05-2851-cv(L), 05-2852-cv(CON)
In re: Ciprofloxacin Hydrochloride Antitrust Litig.


 1                       UNITED STATES COURT OF APPEALS
 2
 3                            FOR THE SECOND CIRCUIT
 4
 5
 6        At a stated term of the United States Court of Appeals for the Second
 7   Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500
 8   Pearl Street, in the City of New York, on the 7th day of September, two thousand
 9   ten.
10
11
12   - - - - - - - - - - - - - - - - - - - -X
13   ARKANSAS CARPENTERS HEALTH AND WELFARE
14   FUND, MARIA LOCURTO, PAPER,
15   ALLIED-INDUS, UNITED FOOD AND COMMERCIAL
16   WORKERS UNION-EMPLOYER, LOUISIANA
17   WHOLESALE DRUG CO., INC., CVS PHARMACY,
18   INC., RITE AID CORPORATION, ARTHUR’S
19   DRUG STORE, INC.,
20
21               Plaintiffs-Appellants,
22
23   SOL LUBIN, ANN STUART, LINDA K.
24   MCINTYRE,
25
26               Plaintiffs,
27                                                          05-2851-cv(L)
28               - v.-                                      05-2852-cv(CON)
29                                                          05-2863-cv(CON) *
30   BAYER AG, BAYER CORP., formerly doing
31   business as MILES INC., HOECHST MARION
32   ROUSSEL, INC., THE RUGBY GROUP, INC.,
33   WATSON PHARMACEUTICALS, INC., BARR
34   LABORATORIES INC.,
35

            *
            The appeal docketed under 05-2863-cv has been
     transferred to the United States Court of Appeals for the
     Federal Circuit. See Nov. 7, 2007 Order.
1             Defendants-Appellees.
2    - - - - - - - - - - - - - - - - - - - -X
3
4                                ORDER

5        Following disposition of this appeal on April 29, 2010,

6    Plaintiffs-Appellants Louisiana Wholesale Drug Co., Inc.;

7    Arthur’s Drug Store, Inc.; CVS Pharmacy, Inc.; and Rite Aid

8    Corporation filed a petition for rehearing in banc.   An

9    active judge requested a poll on whether to rehear the case

10   in banc.   A poll having been conducted and there being no

11   majority favoring in banc review, rehearing in banc is

12   hereby DENIED.

13       Judge Pooler dissents in an opinion.

14

15                           FOR THE COURT:
16                           CATHERINE O’HAGAN WOLFE, CLERK
17
18
19




                                    2
ROSEMARY S. POOLER, Circuit Judge, dissenting:1

        In 1991, Barr Labs sought to market a generic version of ciprofloxacin

hydrochloride (“Cipro”). Bayer, which holds the Cipro patent, sued Barr for

infringement, lost its motion for summary judgment, and subsequently settled with Barr

on the eve of trial. Under the terms of the settlement agreement, Bayer paid Barr nearly

$400 million and in exchange Barr agreed not to market a generic version of Cipro

during the life of the patent.

        The Bayer-Barr settlement agreement was unusual in a number of respects. Most

obviously, under the terms of the settlement the patent holder agreed to pay the alleged

infringer to settle the suit in exchange for the alleged infringer’s agreement to stay out of

the marketplace during the life of the patent. In the industry parlance, this is called a

“reverse exclusion payment,” or, more evocatively, a “pay-for-delay” settlement.2

        This type of settlement, once unheard of, has become increasingly common. This

Court has played a significant role in encouraging this unfortunate practice. In In re

Tamoxifen Citrate Antitrust Litig., 

(2d Cir. 2006), a panel of this Court,

over my dissent, held that exclusion payment settlements are lawful unless the branded

firm’s patent is “shown to have been procured by fraud, or a suit for its enforcement is

objectively baseless …” 

What followed was a dramatic surge in the practice

of pharmaceutical patent holders paying potential competitors to concede the validity of

their patents. In the five years before Tamoxifen was decided, there were no settlements



1
  Senior Circuit Judges Jon O. Newman and Barrington D. Parker, members of the
original panel, are not authorized to participate in the en banc poll, but the panel opinion
endorses the views expressed in this opinion.
2
  See generally C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement
as a Regulatory Design Problem, 81 N.Y.U. L. Rev. 1553 (2006).
involving exclusion payments,3 and even pharmaceutical industry representatives appear

to have conceded the illegality of the practice, testifying before Congress that proposed

amendments to the Hatch Waxman Act explicitly prohibiting exclusion payment

settlements were unnecessary because such settlements “would have been violations of

the antitrust laws and/or the patent laws whether the Hatch-Waxman Act existed or not.”4

In the four years since Tamoxifen, by contrast, the Federal Trade Commission has

identified fifty-three pharmaceutical patent settlements involving exclusion payments.5

The Commission estimates that such settlements cost consumers approximately $3.5

billion per year.6 Further, such settlements serve no obvious redeeming social purpose.

Put simply, what the patent holder purchases by means of an exclusion payment

settlement is the continuation of a patent the patent holder must have thought had some

significant probability of being declared invalid.7

        Of course, all of this would not be this Court’s concern if the Hatch-Waxman Act

explicitly permitted exclusion payment settlements. However, the Act is silent on the
3
  See Jon Leibowitz, Commissioner, Federal Trade Commission, Prepared Statement to
the Committee on the Judiciary of the United States Senate: Anticompetitive Patent
Settlements in the Pharmaceutical Industry, at 13 (Jan. 17, 2007), available at
http://www.ftc.gov/speeches/leibowitz/070117anticompetitivepatentsettlements_senate.pdf.
4
  See Hearing No. 107-1081 Before S. Comm. On Commerce, Science, and
Transportation, 107th Cong. (Apr. 23, 2002), at 71 (statement of Greg Glover,
Pharmaceutical Research and Manufacturers of America).
5
  See Federal Trade Commission, Pay-for-Delay: How Drug Company Pay-Offs Cost
Consumers Billions: An FTC Staff Study, at 4 (Jan. 2010), available at
www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf.
6
  

see also Br. of the United States, available at
http://www.justice.gov/atr/cases/f259300/259325.htm, at 4 (relying on FTC Staff Study).
Cf. C. Scott Hemphill, An Aggregate Approach to Antitrust: Using New Data and
Rulemaking to Preserve Drug Competition, 109 Colum. L. Rev. 629, 650 (2009)
(estimating the exclusion payments have already cost consumers over $12 billion).
7
  Nor, it should be noted, are exclusion payments a patent holder’s only means of hedging
against this probability. Instead, the probability of invalidation could be reflected in a
settlement by means of which the patent holder agrees to some reduction in the unexpired
term of the patent.
legality of such settlements, and the Act’s sponsors have openly criticized the practice.8

Further, exclusion payment settlements seem plainly inconsistent with the stated purpose

of the Hatch Waxman Act, which is to encourage patent challenges as a way of

increasing consumer access to low-cost drugs.9

        More significantly, the Hatch Waxman Act does nothing to change the general

rule that market-sharing agreements violate the antitrust laws. See Palmer v. BRG of

Georgia, Inc., 

, 49 (1990) (per curiam); United States v. Sealy, Inc., 

, 357-58 (1967). This is just as true when one of the parties to a market-sharing

agreement happens to hold a patent. See Palmer v. BRG of Georgia, Inc., 

,

49 (1990); United States v. Sealy, Inc., 

, 357-58 (1967). Thus, even though

we are required to presume that Bayer’s patent is valid, 35 U.S.C. § 282, as the United

States points out in its amicus brief,



        [t]he presumption of patent validity is simply a procedural device that
        assigns burdens in litigation challenging the validity of an issued patent.
        There is no basis for treating that presumption as virtually conclusive and
        allowing it to serve as a substantive basis to limit the application of the
        Sherman Act.


Br. of United States, at 6-7 (internal citations omitted).

        It should not be surprising, therefore, that our Tamoxifen decision has inspired

vigorous criticism from a variety of sources. The United States has described our




8
  See 148 Cong. Rec. S7566 (July 20, 2002) (remarks of Sen. Hatch); Protecting
Consumer Access to Generic Drugs Act of 2007, Hearing No. 110-39 Before H. Comm.
on Energy and Commerce, 110th Cong. At 7 (May 2, 2007) (statement of Rep. Waxman).
9
  H.R. Rep. No. 98-857(I), at 14-15 (1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647-
48.
Tamoxifen rule as “incorrect,”10 and has supported the plaintiffs’ petition for en banc

rehearing in this case.11 Also supporting the petition for rehearing are the majority of

State Attorneys General,12 the Federal Trade Commission,13 the American Medical

Association,14 and an impressive array of consumer groups and academic

commentators.15 As amici point out, although “commentators are divided on the

treatment to be accorded [exclusion payment] settlements … none take the position

adopted by [] Tamoxifen.”16

       In the light of all this, I think that our Tamoxifen decision unambiguously

deserves reexamination. The Tamoxifen majority recognized the “troubling dynamic” of

permitting exclusion payments that “inevitably protect patent monopolies that are,

perhaps, 

. Subsequent experience has shown that the

majority was right to be “troubled.” Although the “enormous importance” of the issues

that this case raises is beyond dispute, Fed. R. App. P. 35(a)(2), a majority of this Court

has voted against en banc rehearing. I respectfully dissent from that decision. It will be

up to the Supreme Court or Congress to resolve the conflict among the Courts of


10
   Br. of the United States, Joblove v. Barr Labs., Inc., S. Ct. No. 06-830, available at
http://www.justice.gov/osg/briefs/2006/2pet/6invit/2006-0830.pet.ami.inv.html, at 1
(2007).
11
   See Br. of the United States, supra note 5.
12
   See Br. of 34 State Attorneys General, available at
http://www.prescriptionaccess.org/docs/Cipro_2010_May_AG_Amicus.pdf.
13
   See Br. of FTC, available at
http://www.ftc.gov/os/2010/05/051202amicuscarpentershealth.pdf.
14
   See Br. of AARP & AMA, available at http://www.fdalawblog.net/files/cipro---
aarpama.pdf.
15
   See generally http://blog.prescriptionaccess.org/?cat=422 (collecting links to amicus
briefs in this case).
16
   Br. of 86 Law, Economics, Pub. Pol’y, & Bus. Professors, at 6-7, available at
http://www.law.stanford.edu/news/details/3793/Profs%20File%20Amici%20Curiae%20Seeking%20En%2
0Banc%20Rehearing%20of%20Second%20Circuit%20Pharma%20Reverse%20Payment%20Antitrust%20
Decision%20/.
Appeals. Compare In re Ciprofloxacin Antitrust Litig., 

, 1333 (Fed. Cir.

2008) (exclusion payments legal), and Schering-Plough Corp. v. FTC, 

,

1076 (11th Cir. 2005) (same) with In re Cardizem CD Antitrust Litig., 

, 908

(6th Cir. 2003) (exclusion payments per se illegal).