Hatch-Waxman/Antitrust: U.S. Court of Appeals for the Sixth Circuit
Finds Generic Drug Agreement Illegal Under Antitrust Laws
By Joseph M. Manak and
James I. Serota, Greenberg
Traurig, New York Office
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In re Cardizem CD Antitrust Litigation, 2003 Westlaw 21360049,
(Sixth Cir. June 13, 2003), just decided that an agreement settling a patent
infringement action between a patentee-manufacturer of Cardizem CD and an
FDA-approved manufacturer of a generic version of Cardizem was a per
se illegal naked horizontal restraint of trade under Section 1 of
the Sherman Act.
|"The conclusion was that the
Agreement, all of its other conditions and provisions not withstanding,
was at its core, a horizontal agreement to eliminate competition
in the market."
The agreement provided that the generic manufacturer would stay off the
market in exchange for payment of $89 Million. In exchange for minimum payments
of $10 Million per quarter, the patentee manufacturer could eliminate all
potential competitors, since the first generic manufacturer had an exclusive
180 day period of marketing exclusivity which it agreed not to relinquish
or transfer. The court determined that there is "simply no escaping the
conclusion that the Agreement, all of its other conditions and provisions
not withstanding, was at its core, a horizontal agreement to eliminate competition
in the market for Cardizem throughout the entire United States, a classic
example of a per se illegal restraint of trade."
On appeal, Respondents principal argument was that the per
se rule was inapplicable because the agreement was subject to pro-competitive
justifications. In the Sixth Circuitís view, however, Respondents evinced
a misunderstanding of the per se rule. In the opinion of both
the trial court and the Sixth Circuit, the "anti-competitive potential inherent
in all price-fixing agreements justifies their facial invalidation, even
if procompetitive justifications are offered for some. Those claims of enhanced
competition are so unlikely to prove significant in any particular case
that we adhere to the rule of law as justified in its general application."
The facts, in summary, are as follows: In January 1996, the patent owner
filed a patent infringement suit against the generic in the Southern District
of California, asserting that United States Patent 5,470,584 was infringed
by the genericís filing of an abbreviated new drug application ("ANDA")
for a generic form of Cardizem CD. On September 15, 1997, the FDA tentatively
approved the ANDA. On September 24, 1997, the patent owner and the generic
entered into an agreement whereby the generic would not market a bioequivalent
or generic version of Cardizem CD until the earliest of 1) a favorable and
final and unappealable determination in the patent infringement case, 2)
a license agreement between the patent owner and the generic or 3) the patent
owner entering into a license agreement with a third party.
In June 1999, the FDA approved a reformulated product offered by the
generic, and on the same day the patent owner and the generic entered into
a stipulation settling the patent infringement case and terminating the
agreement. At the time of settlement, the patent owner paid the generic
a final sum of $50.7 Million, bringing its total payments to $89.83 Million.
On June 23, 1999, the generic began to market its reformulated product and
its 180 day period of market exclusivity began to run.
In August 1998, the first antitrust complaint challenging the legality
of the patent owner/generic agreement was made. There were additional antitrust
actions filed by state plaintiffs as well as indirect purchasers and class
representatives, all of whom challenged the agreement under various provisions
of the Sherman Act. The gist of the plaintiffsí claims was that but for
the agreement, specifically the payment of $40 Million per year, the generic
would have brought its generic product to market once it received FDA approval
and at a lower price than the patented Cardizem CD sold by the patent owner.
The plaintiffs brought a motion for summary judgment, claiming that the
agreement was illegal under Section 1 of the Sherman Act and that they alleged
an antitrust injury which satisfied the test articulated by the Supreme
Court in Brunswick Corp. v. Pueblo Bowl-O-Mat Inc., 429 US 477, 489
(1977). In Brunswick, the Supreme Court defined antitrust injury as injury
of the type the antitrust laws were intended to prevent, and as that which
flows from what makes defendantís acts unlawful. (See Brunswick, 429 US
The District Court determined upon motion for summary judgment that in
fact the agreement was per se illegal. The Court also refused
to grant defendantís motion to dismiss, which alleged the plaintiffs had
not pled an antitrust injury. After the ruling, the District Court also
certified those two questions for interlocutory appeal. The Sixth Circuit
made short shrift of the defendantís arguments regarding per se
illegality. Quoting the Supreme Court in Copperweld Corp v. Independence
Tube Corp., 467 U.S. 752, 768 (1984), "[c]ertain agreements, such as
horizontal price fixing and market allocation are thought so inherently
anti-competitive that each is illegal per se without inquiry
into the harm it has actually caused." The Court further rejected the defendantís
arguments of pro-competitive justifications indicating it was unlikely that
enhanced competition would prove sufficiently significant such that it would
be willing to deviate from the general rule of per se illegality
against naked horizontal restraints such as price fixing and market allocation.
Applying the rule of antitrust injury, the Court of Appeals affirmed
the trial courtís finding that the plaintiffís allegations fell easily within
two critical Brunswick categories. First, the type of injury was
the type of which the antitrust laws were to prevent. (During the period
in which this agreement was effective, from July 1998 through June 1999,
as a result of a payment of $89 Million, the original patentee kept off
not only the generic product, but due to marketing exclusivity, all of its
other generic competitors were kept at bay, thereby effectively eliminating
all competition for one year.) As to the second Brunswick criteria,
the Court easily determined that the alleged injury flowed from that which
makes the defendantís acts unlawful, i.e., its anti-competitive effects.
Defendants also contended that, as a result of a Sixth Circuit decision
in Hodges v. WSM, 26 F.3d 36, 39 (6th Cir. 1994), that the plaintiffs
had failed to allege that the antitrust violation was a necessary predicate
to their injury. The Court rejected the defendantís interpretation of "necessary
predicate". In Hodges, the Court said that the plaintiffís must allege either
that the antitrust violation was a necessary predicate to their injury or
that the defendants could injure the plaintiffs only by engaging in an antitrust
violation. Defendants contended that the generics would have stayed out
of the market anyway, because of fear and risk of patent infringement litigation.
In the Courtís view, the defendantsí interpretation conflates these options
effectively requiring the plaintiffs to satisfy the second one, even if
they have already satisfied the first. In other words, it is not necessary
in order to allege an antitrust injury that the conduct was both a necessary
predicate to the injury and that it was the only means by which the defendants
could have injured the plaintiffs.
In sum, the Court determined that the complaints alleged a plain vanilla
horizontal agreement to restrain trade in the form of a multi-million dollar
cash payment in consideration for forbearance by the generic competitor
from selling in the market a product that it was ready and able to sell
at a price lower than that charged by the original patentee.
This decision is important to the pharmaceutical and biotech industries.
Questions and comments may be directed to the authors in the New York office
of Greenberg Traurig, LLP.
© 2003 Greenberg Traurig
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