AAI Urges California Supreme Court to Adopt Tough Rule on Reverse Payments (In re Cipro Cases)

The American Antitrust Institute (AAI) filed an amicus brief urging the California Supreme Court to a adopt a “structured” rule of reason for litigating the lawfulness of pharmaceutical reverse payments under California law.  A reverse payment settlement is a settlement whereby a brand manufacturer pays a substantial sum to a generic challenger to drop its patent challenge and stay out of the market for a period of time.  The FTC has found such payments cost consumers and governments billions of dollars in higher drug costs.

Consistent with the US Supreme Court’s recent decision reining in reverse payment settlements, AAI urged that the structured rule of reason focus on a limited number of factors, not including the merits of the underlying patent claim.  As the brief explains, the US Supreme Court permitted a brand manufacturer and a generic manufacturer to enter a settlement that limits entry of the generic for a period of time, without a payment, because such an arms length settlement will likely reflect the strength of the patent suit.  Even if a patent is subsequently invalidated, such a settlement
remains lawful.  But the Court recognized that adding a large reverse payment to the settlement mix collusively delays entry based on the payment, not the patent merits, maximizing the joint profits of the settling firms at the expense of consumers.

The brief was written by AAI General Counsel Rick Brunell with the help of Zelle Hofmann Voelbel & Mason (Judith Zahid, Bob Newman, and AAI Advisor Craig Corbitt), which acted as local counsel.