The U. S. Court of Appeals for the Second Circuit denied rehearing en banc today of its recent decision in the reverse-payment case of Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litigation) – despite the original three-judge appellate panel’s extraordinary invitation to the parties to submit briefs requesting rehearing by the entire court.

The case involves so-called “reverse payment” or “pay-for-delay” patent infringement settlements in which a brand-name pharmaceutical manufacturer pays the allegedly infringing generic manufacturer to settle claims that the generic product infringes the brand-name manufacturer’s patent, in exchange for which the generic agrees not to market its product.  Antitrust enforcement officials and consumer groups argue that such settlements cost consumers billions of dollars per year in the form of higher drug prices. 

The plaintiffs sued Bayer and generic manufacturers of the blockbuster antibiotic Cipro, alleging that Bayer’s payment of hundreds of millions of dollars to the generics in settlement of patent infringement litigation violated the antitrust laws.  The trial court granted summary judgment for the defendants, which a three-judge panel upheld on appeal.

The three-judge panel, however, wrote – some might say reluctantly – that its decision was bound by a prior Second Circuit panel’s opinion upholding a similar patent settlement, In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).  Tamoxifen held that patent settlements are presumptively lawful, unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit (e.g., because the patent holder knew that the patent was invalid or unenforceable). 

The Cipro panel described the anticompetitive effects of reverse payment settlements, and invited the parties to submit briefs to request rehearing of its decision and whether the Second Circuit sitting en banc should overrule Tamoxifen.  Today, the Second Circuit declined to do so, with only Judge Pooler dissenting, in an opinion.  Judge Pooler voted for rehearing because “the ‘enormous importance’ of the issues that this case raises is beyond dispute,” and “[i]t will be up to the Supreme Court or Congress to resolve” them. 

Legislation to ban or strictly limit these kinds of settlements remains pending in Congress in the forms of S. 369 and H.R. 1706.  Supporters of the legislation continue to try to attach it to various legislative vehicles, and it may be considered again before the end of the year. 

An article detailing the history of reverse-payment antitrust litigation is available here.

The General Court of the European Union has upheld a 2005 ruling by the European Commission that AstraZeneca engaged in anticompetitive behavior to shield its anti-ulcer and heartburn drug, Losec, from competition by blocking generic copies from entering the market.

The Commission fined AstraZeneca 60 million euros ($74 million), which the Court reduced to the still significant amount of 52.5 million euros. 

The Court found that between 1993 and 2000, pharmaceutical giant AstraZeneca engaged in anticompetitive behavior in order to preserve its market dominance and prevent generics from entering the market.  AstraZeneca’s scheme was wildly successful.  By 2000, Losec was the world’s highest-selling drug with global sales exceeding $6 billion. 

AstraZeneca was found to have shielded its drug from competition by misleading European patent authorities into granting it additional periods of patent protection.  To gain these additional periods, AstraZeneca told the patent authorities in various European countries that it did not receive approval to market Losec until1998.  The trouble is, AstraZeneca actually received approval in 1997, yet concealed this information from the patent authorities. 

The Court also found that AstraZeneca attempted to block generics from entering the market by changing the form in which Losec was sold from capsule to tablet.  Competing pharmaceutical companies are able to introduce generic versions of brand-name drugs into the market only if the original product is still for sale.  To keep generics off the trail, AstraZeneca asked various European countries to actually withdraw their approval of the capsule form in favor of the new tablet form that AstraZeneca had developed.  The Court found that this was yet another of AstraZeneca’s anticompetitive tactics aimed at creating a roadblock to a rival company introducing a generic version of their blockbuster drug.

In 2008, the European Commission began a probe into the name-brand versus generic rivalry, finding that drug companies routinely engage in anticompetitive practices to shield their name-brand drugs from competition by generics.  The Court’s upholding of the Commission’s ruling against AstraZeneca will provide the Commission with strong precedent to help stop pharmaceutical companies from engaging in such anticompetitive behavior.

The U.S. Supreme Court ruled in favor of plaintiff American Needle and a more expansive view of the scope of antitrust law today with what may well turn out to be a landmark opinion in the much anticipated case of American Needle, Inc. v. National Football League.

The decision rejects the lower courts’ broad grant of immunity to joint ventures from the conspiracy prohibition of § 1 of the Sherman Antitrust Act.

American Needle, the plaintiff-petitioner and a manufacturer of NFL-licensed headwear, claimed that the NFL acted anticompetitively by granting Reebok the exclusive license for certain NFL paraphernalia.  The trial court granted summary judgment to the NFL, and the U.S. Court of Appeals for the Seventh Circuit affirmed.  Both lower courts held that, in licensing individual team and NFL trademarks, the NFL was operating as a single entity under antitrust law – as opposed to multiple, collectively acting ball clubs – and thus was immune from the conspiracy prohibition of § 1 of the Sherman Act. 

The Supreme Court held unanimously that the NFL clubs are not immune from the conspiracy prohibition of the Sherman Act – at the very least with respect to licensing their intellectual property.  The Court’s language also indicates that the Court likely would hold the NFL clubs subject to the conspiracy prohibition with respect to the full panoply of the NFL’s operations.

The Court rejected the NFL’s position that, because everything the NFL does promotes NFL professional football, the NFL is really an integrated single entity immune from the conspiracy prohibition.  The Court also rejected the middle-of-the-road rule suggested by the Department of Justice’s Antitrust Division, which would not apply the conspiracy prohibition if “the teams and the league . . . have effectively merged the relevant aspects of their operations.” 

Most importantly, the Court took the opportunity to restate and clarify the principles governing when to apply the Sherman Act’s conspiracy prohibition.  Thus, American Needle will govern the application of antitrust law in all industries, not just professional sports, as evidenced by the submission of an amicus brief by Visa and MasterCard in the payments industry.  (Visa and MasterCard are public corporations owned by separate legal entities, including banks that were members of Visa and MasterCard when Visa and MasterCard were organized as joint ventures.) click here for more »

A small economics and software company is charging the Financial Accounting Standards Board (FASB) – the organization that sets accounting standards for every public company in the country – with attempting to misappropriate its intellectual property in the standard setting process.

Silicon Economics, Inc. (SEI) has filed a complaint in federal court in the Northern District of California that charges that FASB illegally claimed possession of SEI’s accounting patents, in violation of Sections 1 and 2 of the Sherman Act, as well as California contract and competition law.

SEI’s complaint states that in 2006, it offered advice to FASB on how to enhance its accounting methods.  SEI claims that FASB’s current methods fail to properly account for one-off spikes and losses in companies’ income, and therefore FASB’s method “has served as a significant contributor to the current economic crisis.”  SEI asserts that it discovered only after offering up its thoughts that FASB’s web site asserts that FASB has ownership rights to any of thoughts it received, which in this case include SEI’s patent.  SEI asserts that it did not know of the terms when it disclosed its ideas, and that FASB’s attempts to enforce them violate antitrust law.

Specifically, SEI claims that FASB controls over 90 percent of the market for “financial accounting standards in the United States,” and, as a result, that FASB is a “government-backed monopoly.”  By insisting on its right to appropriate the information given to it, according to SEI, FASB has abused its market power in violation of Section 2 of the Sherman Act.  FASB’s action also violates Section 1 of the Sherman Act, according to SEI, because the disclosure terms of FASB’s web site constitute an agreement in restraint of trade.  SEI has filed for a preliminary injunction against FASB, and additionally seeks a permanent injunction, treble-economic damages, punitive damages, and costs and attorneys fees.

FASB’s spokesperson declined to offer any substantive comment, stating that “It’s a legal matter, and our policy is not to comment on it.”

The European Commission has unveiled new draft rules for horizontal cooperation agreements as part of the EC’s Horizontal Guidelines and Research & Development and Specialization Agreement Block Exemption Regulations (BERs).

The new rules aim to clarify when companies’ horizontal agreements will be deemed to restrict competition and when such agreements will qualify for an exemption.  The rules include a new chapter on information exchange, and substantial revisions to the standardization chapter.  The revised rules also aim to prevent disputes over licensing fees charged by companies for their intellectual property rights once they become the standard.

Key issues addressed in the revised Horizontal Guidelines include:

• An assessment of information exchange between companies;
• Guidance on standard terms in the chapter on standardization;
• Clarification of the application of the competition rules to agreements between joint ventures and their parents; and
• Elimination of the “center of gravity test” which previously defined which parts of the guidelines were applicable to an agreement.

Key issues addressed in the revised R&D and Standardization Agreement regulations include:

• Disclosure of relevant intellectual property rights and readjustment of the “hardcore” restrictions;
• Introduction of a second market share threshold for specialization and joint production agreements pertaining to products used for internal consumption; and
• Clarifications to the notion of “potential competitor”, with the introduction of a three-year timeframe for future market entry.

click here for more »

Reverse payment settlements, which have inhibited the use of generic drugs, may be alive and well for now, but the United States Court of Appeals for the Second Circuit is recommending that unsuccessful plaintiffs challenging such a settlement seek a second opinion.

On Thursday, a panel for the Second Circuit reluctantly upheld a so-called reverse payment settlement in In re Ciprofloxacin Hydrochloride Antitrust Litigation, but took the extraordinary step of recommending the unsuccessful challengers petition for rehearing in banc.

In the settlement, Bayer, the patent holder for ciprofoxacin hydrocloride (“Cipro”) – the most prescribed antibiotic in the world – agreed to pay Barr Laboratories to drop its validity challenge to the Bayer patent and not enter the Cipro market.  Barr had filed an abbreviated new drug application (“ANDA”), with the FDA to supply a generic form of Cipro.  Under the the Hatch-Waxman Act, ANDA filers do not have to prove to the FDA that their generic drugs are safe and effective, inasmuch as these drugs are bioequivalents of previously approved drugs.

Stating that it was bound by the Second Circuit’s 2005 ruling in In re Tamoxifen Citrate Antitrust Litigation, the panel held per curium that it is presumed that such reverse payment settlements do not offend antitrust norms, as “the right to enter into reverse exclusionary payment agreements fall within the terms of the exclusionary grant conferred by the branded manufacturer’s patent.”  As a result, it found the Cipro reverse payment settlement to be legal. 

However, the Court also noted that such reverse payment settlements have been criticized by the FTC (and virulently criticized by the FTC Chairman, Jonathan Leibowitz), the Antitrust Division, scholars and a number of courts.  Indeed, while noting that it did not have the authority to overrule Tamoxifen, the panel noted that there were “compelling reasons to revisit Tamoxifen.”  The panel thus “invited” the plaintiffs to file a petition for an en banc rehearing so that Tamoxifen could be thoroughly examined by the full Second Circuit.

If the Second Circuit reverses Tamoxifen and sets a more liberal standard for finding reverse payment settlements anticompetitive, such as a standard that would invalidate such settlements when patent challengers are paid amounts that have no relation to the risk that they face or the attendant costs of continuing with litigation, there would be a “split in the Circuits” that would make Supreme Court review of this issue ripe for Supreme Court review.

As the issue of reverse payments was recently debated as part of the federal health care reform overall, but was not ultimately dealt with in that legislation, there is a very good chance that this issue will ultimately be headed for Supreme Court.

After much confusion in the lower courts – but no actual split among the appeals courts – the Supreme Court has agreed to hear a case about whether consumer goods manufacturers can use copyright law to stop sales of “grey market” imports (goods sold legally abroad and imported into the U.S.), where they compete with the same goods sold through the manufacturer’s authorized channels.

In this case, Costco Wholesale Corp. v. Omega S.A., Omega manufactured watches in Switzerland and sold them to unnamed third parties in Egypt and Paraguay, who resold them to U.S. importers.  The watches appeared on the shelves of discount warehouse store Costco, which sold them for about 30% less than Omega’s authorized sellers in the U.S.  To prevent this, Omega began engraving a small copyrighted logo on the back casing of its watches, and then sued Costco for violating Omega’s exclusive right to distribute its copyrighted work (the logo) in the U.S.

The Copyright Act has a defense called “first sale,” analogous to the “exhaustion” doctrine in patent law.  It says that once a copyright owner has sold a particular copy of its work, it loses the power to control any further distribution, sale, or rental of that copy, so long as the copy was “lawfully made under this title,” i.e., the Copyright Act.  This provision is what enables libraries and video rental stores to lend copyrighted materials, and it is what allows anyone to sell used books or videos without permission from the copyright owner.

The Ninth Circuit Court of Appeals held that “lawfully made under this title” means manufactured in the United States, so that whenever copyrighted items are manufactured abroad and imported, the first sale defense would not apply, and the copyright owner could control all future sales, rentals, or transfers of the goods – in this case, preventing Costco from selling the watches. 

Costco, and numerous amici (friends of the court), argued that Congress knew how to distinguish foreign and domestic manufacturing when it wanted to, and in fact had done so elsewhere in the Copyright Act.  Because the first sale rule does not mention the place of manufacture, they argued, it should be irrelevant.  They also pointed out the practical consequences of the Ninth Circuit’s decision: manufacturers may move their factories abroad in order to get more control over the chain of distribution in the U.S., while retailers may be wary of selling imported goods because they may contain a copyrighted symbol, label or packaging that would create liability for the retailer.

The Supreme Court asked the Justice Department’s Solicitor General for her opinion on whether to grant certiorari.  Although the Solicitor General advised the Court not to take the case, they have now done so.  The case will be heard next term.

Sports leagues and other joint ventures may score an antitrust victory in the Supreme Court this term that makes the Baseball Antitrust Exemption look strictly minor league.

The Supreme Court will hear the case of American Needle, Inc. v. National Football League, which concerns the NFL’s practice of licensing NFL and team logos and other intellectual property exclusively through the NFL’s wholly-owned subsidiary, NFL Properties LLC.

At issue is the extent to which joint ventures, like the NFL, can be considered “single entities” under antitrust law—as opposed to multiple, collectively-acting ball clubs—and thus not held subject to the anticonspiracy prohibitions of § 1 of the Sherman Act.  American Needle thus has the potential to be a watershed case in antitrust analysis of sports leagues and other joint ventures. click here for more »

Many of us think the U.S. health care sector will withstand today’s economy because it supplies important consumer products and services.  Politicians and economists expect pharmaceutical companies to employ scientists, develop medically necessary products, and lead our nation to economic health.  But we must also safeguard companies’ incentive to innovate.  Otherwise we risk losing potentially large sources of employment that will keep our nation competitive in the global economy. click here for more »