California Supreme Court Decision In Cipro Highlights The Lack Of Predictability In Antitrust Jurisprudence And Counseling

On May 7, 2015, the Supreme Court of California issued an opinion in In re Cipro Cases I & II, a case centered on pay-to-delay settlements between drug makers and generic manufacturers. The Court found the existence of an issue of fact as to whether a settlement in which the branded manufacturer paid generic manufacturers to stay out of the market until the expiration of the patent on the branded drug violated California state antitrust law. At issue in the case was a 1997 settlement agreement between Bayer and Barr Pharmaceuticals, pursuant to which Bayer paid Barr approximately $400 million to delay marketing a generic version of Cipro - a drug produced by Bayer - until Bayer's patent on Cipro expired in late 2003.

The legality of pay-to-delay settlements and the relationship between patent law and antitrust law was previously examined in the United States Supreme Court's 2013 decision in Federal Trade Commission v. Actavis, Inc. In Actavis, as a matter of federal law, the United States Supreme Court refused to find that reverse payment settlements made by a brand manufacturer to a generic manufacturer to resolve pending patent litigation were presumptively unlawful under federal antitrust law, opining that such bright line rules are only appropriate when the anticompetitive effects of a challenged practice are readily apparent - and that pay-to-delay settlements do not meet that criterion. The Supreme Court remanded the case to the Court of Appeals, directing the Circuit Court to analyze the potential anticompetitive effects of reverse payment settlements under a rule of reason approach, pursuant to which the court should balance the competing interests of federal antitrust law and patent law.

The United States Supreme Court's holding in Actavis, however, only addressed the extent to which pay-to-delay settlements should be assessed under federal antitrust law, necessarily leaving open the question as to how such settlements would be viewed in the context of various states' antitrust laws. Typically, states do follow suit with federal antitrust policy in the interest of consistency and predictability of outcome. A decision suggesting a different result under state antitrust law than under federal law raises issues concerning counseling: Can an attorney recommend a pay-to-delay settlement that is subject to challenge under state, as opposed to federal, law?

In Cipro, the Supreme Court of California analyzed the settlement under what it...