements are anticompetitive. On remand, the plaintiffs must show that the settlement limited the generic challenger's entry into the market, for case, in excess of the value of goods other than any delay and the brand's remaining costs.

The test does not, however, require plaintiffs to show that Bayer's patent was invalid.

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