Amicus Curiae Brief — Joblove v. Barr Labs, Inc. (No. 06-830)

; Supreme Court, U.S.

FILED

(7) | MAY 23 2007

No. 06-830 OFFICE OF THE CLERK

In the Supreme Court of the Gnited States

BETTY JOBLOVE, ET AL., PE” ITIONERS

v.

BARR LABORATORIES, INC., ET AL.

ON PETITION FORA WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

PAUL D. CLEMENT

Solicitor General

Counsel of Record

THOMAS O. BARNETT

Assistant Attorney General

THOMAS G. HUNGAR

Deputy Solicitor General

DAVID L. MEYER

Deputy Assistant Attorney

General

KANNON K. SHANMUGAM

Assistant to the Solicitor

General

CATHERINE G. O'SULLIVAN

DAVID SEIDMAN

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 314-2217

QUESTION PRESENTED

Whether the federal antitrust laws prohibit a brand name

drug patent holder and a prospective generic competitor from

settling patent infringement litigation by agreeing that the

generic manufacturer will not challenge the validity of the

patent or market its own version of the drug until the expira-

tion of the patent, in exchange for a substantial payment from

the patent holder.

(I)

TABLE OF CONTENTS

Page

PONE os dink cdtpsanaedes cxneetietscaie aoe l

SOO 6.6565 vend ese idencck cbse aalreetawt eres 8

1. The petition raises important and complex issues ..... 9

II. The court of appeals adopted an insufficiently

stringent standard for scrutinizing patent settle-

ments that include reverse payments .............. 12

IIJ. This case does not present a good vehicle for

addressing the question presented ................. 16

CIE aw ici cay iver cee baleen cee ks ees 20

TABLE OF AUTHORITIES

Cases:

Andrx Pharm., Inc. v. Kroger Co., 543 U.S. 939

SOE: Saccawksl cesanededaekeavusscoseen ae 16

Ashcroft v. ACLU, 542 U.S. 656 (2004) ................ 13

Blonder-Tongue Labs., Inc. v. University of IIl.

Fame, , GOS Ue BI SAE ov evky cave cdesevecessts 15

Cardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83

CRE on Coivicarccesddviwaa teen eee 15

Cardizem CD Antitrust Litig., In re, 332 F.3d 896

(6th Cir. 2003), cert. denied, 543 U.S. 939 (2004) ..... 16

Dawson Chem. Co, v. Rohm & Haas Co., 448 U.S. 176

CUD c Fa bi cee ceeshwncne oon bench Row ba eee eats 9

Edward Katzinger Co. v. Chicago Metallic Mfg. Co.,

a Or Pe re ee Pr ree re em 15

FTC v. Schering-Plough Corp., 402 F.3d 1056

(11th Cir. 2005), cert. denied, 126 S. Ct. 2929

NE 5 4 v0.5. See ba cede aed Oe Lae eee 12, 15, 16

Cases—Continued: Page

Imperial Chem. Indus. PLC v. Barr Labs.:

796 F. Supp. 619 (S.D.N.Y. 1992) .....cccccccccccccs 3

be fit as | ere ere 4

Independent Serv. Orgs. Antitrust Litig., In re, 203

F.3d 1322 (Fed. Cir. 2000), cert. denied, 531 U.S.

SUED wea seek rts cauiedad. ce esos ae dewpeuwae g

Lear, Inc. v. Adkins, 395 U.S. 653 (1969) .............. 15

McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994) ....... 9

MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764

ED En eee nak un bak kk sone kudew eee ee ka 20

National Gerimedical Hosp. v. Blue Cross of Kansas

Ch Ge Shee ED, kb cab bad neon ti wesscesens 15

Shelcore, Inc. v. Durham Indus. Inc., 745 F.2d 621

SP Sa EE ae Sck wi ech couw obs Cand edeecdeeds 14

Spencer v. Kemna, 523 U.S. 1 (1998) ...........-22000- 17

Teva Pharm. USA, Inc. v. Novartis Pharm. Corp.,

408 F 3d 1300 (Ped. Clr. BOGT) «2.6. cn vccccesccsesiive 20

Texaco Inc. v. Dagher, 126 8S. Ct. 1276 (2006) .......... 12

Three Affiliated Tribes of the Ft. Berthold Reserva-

tion v. Wold Eng’g, P.C., 467 U.S. 138 (1984) ........ 18

U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship,

St te nc Us oecsacacewentwnas ears s 14,19

United States v. Masonite Corp., 316 U.S. 265 (1942) ... 10

Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d

1294 (11th Cir. 2003), cert. denied, 543 U.S. 939

Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982),

cert. denied, 464 U.S. 818 (1983) ................4-.. 13

Statutes: Page

Drug Price Competition and Patent Term Restora-

tion Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 .... 2

Patent Act, 35 U.S.C. 1 e¢ seq.:

A RO) Wis ipiicevsles oka chau eeeNeereene 9

Oe ER sn os 0 oss Lonndan KERMA eee eeeEeS 9

Me A RIOD iso es cick ca dross piaueuewereNs 9

Sherman Act, 15 U.S.C. 1 et seq.:

EA eo ine ene eee eae ee 5, 9, 12, 17

PR go 2 ML GRP aMP rn insane s tpacentne awsome es 5,17

Be Re ND io ba bs cried cee Rees ees LER eeka es 2

Rae A EE ook been Ca eN ea cere ea ekceneees 2

SE LBC SRM) | a vic cede cicanieecwas 3

BY U.S.C. SRO) (AGB) oo vccccccncccasspeceys 3

21 U.S.C. 355(j)(5)(B)(iv) (Supp. IV 2004) ............. 19

21 U.S.C. 355(j)(5)(B) (iv) 1D)(BB) (Supp. IV

ND sig oa ok ba eee Wis wae eee hea ale Nae 20

21 U.S.C. 355(j)(5)(C) (Supp. IV 2004) ................ 20

21.U.S.C. 355(j(5D) (Supp. TV 2004) ..........0.00e 19

21 U.S.C. 355(j)(5)(D)(1) (Supp. IV 2004) ............. 19

Miscellaneous:

Center for Drug Evaluation & Research, FDA, Gaid-

ance for Industry: 180-Day Generic Drug Exclu-

sivity Under the Hatch-Waxman Amendments to

the Federal Food, Drug, and Cosmetic Act (1998)

<http://www.fda.gov/eder/ guidance/2576inl.pdf> .... 4

H.R. 1902, 110th Cong., lst Sess. (2007) ............... 20

VI

Miscellaneous—Continued: Page

Herbert Hovenkamp et al., Anticompetitive Settle-

ment of Intellectual Property Disputes, 87 Minn.

Bag Ns BE EE bs dao ea eeel ae cisndewews 10, 11, 12

S. 316, 110th Cong., Ist Sess. (2007) ...........-eeee-- 20

Carl Shapiro, Antitrust Limits to Patent Settlements,

BE RAT? bd. Weom. BOE GGGR) «oon cccccdecvcvcsvcves 10

In the Supreme Court of the Anited States

No. 06-830

BETTY JOBLOVE, ET AL., PETITIONERS

v.

BARR LABORATORIES, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

This brief is submitted in response to the Court’s order

inviting the Solicitor General to express the views of the

United States. The United States submits that the petition

for a writ of certiorari should be denied. Although the peti-

tion presents an important and difficult question, and the

court of appeals adopted an incorrect standard, this case does

not appear to be a good vehicle for resolving the question

presented.

STATEMENT

Respondent AstraZeneca PLC (Zeneca),' a pharmaceuti-

cal company, marketed tamoxifen citrate (tamoxifen), the

most widely prescribed drug for the treatment of breast can-

* Respondents AstraZeneca Pharmaceuticals LP and Zeneca Inc. are

subsidiaries of AstraZeneca PLC (or its corporate predecessor); Imperial

Chemical Industries PLC (ICI) was the parent of AstraZeneca PLC’s prede-

cessor. This brief refers to respondents (and, where appropriate, ICI) col-

lectively as Zeneca.

(1)

2

cer, under the brand name Nolvadex. Zeneca held a patent

for the drug, United States Patent No. 4,536,516 (the ’516

patent). In 1987, Zeneca sued respondent Barr Laboratories

after Barr proposed to market a generic version of tamoxifen

that would allegedly infringe Zeneca’s patent. After the dis-

trict court held Zeneca’s patent invalid, Zeneca and Barr en-

tered into a settlement providing, inter alia, that Zeneca

would make a cash payment to Barr and that Barr would not

market its generic version of the drug until after the patent

expired. Petitioners, purchasers of tamoxifen and others,

then filed suit against respondents under the federal antitrust

laws and the laws of various States, contending that the set-

tlement agreement unlawfully restrained competition. The

district court dismissed the complaint, Pet. App. 70a-107a,

and the court of appeals affirmed, id. at 1a-69a, 110a-135a.

1. The settlement at issue here arose against the statu-

tory backdrop of the Drug Price Competition and Patent

Term Restoration Act of 1984 (Hatch-Waxman Act or the

Act), Pub. L. No. 98-417, 98 Stat. 1585. The Hatch-Waxman

Act establishes procedures designed to facilitate the market

entry of lower-priced generic drugs while maintaining incen-

tives to invest in new drug development. Under the Act, a

company seeking approval from the Food and Drug Adminis-

tration (FDA) to market a new drug must file a New Drug

Application (NDA) demonstrating the safety and efficacy of. °

its product. 21 U.S.C. 355(b). Once an NDA has been ap-

proved and a company starts marketing a “brand name” ver-

sion of the drug, a company seeking to market a generic ver-

sion of that drug may file an Abbreviated New Drug Applica-

tion (AN DA) demonstrating that its product is the “bioequiv-

alent” of its brand name counterpart. 21 U.S.C. 355(j).

If the brand name version of the drug is the subject of one

or more patents, FDA may not make its approval of an ANDA

effective before the expiration of any such patent, unless the

applicant makes a “paragraph IV certification” that such pat-

ent is either invalid or not infringed by the generic version.

3

21 U.S.C. 355(j)(2)(A)(vii) (IV). If the patent holder files an

action for infringement within 45 days of receiving notifica-

tion of that certification, FDA’s approval is automatically

stayed for 30 months (unless the patent expires or a court

holds the patent invalid or not infringed). Jbid. Under the

version of the Hatch-Waxman Act in effect at the time of the

relevant events, the first company to file an ANDA with

a paragraph IV certification for a particular drug was granted

the exclusive right to market the generic version until

180 days after the earlier of two dates: (1) when the company

began commercial marketing of the generic version, or

(2) when a court held the patent invalid or not infringed.

21 U.S.C. 355(j)(5)(B)(iv) (1984).”

2. Barr filed an ANDA to market a generic version of

tamoxifen. In 1987, Barr amended its ANDA to include a

paragraph IV certification; shortly thereafter, Zeneca sued

Barr for patent infringement in the United States District

Court for the Southern District of New York. In 1992, the

district court held the 516 patent invalid and unenforceable

on the pround that, in a predecessor patent application,

Zeneca had fraudulently withheld data regarding the hor-

monal effects of tamoxifen on mice. Imperial Chem. Indus.,

PLC v. Barr Labs., 795 F. Supp. 619, 621-622 (S.D.N.Y. 1992).

Zeneca appealed to the Federal Circuit. While that appeal

was pending, Zeneca and Barr entered into a settlement, con-

ditioned on vacatur of the judgment invalidating the ’516 pat-

ent. The settlement provided that Barr would receive a cash

payment of $21 million from Zeneca, withdraw its paragraph

IV certification and its challenge to the validity of the patent,

and enter into a license with Zeneca for the duration of the

patent term, under which Barr would be allowed to market

tamoxifen supplied by Zeneca. According to petitioners,

- In 2003, Congress provided for forfeiture of the exclusivity period in

various circumstances, and also provided that any generic manufacturer that

filed an ANDA with a paragraph IV certification on the same day as the first

filer would be treated as a first filer itself. See pp. 19-20, infra.

4

Zeneca and Barr also agreed that Barr would not market its

generic version of the drug until the patent expired. If an-

other generic manufacturer successfully invalidated the pat-

ent, the parties allegedly understood that Barr would attempt

to invoke the exclusivity period on the basis of its previous

paragraph IV certification (and argue that the exclusivity

period would not begin to run until Barr began commercial

marketing of the generic version of the drug); if it were suc-

cessful, Barr would effectively discourage any other generic

manufacturer from entering the market until the patent ex-

pired.’ Pet. App. 74a-75a; C.A. App. A50-A51.

As agreed, Zeneca dismissed its appeal, and Zeneca and

Barr moved to vacate the district court’s decision. Consistent

with its practice at the time, the Federal Circuit granted the

parties’ motion. /mperial Chem. Indus., PLC v. Heumann

Pharm. GmbH & Co., 991 F.2d 811 (1993) (Table).

Three other companies later filed ANDAs with paragraph

IV certifications for generic versions of tamoxifen. Zeneca

sued all three for patent infringement and prevailed. While

that patent infringement litigation was still pending, Barr

attempted to invoke the 180-day exclusivity period, but FDA

(after litigation on the issue) ultimately refused to allow it to

do so. Pet. App. 76a-78a.

3. On February 13, 2002, various plaintiffs (including

petitioners) filed a class action against Zeneca and Barr in the

United States District Court for the Eastern District of New

York. C.A. App. Al9-A79. In their complaint, plaintiffs al-

leged that the settlement unlawfully restrained competition

* Zeneca and Barr entered into the settlement in 1993. In 1994, FDA

published a rule providing that a company could avail itself of the exclusivity

period only if it “successfully defended” against a suit for patent infringement;

in 1998, FDA announced that it would no longer enforce that rule. See Center

for Drug Evaluation & Research, FDA, Guidance for Industry: 180-Day

Generic Drug Kuclusivity Under the Hatch-Waxman Amendments to the

Federal Food, Drug, and Cosmetic Act 3-4 (1998) <http://www.fda.gov/cder/

guidance/2576fnl.pdf>.

5

by preventing Barr (and others) from marketing generic ver-

sions of the drug, thereby enabling Zeneca to continue mo-

nopolizing the market for tamoxifen. /d. at A36-A60. The

complaint sought injunctive and declaratory relief under Sec-

tions 1 and 2 of the Sherman Act, 15 U.S.C. 1 and 2, see C.A.

App. A64-A67, and also sought injunctive and declaratory

relief and damages under the “antitrust and/or consumer pro-

tection laws” of 21 States (and the District of Columbia) that

allegedly allowed the recovery of damages by indirect pur-

chasers, see id. at A69-A75.

Respondents moved to dismiss the complaint for failure to

state a claim. On August 20, 2002, Zeneca’s patent expired.

At oral argument on respondents’ motion to dismiss, respon-

dents asserted that the expiration of the patent mooted plain-

tiffs’ Sherman Act claims. 9/27/02 Tr. 15-16. Respondents,

however, did not move to dismiss the claims on that basis.

The district court granted respondents’ motion to dismiss.

Pet. App. 70a-107a. With regard to plaintiffs’ Sherman Act

claims, the court reasoned that a patent settlement would

violate the federal antitrust laws if the parties had “entered

into [the settlement] in bad faith and used the agreement to

restrain or monopolize trade,” id. at 84a, but determined that

plaintiffs had failed sufficiently to allege bad faith, 7d. at 91a-

98a. The court kcld, in the alternative, that plaintiffs had

failed sufficiently to allege that they had suffered antitrust

injury. 7d. at 98a-103a. With regard to plaintiffs’ antitrust

claims under state law, the court noted that the parties had

“agree[d] that state antitrust law should be construed simi-

larly to federal antitrust law where possible.” Jd. at 105a.

The court held that dismissal of the state antitrust claims was

appropriate in light of the failure of plaintiffs’ Sherman Act

claim, which involved “the same allegations.” /bid.’

' With regard to plaintiffs’ other state-law claims, the district court rea-

soned that those claims would be preempted by federal patent law unless they

were based on respondents’ bad faith, Pet. App. 106a, and again determined

that plaintiffs had failed sufficiently to allege bad faith, ibid.

6

4. A divided court of appeals affirmed. Pet. App. la-69a,

110a-135a.

a. The court of appeals first concluded that the complaint

could not state an antitrust claim based on the settlement

alone “without alleging something more than the fact that

Zeneca settled after it lost to Barr in the district court.” Pet.

App. 35a. The court reasoned that “‘courts are bound to en-

courage’ the settlement of litigation,” id. at 29a (citation omit-

ted), and that restrictions on patent settlements might frus-

trate “the goals of the patent laws because the increased num-

ber of continuing lawsuits that would result would heighten

the uncertainty surrounding patents,” id. at 30a-3la. Al-

though the court of appeals acknowledged that a settlement

could be invalid under the antitrust laws if the parties had

entered into the settlement in bad faith, the court refused to

consider the likelihood of success on the underlying patent

infringement claim in assessing the validity of a settlement.

Id. at 31a-32a. The court reasoned that it was impossible to

assess the likelihood of Zeneca’s success on appeal “with any

degree of assurance.” Jd. at 32a.

The court of appeals next concluded that the mere allega-

tion that the patent holder made a “reverse payment” to the

alleged infringer as part of the settlement also did not suffice

to make out an antitrust claim. Pet. App. 35a-40a. The court

reasoned that “reverse payments are particularly to be ex-

pected in the drug-patent context because the Hatch-Waxman

Act created an environment that encourages them.” /d. at

37a. The court explained that a prospective generic manufac-

turer “has relatively little to lose” in a patent infringement

suit precipitated by a paragraph IV certification, id. at 38a,

whereas “(t]he patent holder’s risk if it loses * * * is corre-

spondingly large,” 7d. at 40a.

The court of appeals rejected plaintiffs’ argument that the

settlement was invalid under the antitrust laws because the

size of the reverse ~ayment was excessive. Pet. App. 41a-53a.

The court acknowle ed that “|t|here is something on the face

7

of it that does seem ‘suspicious’ about a patent holder settling

patent litigation against a potential generic manufacturer by

paying that manufacturer more than either party anticipates

the manufacturer would earn by winning the lawsuit.” /d. at

42a. According to the court, however, “so long as the patent

litigation is neither a sham nor otherwise baseless, the patent

holder is seeking to arrive at a settlement in order to protect

that to which it is presumably entitled: a lawful monopoly

over * * * the patented product.” /d. at 43a. The court

explained that “the law allows the settlement even of suits

involving weak patents with the presumption that the patent

is valid and that settlement is merely an extension of the valid

patent monopoly.” Jd. at 48a-49a.

The court of appeals ultimately held that, “absent an ex-

tension of the monopoly beyond the patent’s scope * * * and

absent fraud * * *, the question is whether the underlying

infringement lawsuit was objectively baseless in the sense

that no reasonable litigant could realistically expect success

on the merits.” Pet. App. 52a (internal quotation marks and

citation omitted). Applying that standard, the court deter-

mined that the settlement in this case was valid under the

antitrust laws. Jd. at 53a-59a.° The court did not separately

discuss plaintiffs’ state-law claims.

b. Judge Pooler dissented. Pet. App. 110a-135a. In

her view, the standard of liability announced by the majority

“is insufficiently protective of the consumer interests safe-

guarded by the Hatch-Waxman Act and the antitrust laws.”

[d. at 117a. While she “agree[d] that a settlement agreement

that confers on the patent holder a greater monopoly benefit

than does the patent itself is illegal,” id. at 118a, she asserted

that the “objective baselessness” prong of the majority’s test

was too narrow because it “ill serves the public interest in

having the validity of patents litigated.” /d. at 120a. Judge

* The court of appeals also held that plaintiffs’ allegations that Barr had

attempted to enforce the exclusivity period after the settlement had been

reached did not independently state an antitrust claim. Pet. App. 53a-68a.

8

Pooler stated that she “s{aw] no reason why the general stan-

dard for evaluating an anti-competitive agreement, i.e., its

reasonableness, should not govern in this context.” Jd. at

125a. “[I]n assessing the reasonability of a Hatch-Waxman

settlement,” she explained, “I would rely primarily on the

strength of the patent as it appeared at the time at which the

parties settled,” and “secondarily on (a) the amount the pat-

ent holder paid to keep the generic manufacturer from mar-

keting its product, (b) the amount the generic manufacturer

stood to earn during its period of exclusivity, and (c) any an-

cillary anti-competitive effects of the agreement.” /d. at 126a.

“Because plaintiffs allege|d] that the district court’s determi-

nation of patent invalidity would have been upheld on appeal;

that Barr received more than it would have through a victory

on appeal; and that Barr and Zeneca agreed that Barr would

deploy its paragraph IV certification to defeat other potential

generic entrants,” Judge Pooler concluded that the complaint

stated a valid antitrust claim. /bid.

DISCUSSION

The petition raises important and complex issues concern-

ing the antitrust treatment of settlements in patent cases,

particularly settlements that provide for delayed entry into

the market by the alleged infringer in exchange for a “reverse

payment” from the patent holder. Patents by their very na-

ture restrict competition, and the antitrust laws must be con-

strued in a manner that avoids burdening the enforcement of

legitimate patent rights. On the other hand, a settlement

involving a reverse payment may restrict competition in ways

that are not justified by the patent atissue, to the detriment

of consumers. The court of appeals applied an insufficiently

stringent standard in scrutinizing the settlement at issue

here. For the reasons stated below, however, this case does

not appear to present an appropriate opportunity for this

Court to establish the correct standard for distinguishing

legitimate patent settlements, which further the important

9

goals of encouraging innovation and minimizing unnecessary

litigation, from illegitimate settlements that impermissibly

restrain trade in violation of the antitrust laws. The petition

for a writ of certiorari should therefore be denied.

I. The Petition Raises Important And Complex Issues

Although “public policy wisely encourages settlements” of

legal disputes, McDermott, Inc. v. AmClyde, 511 U.S. 202, 215

(1994), it does not follow that all settlements are consistent

with the antitrust laws. In most circumstances, a settlement

predicated on an agreement that one party will not sell a

product in competition with another party, or that it will do so

only pursuant to specified terms, would likely constitute an

unreasonable restraint of trade in violation of Section 1 of the

Sherman Act, 15 U.S.C. 1.

In the patent context, however, the settlement of a patent

infringement claim will often involve restrictions on the sale

of the product in question, and such a settlement is not neces-

sarily impermissible or harmful to society. The Patent Act

provides that “[e]very patent shall contain * * * a grant

* * * of the right to exclude others from making, using, of-

fering forsale, or selling the invention.” 35 U.S.C. 154(a)(1).

A valid patent thus confers on the patent holder the “right to

exclude others from profiting by the patented invention.”

Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215

(1980). A patent holder can lawfully refuse to license a com-

petitor to produce the patented article, or can grant licenses

subject to exclusive territorial or other limitations. [bid.; 35

U.S.C. 261, 271(d)(4); In re Indep. Serv. Orgs. Antitrust

Litig., 203 F.3d 1322, 1326 (Fed. Cir. 2000), cert. denied, 531

U.S. 1143 (2001). In many eases, the settlement of a patent

infringement claim will not expand, and may even narrow, the

permissible limitations on competition inherent in the patent.

A patent holder may enter into such a settlement even if it

believes that the likelihood that its patent will be held invalid

10

is relatively small, out of concern that it would suffer enor-

mous consequences in the event of invalidation.

At the same time, competitive restraints adopted as part

of a patent litigation settlement are subject to invalidation

under the antitrust laws if the patent holder obtains “protec-

tion from competition which the patent law, unaided by re-

strictive agreements, does not afford.” United States v. Ma-

sonite Corp., 316 U.S. 265, 279 (1942). There may be particu-

lar reason to be concerned about the competitive conse-

quences of a settlement that includes a substantial payment

from the patent holder to the alleged infringer. Such a “re-

verse payment” can be a device for the sharing of the monop-

oly rents that are preserved when the alleged infringer is

induced to stay out of the relevant market and drop its chal-

lenge to the validity of the patent. See Herbert Hovenkamp

et al., Anticompetitive Settlement of Intellectual Property

Disputes, 87 Minn. L. Rev. 1719, 1749 (2003) (Hovenkamp);

Carl Shapiro, Antitrust Limits to Patent Settlements, 34

RAND J. Econ. 391, 408 (2003).

The Hatch-Waxman Act provides particular incentives for

reverse payments in the context of settlements of patent in-

fringement claims involving pharmaceutical products. On the

one hand, as the court of appeals recognized, the Act creates

incentives for such payments by authorizing and encouraging

patent holders to initiate infringement litigation against pro-

spective generic manufacturers before any actual infringe-

ment has occurred. See Pet. App. 37a-40a. Because the ge-

neric manufacturer will not have made infringing sales (that

would give rise to claims for damages) or incurred production

and marketing costs at the time of the infringement suit, its

litigation risk will be minimal, whereas the patent holder faces

potentially devastating consequences if it loses the litigation.

The resulting disparity in the litigants’ respective risks may

tend to increase the cost of settlement for a patent holder and

make reverse payments more likely, even when the patent

holder’s legal claims are relatively strong.

11

On the other hand, when a patent holder is able to settle

with the first generic competitor that files an ANDA, the pat-

ent holder may be able to manipulate the 180-day exclusivity

period that the Hatch-Waxman Act grants to that competitor

in order to protect its own monopoly profits. Under the ver-

sion of the Act in effect at the time of the relevant events

here, “(i]t [wa]s widely understood that the 180-day exciusiv-

ity period” created an incentive for the parties to “settle the

litigation with a ‘non-entry payment’ to the generic, under

which the generic would delay commercialization of the ge-

neric product, thus postponing the commencement of the 180-

day exclusivity period and locking other generics out of

the market indefinitely.”. Hovenkamp 1755; see 21 U.S.C.

355(j)(5)(B)(iv) (2000).

Patent litigation settlements that include reverse pay-

ments thus implicate complex and conflicting policy consider-

ations at the intersection of patent and antitrust law, with the

Hatch-Waxman Act introducing further complexity in the

pharmaceutical context. On the one hand, the interests in

consumer welfare protected by the antitrust laws militate

against adoption of a legal standard that would facilitate a

patent holder’s efforts to preserve a weak patent by dividing

its monopoly profits with an alleged infringer. The risks are

magnified in the pharmaceutical context, where the settling

parties may be in a position to constrain competition from

other generic manufacturers by invoking the provisions of the

Hatch-Waxman Act. On the other hand, the public policy

favoring settlements, and the right of a patent holder to ex-

clude competition within the scope of its valid patent, would

be frustrated by adoption of a legal standard that subjected

patent settlements involving reverse payments to automatic

or near-automatic invalidation. In the pharmaceutical con-

text, the litigation dynamics created by the Hatch-Waxman

Act may cause even a patent holder with a relatively strong

claim to enter into a settlement with a reverse payment.

12

Those competing considerations suggest that, in the con-

text of the Hatch-Waxman Act, the mere presence of a sub-

stantial reverse payment as part of the settlement of a patent

infringement claim is not sufficient to establish that the set-

tlement is unlawful under the Sherman Act. The correct ap-

proach is to apply the rule of reason, rather than a rule of per

se legality (or illegality). Under that rule, which is “presump-

tively applie[d]” to claims under Section 1 of the Sherman Act,

a plaintiff “must demonstrate that a particular contract or

combination is in fact unreasonable and anticompetitive be-

fore it will be found unlawful.” Texaco Inc. v. Dagher, 1268.

Ct. 1276, 1279 (2006). In determining whether the exclusion-

ary effect of a settlement involving a reverse payment renders

the settlement unreasonable and anticompetitive, a court at

a minimum should take into account the relative likelihood of

success of the parties’ claims, viewed ex ante. See U.S. Br. at

11, FTC v. Schering-Plough Corp., 126 S. Ct. 2929 (2006) (No.

06-273); cf. Hovenkamp 1759 (proposing standard that incor-

porates alleged infringer’s “ex ante likelihood of prevailing in

its infringement lawsuit”).

II. The Court Of Appeals Adopted An Insufficiently Stringent

Standard For Scrutinizing Patent Settlements That Include

Reverse Payments

The dissenting opinion below correctly suggested that a

court reviewing an antitrust challenge to a settlement of a

patent infringement claim that includes a reverse payment

should apply the rule of reason—and that, in doing so, a court

should consider “the strength of the patent as it appeared at

the time at which the parties settled.” Pet. App. 125a-126a.

The panel majority, however, rejected that approach and in-

stead held that such a settlement would be valid unless (1) the

settlement “extend[ed] * * * the monopoly beyond the pat-

ent’s scope”; (2) the settlement involved fraud; or (3) the un-

derlying lawsuit was “objectively baseless in the sense that no

reasonable litigant could realistically expect success on the

13

merits.” /d. at 52a (internal quotation marks and citation

omitted). That standard is erroneous.

A. The court of appeals primarily erred by focusing on

whether the underlying patent infringement claim was “ob-

jectively baseless”—a standard typically used in determining

whether a defendant is entitled to antitrust immunity under

the Noerr-Pennington doctrine—rather than engaging in a

broader inquiry concerning the patent holder’s likelihood of

success on that claim. Pet. App. 52a. The court of appeals

correctly recognized that, in passing on the validity of a set-

tlement, a reviewing court should view the settlement from

the perspective of the parties at the time they entered into it.

Id. at 32a. The court nevertheless refused to inquire into the

likelihood of success on the patent infringement claim, on the

ground that it was impossible to assess the likelihood of suc-

cess (in this case, Zeneca’s likelihood of prevailing on appeal)

“with any degree of assurance.” Jbid. A court, however,

would not need to conduct a full trial on the merits of the un-

derlying claim in assessing the patent holder’s likelihood of

" success, nor would a court be required to establish the likeli-

hood of success with mathematical precision as part of the

overall reasonableness inquiry. Such a limited examination of

the merits of the claim (aided by the analysis of any other

relevant factors surrounding the parties’ negotiations) is

hardly impossible. Indeed, similar inquiries are common-

place, such as in deciding whether to grant a preliminary in-

_ junction, see, ¢.g., Ashcroft v. ACLU, 542 U.S. 656, 666 (2004),

or in reviewing the fairness of a proposed class-action settle-

ment, see, e.g., Weinberger v. Kendrick, 698 F.2d 61, 74 (2d

Cir. 1982) (Friendly, J.) (stating that a reviewing court must

form “an intelligent and objective opinion of the probabilities

of ultimate success should the claim be litigated,” but need

not conduct a trial) (citation omitted), cert. denied, 464 U.S.

818 (1983).

The atypical facts of this case illuminate the court of ap-

peals’ error in refusing to consider the strength of the in-

14

fringement claim beyond a determination that the claim was

not objectively baseless. At the time the parties entered into

the settlement at issue here, the district court had already

held Zeneca’s patent invalid in a decision on the merits.° As

the court of appeals acknowledged, the Federal Circuit

“would have reviewed [the district court’s] factual findings

underlying [its] conclusion of invalidity with considerable

deference, rather than engaging in a presumption of validity.”

Pet. App. 33a (citing Shelcore, Inc. v. Durham Indus., Inc.,

745 F.2d 621, 624-625 (Fed. Cir. 1984)). Thus, this case ap-

pears to be one in which, at the time of settlement, there was

reason to doubt the patent holder’s likelihood of success. To

be sure, the fact that Zeneca prevailed in all three of its other

infringement suits presenting the identical issue might sug-

gest that affirmance of the invalidity ruling was far from cer-

tain. The standard articulated by the court of appeals, how-

ever, precluded any such assessment.

In adopting its “objective baselessness” standard for the

invalidity of patent settlements containing reverse payments,

the court of appeals gave undue weight to what it viewed as

the established principle that “settlement of patent litigation

* * * is encouraged for a variety of reasons[,| even if it leads

in some cases to the survival of monopolies created by what

would otherwise be fatally weak patents.” Pet. App. 5la.

While it is true that the law generally encourages settlements,

the Patent Act does not embody a policy of promoting the

interests of patent holders at all costs. To the contrary, while

designed to provide substantial incentives for true innovation,

* Because the district court’s decision invalidating the ’516 patent would

have precluded Zeneca from enforcing its patent against other generic manu-

facturers, the settlement between Zeneca and Barr was conditioned on vacatur

of that decision. See p. 3, supra. As a practical matter, settlements are now

unlikely to oceur under similar circumstances, because this Court subsequently

held that “mootness by reason of settlement does not justify vacatur of a

judgment under review.” U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship,

513 U.S. 18, 29 (1994).

15

the Patent Act also reflects the “important public interest in

permitting full and free competition in the use of ideas which

are in reality a part of the public domain.” Lear, Inc. v.

Adkins, 395 U.S. 653, 670 (1969). Accordingly, this Court has

repeatedly stressed the importance of definitively resolving

the validity of patents, so that the public can remain free to

use unpatented (or unpatentable) ideas. See, e.g., Cardinal

Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 100 (1993) (noting

the “importance to the public at large of resolving questions

of patent validity”); Blonder-Tongue Labs., Inc. v. University

of Ill. Found., 402 U.S. 313, 349-350 (1971) (describing the

Court’s “consistent view” that “the holder of a patent should

not be insulated from the assertion of defenses and thus al-

lowed to exact royalties for the use of an idea that is not in

fact patentable or that is beyond the scope of the patent mo-

nopoly granted”); Edward Katzinger Co. v. Chicago Metallic

Mfg. Co., 329 U.S. 394, 400 (1947) (noting the “necessity of

protecting our competitive economy by keeping open the way

for interested persons to challenge the validity of patents

which might be shown to be invalid”). Indeed, the Hatch-

Waxman Act itself promotes that interest, by creating incen-

tives for generic manufacturers to call into question the valid-

ity of patents by means of ANDAs with paragraph IV certifi-

cations. Particularly given the “fundamental national eco-

nomic policy” in favor of competition that the federal antitrust

laws promote, National Gerimedical Hosp. v. Blue Cross of

Kansas City, 452 U.S. 378, 388 (1981) (citation omitted), a

court considering an antitrust challenge to a patent settle-

ment should evaluate the settlement in light of the legitimacy

of the patent rights at issue in the underlying litigation.

B. The court of appeals’ decision in this case is arguably

in some tension with the Eleventh Circuit’s decision in FTC

v. Schering-Plough Corp., 402 F.3d 1056 (2005), cert. denied,

126 S. Ct. 2929 (2006). In Schering-Plough, the Eleventh

Circuit held that the “proper analysis” of an antitrust chal-

lenge to a patent settlement “requires an examination of:

16

(1) the scope of the exclusionary potential of the patent; (2)

the extent to which the agreements exceed that scope; and

(3) the resulting anticompetitive effects.” Jd. at 1066 (citing

Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294, 1312

(11th Cir. 2003), cert. denied, 543 U.S. 939 (2004)). Although

the court of appeals in this case expressed its approval of the

Eleventh Circuit’s focus on whether “‘the exclusionary effects

of the agreement’ exceed the ‘scope of the patent’s protec-

tion,” Pet. App. 53a (quoting Schering-Plough, 402 F.3d at

1076)), the Eleventh Circuit (unlike the court of appeals here)

did not purport to hold that proof of “sham” or “objectively

baseless” litigation is a prerequisite to antitrust liability (in

the absence of proof that the settlement extended the patent

holder’s monopoly beyond the patent’s scope). Instead, the

Eleventh Circuit did not foreclose the possibility that a party

challenging a patent settlement could rely on an ex ante view

of the strength of the infringement claim in contending that

the settlement was invalid. As petitioners suggest (Reply Br.

2), therefore, the Eleventh Circuit’s standard might permit

imposition of antitrust liability in some cases in which the

standard adopted below would not.‘

III. This Case Does Not Present A Good Vehicle For Addressing

The Question Presented

Although the court of appeals applied an erroneous stan-

dard for scrutinizing patent infringement settlements that

‘ Petitioners contend (Pet. 12-13) that the court of appeals’ decision also con-

flicts with In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir.

2003), cert. denied, 543 U.S. 939 (2004), which held that an interim settlement

containing a reverse payment constituted a per se violation of the antitrust

laws. As the government has previously explained, however, Cardizem in-

volved payments to exclude competition in drugs that did not fall within the

scope of the allegedly infringed patent, and it is thus uncertain whether the per

se rule employed by the Sixth Circuit extends beyond the unique circumstances

, of that ease. See U.S. Br. at 16-17, Schering-Plough, supra (No. 06-273); U.S.

~ Br. at 11-15, Andrx Pharm., Ine. v. Kroger Co., 543 U.S. 939 (2004) (No. 03-

779).

17

include reverse payments, this case is not an attractive vehicle

for the Court’s consideration of the difficult and context-sen-

sitive questions involved in assessing the legality of such set-

tlements. The federal antitrust claims in this case appear to

be moot, the factual setting is atypical and unlikely to recur,

and subsequent regulatory changes may undercut one of the

theories of competitive harm advanced by petitioners. For

those reasons, the petition should be denied.

A. In their complaint in this case, petitioners sought in-

junctive and declaratory relief under Sections 1 and 2 of the

Sherman Act, 15 U.S.C. 1 and 2. See C.A. App. A64-A67.

Specifically, petitioners sought “the issuance of an injunction

prohibiting [respondents’] continued compliance with the

terms of the unlawful Agreement(s]”: 7.¢., the settlement that

terminated the patent infringement litigation. See id. at A67.

Zeneca’s patent, however, expired in 2002—and it is undis-

puted that the settlement ceased to have any effect at that

time. As a result, an injunction prohibiting compliance with

the settlement would have no operative force. Because peti-

tioners did not seek any other equitable relief, the Sherman

Act claims in this case appear to be moot. Nor, to the extent

that respondents have entered into other similar settlements

affecting petitioners (involving different drugs), could peti-

tioners avail themselves of the exception to the mootness doc-

trine applicable where a controversy is capable of repetition

yet evading review, because they cannot show that those set-

tlements would expire before they could obtain relief. See,

e.g., Spencer v. Kemna, 523 U.S. 1, 17-18 (1998). There is

nothing inherent in this context that would produce only set-

tlements of brief duration.

Petitioners also sought relief under the “antitrust and/

or consumer protection laws” of 21 States (and the District

of Columbia) that allegedly allowed the recovery of damages

by indirect purchasers. See C.A. App. A69-A75. It is unclear,

however, whether or to what extent the disposition of

those state-law claims would turn on resolution of the ques-

18

tion presented. The district court noted that the parties had

“agree|d] that state antitrust law should be construed simi-

larly to federal antitrust law where possible,” Pet. App. 105a,

and the court of appeals seemingly operated on that assump-

tion in affirming the district court’s dismissal of the entire

action. Notably, however, petitioners have not identified even

a single state statute (of the many on which the complaint

relied) that has been construed as being coterminous in all

respects with federal antitrust law. Indeed, the fact that the

damages claims were pleaded only under state law is presum-

ably reflective of one important difference between federal

and state antitrust law: the extent to which state law allows

suits for damages by indirect purchasers. While it presum-

ably would be within this Court’s discretion to grant certiorari

here on the assumption that its resolution of the Sherman Act

question would ultimately prove controlling, or at least infor-

mative, in the disposition of petitioners’ state-law claims, ef.

Three Affiliated Tribes of the Ft. Berthold Reservation v.

Wold Eng’g, P.C., 467 U.S. 138, 152 (1984), it would certainly

be unusual, and potentially undesirable, for the Court to de-

termine the scope of federal antitrust liability in a context in

which the relevance of that determination to the state laws at

issue is entirely uncertain.

To the extent that the state antitrust laws on which peti-

tioners relied are not coterminous with federal antitrust law,

moreover, this case would present a federal question only

insofar as federal patent law would preempt petitioners’ state-

law claims. However, no preemption question is presented in

the petition; preemption was not a focus of the court of ap-

peals’ analysis; and resolution of the Sherman Act question

that 2s raised in the petition would not necessarily resolve the

preemption issue. Nor has the preemption issue arisen in

other court of appeals decisions addressing the question pre-

sented, let alone generated a circuit conflict. Because the

importance and difficulty of the question presented arise out

of the dynamic interplay between the federal patent and anti-

19

trust laws, rather than the relationship between federal pat-

ent law and state antitrust law, it would be preferable to con-

sider that question in a case that actually involves live federal

antitrust claims.

B. The settlement challenged in this case involves an

unusual factual setting that will almost certainly not recur,

and thus there is a risk that the Court’s resolution of this case

could turn on its unique facts in a way that would not provide

clear guidance for other, more common factual settings. The

government is not aware of any other Hatch-Waxman patent

settlements arising after a district court judgment of invalid-

ity, and none is likely to occur in the future in light of this

Court’s decision in U.S. Bancorp Mortgage Co. v. Bonner

Mall Partnership, 513 U.S. 18 (1994), which should prevent a

patent holder from obtaining vacatur of a judgment of invalid-

ity by settling the case while the appeal is pending. The fact

that the settlement at issue in this case occurred after a judg-

ment of invalidity highlights the court of appeals’ error in

refusing to assess the validity of the patent, and might play a

substantial role in the Court’s analysis of the merits. A deci-

sion emphasizing that factor, however, might shed little light

on the proper disposition of future cases challenging reverse-

payment settlements in other factual settings.

C. Changes in the regulatory context have also altered

the regulatory dynamic with respect to one of the theories of

competitive harm advanced by petitioners, who argued in part

below that Barr’s agreement to assert its exclusivity rights

could preclude competition from other generics. See Pet.

App. 59a-68a. In 2003, Congress amended the Hatch-Waxman

Act to provide for forfeiture of the 180-day exclusivity period

for various reasons, including the withdrawal of a paragraph

IV certification. See 21 U.S.C. 355(j)(5)(B)(iv) and (D) (Supp.

IV 2004).* Congress also provided that any generic manufac-

* The statute also provides for forfeiture for failure to market a generic drug

pursuant to an approved ANDA, but only after a final adjudication of patent

20)

turer that filed an ANDA with a paragraph IV certification on

the same day as the first filer would be treated as a first filer

itself (and thus would be able to take advantage of the 180-day

exclusivity period as against other, later filers). See 21 U.S.C.

355(j)(5)(B)(iv)(11)(BB) (Supp. IV 2004). As a practical mat-

ter, therefore, it may now be more difficult for a first-filing

generic manufacturer to enter into a settlement and then use

the 180-day exclusivity period effectively to lock other generic

manufacturers out of the market, as Barr attempted to do in

this case. Moreover, Congress specifically authorized generic

manufacturers to bring “civil action|[s] to obtain patent cer-

tainty” in the Hatch-Waxman context, 21 U.S.C. 355(j)(5)(C)

(Supp. IV 2004), and this Court’s recent decision in Med-

Immune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007), re-

moved at least some procedural obstacles to such suits. See

Teva Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d

1330, 1336-1341 (Fed. Cir. 2007). No court of appeals has

addressed, in the post-2003 regulatory context, a patent set-

tlement challenged on the ground that it will bar other ge-

neric entrants by virtue of the settling generic’s exclusivity

rights. To the extent the Court is inclined to address the va-

lidity of that type of settlement in particular, it may be prefer-

able to do so in a case that arises under the current regulatory

regime.”

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

rights, or a settlement that includes a finding of invalidity or noninfringement.

21 U.S.C. 35595) D){ D(bb) (Supp. TV 2004).

* In addition, Congress is currently considering legislation that would pro-

hibit “reverse payments” in settlements with ANDA filers altogether. See S.

316, 110th Cong., 1st Sess. § 3 (2007); H.R. 1902, 110th Cong., Ist Sess. § 2

(2007).

21

PAUL D. CLEMENT

Solicitor General

THOMAS O. BARNETT

Assistant Attorney General

THOMAS G. HUNGAR

Deputy Solicitor General

DAVID L. MEYER

Deputy Assistant Attorney

General

KANNON K. SHANMUGAM

Assistant to the Solicitor

General

CATHERINE G. O’SULLIVAN

DAVID SEIDMAN

Attorneys

MAY 2007