by William Diaz, Raymond A. Jacobsen, Joseph F. Winterscheid and Jeffrey W. Brennan

On October 31, 2011, a California state court of appeal affirmed a lower court’s ruling upholding a "reverse payment" (pay-for-delay) settlement between Bayer (Bayer) AG and Barr Pharmaceuticals (Barr).  Bayer had sued Barr for patent infringement pertaining to the latter’s planned production of a generic form of Bayer’s Cipro.  The case was settled with Bayer paying Barr to delay entry until the expiration of Bayer’s patent in 2004.  Thereafter, consumers filed a class action lawsuit challenging the settlement agreement under California’s state antitrust laws.  The appellate court upheld the settlement agreement because it concluded that the agreement did not restrain competition beyond the scope of the Bayer patents.  This court’s ruling is consistent with the predominant view among the courts that these agreements do not violate the antitrust laws when the period of the delay and products at issue are within the scope of the relevant patents.

For years the Federal Trade Commission (FTC) has expressed serious concerns about reverse payment settlements.  Most recently, on October 25, 2011, the FTC released the findings of its study into the prevalence of these agreements and their effects on consumers.  The FTC noted that "pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers …drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011).  The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003.  Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion."  This latest report demonstrates the FTC’s continued commitment to enforcement in this area.  Further, the FTC’s Chairman has continued to urge Congress to pass legislation that restricts reverse payment settlements.

These recent events highlight the need to work closely with antitrust counsel to ensure that any settlement agreements are properly vetted and take into account the latest antitrust developments.