Implications of the Recent Cipro Decision

Economists Ink: A Brief Analysis of Policy and Litigation


View Stoner’s Profile
Robert D. Stoner has expertise related to intellectual property, particularly as it relates to pharmaceuticals.  He has worked on a number of cases that involve generic entry.

Recently the US Court of Appeals for the Federal Circuit upheld a 2005 District Court ruling rejecting a challenge to the lawfulness of a patent litigation settlement related to the antibiotic Cipro. The settlement involved so-called reverse cash payments from the patent holder (Bayer) to the generic manufacturer (Barr Laboratories) as part of an agreement whereby Barr postponed entry until after the patent-at-issue expired. The major question analyzed by the Court of Appeals is whether the District Court erred in holding that patent law immunizes a settlement agreement from antitrust scrutiny if any exclusionary terms are within the scope of the patent. Both antitrust agencies, the Federal Trade Commission (FTC) and the Department of Justice (DOJ), submitted amicus briefs asking for a reversal. This case is important to the balance between the antitrust and intellectual property laws.

The Appeals Court found that the settlement could only violate the antitrust laws if it affected entry beyond the patent’s scope. The decision finds no evidence that happened. It notes that the patent was subsequently challenged by four other generic manufacturers, and was eventually upheld as valid.

The Appeals Court decision rejects the fundamental position of the antitrust agencies that the scope of the patent should be defined not by its nominal scope, but by the exclusionary power of the patent at the time of the settlement. The antitrust agencies view a patent as a probabilistic property right whose power to exclude is fundamentally tempered by uncertainty as to whether the patentee, if challenged, will win or lose a court judgment. By contrast, the Court of Appeals views the scope of a patent right as identical to its nominal scope unless the patent is gained by fraud or the patent infringement suit is objectively baseless. This broader definition of patent scope makes it more difficult to attack patent settlements under the federal antitrust laws.

The Appeals Court decision also addresses burden of proof. The Appeals Court, unlike the antitrust agencies, presumes a patent is valid unless the generic entrant rebuts that presumption in court. Given that presumption, if the settlement is consistent with the presumed scope of the patent, even in a reverse payments transaction, the Appeals Court finds there is nothing the antitrust laws can do.