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Attorney: California Cipro Case May Cause States to Scrutinize Drug Patent Settlements

1 May 2015
Bloomberg BNA

A soon-to-be issued decision in a California antitrust case could lead to states aggressively pursuing antitrust cases targeting drug patent litigation, attorneys speaking at the American Conference Institute's 9th Annual Paragraph IVDisputes event in New York said April 28.

“The plaintiffs are arguing that California law is different from federal law,”Christopher J. Kelly, of Mayer Brown LLP, in Palo Alto, Calif., said. Under California's antitrust law, the Cartwright Act, Bus. &Prof. Code section 16720, the plaintiffs are contending that settlement agreements involving reverse payments should be considered per se illegal.

“The [California Supreme Court] panel might be interested in enunciating a more strict rule of reason analysis than in [the U.S. Supreme Court's decision in] Actavis,”he said, “and that leaves defendants in these cases with very few options.”

In FTC v. Actavis, Inc., 133 S. Ct. 2223, 2013 BL 158126 (2013), the high court held that drug patent settlements involving reverse payments must be scrutinized under the antitrust “rule of reason,”but left it to the lower courts how to apply its holding (86 PTCJ 393, 6/21/13).

The question before the California Supreme Court in the Cipro case is whether the holding in Actavis should guide the application of the Cartwright Act to the Cipro settlement.

If the California Supreme Court in the Cipro case interprets California's antitrust law to impose a stricter standard than federal law to the “reverse payments”pharmaceutical companies use to settle patent litigation with generic drug producers, then “California law may become the standard,”Kelly said.

“If it goes this way, and the most aggressive body of antitrust law becomes the standard, then watch out—we're going to have to worry about how the California Attorney General's office is going to look at these things and how that's going to affect the ability of firms to settle these cases at all,”Kelly said.

Beth D. Jacob, with Kelley Drye & Warren LLP, in New York, who also spoke at the conference, said the Actavis case itself may open the door to additional state action. “There's gold in them thar hills,”Jacob said, “and the state AGs may like to participate.”

Oral Arguments in March

In the California Cipro case, oral argument took place in March (89 PTCJ 1202, 3/6/15), and a decision is expected by early June.

Kelly said that, at oral argument, the California Supreme Court showed “very little interest in the notion that, in some cases, such reverse payment agreements might be necessary in order to achieve a settlement at all.”

And only a few judges at the oral argument suggested any inclination to take the patent into consideration in their antitrust analysis, he said.

“This case is a good one to keep an eye on,”Kelly said. “The plaintiffs’ truncated rule of reason analysis stacks the deck—it doesn't give us any more ability than their per se rule does to show why a reverse payment settlement is reasonable.”

Depending on the outcome, the Cipro case could be a likely prospect for Supreme Court review, Kelly said.

The ruling in the Cipro case could create “an intolerable conflict between state antitrust law and a constitutionally granted patent right,”he said, potentially teeing up the case for high court review.

Background of Cipro Case

At issue in the case is a $398.1 million payment Bayer Corp. made to generic manufacturers to not enter the market with their generic versions of the blockbuster antibiotic Cipro (ciprofloxacin hydrochloride).

Bayer no longer is part of the litigation, in which the California Superior Court dismissed, and the California Court of Appeal upheld dismissal of, a state antitrust and unfair competition law challenge against the generic manufacturers.

Plaintiffs in suits filed in 2010 challenged Bayer's payment to Barr Laboratories Inc., Hoechst Marion Roussel Inc., Watson Pharmaceuticals Inc. and the Rugby Group Inc. that blocked access to a cheaper generic version of Cipro. A few weeks after the U.S. Supreme Court's decision in Actavis, Bayer AG and Bayer Corp. settled for $74 million consumers' claims that the agreement resulted in consumers and third-party payers paying more for the antibiotic, while eight consolidated indirect purchaser suits continued against generic drugmakers that could be liable for treble damages under the Cartwright Act.

The California Superior Court, San Diego, approved the Bayer class settlement in fall 2013.

Meanwhile, the Court of Appeal, Fourth District, in October 2011 upheld the patent settlement agreement between Bayer and Barr, and found the Superior Court properly granted summary judgment. After the Actavis decision, the California Supreme Court invited parties to brief on the case's impact on the Cipro litigation. California Attorney General Kamala Harris (D)argued that market delay agreements are per se unlawful competitor pacts under state law.

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