MEMORANDUM & ORDER
This suit challenges the validity of agreements between the brand-name manufacturer of the widely used antibiotic ci-profloxacin hydrochloride (“Cipro”) and potential generic manufacturers of Cipro. Direct Purchaser and Indirect Purchaser Class Plaintiffs and Individual Non-Class Plaintiffs (collectively, “plaintiffs”) have brought suit against Bayer AG, a German company, and its American subsidiary, Bayer Corporation (collectively, “Bayer”) and Barr Laboratories, Inc. (“Barr”); The Rugby Group, Inc. (“Rugby”); Hoechst Marion Roussel, Inc. (“HMR”); and Watson Pharmaceuticals, Inc. (“Watson”) (collectively, “Generic Defendants”)
1
alleging that Bayer and Generic Defendants (collectively, “defendants”) entered into agree
Statutory and Regulatory Background
The manufacture and distribution of pharmaceutical drugs in the United States is regulated by the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301
et seq.
(the “Act”). Recognizing that the Act’s “cumbersome drug approval process delayed entry of relatively inexpensive generic drugs into the marketplace,”
Mylan Pharms., Inc. v. Shalala,
To this end, the Hatch-Waxman Amendments established new guidelines that simplify the approval process for generic drugs. Previously, any company wanting to market a new drug had to secure approval from the U.S. Food & Drug Administration (“FDA”) by filing a New Drug Application (“NDA”), a process often “time consuming and costly” because a NDA requires companies to submit specific data concerning the drug’s safety and effectiveness.
Andrx Pharms., Inc. v. Biovail Corp. Int’l,
To protect the patent rights of the pioneer drug manufacturer, the ANDA filer must make one of four certifications in its ANDA concerning patents listed with the FDA for the pioneer drug, 3 namely that (1) no patent for the pioneer drug is listed in the Orange Book; (2) the patent listed in the Orange Book has expired; (3) the listed patent will expire on a particular date, and the ANDA filer does not seek FDA approval before that date (a “Paragraph III Certification”); and (4) the listed patent “is invalid or ... will not be infringed by the manufacture, use, or sale of the [generic] drug” (a “Paragraph IV Certification”). Id. § 355{j)(2)(A)(vii); see also 21 C.F.R. § 314.94(a)(12)(A)(4).
An ANDA containing a Paragraph IV Certification (an “ANDA IV”) has “important legal ramifications. It automatically creates a cause of action for patent infringement.”
Mylan,
The Hatch-Waxman Amendments provide an incentive to encourage generic drug manufacturers to challenge listed patents for brand-name drugs. As an incentive to incur “potentially substantial litigation costs,”
Mylan,
Factual Background 5
(1)
Bayer manufactures and distributes Ci-pro, a broad spectrum antibiotic that is prescribed for various infections and is dispensed in tablet, liquid and intravenous forms. Bayer AG claims the active ingredient in Cipro — ciprofloxacin hydrochloride — in Patent No. 4,670,444 (the “444 Patent”), which was issued by the Patent and Trademark Office (“PTO”) on June 2, 1987. See App. to Bayer’s Mem. in Opp’n to Pis.’ Mot. for Partial Summ. J. (“Bayer App.”), Ex. 1. The 444 Patent expires on December 9, 2003. In October 1987, Miles, Inc. (the predecessor to Bayer Corporation and the licensee of the 444 Patent) obtained FDA approval to market Ci-pro in the United States. Cipro has been the best selling antibiotic in the United States for many consecutive years and is described as “the most prescribed antibiotic in the world.” D.P. Compl. ¶ 1. Since 1987, Bayer has been the only producer of Cipro in the United States, and, since 1997, Bayer has derived over $1 billion in U.S. net sales of all Cipro products. See Bayer App., Ex. 12 ¶ 3.
By letter dated October 22, 1991, Barr filed ANDA 74-124 for a generic, bioequi-valent version of Cipro.
6
See
App. to Decl. of Edwin John U in Supp. of Generic Defs.’ Mem. in Opp’n to Pis.’ Mot. for “Partial Summ. J.” (“G.Defs.’ Summ. J. Mem.”) (“G.Defs.’ App.”), Tab 1. Barr’s ANDA included a Paragraph IV Certification seeking the FDA’s permission to market its generic drug before the 444 Patent expires on the grounds that the patent is invalid and unenforceable.
See
J.A. in Supp. of all Pis.’ Mot. for Summ. J. (“Pis.’ J.A.”), Ex. T. As set forth in the Hatch-Waxman Amendments, on December 6, 1991, Barr notified Bayer of its ANDA IV filing and its assertions contained therein regarding Bayer’s 444 Patent.
See id.
On January 16, 1992, Bayer commenced a timely patent infringement suit against Barr in the Southern District of New York, thereby triggering the 30-month statutory waiting period for FDA approval.
See generally id.,
Ex. G;
see also
Bayer App., Ex. 3. This litigation was styled
Bayer AG and Miles, Inc. v. Barr Labs., Inc.,
Subsequently, in November 1992, Bayer and Barr executed a stipulation whereby
Meanwhile, HMR and Rugby entered the fray. On March 29, 1996, Barr and Rugby entered into an agreement pursuant to which Barr agreed to share equally with Rugby (then a subsidiary of HMR) any rights and profits from the eventual marketing and/or distribution of Cipro, and, in return, Rugby agreed to finance a portion of the costs and expenses of the patent litigation (the “Litigation Funding Agreement”). See generally id., Ex. P. By subsequent amendment, HMR succeeded to Rugby’s rights under this agreement. See id., Ex. Q § 1.1. Rugby was later acquired by Watson and is now a wholly owned subsidiary of Watson.
(2)
As the trial date approached, Bayer and Barr reached a settlement that concluded the patent litigation in the Southern District. In connection with the settlement, on January 8, 1997, Bayer entered into three separate but interrelated settlement agreements with Barr, HMR and Rugby, and Bernard Sherman (“Sherman”) and Apotex, Inc. (“Apotex”)
9
(collectively, the “Settlement Agreements”) and a supply agreement with Barr and HMR (the “Sup
In the Supply Agreement, Barr and HMR agreed not to manufacture (or to have manufactured) Cipro in the United States. See id., Ex. E § 3.01. In addition, the agreement provides that Bayer either will (1) supply Bayer-manufactured Cipro to Barr, HMR and Rugby for distribution in the United States, subject to certain price controls, see id. § 3.06(a)(i); or (2) make quarterly payments — varying from $15 million to approximately $17 million— to the Barr Escrow Account from January 1998 through December 2003 (when the 444 Patent expires). See id. §§ 3.06(a)®, 4.01(a), 4.02 & Sch. 4.01. If Bayer does not license Cipro immediately, it has agreed to do so at a set price if another generic company successfully challenges the validity of the 444 Patent. See id. §§ 1.01, 3.06(d). In addition, defendants claim that Bayer agreed to supply Cipro to Barr for marketing under a generic label beginning six months prior to the expiration of the 444 Patent. 12 See id. § 3.06(a)(ii). To date, Bayer has chosen to make payments to the Barr Escrow Account, which through December 2003 will total approximately $398 million. See id., Sch. 4.01.
(3)
Pursuant to the terms of the Barr Settlement Agreement, Bayer and Barr submitted to Judge Knapp a two-page consent judgment (the “Consent Judgment”) that the parties had negotiated and that extinguished all claims raised in the patent litigation.
See id.,
Ex. N. On January 16, 1997, Judge Knapp signed the Consent Judgment in the form submitted by the parties.
See id.
The Consent Judgment entered judgment for Bayer, providing that the 444 Patent is valid and enforceable as to, and was infringed by, Barr.
See id.
¶¶ 2-4. There was no mention in the Consent Judgment of the payments Bayer agreed to make to the Barr Escrow Account or the agreement by Barr, HMR and Rugby not to manufacture and market a generic form of Cipro. The Settlement Agreements and the Supply Agreement were not filed with or otherwise provided to the patent court, but the court was
On January 17, 1997, Bayer and Barr each issued a news release announcing the settlement and discussing the payment scheme set forth in the Supply Agreement. 13 See Pis.’ J.A., Ex. B § 8 (permitting press releases); G.Defs.’ App., Tabs 10, 11. In fact, the press releases note that the settlement is comprised of two components: (1) an initial cash payment and (2) a Supply Agreement, which sets forth Bayer’s option to make payments to the Barr Escrow Account or to provide Barr with Cipro that Barr would market pursuant to a license from Bayer. See generally G.Defs.’ App., Tabs 10,11. Also, on January 22, 1997, pursuant to the Barr Settlement Agreement, Barr filed an amendment to its ANDA 74-124, see Pis.’ J.A., Ex. V, and in a letter to the FDA dated January 23, 1997, Barr amended its Paragraph IV Certification to a Paragraph III Certification. See id., Ex. W.
In July 1997, Bayer voluntarily submitted its 444 Patent to the PTO for reexamination, and, upon reexamination, the PTO reaffirmed the patent’s validity.
See
Bayer App., Exs. 17, 18. Since the execution of the Settlement Agreements, four generic companies have filed ANDA IVs for Cipro and have mounted challenges to the 444 Patent similar to the challenge raised by Barr; one challenge was dismissed,
see Bayer AG v. Ranbaxy Pharms., Inc.,
No. 3:98 Civ. 4464 (D.N.J. Oct. 29, 1999) (dismissing case per stipulation), Bayer App., Ex. 21, and three challenges were unsuccessful,
see Bayer AG v. Schein Pharm., Inc.,
Discussion
Motion to Dismiss — Federal Claims
Defendants have before this court numerous motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
14
(5) Memorandum of Law in Support of Watson Pharmaceuticals, Inc.'s Motion to Dismiss ("Watson Mot. Dismiss Mem.”).
When considering defendants’ motions to dismiss under Rule 12(b)(6), the court must deny the motions unless “it appears beyond reasonable doubt that the plaintiff[s] can prove no set of facts in support of [their] claim[s] which entitle [them] to relief.”
Conley v. Gibson,
Two sections of the Clayton Act authorize private parties to bring suit under the federal antitrust laws. Section 4 of the Clayton Act provides treble damages to “ ‘[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws....’”
18
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
However, the Supreme Court has cautioned that although a defendant’s conduct can constitute a violation of Section 1, such liability does not indicate whether a private plaintiff has suffered the appropriate injury to seek relief under the Clayton Act.
See Atl. Richfield Co. v. USA Petroleum Co.,
(1)
Injury-in-Fact
Plaintiffs maintain that the challenged agreements suppressed entry of a generic version of Cipro into the U.S. market. As a result, plaintiffs claim that they are paying more than they would have paid for Cipro absent defendants’ alleged restraint. See Aston Compl. ¶ 97; CVS Compl. ¶ 65; D.P. Compl. ¶ 73; I.P. Compl. ¶ 135. Defendants assert that plaintiffs have no claim under the antitrust laws because all of their theories of liability depend on generic entry into the domestic market for Cipro, which defendants claim is completely blocked by the 444 Patent. Therefore, defendants maintain that plaintiffs’ alleged injuries flow from the existence of the 444 Patent and not from any claimed restraint on trade. In response to this position, plaintiffs offer three theories in support of their claim.
a. Successful Litigation
Plaintiffs allege that but for the challenged agreements, Barr would have prevailed in the patent litigation and then Barr, HMR and Rugby (and possibly other generic firms) would have come to market with generic versions of Cipro.
See
CVS
The Supreme Court has held — albeit in a different factual context — that a legal theory dependent on predicting the outcome of a specific lawsuit is unduly speculative.
See Whitmore v. Arkansas,
Although no other decision of the Court addresses this question in an antitrust or other economic context, the Second Circuit has foreclosed speculation about the outcome of litigation in the corporate context.
See Boehm v. Comm’r,
In this case, without a showing of patent invalidity, all that the complaints contain is conjecture as to (1) whether Barr would prevail in the trial court; (2) whether the Federal Circuit would reverse any ruling for Barr; (3) whether the Supreme Court would have heard this case; and (4) when this case ultimately would be resolved. Plaintiffs’ allegations, far from proving causation, merely allege that prior to its settlement with Bayer, Barr initiated and then litigated this case in good faith and to the best of its abilities. Therefore, this allegation, like those in Whitmore and Boehm, is too speculative and is insufficient to state a claim under the antitrust laws. 21
The speculative nature of plaintiffs’ allegations is highlighted by the post-settlement affirmations of the 444 Patent’s validity. For instance, in 1997, Bayer voluntarily submitted the 444 Patent to the PTO for reexamination pursuant to 35 U.S.C. § 305, and the PTO upheld the patent’s validity. More significantly, other generic manufacturers have brought challenges to the 444 Patent — all unsuccessfully.
22
Indeed, the Court of Appeals for the Federal Circuit has upheld summary judgment for Bayer on the issue of the 444 Patent’s validity.
See Schein & Mylan,
b. Final FDA Approval
Some of the plaintiffs also allege that but for the challenged agreements, Barr would have received final marketing approval from the FDA (i.e., it would not have changed its Paragraph IV Certification to a Paragraph III Certification) and it would have marketed generic Cipro before resolution of the patent litigation. See CVS Compl. ¶ 49; I.P. Compl. ¶¶ 63, 65, 136. If Barr had entered the market, other generic companies, like HMR and Rugby, could have entered the market with their own generic versions of Cipro after Barr’s 180-day exclusivity period. Plaintiffs emphasize that the availability of this theory clearly establishes that, despite defendants’ contentions, it is not necessary to plead patent invalidity to state a cognizable claim of an antitrust violation.
It is not contested that before a company may market a new drug, it must receive FDA approval. See 21 U.S.C. § 355(a) (“No person shall introduce or deliver for introduction into interstate commerce any new drug, unless an approval of an application ... is effective with respect to such drug.”). As described above, the Hatch-Waxman Amendments simplified the approval process for companies wanting to market generic drugs by permitting such companies to file an ANDA. The amendments also addressed the interests of patent holders by requiring an ANDA filer to include one of four certifications regarding the patents held by the pioneer drug manufacturer. The certification relevant to this case — the Paragraph IV Certification — seeks FDA permission to market a generic drug before the expiration of the pioneer manufacturer’s patent by asserting either that the patent is invalid and unenforceable or that the generic drug product does not infringe the patent. See 21 U.S.C. § 355(j)(2)(A)Cvii)(IV); see also 21 C.F.R. § 314.94(a)(12)(A)(4). By contrast, the Paragraph III Certification seeks FDA permission to market a generic drug upon the expiration of the pioneer drug manufacturer’s patent. See 21 U.S.C. § 355(j)(2)(A)(vii)(III). The pioneer drug manufacturer can bring a patent infringement case against an ANDA IV filer, which will delay FDA approval of the ANDA for 30 months or until successful resolution of the litigation, whichever occurs first. See id. § 355(j)(5)(B)(iii). A court is permitted to lengthen or shorten this 30-month stay if it determines that ether party to the litigation has failed to “reasonably cooperate in expediting the action.” Id.
Courts and commentators have recognized that after the expiration of the 30-month stay, the FDA may grant a generic company final marketing approval despite a pending patent infringement suit.
See Bayer AG v. Elan Pharm. Research Corp., 212
F.3d 1241, 1247 n. 5 (Fed.Cir.2000) (stating that the parties agreed that the generic company was “free to market its
Therefore, if the patent holder wants to prevent generic competition after the 30-month stay expires but before resolution of the patent infringement case, it must obtain a preliminary injunction restraining generic sales that allegedly infringe upon its patent.
See Ciprofloxacin I,
The complaints in this case contain numerous facts in support of plaintiffs’ allegation that but for the challenged agreements, Barr would have received final FDA approval to market its generic product and would thereby have had the capacity to enter the Cipro market before resolution of the patent suit. In October 1991, Barr filed an ANDA IV seeking the FDA’s permission to market a generic version of Cipro before the expiration of the 444 Patent.
See, e.g.,
CVS Compl. ¶22. Shortly thereafter, Barr notified Bayer of its ANDA and certification.
See, e.g., id.
¶ 23. On January 16, 1992, Bayer commenced a timely patent infringement case against Barr, thereby triggering the statutory waiting period for FDA approval of Barr’s ANDA.
See, e.g., id.
¶24. The parties subsequently stipulated to extend the statutory waiting period until final resolution of .the patent infringement case.
24
See, e.g., id.
¶ 26. In January 1995, while the case was still pending, the FDA granted tentative approval of Barr’s ANDA for generic Cipro.
See
Aston Compl. ¶ 66. In the FDA’s letter to Barr granting this approval, it stated that the FDA had “completed the review of [Barr’s] abbreviated application and has concluded that, based upon the information [Barr has] presented to date, the drugs are safe and efficient for uses as recommended in the submitted labeling — therefore, the application is tentatively approved.”
Id.
According to plaintiffs, once Barr received tentative approval, final approval was imminent
Bayer, however, has labeled this theory as “plaintiffs’ theory of infringing entry,” which it likens to a market in stolen, infringing goods. Bayer Mot. Dismiss Mem. at 25; see also id. at 31, 33. Bayer maintains that the 444 Patent, not the challenged agreements, blocked generic entry. This analogy is unpersuasive. Bayer in effect is substituting its self-fulfilling prophecy for plaintiffs’ allegations, since unlicensed market entry is “infringing” only if the patent holder ultimately prevails. Therefore, Bayer’s argument assumes that the district court would have found the 444 Patent valid and that Barr’s generic product would infringe the patent. But the district court made no such finding. Indeed, the crux of plaintiffs’ claim of a per se violation is that the challenged agreements allowed Barr to accept cash in exchange for an agreement to halt the process by which a court would make such a determination — a process encouraged by the Hatch-Waxman Amendments and beneficial to consumers. Therefore, defendants’ claim that generic entry upon FDA approval is precluded is rеjected.
Nonetheless, courts have recognized that if a generic company that received FDA approval markets its drug before the resolution of the patent infringement suit, the generic company assumes the risk that it may subsequently be found liable for infringement.
See Ciprofloxacin I,
In a separate argument, HMR and Rugby maintain that plaintiffs’ attempt to stretch this theory to encompass them is flawed. HMR and Rugby argue that plaintiffs have failed to allege an actionable antitrust injury flowing from HMR and Rugby’s conduct because neither HMR nor Rugby exercised control over Barr’s entry into the Cipro market prior to a resolution in the patent litigation and neither HMR nor Rugby had the legal capacity to produce Cipro.
Although neither HMR nor Rugby were parties to the patent litigation, the complaints clearly establish their participation in the challenged agreements. Indeed, HMR and Rugby are both signatories to one of the Settlement Agreements, and HMR is a signatory to the Supply Agreement.
See
I.P. Compl. ¶¶ 22, 23. In addition, in March 1996, Barr and Rugby (then a subsidiary of HMR) entered into the Litigation Funding Agreement pursuant to which Rugby agreed to help Barr fund its patent litigation against Bayer.
See
CVS Compl. ¶ 31; I.P. Compl. ¶ 71. In return, Barr agreed that if it acquired the right to manufacture and/or distribute a generic Cipro tablet — either by Barr prevailing in the patent litigation or by settlement of such litigation — Barr would share the right to market that product exclusively with Rugby.
See
CVS Compl. ¶¶9, 31; I.P. Compl. ¶ 71. The agreement also provided that Barr could not settle the Bayer/Barr patent litigation without Rugby’s' express written approval, that any settlement of that case must provide equal benefits to Barr and Rugby and that Rugby would obtain FDA approval to manufacture Ci-pro.
See
I.P. Compl. ¶ 71. Moreover, Barr and Rugby were to share equally in the profits derived from those sales. In December 1996, the Litigation Funding
However, a fair reading of plaintiffs’ complaints fails to establish any facts from which a jury could infer that either HMR or Rugby could have influenced or controlled Barr’s decision to enter the domestic Cipro market prior to a resolution of the patent litigation. Moreover, the Litigation Funding Agreement — which requires Barr to share with Rugby and HMR its rights to market and/or distribute Cipro upon successful litigation or settlement — does not contemplate such entry.
In addition, to the extent plaintiffs allege that HMR and Rugby could have entered the market with their own generic Cipro product following Barr’s statutory exclusivity period, this claim also fails. Although a jury could infer from the facts surrounding the Litigаtion Funding Agreement that Rugby and HMR intended to enter the Cipro market, the fact remains that neither HMR nor Rugby had the legal capacity to market Cipro. The complaints do not allege otherwise. Although'plaintiffs assert that Rugby agreed in the Litigation Funding Agreement to seek FDA approval to manufacture Cipro, none of the complaints allege that either HMR or Rugby filed an ANDA seeking to manufacture Cipro or received FDA approval to do so. Without an ANDA and FDA approval, neither HMR nor Rugby had a right to manufacture generic Cipro. Moreover, any inference that HMR or Rugby would seek FDA approval in this situation is mere conjecture and unsupported by any facts in the complaints.
As an alternative theory, plaintiffs direct this court to cases from various circuits imposing under the antitrust laws joint and several liability on members of a conspiracy. These cases are unpersuasive because none of them involves a situation where the alleged conspirators were prohibited by government regulation from entering the market and, therefore, could not have caused the plaintiffs antitrust injury. For instance, plaintiffs rely on
Paper Systems, Inc. v. Nippon Paper Industries Co.,
where the Seventh Circuit addressed the effect of joint and several liability on the application of the
Illinois Brick
doctrine.
Accordingly, plaintiffs allege that, like the defendants in
Paper Systems,
HMR and Rugby are liable for the entire injury caused by defendants’ collective actions,
In addition, as to HMR and Rugby, the
Andrx
case is instructive. In that case Biovail (the second ANDA IV filer) maintained that it could not reach the generic drug market as quickly as it could in the absence of an agreement between HMR (the brand-name drug manufacturer) and Andrx (the first ANDA IV filer).
See
c. License under 444 Patent
As this court has previously observed with regard to the state law claims in Indirect Purchaser Plaintiffs’ Complaint, “plaintiffs have asserted at least one theory by which they may establish state antitrust violations without resorting to a determination of patent law.”
Ciprofloxacin I,
In support of this theory, Direct Purchaser Plaintiffs contend that Bayer at different times had entered serious discussions with both Schein Pharmaceuticals, Inc. (“Schein”) and Barr concerning the issuance of a license to market generic Cipro. See D.P. Compl. ¶ 58. For instance, they assert that in or about August 1996, Bayer met with Barr and/or HMR to discuss, inter alia, the possibility of Bayer issuing an exclusive license to Barr to market a generic form of all present and future forms of Cipro. See id. Moreover, the complaints allege that at the time of the challenged agreements, there was a serious dispute as to the validity of the 444 Patent. In fact, Judge Knapp denied both Barr and Bayer’s respective motions for summary judgment.
Moreover, defendants recognize the leverage that Barr had in this case, particularly under the new Hatch-Waxman scheme, which allows a generic manufacturer to seek entry into a market without incurring damages for infringement. See, e.g., Bayer’s Mem. in Opp’n to Pis.’ Mot. for Partial Summ. J. (“Bayer’s Summ. J. Mem.”) at 31 (“The patent owner has much more at stake, because it may lose its patent altogether. Its losses represent a larger share of the market, with much higher lost profits (due to higher prices) on each sale. Thus, the generic challenger’s potential upside can be a fraction of the patent owner’s potential downside.”).
Indeed, defendants concede that patent litigation is inherently uncertain and that, consequently, many patent infringement cases settle. See, e.g., id. (“[N]o matter how valid a patent is — no matter how often it has been upheld in other litigation ... or successfully reexamined ... — it is still a gamble to place a technology case in the hands of a lay judge or jury.... Even the confident patent owner knows that the chances of prevailing in [patent] litigation rarely exceed seventy percent.... Thus, there are risks involved even in that rare case with great prospects.”) (internal quotation marks and citations omitted); id. at 32 (“The range of potential settlements is now substantial. Because the generic challenger’s valuation of victory is smaller than the patent owner’s valuation of loss, settlement is highly likely.”) (citation omitted); G.Defs.’ Summ. J. Mem. at 16-17 (“The inherent uncertainty of a trial and appeal meant that Bayer faced some risk of losing even a valid patent, along with the attendant profits which the patent laws are designed to provide to patent holders.”); id. at 16 (“It is beyond dispute that some 95% of all litigation settles.”) (citation omitted).
In addition, plaintiffs argue that their contention is supported by the provisions of the Supply Agreement. In fact, the Supply Agreement contains a licensing provision pursuant to which Bayer would supply Barr and HMR with generic Cipro to bring onto the market beginning as early as January 1, 1998. The agreement also contains provisions giving Bayer the unilateral right not to issue a license and instead to pay Barr and HMR hundreds of millions of dollars in exchange for their agreement not to manufacture competing, generic versions of Cipro. Accordingly, plaintiffs maintain that in the absence of the challenged agreements (i.e., without the payment option) Bayer would in fact have entered into a license arrangement. Plaintiffs also argue that the evidentiary value of the licensing provisions is bolstered by the agreement’s severability clause, which provides for the provisions to be enforced “if any term or provision of
Defendants argue that Bayer has a right, acting unilaterally, not to license its patent and that plaintiffs’ claim “turn[s] this principle on its head” by stripping Bayer of this right and by creating a legal duty to license: “Even though plaintiffs purport to concede that a patentee cannot be held liable under the antitrust laws for failing to grant a license, plaintiffs argue that the same failure to grant Barr a license ... gives rise to cognizable injury under the antitrust laws.” Bayer Mot. Dismiss Mem. at 36-37. Bayer then cites numerous cases to support its proposition that Bayer cannot be liable under the antitrust laws for refusing to license its 444 Patent.
See id.
Bayer is correct in its recitation of the law.
See, e.g., SCM Corp. v. Xerox Corp.,
Plaintiffs do not contend that Bayer violated the antitrust laws because it unilaterally refused to issue Barr and/or HMR and Rugby a license. Rather, plaintiffs allege that if Bayer had not entered into the challenged agreements, under which it paid Barr, HMR and Rugby in lieu of supplying Cipro, those Generic Defendants would in fact have entered the market with generic Cipro. According to plaintiffs, but for the agreements, Barr would have used the leverage of the pending patent litigation to obtain a license under the 444 Patent for itself and/or HMR and Rugby. Thus, plaintiffs allege that Bayer, notwithstanding its legal right not to issue a license, would in fact have granted Barr and/or HMR and Rugby a license. Accordingly, this case is distinguishable from cases like SCM cited by defendants, all of which address whether a defendant’s refusal to grant a license violates the Sherman Act. This case addresses a different issue, namely whether plaintiffs who have already alleged a violation of the Sherman Act can demonstrate causation by showing that Bayer would in fact have granted a license but for its allegedly illicit conduct.
Thus, plaintiffs’ complaints have provided sufficient allegations that Bayer would have issued to Barr, HMR and/or Rugby a license for distribution of generic Cipro if it had not instead agreed to pay Barr and HMR hundreds of millions of dollars — an arrangement that plaintiffs claim is illegal — indeed, per se illegal. Moreover, it is fair to assume from the allegations in the complaint that if Barr intended to enter the market upon successful resolution of the patent litigation, it also would enter the market upon receiving a license, which would likewise shield Barr from any liability for patent infringement. Therefore, unlike plaintiffs’ successful litigation theory discussed above, this theory is not so speculative to justify denying plaintiffs the opportunity to show that the challenged agreements foreclosed the leverage provided by the patent litigation that would have led Bayer to grant a license.
As to HMR and Rugby, under this theory, plaintiffs have alleged injury-in-fact linked to those defendants. Plaintiffs assert that Bayer would have issued Barr (and perhaps HMR and/or Rugby) a license in the absence of the allegedly illegal agreements. In this regard, the presence of HMR and Rugby made it more likely than not that Bayer would have issued a
Moreover, if Bayer granted Barr a license to manufacture generic Cipro, presumably in connection with a settlement of the Bayer/Barr patent litigation, that license would trigger the provisions of the Litigation Funding Agreement. Under that scenario, there is another plausible argument for linking lack of generic entry to HMR and Rugby. ' If Barr received from Bayer a license to manufacture Ci-pro, Rugby would begin distributing Barr-manufactured Cipro as contemplated by the Litigation Funding Agreement, as amended. Accordingly, but for HMR and Rugby agreeing not to enter the market with Cipro, Bayer would have granted a license to Barr to manufacture Cipro, and Rugby would have distributed generic Ci-pro.
(2)
Antitrust Injury
Since plaintiffs have alleged one theory of injury-in-fact causally linked to defendants’ alleged illegal conduct, it is necessary to determine whether that injury is “antitrust injury,” i.e., injury of the type contemplated by the antitrust laws.
See Brunswick,
In fact, plaintiffs’ complaints demonstrate how the introduction of generic competition into the Cipro market would have greatly benefitted plaintiffs. According to plaintiffs, generic drugs are invariably priced below the brand-name drugs to which they are bioequivalent. See, e.g., I.P. Compl. ¶ 47. A 1998 study conducted by the Congressional Budget Office (“CBO”) concluded that the purchase of generic drugs saved consumers and third party payors between $8-10 billion in a single year. See, e.g., id. Similarly, a report prepared by the Government Accounting Office in August 2000 observed that “[bjecause generic drugs are not patented and can be copied by different manufacturers, they often face intense competition, which usually results in much lower prices than brand-name drugs.” Id. Indeed, according to plaintiffs’ complaints, Barr has recognized the importance of generic drugs, as it spelled out on its web page:
Generic pharmaceuticals can cost 30-80% less than the equivalent, branded product. Yet, the consumer is getting the same product, manufactured to the same high standards, as the brand name product.
******
[Introduction of generic products— which offer consumers a choice — results in competition that can also help lower prices. The generic manufacturermakes a real contribution to lowering health care costs, by offering the very same quality pharmaceutical products at significantly lower prices.
Id.; accord CVS Compl. ¶ 16; D.P. Compl. ¶¶ 26, 27. According to plaintiffs, Barr stated that it planned to enter the market for Cipro by initially pricing its generic product 30% less than Bayer’s Cipro. See I.P. Compl. ¶ 47. This price, plaintiffs maintain, would inevitably have been lowered, as additional generic companies entered the market and competed for market share. See id.; D.P. ¶ 26.
Moreover, the complaints recognize the detrimental consequences to Bayer of generic competition in the Cipro market. According to plaintiffs, a brand-name company loses a significant portion of its market share to generic competitors less than a year after the introduction of generic competition, even if the brand-name manufacturer lowers prices to meet such competition. See I.P. Compl. ¶ 48. The 1998 CBO Study estimates that generic drugs capture at least 44% of the brand-name drug’s market share in just the first year of sale. See id. Moreover, in testimony before Congress, a representative from the Pharmaceutical Research and Manufacturers of America (a brand-name pharmaceutical manufacturer’s trade association), confirmed that “in most cases, sale of pioneer medicines drop as much as 75% within weeks after a generic copy enters the market.” Id. In addition, the complaints establish that Bayer well understood the dramatic, adverse consequence that generic competition would have on Bayer’s sales of brand-name Cipro; indeed, it noted that “being hit by generics is traumatic for an organization.” D.P. Compl. ¶ 26; accord CVS Compl. ¶ 15. These facts demonstrate that, but for the challenged agreements, Bayer stood to lose billions of dollars in the face of gеneric competition. To prevent this result, plaintiffs maintain that Bayer suppressed generic entry in the Ci-pro market, at the expense of Cipro purchasers, including plaintiffs.
In
In re Warfarin Sodium Antitrust Litigation,
the Third Circuit sanctioned a claim of antitrust injury similar to the claim raised by plaintiffs in this case.
See
In this case, plaintiffs’ allegations of antitrust injury are equally formidable. Like the plaintiffs in
Warfarin,
plaintiffs in this case allege that defendants’ conduct suppressed generic entry in the Cipro market,
Instead, plaintiffs claim that, since entering into the agreements, Bayer has instituted price increases for Cipro that are among the highest percentage increases for any prescription drug in the United States.
See
Aston Compl. ¶ 95; I.P. Compl. ¶ 120. As a result, plaintiffs maintain that they have been denied the opportunity to obtain low-cost generic Cipro and are forced to pay süpra-competitive prices.
See
Aston Compl. ¶ 99; I.P. Compl. 135. Just as in Warfarin, in this case, Bayer’s “efforts to keep the generic drug off the market emanate from the fact that the introduction of the generic product would force down the price paid [for Cipro]. The higher prices paid were the
raison d’etre
of [Bayer’s alleged] antitrust conduct.”
(3)
Defendants’ Argument for Immunity under Noerr-Pennington
Finally, defendants suggest that they can escape antitrust liability by hiding behind the protections provided by the
Noerr-Pennington
doctrine. Under this doctrine, legitimate government petitioning, including the filing of a non-sham lawsuit, is immune from attack under the Sherman Act.
See E. R.R. Presidents Conf. v. Noerr Motor Freight,
Defendants’ argument is easily refuted. The challenged agreements in this case are private agreements between the defendants, in which Judge Knapp played no role other than signing the Consent Judgment. The Consent Judgment did not in-
(4)
Defendant Watson’s Individual Arguments
Watson moves to dismiss the Aston Complaint and Indirect Purchaser Plaintiffs’ Complaint for failure to state a claim upon which relief can be granted. To sustain a motion to dismiss, plaintiffs must allege that Watson’s conduct unlawfully restrained competition,
see Capital Imaging Assocs. v. Mohawk Valley Med. Assocs.,
Watson was not a signatory to any of the challenged agreements. Watson entered the picture in February 1998, a little more than one year after the agreements were executed. At that time, Watson purchased Rugby from HMR, pursuant to a Stock Purchase Agreement (“Purchase Agreement”) between Watson and HMR dated August 25, 1997 (and amended on November 26, 1997 and February 27, 1998). 28 See Aston Compl. ¶ 85; I.P. Compl. ¶ 100. According to plaintiffs, in Section 3.35 of that agreement, the parties acknowledge Rugby’s obligations pursuant to the HMR/Rugby Settlement Agreement, including the obligation not to compete with Bayer’s Cipro or, according to plaintiffs, file any ANDA for a generic form of Cipro. See Aston Compl. ¶ 89; I.P. Compl. ¶ 106.
HMR’s agreement with Watson and Rugby concerning Cipro is described in two other documents, a Side Letter Agreement (“Side Letter”) between HMR and Watson dated February 27, 1998 and a Term Sheet for a distribution agreement (“Term Sheet”) to govern Rugby’s distribution of Cipro.
See
Aston Compl. ¶ 85; I.P. Compl ¶ 101. Plaintiffs allege that these two documents and the Purchase Agreement collectively embody an arrangement whereby HMR will share with Rugby and Watson any financial benefit from the marketing or distribution of Ci-pro or a generic form of Cipro.
29
See
[HMR] hereby agrees to pay Watson one-half of all amounts received by [HMR] or its Affiliates pursuant to the [Supply Agreement], the [Litigation Funding Agreement] or any agreement entered into by [HMR] or its Affiliates in replacement, amendment or substitution of either of the foregoing agreements ..., other than payments made or related to events prior to the launch of the Product (the “Launch Date”) by [HMR], Barr Laboratories, Inc....
Watson Mot. Dismiss Mem., Ex. A § 1; accord CVS Compl. ¶ 86; I.P. Compl. ¶ 102.
In addition, the Term Sheet designates Rugby as HMR’s “exclusive distributor of the product in the United States and Puer-to Rico.” Watson Mot. Dismiss Mem., Ex. A of Ex. A ¶ 3. According to plaintiffs, it further provides that once Rugby commences distributing Cipro or a generic equivalent thereof, HMR will share the profits equally with Watson and Rugby.
30
Plaintiffs also allege that the Term Sheet obligates Rugby to abide by certain resale price limitations that guarantee a “target profit percentage.”
31
CVS Compl. II87; I.P. Compl. ¶ 103. Furthermore, the Term Sheet states that “neither Rugby nor any of its affiliates will sell any product AB rated
32
with the Product during the term.” Watson Mot. Dismiss Mem., Ex. A of Ex. A ¶ 3 (footnote added). Ac
After launch of the Product ..., neither Rugby nor any affiliate can sell any Product (whether purchased from a third-party or manufactured by it to any affiliate) for one-year after the termination (other than expiration as indicated in the first sentence under this heading) of the agreement, unless such termination is by Rugby due to a material breach by Parent (i.e., HMR) or is a wrongful termination by Parent.
Aston Compl. ¶ 88; I.P. Compl. ¶ 105.
Plaintiffs maintain that the provisions in the HMR/Rugby Settlement Agreement and in the Purchase Agreement, Side Letter and Term Sheet — which plaintiffs allege prevent Watson or Rugby or any of them affiliates from competing or attempting to compete in the U.S. Cipro market— are onerous to competition because another Watson subsidiary, Schein, 34 has filed an ANDA IV for Cipro. Accordingly, plaintiffs clаim that unless enforcement of the challenged agreements is enjoined, “Schein will be prohibited from marketing a generic formulation of Cipro because it is an affiliate of Rugby and Watson....” I.P. Compl. ¶ 109; accord Aston Compl. ¶ 91. As further support for this assertion, plaintiffs emphasize that Section 8 of the HMR/Rugby Settlement Agreement provides that, in the event of a breach by any party (including Rugby and its affiliates), Bayer would be entitled not only to damages, but also to “specific performance of its rights hereunder.” I.P. Compl. ¶ 91 (internal quotation marks omitted); accord Aston Compl. ¶ 109.
Plaintiffs’ argument fails because they have misinterpreted the provisions of the HMR/Rugby Settlement Agreement. The complaints set forth the definition of the term “affiliate” from Section 9(e) of the HMR/Rugby Settlement Agreement as including “any entity ‘which controls, or is controlled by or under common control with’ HMR or Rugby.” I.P. Compl. ¶ 81. Plaintiffs claim that this definition includes not only HMR and Rugby, but also Watson and its respective subsidiaries (i.e., Schein).
See id.
However, in its brief, Watson correctly demonstrates that Schein is not in fact constrained by the terms of the HMR/Rugby Settlement Agreement. Indeed, although that agreement provides that HMR, Rugby and their affiliates acknowledge the validity of Bayer’s 444 Patent and agree to refrain from marketing a generic form of Cipro,
see
Aston Compl. ¶ 76; I.P. Compl. ¶ 81, Schein is not an affiliate of Rugby. The definition of affiliate in the HMR/Rugby Settlement Agreement states that “after a change of control transaction involving Rugby so that Rugby is no longer an affiliate of HMR, ‘affiliate’ with respect to Rugby shall mean Rugby, its successor, if any, by operation of law (other than Barr), and Rugby’s subsidiaries.”- Watson Mot. Dismiss Mem., Ex. B
Even if Schein could be considered bound by the terms of the HMR/Rugby Settlement Agreement, plaintiffs’ argument that Watson’s acknowledgment of Rugby’s obligations under such agreement prevents Schein from marketing Cipro has been foreclosed by the Federal Circuit.
36
In fact, as noted above, that court has upheld the validity of the 444 Patent as to Schein.
See Schein & Mylan,
In addition, plaintiffs’ allegations of Watson’s anticompetitive conduct based upon the Side Letter and/or Term Sheet are equally unconvincing. Plaintiffs allege that Watson is receiving financial benefit from the alleged conspiracy, i.e., that Watson is receiving a portion of the allegedly illegal payments made pursuant to the Supply Agreement, which, plaintiffs claim, operates to suppress generic competition in the Cipro market. For support, plaintiffs highlight paragraph one of the Side Letter, which states that HMR and Watson agree to share any financial benefit from the marketing and distribution of Cipro.
See
I.P. Compl. ¶ 102. However, the complaints recognize that this provision goes on to exclude from these benefits any “payments made or related to events prior to the launch of Product [Cipro]” by HMR or Barr. Watson Mot. Dismiss Mem., Ex. A § 1;
accord
CVS Compl. ¶ 86; I.P. Compl. ¶ 102. Indeed, the Side Letter expressly states that Watson is not receiving any portion of the payments currently being made by Bayer to the Barr Escrow Account. In fact, according to the Side Letter, Watson does not receive any financial benefit until Rugby begins distributing generic Cipro. Moreover, despite plaintiffs’ assertions, Watson is not receiving these payments in exchange for Rugby acting as exclusive distributor of Cipro. In fact, Rugby’s role as exclusive distributor of a generic form of Cipro was
Moreover, plaintiffs’ allegations of anti-competitive conduct based on the fact that the Term Sheet “obligate^]” the pаrties to, and “prevents” the parties from, taking certain actions are rejected because the Term Sheet is not an agreement. When Watson purchased Rugby from HMR, the parties agreed that Rugby would remain the exclusive distributor of Cipro should Bayer chose to supply the drug to Barr and HMR per the Supply Agreement. See Watson Mot. Dismiss Mem. at 4. To this end, the parties agreed to negotiate in good faith to reach a distribution agreement. See id. at 5. Accordingly, the parties drafted the Term Sheet, which set forth general terms of a distribution agreement for Cipro, but they never executed such an agreement. See id. at 4. Even now, there is no agreement because, until the 444 Patent expires or until Bayer licenses Cipro, there is no product for Rugby to distribute. See id. at 5. Indeed, all that the Term Sheet embodies is HMR and Watson’s attempt to negotiate in good faith, as required by the Side Letter. The complaints do not allege that the Term Sheet is binding in any way on the parties or that the parties have made any additional attempts to execute the distribution agreement. Therefore, any claim of anti-competitive conduct flowing from the Term Sheet is too speculative to support a cause of action under the Sherman Act.
As a last resort, plaintiffs argue that Watson, as the current parent of Rugby, is liable for actions undertaken by Rugby pursuant to the HMR/Rugby Settlement Agreement before Watson’s acquisition of the company. As support, plaintiffs emphasize that Watson acknowledged Rugby’s obligations under that agreement in the Purchase Agreement attendant to Watson’s acquisition of Rugby from HMR. However, the authorities on which plaintiffs rely do not support this proposition. Plaintiffs direct this court to
Copperweld Corp. v. Independence Tube Corp.,
Finally, plaintiffs’ reliance on judicial es-toppel to bar Watson from arguing that it is not liable for Rugby’s acts is equally misplaced. Under the doctrine of judicial estoppel, when a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, particularly if it prejudices the party who has acquiesced in the position formerly taken.
See New Hampshire v. Maine,
Therefore, plaintiffs fail to allege that Watson’s conduct has restrained, or threatens to restrain, trade in the U.S. market for Cipro or that, even if such conduct could constitute a restraint of trade, Watson has caused plaintiffs an antitrust injury. Consequently, the Aston Complaint and the Indirect Purchaser Plaintiffs’ Complaint are dismissed as to Watson for failure to state a claim upon which relief can be granted.
(5)
Generic Defendant’s Statute of Limitations Argument
Barr, HMR and Rugby assert a separate ground for dismissal directed at the “Organizational Plaintiffs” bringing this suit (i.e., all plaintiffs that submitted the Aston Complaint with the exception of the original and sole consumer plaintiff, Mark Aston). These defendants assert that the Organizational Plaintiffs’ claims should be dismissed as time-barred. A complaint alleging relief that is barred by an affirmative defense, like the statute of limitations, can be dismissed for failure to state a claim upon which relief can be granted.
See Sapienza v. Osleeb,
In this case, on or about October 24, 2001, several advocacy groups (the Organizational Plaintiffs) joined in a lawsuit previously filed by Mark Aston, seeking damages under state antitrust and consumer protection laws. In that amended complaint, and in Organizational Plaintiffs’ November 21, 2001 complaint (i.e., the current Aston Complaint), these plaintiffs also allege violations of the Sherman Act, seeking declaratory and injunctive relief. Specifically, they allege that in January 1997, Bayer and Barr, HMR and Rugby entered into a series of allegedly unlawful agreements to settle the Bayer/Barr patent litigation.
See
Aston Compl. ¶¶ 3-5. They also claim that, through these agreements, “Defendants have limited the U.S. production capabilities of Cipro, and Plaintiffs
The conduct challenged by Organizational Plaintiffs — entering into the allegedly anticompetitive agreements in January 1997 — occurred more than four years before Organizational Plaintiffs filed their claims. In fact, Organizational Plaintiffs’ complaint was filed more than nine months after the limitations period had passed in January 2001. Accordingly, defendants argue that Organizational Plaintiffs’ claims should be dismissed as untimely. Plaintiffs, however, allege that Organizational Plaintiffs’ claims are not untimely because they fall into several exceptions to the four-year statute of limitations rule. Organizational Plaintiffs assert three arguments in support of this claim: (1) that the statute of limitations was tolled on or about August 1, 2000, when the first indirect purchaser class action complaint was filed in this case; (2) that the statute of limitations was tolled by fraudulent concealment; and (3) that indirect purchaser class plaintiffs have alleged current and continuing violations of the antitrust laws by defendants extending the limitations period.
a. Class Action Tolling
Plaintiffs maintain that the statute of limitations in this case was tolled around August 1, 2000 when the first indirect purchaser class action complaint was filed. It is well settled that “[t]he filing of a class action tolls the statute of limitations ‘as to all asserted members of the class.’ ”
Crown, Cork & Seal Co., Inc. v. Parker,
Defendants, however, argue that the filing of the first indirect purchaser class action in this case did not toll the statute of limitations with respect to Organizational Plaintiffs because those plaintiffs are not members of the indirect purchaser class, as that class is defined in the first complaint. In the class action context, the statute of limitations can be tolled only for those who are “asserted members of the class” when another action was timely filed.
See Crown, Cork,
Accordingly, the complaint here is the starting point to determining whether Organizational Plaintiffs were included among Indirect Purchaser Plaintiffs’ class.
See Shimazaki Communications, Inc. v. AT & T,
Nonetheless, defendants cite
Shimazaki
as support for their claim that class action tolling does not apply where a plaintiff “was never intended to be a member” of the initial class.
all persons who engaged in the business of distributing, selling, renting and/or leasing, PBX Systems, both automatic and otherwise, and key telephone systems, of various manufacturers, to subscribers of telephone service in interstate commerce provided by the defendants, New Jersey Bell Telephone Company and New York Telephone Company, and who sustained damages as a result of the acts herein alleged.
Id. The plaintiff claimed that it was one of the class members because it sold PBX and key telephone systems. See id. However, the plaintiff was a wholesale dealer who sold to retail interconnect companies, not to end users. Accordingly, the court emphasized that the “complaint requires that class members sell to subscribers of telephone service ... provided by the defendants,” and that plaintiff was therefore “never intended to be a member” of the class. Id. (internal quotation marks omitted). In this case, Organizational Plaintiffs, as third party payors and not consumers, were not intended to be members of the class asserted in the first indirect purchaser class action complaint.
Even if Organizational Plaintiffs are asserted members of Indirect Purchaser Plaintiffs’ class, defendants argue that their claims are still untimely because
Crown, Cork
does not contemplate tolling the statute of limitations in this situation.
38
Lastly, even if class certification in Indirect Purchaser Plaintiffs’ case was ultimately denied, defendants maintain that the Supreme Court’s absent class member tolling doctrine does not extend to the filing of subsequent related class actions. The Second Circuit has noted that although the class action tolling principal permits individuals to file actions following denial of class certification, that principle “does not apply to permit a plaintiff to file a subsequent class action.”
Korwek v. Hunt,
b. Fraudulent Concealment
Organizational Plaintiffs also allege that the statute of limitations has been tolled by defendants’ fraudulent concealment.
See
Aston Compl. ¶ 100. The
Organizational Plaintiffs claim that defendants “secretly had agreed to extend the 30-month waiting period” for FDA approval of Barr’s ANDA for a generic version of Cipro. Aston Compl. ¶ 101. They also allege that defendants’ agreements and conspiracy were covert and not disclosed to them or other putative class members. See id. To support this allegation, the Organizational Plaintiffs claim that defendants met secretly and discussed and agreed with each other to stifle competition by Cipro generic equivalents. 40 See id. These plaintiffs rely in their complaint “on information and belief’ to allege that they were “unaware of, and could not through due diligence have discovered, the existence of these meetings and the unlawful agreement which resulted in the Stipulation.” 41 Id.
Moreover, Organizational Plaintiffs claim that defendants took affirmative steps to prevent the discovery of their claim or injury. To support their contention, Organizational Plaintiffs allege that defendants agreed to keep the terms of
However, Organizational Plaintiffs’ allegations regarding defendants’ concealment of their actions are directly contradicted by other allegations in the Aston Complaint. There is no dispute that the fact of the settlement and its principal terms were contained in press reports regarding the settlement of the Bayer/Barr patent litigation. See Aston Compl. ¶ 81. Indeed, the Aston Complaint acknowledges that Bayer explained the settlement in a press release dated January 17, 1997, the day after the challenged agreements were executed. 42 See id. Specifically, Bayer’s press release announces that the Barr Settlement Agreement ended the parties’ patent litigation and that, under the agreement, Barr acknowledged the validity of Bayer’s patents. See id. The press release also describes the payment scheme established in the Supply Agreement, and it even discusses Bayer’s option either to supply Ci-pro to Barr and its financial partner (stated in the press release as Rugby, but, in fact, HMR) or to make payments to Barr and its partner. See id.
In addition, the complaint recognizes that Judge Knapp entered the Consent Judgment ending the patent ■ litigation. See id. ¶ 82 (noting that Barr agreed to acknowledge the validity of the 444 Patent in the Consent Judgment). A review of the Consent Judgment shows that the parties did not agree to keep the judgment confidential and that it would, therefore, have been part of the court record. Moreover, the Consent Judgment was referenced in Bayer’s press release. Lastly, Barr filed a Form 10-K405 with the SEC on September 22, 1998, which further elaborates on the payment scheme established in the Supply Agreement. Barr’s public filing explains that the payments from Bayer to the Barr Escrow Account were expected to be from $24 million to $32 million per year until 2003, specifying that “[i]f the innovator [i.e., Bayer] chooses not to provide the product to Barr, Barr would receive quarterly income and cash flow of $6 million to $8 million throughout the life of the Agreement.” I.P. Compl. ¶ 29. Thus, not only were the material terms of the settlement not concealed, defendants affirmatively disclosed these terms to the public.
Consequently, Organizational Plaintiffs’ argument that defendants’ conduct was “self-concealing” is also rejected. It is well established that a plaintiff may allege fraudulent concealment by “showing either that the defendant took affirmative steps to prevent the plaintiffs’ discovery of his claim of injury or that the wrong itself was of such a nature as to be self-concealing.”
Hendrickson,
Relying on Hendrickson, the Southern District in In re Nine West Shoes Antitrust Litigation summarily found that “by alleging a price fixing scheme, the plaintiff has sufficiently alleged the first prong of fraudulent concealment and ... there is no need to require the pleading of affirmative actions taken' by the defendants to prevent the plaintiffs discovery of his claims.” 80 F.Supp.2d. 181, 193 (S.D.N.Y.2000) (citations omitted). Plaintiffs cite Nine West Shoes in support of their assertion that since the Aston Complaint alleges a price-fixing claim, Organizational Plаintiffs have adequately established the first element of fraudulent concealment.
However, this case does not fit the rubric of the self-concealing doctrine. As the
Hendrickson
court explained, a bid-rigging conspiracy necessarily has many participants and a hidden agreement as to a number of contracts.
See
In addition, even if defendants could in some way be considered to have concealed their actions, disclosed facts in the public domain would have been more than adequate to raise Organizational Plaintiffs’ suspicions as to their claim of injury. “[T]he statute of limitations is not tolled by fraudulent concealment once the plaintiff knows of the operative facts that form the basis of his claim such that he could dis
In this case, Organizational Plaintiffs allege “on information and belief’ that they were unaware of the operative facts behind their claims within the limitations period.
44
Aston Compl. ¶ 101. However, as noted above, operative facts such as Barr’s acknowledgment in the Barr Settlement Agreement of the validity of the 444 Patent and Bayer’s other patents, Bayer’s option in the Supply Agreement either to supply Cipro or to make payments to the Barr Escrow Account and the mechanics of the payment scheme established in the Supply Agreement were publicly disclosed. In addition, defendants claim that dozens of nearly identical complaints were filed against some of the defendants in several state courts within four years of the challenged settlement, in some cases by the exact same lawyers who represent Organizational Plaintiffs in this case.
See
G.Defs.’ Org. Pis. Mem. at 9. Given the publicity of the Barr Settlement Agreement and the Supply Agreement, Organizational Plaintiffs cannot credibly claim ignorance of the operative facts of their claims once the January 1997 agreements were disclosed in that same month.
45
Cf. Dayco,
Lastly, Organizational Plaintiffs’ allegation that due diligence would have been fruitless in discovering their claims is equally implausible and, in any event, is defective on its face. The Supreme Court established the standards for alleging fraudulent concealment over a century ago in
Wood. See
In this case, Organizational Plaintiffs merely allege that “[o]n information and belief,” they could not through due diligence have discovered the operative facts for their cause of action. Aston Compl. ¶ 101. Such an allegation is insufficient. As stated above, due diligence is a requisite element of a fraudulent concealment defense to the statute of limitations bar, and Organizational Plaintiffs’ failure to include such allegations is fatal to their claims.
See Hendrickson,
Organizational Plaintiffs inappropriately rely on
Nine West
to support their allegation that their ignorance was not the result of a lack of due diligence, but rather the concerted actions of defendants to shield the alleged anticompetitive aspects of the
Accordingly, documents in the public record and referred to in Organizational Plaintiffs’ own complaint establish that defendants did not engage in any type of concealment and that, even if they did, Organizational Plaintiffs knew, or at the very least should have known, the operative facts that are the basis of their cause of action. Consequently, they can not be permitted to rely on bald allegations of fraudulent concealment to shield their claims from dismissal as untimely.
c. Continuing Violation
Lastly, Organizational Plaintiffs assert that the statute of limitations has been extended in this case because they have alleged continuing violations of the antitrust laws beginning with the 1997 challenged agreements.
46
The Supreme Court has recognized that in the context of a continuing conspiracy to violate the antitrust laws, “each time a plaintiff is injured by an act of the defendants a cause of action accrues to him to recover the damages caused by that act, and that, as to those damages, the statute of limitations runs from the date of commission of the act.”
Zenith,
However, although the law in the criminal context is clear that the statute of limitations only starts to run from the last act in furtherance of the conspiracy, the law regarding the continuing violation exception in the civil context is not as clear as plaintiffs’ argument suggests. Policy considerations justify different treatment. In
Vitale v. Marlborough Gallery,
the
Likewise, in
Wolf,
the Southern District interpreted the Supreme Court’s decision in
Zenith
as requiring that the defendant commit an overt anticompetitive act
within the limitations period. See
Other courts have similarly distinguished independent predicate acts committed during the limitations period, which extend the period, from mere reaffirmations of an initial act, which will not extend the limitations period.
Compare, e.g., DXS v. Siemens Med. Sys.,
Moreover, the
Vitale
court recognized that courts within the Second Circuit “consistently have looked unfavorably on continuing violation arguments” and that “compelling circumstances” must exist before the limitations period will be extended.
In this case, the only acts alleged by Organizational Plaintiffs subsequent to January 1997 are payments from Bayer to the Barr Escrow Account. These payments are contemplated by, and needed to implement, the fixed terms of the challenged agreements. Accordingly, such acts are not sufficient to extend or restаrt the limitations period because the performance of an allegedly anticompetitive, preexisting contract is not a new predicate act.
See Grand Rapids Plastics, Inc. v. Lakian,
Lastly, the cases cited by plaintiffs do not compel a different conclusion. Plaintiffs cite
Santana Products, Inc. v. Sylvester & Associates, Ltd.,
In addition, plaintiffs’ reliance on
Vermont Home Owners’ Association, Inc. v. Lapierre,
Thus, the payments made pursuant to the challenged agreements in this case do not restart the limitations period where defendants’ alleged wrongful conduct — settling the Bayer/Barr patent litigation and the attendant agreements — occurred long beforehand. Consequently, as Organizational Plaintiffs have failed to plead an exception to the four-year statute of limitations, those plaintiffs’ claims are dismissed as untimely.
In sum, Bayer and Generic Defendants’ motions to dismiss plaintiffs’ complaints for failure to state a claim are denied because plaintiffs have alleged one viable theory of injury casually linked to Bayer, Barr, HMR, and Rugby’s conduct, namely that but for the challenged agreements, Bayer would have issued a license for generic Cipro to Barr and/or HMR and Rugby at a price that would have resulted in a substantial lower cost to Cipro purchasers. However, plaintiffs have failed to allege a claim against defendant Watson, and, consequently, Watson’s motion to dismiss the Indirect Purchaser Plaintiffs’ Complaint and the Aston Complaint is granted. Lastly, Organizational Plaintiffs’ claims are dismissed as untimely.
Summary Judgment
(1)
Availability of Partial Summary Judgment
Plaintiffs contend that Bayer’s agreement to pay cash in exchange for the commitment of Barr, HMR and Rugby not to enter the Cipro market is a
per se
illegal market allocation agreement that violates Section 1 of the Sherman Act. As an initial matter, Bayer asserts that plaintiffs’ motion is procedurally improper because it seeks “partial summary judgment on an element of a claim and not on the entire claim.” Bayer’s Summ. J. Mem. at 48. To recover under the Sherman Act, plaintiffs must establish three elements: (1) anticompetitive conduct; (2) injury-in-fact; and (3) antitrust injury, i.e., “ ‘injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ act unlawful.’ ”
Balaklaw,
(2)
The Per Se Rule and the Rule of Reason
Section 1 of the Sherman Act makes unlawful “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.... ” 15 U.S.C. § 1. Although this provision literally bans every agreement involving interstate commerce, the Supreme Court has interpreted it to prohibit only those contracts that “unreasonably” restrain competition.
E.g., United States v. Topco Assocs., Inc.,
To establish a Section 1 violation, plaintiffs must therefore show “ ‘a combination or some form of concerted action between at least two legally distinct economic entities’ ” that “ ‘constituted an unreasonable restraint of trade either
per se
or under the rule of reason.’ ”
Primetime 21 Joint Venture v. Nat’l Broad. Co.,
[Tjhere are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principal of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken.
Examples of
per se
illegal conduct include horizontal price fixing,
see United States v. Socony-Vacuum Oil Co.,
Because the Settlement Agreements and Supply Agreement may be viewed as dividing the market for Cipro, by allocating it to Bayer, there may be some facial appeal to applying the
per se
rule in this case. However, the issue is not so simple. The Second Circuit has noted, “a majority of cases fall outside these narrow, carefully demarcated categories held to be illegal
per se ”
and are, therefore, analyzed under the rule of reason.
Capital Imaging,
Conduct that is not
per se
illegal may nevertheless be found to violate the antitrust laws pursuant to the rule of reason. Under the rule of reason, the factfinder must decide whether a challenged practice is an unreasonable restraint of trade, “taking into account a variety of factors, including specific information about the relevant business, its condition before and
Regardless of the type of analysis employed by the court, the critical focus is on the challenged restraint’s impact on competition. Indeed, the Supreme Court has noted that “ ‘whether the ultimate finding is the product of a presumption or actual market analysis, the essential inquiry is the same — whether or not the challenged restraint enhances competition.’ ”
Cal. Dental Assocs. v. FTC,
(3)
Application of the Per Se Rule to the Settlement Agreements and Supply Agreement
As noted above, per se analysis is reserved for a small number of cases involving agreements in restraint of trade that experience teaches have no redeeming value and a pernicious anticompetitive effect. This case involves the rights of a patent holder whose patent has been scrutinized on reexamination by the PTO and repeatedly challenged in court, but has never been found invalid. This case also involves the Hatch-Waxman Amendments — a new statutory scheme creating a novel, low-cost method for challenging the validity of drug patents. Lastly, this case involves settlement agreements, the type of agreements, generally speaking, encouraged by the legal system and entered into with great frequency. These circumstances pose significant obstacles to per se treatment of the challenged agreements.
Plaintiffs argue that the Settlement Agreements and the Supply Agreement should nonetheless be held per se unlawful because they illegally allocate the domestic market for Cipro. Indeed, plaintiffs argue that although Barr, HMR and Rugby sought to compete head to head with Bayer in sales of Cipro, under the Settlement Agreements and Supply Agreement, defendants combined and conspired to allocate the entire domestic market for Cipro and its bioequivalent generics to Bayer. These actions, plaintiffs maintain, unlawfully perpetuate Bayer’s monopoly and prevent price competition among horizontal competitors. The Supply Agreement and Settlement Agreements speak for themselves, and their provisions are set forth in some detail below.
In the Supply Agreement, Barr and HMR agreed to “purchase and accept all of [their] requirements for Product from Bayer” and not to “manufacture or have manufactured in the United States or
Plaintiffs claim that their conclusions are corroborated by examining the terms of the Supply Agreement together with those of the Settlement Agreements. The Barr Settlement Agreement ended the patent challenge between Bayer and Barr.
See
Pis.’ J.A., Ex. B ¶ 3. Although not parties to that litigation, HMR, Rugby, Sherman, and Apotex also executed “settlement agreements” with Bayer. Under the Barr and HMR/Rugby Settlement Agreements, Bayer agreed to pay $49.1 million to the Barr Escrow Account, and Bayer, Barr and HMR agreed concurrently to enter into the Supply Agreement (which provides for further payments).
See id.
§§ 1, 2;
id.,
Ex. C §§ 1, 2. In return, Barr and the other signatories acknowledged the validity in the United States of (and agreed not to challenge) the 444 Patent — the only patent at issue in the patent litigation — as well as additional patents “relating to the synthesis, manufacture, compound or precursors to ciprofloxacin and any pharmaceutical formulation containing ciprofloxacin existing throughout the world.”
Id.,
Ex. B §§ 4, 5(c);
id.,
Ex. C §§ 3, 4(c);
id.,
Ex. D §§ 1, 2;
see also generally
Petrovicki Decl. Among these additional patents are three patents related to the synthesis and manufacture of Cipro administered intravenously, all of which will expire after the 444 Patent.
See
Pis.’ Joint Statement of Material Facts Pursuant to Local Civ. R. 56.1 ¶ 24; Bayer’s 56.1 Stat. ¶24. According to plaintiffs, prior to entering into the Settlement Agreements, Barr and Rugby agreed in the Litigation Funding Agreement to retain patent counsel to examine the validity of Bayer’s patents claiming intravenous Cipro and, if appropriate, jointly challenge the validity of such patents.
See
Pis.’ J.A., Ex. P § 5.1(a)-(e). Plaintiffs claim that the Settlement Agree
Under the Barr Settlement Agreement, Barr also agreed to amend its ANDA by withdrawing its Paragraph IV Certification and substituting a Paragraph III Certification. See id., Ex. B § 5(a). A Paragraph IV Certification is the only mechanism for FDA approval to market a generic drug during the life of the pioneer drug’s patent. See 21 U.S.C. § 366Q)(2)(A)(vn)(IV). By contrast, a Paragraph III Certification seeks permission to market the generic drug only after the patent on the pioneer drug has expired. See Pis.’ J.A. § 355(j)(2)(A)(vii)(III). In addition, Barr, HMR and Rugby agreed not to file any ANDA IVs for products “relating to Ci-pro.” Id.; Ex. B § 5(a); id., Ex. C § 4(a). 51 “Cipro” is defined to mean “the novel compound commonly known as cipro-floxacin,” which is claimed under the 444 Patent. Id., Ex. B ¶ 2; id., Ex. C ¶ 2. Lastly, the Settlement Agreements contain the following additional provisions:
A.Barr will not assist any third parties in “challenging in any way the validity or enforceability of any of the Patents other than the 444 Patent in the United States or any of the Patents outside the United States, the Settlement Agreements or the Supply Agreement.” Id., Ex. B § 5(d). Similarly, HMR/Rugby will not assist any nonaffiliate “in challenging in any manner the validity or enforceability of the Patents anywhere in the world, the Settlement Agreements or the Supply Agreement.” Id., Ex. C § 4(d).
B. Barr will deliver to its counsel, Williams & Connolly and Cohen, Pontani, Lieberman & Pavane (the “Law Firms”), letters set forth as exhibits to the Barr Settlement Agreement, which provide Barr’s permission for the Law Firms to thereafter represent Bayer “in connection with potential challenges to its ciprofloxacin patent.” Id., Ex. B § 5(f) & Exs. C, D; see also id., Exs. R, S.
C. Barr will “collect and destroy” all but one copy of certain documents that the parties had exchanged and/or created during the patent litigation, with that one copy to be held by the Law Firms, who are required to deliver all but privileged and work product documents to Bayer, with Bayer having the power to instruct the Law Firms how to handle the withheld documents. Id., Ex. B § 3(b)-(d).
Plaintiffs maintain that, viewed together, the Supply Agreement and the Settlement Agreements operate to pay hundreds of millions of dollars to Bayer’s competitors — Barr, HMR and Rugby — to relinquish all avenues open to them to enter the domestic market with a generic version of Cipro.
See
D.P. Summ. J. Mem. at 19. For more than a century, agreements between actual or potential competitors to allocate territories or customers have been considered
per se
violations of Section 1 of the Sherman Act.
See, e.g., United States v. Addyston Pipe & Steel Co.,
In
Addyston Pipe,
the Sixth Circuit examined a complex agreement among manufacturers of cast iron pipe to allocate territories and customers among them. The result of the scheme was that purchasers were forced to buy pipe at artificially inflated prices from a single manufacturer, who then passed along a part of its profits to the manufacturers who had agreed not to compete.
See
If dealers in any commodity agreed among themselves that any particular territory ... should be furnished with such commodity by certain members only of the combination, and the others would abstain from business in that territory, would not such agreement be regarded as one in restraint of interstate trade? If the price of the commodity were thereby enhanced (as it naturally would be), the character of the agreement would be still more clearly one in restraint of trade.... Does not an agreement or combination of that kind restrain interstate trade, and when Congress has acted by the passage of [Section 1 of the Sherman Act], does not such a contract clearly violate that statute?
Addyston Pipe & Steel Co. v. United States,
In
Palmer,
the Supreme Court addressed an agreement between two potential competitors in the bar review market, BRG of Georgia and Harcourt Brace Jovanovich (“HBJ”), pursuant to which HBJ agreed not to compete with BRG in Georgia and BRG agreed not to compete with HBJ in any other state.
See
In reaching its conclusion, the Supreme Court rejected the assumptions of the district court and the court of appeals that an allocation of markets by competitors is unlawful only if the competitors divide a market in which they previously competed.
See id.
In this regard, the Supreme Court noted that a
per se
violation was found in
Topco,
even though the defendants had agreed merely to allocate territories but had never competed in the same market.
See id.,
Ill S.Ct. at 403. Therefore, the
Palmer
Court found the agreement between BRG and HBJ “anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one market for one and another for another.”
Id.
Based on
Addyston Pipe
and
Palmer,
plaintiffs claim that the Settlement Agreements and Supply Agreement allocate the entire domestic Cipro market to Bayer and, in return, Bayer pays a portion of its unlawfully obtained monopoly profits to
(4)
The Cardizem and Terazosin Holdings
Relying on the Supreme Court’s jurisprudence on horizontal market allocation agreements, courts within other circuits have found that agreements between pioneer drug manufacturers and generic manufacturers that filed ANDA IVs seeking to market a generic version of the pioneer drug constitute horizontal market allocations agreements and are, thus,
per se
illegal.
See Cardizem,
The patent at issue in
Cardizem
was a formulation patent for Cardizem CD, a once-a-day time-release dose of the chemical compound diltiazem hydrochloride (“Cardizem”). Andrx, the generic manufacturer, filed an ANDA IV alleging that its formulation did not infringe the pioneer patent.
See
The court in
Cardizem
found the agreement constituted a
per se
market allocation agreement among horizontal competitors. The court found that HMR and Andrx were potential competitors at the time they entered into the challenged agreement and that the agreement eliminated an avenue of rivalry, namely Andrx’s entry into the market with a generic Cardizem product.
See id.
at 700. In addition, the court found that the agreements sought to minimize generic competition in Cardizem and to allocate the entire domestic Cardiz-em market to HMR because the agreement “restrained Andrx from marketing non-infringing or potentially non-infringing versions of Cardizem” and “restrained Andrx from relinquishing or otherwise compromising its rights to the 180-day period of exclusivity it obtained under the Hatch-Waxman Amendments.”
Id.
at 699. Accordingly, the court found that the agreement not only protected HMR from competition from Andrx, it also protected HMR from competition from other generic competitors. Indeed, it found that Andrx’s delayed entry postponed the start of the 180-day exclusivity period, thereby precluding others from obtaining final FDA approval until that period expired. The court rejected the defendant’s pro-competitive justifications, including an argument that the agreement fostered the expeditious resolution of the patent infringement dispute, noting that the agreement did not resolve the pending patent litigation and actually created an incentive to pursue litigation beyond the district court and
Like in
Cardizem,
in
Terazosin,
the patents at issue appear to be formulation patents that covered the tablet and capsule formulations of the drug terazosin hydrochloride, marketed by Abbot under the brand name “Hytrin.”
See
In addition, like the
Cardizem
court, the
Terazosin
court found the agreements “contain numerous covenants inimical to free enterprise,” and are, therefore, per
se
illegal market allocation agreements.
Id.
at 1348. The court found that Geneva and Zenith were “poised to compete with Abbott at the same level of the market” since Geneva had received final FDA approval of its ANDA IV pending validation, and Zenith anticipated a favorable outcome in litigation that would result in final approval of its ANDA IV. With regard to the Abbott/Geneva agreement, the court emphasized that the agreement forestalled competition in the domestic terazosin hydrochloride market because Geneva agreed not to market its FDA-approved generic capsule, not to sell its rights to the capsule and its tablet ANDA IVs, to oppose attempts by other ANDA applicants to enter the market early, and if Geneva successfully defended its tablet ANDA before the Federal Circuit (thereby satisfying the FDA’s “successful defense” requirement for 180-day exclusivity), to refrain from marketing its approved product until Abbott exhausted any аppeals before the Supreme Court.
53
Accordingly, the court found that Geneva and Zenith’s agreements tended to forestall competition in the domestic terazosin hydrochloride market and were, therefore, classic examples of a market allocation agreement among horizontal competitors that has traditionally been subject to per se treatment. Id. at 1349. The court rejected defendants’ argument that the agreements were “reasonably ancillary to procompetitive activity” because they were, inter alia, patent settlements, noting that, the Abbott/Geneva agreement did not resolve the pending litigation but instead “tended to prolong [the] dispute.” Id. at 1350. While the Abbott/Zenith agreement ended the parties’ Orange Book litigation, the court found that portion of the agreement to be “part of a larger scheme to restrain the domestic sale of generic tera-zosin hydrochloride products.” Id. at 1353. This case is currently on appeal.
(5)
Analysis of the Settlement Agreements and Supply Agreement in light of Cardizem and Terazosin
Plaintiffs contend that the holdings in Cardizem and Terazosin support a finding that the agreements in this case are per se illegal. Although there are some similarities, Cardizem and Terazosin are distinguishable from this case.
a. Bayer and Barr are horizontal competitors.
Like the pioneer manufacturer and generic manufacturer in
Cardizem
and
Terazosin,
Bayer and Barr are horizontal competitors. The issue of horizontal competition is critical in determining whether the challenged agreements in this case are appropriately analyzed as a horizontal restraint of trade, thereby justifying
per se
condemnation. The Supreme Court has held that parties can be horizontal competitors regardless of whether they are actual competitors (i.e., currently competing in the same market) or potential competitors.
See Palmer,
Similarly, challenging patents through litigation is a form of competition.
See United States v. Line Material Co.,
In this case, Barr filed an ANDA with a Paragraph IV Certification, the only certification that would permit Barr to market a generic version of Cipro before the 444 Patent expires.
See
21 U.S.C. § 355(j) (2) (A) (vii). By making such a certification, “Barr announced to the FDA and to the world that it intended to compete with Bayer.” I.P. Summ. J. Mem. at 24 (citation omitted);
see
21 U.S.C. § 355 (stating purpose of ANDA is to gain approval “to introduce or deliver for introduction into interstate commerce” generic version of previously approved drug). In fact, Barr had to complete research and development and undertake various steps to pursue its ANDA, such as procure raw materials, formulate the product, analyze the patent, and perform the requisite bioe-quivalence testing.
See
Downey Deck ¶¶ 13, 15, 17. Such actions are sufficient to show that Barr had the “desire, intent and capability to enter the market.”
Engine Specialties, Inc. v. Bombardier Ltd.,
In response to all this, defendants argue that Generic Defendants are not actual or even potential competitors of Bayer because, until the 444 Patent expires or is invalidated, Bayer’s patent monopoly absolutely prohibits all competition in the domestic Cipro market. Defendants are incorrect; their argument ignores the Hatch-Waxman statutory scheme. Indeed, as discussed above in relation to defendants’ motion to dismiss, the Hatch-Waxman Amendments provide that an ANDA IV filer can market its generic drug once it has received final FDA approval, even before resolution of the patent litigation.
See
21 U.S.C. § 355<j)(2)(B)(in);
see also Elan,
b. The agreements in this case do not exceed the scope of Bayer’s 444 Patent.
However, simply because Bayer and Barr are horizontal competitors does not automatically mean that any agreement between them is per se illegal. Plaintiffs assert that the agreements in this case are analogous to the agreements in Cardizem and Terazosin and that, accordingly, since those agreements were condemned as per se illegal, these agreements should be subject to the same fate. However, the courts in Cardizem and Terazosin found that the agreements at issue covered noninfringing, and potentially noninfringing, generic products; manipulated the 180-day exclusivity period, effectively delaying entry by other generic manufacturers; and perpetuated the underlying patent infringement suits. Thus, those courts concluded that the agreements were per se illegal horizontal market allocation agreements. Despite plaintiffs’ arguments to the contrary, these cases are inapposite because the facts as found by those courts are materially different from the facts in this case.
First, defendants submit that the 444 Patent is a compound patent on ciprofloxa-cin hydrochloride, the single active ingredient in any Cipro product. Thus, viewing the facts in favor of the defendants, Bayer’s 444 Patent lawfully excludes all generic manufacturers from the Cipro market regardless of the generic product’s formulation or delivery method. By contrast, the
Cardizem
and
Terazosin
cases appear to involve only formulation patents, which cover only a particular formulation or method of delivering a drug and do not necessarily foreclose all competition in the market for the drug itself. In
Cardizem,
the patent covered a once-a-day timere-lease delivery and its dissolution profile; in
Terazosin,
the patent covered the tablet formulation of the pioneer drug. The difference between those cases and this case is that the generic manufacturers in
Car-dizem
and
Terazosin
could avoid infringement by using a different delivery method or formulation for the generic product. In fact, that is exactly what the generic manufacturer in
Cardizem
did. Indeed, the saga in
Cardizem
did not end at the challenged agreement. After HMR and Andrx entered into the agreement, but while the patent litigation was still pending, Andrx submitted to the FDA a prior approval supplement to its original ANDA IV, seeking to change the dissolution profile of its generic drug. Accordingly, Andrx urged HMR to reconsider its infringement claims.
See Cardizem,
105 F.Suppüd at 688. After a flurry of activity spanning almost a year, the FDA’s approval of Andrx’s prior approval supplement became effective on June 9, 1999. On that same date, HMR and Andrx stiрulated to settle
When the Cardizem court condemned the HMR/Andrx agreement, it emphasized that the agreement restrained Andrx from marketing other bioequivalent or generic versions of Cardizem that were not at issue in the pending patent litigation, including the reformulated drug that Andrx submitted in its prior approval supplement. Thus, the court found that the agreement’s restrictions extended to non-infringing and/or potentially noninfringing versions of generic Cardizem. See id. at 699. Similarly, the Terazosin court found that the challenged agreements in that case precluded Zenith and Geneva from selling any generic terazosin hydrochloride product, despite the fact that the underlying patent litigation involved only tablet formulation patents. For instance, the court noted that the Abbott/Geneva agreement precluded Geneva from selling its FDA-approved capsule formulation of ter-azosin hydrochloride, despite Abbott’s unexplainable failure to sue for infringement with regard to its capsule formulation patent. By contrast, in this case, as more fully discussed below, the compound 444 Patent precludes all use of the active ingredient ciprofloxacin hydrochloride — no matter what form or delivery method used.
c. The agreements in this case finally resolved pending litigation and did not result in a “bottleneck”.
Second, the agreements at issue in
Cardizem
and
Terazosin
did not resolve the underlying patent disputes.
See Cardizem,
This last point is probably the most significant difference between this case and
Cardizem
and
Terazosin;
those cases involved so-called “bottlenecks” that effectively delayed future ANDA IV fliers from entering the relevant generic drug market. For instance, the
Cardizem
court construed the HMR/Andrx agreement as requiring Andrx to maintain its ANDA IV certification, an element the court characterized as an attempt to block other generic competitors by maintaining indefinitely Andrx’s 180-day exclusivity period.
See
Similarly, in Terazosin, the Abboti/Ge-neva agreement required Geneva, the first ANDA IV filer, not to transfer the rights to its ANDA IVs or its FDA-approved generic capsule. The agreement also required Geneva not to market any generic terazosin hydrochloride drug. Like the generic manufacturer in Cardizem, Geneva had received final FDA approval of its ANDA IV for a generic terazosin hydrochloride capsule, subject to validation. Thus, like the HMR/Andrx agreement, the Abbott/Geneva agreement delayed triggering Geneva’s 180-day exclusivity period, effectively holding up FDA approval of other generic manufacturers’ ANDA IVs.
By contrast, the Settlement Agreements here did not create a “bottleneck” for future ANDA IV filers. First, at the time of the Settlement Agreements, the FDA regulation in effeсt conditioned the first ANDA IV filer’s right to 180-day exclusivity on a “successful defense” of its ANDA IV against the patent holder’s lawsuit. See 21 C.F.R. § 314.107(c)(1), revoked, Effective Date of Approval of Abbreviated New Drug Application, 63 Fed.Reg. 59710 (Nov. 5, 1998). In this case, the Barr Settlement Agreement ended the underlying patent litigation, and, in the Consent Judgment, Barr acknowledged the validity, and its infringement, of the 444 Patent. More significantly, under the Barr Settlement Agreement, Barr agreed to withdraw its Paragraph IV Certification and to amend its ANDA to contain a Paragraph III Certification. In other words, Barr withdrew its attack on the 444 Patent instituted through its ANDA IV filing. Thus, Barr failed to satisfy the successful defense requirement. Indeed, as discussed more fully below, in direct contrast to the generic manufacturers in Cardizem and Terazosin, Barr agreed under the Barr Settlement Agreement to relinquish its right to the exclusivity period provided by the Hateh-Waxman Amendments. Plaintiffs’ attempt to substantiate their argument by pointing to the subsequent demise of the successful defense requirement is unconvincing.
In 1997, after the Settlement Agreements and Supply Agreement were executed, two federal courts rendered conflicting decisions on the validity of the successful defense requirement.
Compare Mova Pharm. Corp. v. Shalala,
Then, in June 1998, the
Mova
district court permanently enjoined the FDA
from
enforcing the successful defense regulation. Shortly thereafter, the FDA issued guidance announcing that it will remove the requirement, and the successful defense provisions were formally removed from the regulations in November 1998.
See
Effective Date of Approval of Abbreviated New Drug Application, 63 Fed.Reg. at 59711. However, despite the ultimate withdrawal of the successful defense requirement, the fact still remains that the requirement was in effect at the time of the Bayer/Barr settlement.
55
Therefore, by settling the patent litigation and withdrawing its ANDA IV, Barr failed to meet the successful defense requirement and was consequently ineligible for 180-day exclusivity.
Cf. Terazosin,
Apparently ignoring this plain fact, plaintiffs nonetheless maintain that the challenged agreements in this case blocked other generic manufacturers’ attempts to enter the domestic Cipro market because Barr did not relinquish its right to 180-day exclusivity by amending its ANDA IV to an ANDA III. For support, plaintiffs emphasize that Barr consistently maintained to the FDA and the Federal Trade Commission (“FTC”) that its amendment did not affect its right to the exclusivity period. In supplemental memoranda, plaintiffs attempt to substantiate their argument with provisions from FDA regulations, but their arguments are unconvincing.
Furthermore, the FDA’s regulatory posture does not substantiate plaintiffs’ claims that Barr retained its 180-day exclusivity period despite amending its ANDA IV to an ANDA III. The only regulation in effect in January 1997 governing amendments of an ANDA IV to an ANDA III mandates, inter alia, that such an amendment is required “[ajfter a final judgment ... finding the patent to be infringed,” and provides that, after the amendment, “the application will no longer be considered to be one containing a certification under paragraph [IV].” 21 C.F.R. § 314.94(a)(12)(viii)(A). In this case, the Consent Judgment found that Barr infringed the 444 Patent and that the 444 Patent was valid and enforceable as to Barr. Shortly after the Consent Judgment was entered, Barr amended its ANDA IV to an ANDA III, as mandated by the regulation. Accordingly, it would appear, as defendants suggest, that if Barr’s application is no longer considered to contain a Paragraph IV certification, Barr is no longer entitled to 180-day exclusivity.
Nonetheless, plaintiffs point out that, in
Mova,
the FDA referred to the amendment regulation as existing merely for “housekeeping” purposes, and, thus, of no practical consequence.
See
However, the FDA reversed its position in a subsequent letter to Barr dated June 26, 2000.
See id.,
Ex. 4. This change in interpretation followed the rejection of the FDA’s interpretation of the Hatch-Wax-man Amendments by the United States District Court for the District of Columbia in
Mylan Pharms., Inc. v. Henney,
This conclusion is not undermined by the fact that the FDA proposed, but ultimately rejected, regulations that would have prevented the first ANDA IV filer who amends to an ANDA III to maintain its claim to exclusivity. On August 6, 1999, the FDA proposed new regulations to address a variety of concerns arising from the exclusivity provision of the Hatch-Waxman Amendments.
60
See
180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed.Reg. 42873 (Aug. 6, 1999). In its comment withdrawing the proposed regulation, the FDA stated that “[t]he agency will continue to regulate directly from the statute and the applicable FDA regulations to make 180-day exclusivity decisions on an
Given this spotty state of the law, it is understandable why plaintiffs failed to demonstrate how the settlement at issue here prevented generic entry. The fact that the settlement prevented Barr from meeting the successful defense requirement — thus precluding Barr from receiving 180-day exclusivity under the prevailing regulations — renders plaintiffs’ amendment argument of no practical import. Even without the successful defense requirement, there is no support for plaintiffs’ claim that Barr retained 180-day exclusivity after amending from an ANDA IV to an ANDA III in the face of the plain language of the FDA’s regulation.
Moreover, since the settlement, Bayer has filed Hatch-Waxman lawsuits against four different generic applicants: Ran-baxy, Schein, Mylan, and Carlsbad. The Bayer/Ranbaxy case was dismissed as moot following Ranbaxy’s voluntary withdrawal of its ANDA IV. See Bayer App., Ex. 21. In the next two cases, Schein and Mylan, Bayer prevailed on summary judgment rejecting validity challenges. The Bayer/Carlsbad trial is still pending. Thus, the Bayer/Barr settlement did not prevent other generic manufacturers from challenging the 444 Patent. Furthermore, approximately seven additional companies have received tentative FDA approval of their respective ANDAs for generic Ciprо products, which further undermines plaintiffs’ bottleneck argument. See http://www.fda.gov/cder/approval/in-dex.htm (last visited May 19, 2003); see also Decl. of Jerry A. Hausman, G.Defs.’ Summ. J. Mem., Ex. B (“Hausman Decl.”) ¶36 & n. 18 (citation omitted). Consequently, plaintiffs cannot seek to attach per se liability to a set of agreements incapable of causing competitive harm because defendants believed, incorrectly, that it could cause harm. Thus, plaintiffs’ reliance on the 180-day exclusivity provision in their argument for per se liability is misplaced.
In sum, plaintiffs rely on Cardizem and Terazosin to support their argument that per se liability applies to defendants’ conduct in this case. As described above, both Cardizem and Terazosin involve attacks on purported market allocation agreements involving challenges under the Hatch-Waxman Amendments to ANDA IVs filed by other generic manufacturers seeking to market generic versions of other brand-name drugs. However, any persuasive authority that those cases might have is entirely undermined by the significant factual distinctions between those agreements and the settlement here. This is not a case where the challenged agreements restrict noninfringing goods, perpetuate litigation or manipulate the 180-day exclusivity period. Accordingly, this court declines plaintiffs’ invitation to follow the reasoning in Cardizem and Terazosin and to find the Settlement Agreements and Supply Agreement in this case per se illegal without a more elaborate inquiry into the effect of Bayer’s patent monopoly on the conduct at issue.
(6)
The Effect of Bayer’s 444 Patent and the Hatch-Waxman Amendments on Per Se Analysis
Defendants accept as true many of the material facts concerning the Settle
The patent laws, authorized by the Constitution, were enacted by Congress to stimulate invention and reward innovation by granting a patent holder a limited monopoly on the manufacture, use and sale of the patented invention.
See
U.S. Const, art. 1, § 8. It is well established that the exclusion of infringing rivals is at the “heart” of the patent right.
SCM Corp. v. Xerox Corp.,
In
United States v. Studiengesellschaft Kohle,
The circuit court reversed the district court’s application of the
per se
standard, concluding that only the rule of reason applies.
Id.
at 1128. In criticizing the district court’s analysis as treating the patent laws and antitrust laws as two separate inquiries, the circuit court remarked that “[s]ueh a formalistic, two-step analysis forecloses adequate consideration of the fundamental fact that a patent by definition restrains trade, and in effect makes most exclusive patent licenses
per se
violations of the antitrust laws.”
Id.; see also id.
(stating that it was “error to consider the scope of the patent protection irrespective of any competitive effects in the first phase of the case, and then rule separately on the anticompetitive effects of the arrangement without consideration of the protection of the patent”). The D.C. Circuit stated that, under its analysis, “the conduct at issue is illеgal if it threatens competition in areas other than those protected by the patent, and is otherwise legal.”
Id.
The circuit court then proceeded to examine the alleged anticompetitive effects
Accordingly, when patents are involved, case law directs that the exclusionary effect of the patent must be considered before making any determination as to whether the alleged restraint is per se illegal. Therefore, the proper analysis in this case is whether the plaintiffs have proven as a matter of law that the challenged agreements restrict competition beyond the exclusionary effects of the 444 Patent. 62
It is uncontested that ciprofloxacin hydrochloride is the only active ingredient in Bayer’s brand-name drug Cipro. See Orange Book, NDA Nos. 19537 (Cipro tablet, oral); 19847 (Cipro injectable, injection); 20780 (Cipro for suspension, oral), available at http://www.fda.gov/cder/ob/de-faulthtm (last visited May 19, 2003); see also Pis.’ J.A., Ex. X. Thus, to obtain FDA approval to market a generic version of an approved drug product, like Cipro, which contains only a single active ingredient, a generic manufacturer must demonstrate, inter alia, that the “active ingredient of [its proposed] new drug is the same as that of the listed drug.” 21 U.S.C. § 355(j)(2)(A)(ii)(I). Accordingly, any FDA-approved generic version of Cipro must therefore contain ciprofloxacin hydrochloride. See Downey Deck ¶¶ 9, 17, 18.
As for the 444 Patent, it claims the compound ciprofloxacin hydrochloride. A patent on a compound that is the only active ingredient in a drug covers all generic versions of that drug. Indeed, such a compound covers any generic product, regardless of how formulated, processed or delivered (e.g., tablet, capsule, intravenous, time release). By contrast, a formulation patent — the type of patent at issue in Car-dizem and Terazosin — covers only a particular formulation or delivery method. In Cardizem, the delivery method was a once-a-day time release of Cardizem. In Tera-zosin, the formulations were tablet and capsule forms of terazosin hydrochloride. Accordingly, in this case, the filing of an ANDA IV for any generic version of Cipro before the 444 Patent expires or is invalidated would necessarily infringe the 444 Patent. 63
The Barr Settlement Agreement ended the patent litigation between Bayer and Barr. In the Consent Judgment, the patent litigation was dismissed, and Barr stipulated that its ANDA IV for a generic Cipro product infringed the 444 Patent and that the 444 Patent was valid and enforceable.
See
Pis.’ J.A., Ex. N ¶¶ 2-3. Although not parties to the patent litigation, HMR, Rugby, Sherman, and Apotex also executed settlement agreements with Bayer.
See generally id.,
Exs. C, D. Under the Settle
The Supply Agreement precludes Barr and HMR from manufacturing Cipro in the United States and requires them to purchase Cipro solely from Bayer. See id., Ex. E § 3.01. It also provides that Bayer either can supply Cipro to Barr and HMR or make quarterly payments to the Barr Escrow Account. See id. §§ 4.01, 4.02. In sum, on their face, the challenged agreements prevent Barr, HMR and Rugby from manufacturing generic Cipro products and prevent all signatories from challenging the validity of the 444 Patent and other designated patents closely related to. the 444 Patent. Plaintiffs claim that these restraints are per se illegal.
However, as indicated above, the 444 Patent is a compound patent that covers the active ingredient in all Cipro products. Thus, until the 444 Patent either is invalidated or expires, it lawfully precludes the manufacture and use of any generic product containing the compound ciprofloxacin hydrochloride regardless of the form or method of delivery. Therefore, the restrictions in the Supply Agreement on manufacturing Cipro appear within the confines of Bayer’s lawful patent monopoly. Moreover, although the Settlement Agreements operate to preclude validity challenges to other U.S. patents held by Bayer, as discussed below, they do not appear to preclude future ANDA filings for generic Cipro products. Indeed, Barr, HMR or Rugby can file an ANDA IV certifying that their proposed generic product does not infringe any of Bayer’s patents.
64
Lastly, as discussed below, by agreeing to amend its ANDA IV to an ANDA III, Barr relinquished its right to 180-day exclusivity. Thus, unlike in the
Cardizem
case, in this case there is no clear intent “to protect the 180-day period of exclusivity awarded ... under the Hatch-Waxman Amendments as the first-filed ANDA with a Paragraph IV certification.”
Cardizem,
Plaintiffs, however, argue that the challenged agreements- restrain competition beyond the exclusionary effects of the 444 Patent in many instances. First, plaintiffs assert that so-called reverse payments— payments flowing from the patent holder to the generic manufacturer — are nefarious and, therefore, the challenged agreements in this case, which provide for such payments, are
per se
illegal. In response, defendants assert that there is something unique about Hatch-Waxman settlements: they are a function of Hatch-Waxman’s impact on the parties’ relative risk.
See
Expert Decl. of George A. Hay, Bayer App., Ex. 20 (“Hay Decl.”) ¶ 21. Accordingly, defendants argue that reverse pay
In this case, Barr certified in its ANDA IV that its generic Cipro product contained the active ingredient ciprofloxacin hydrochloride and that it, therefore, would infringe the 444 Patent if the patent is found valid and enforceable. 65 However, Barr’s “act of infringement” occurred simply by filing its ANDA IV pursuant to the Hatch-Waxman Amendments, even though Barr made no commercial sales subjecting it to infringement damages. See id. This act of infringement provided the basis for Bayer’s patent infringement suit against Barr, and the opportunity for Barr to attack the validity of the 444 Patent in court. However, defendants maintain, this contrived act of infringement deprived Bayer of the traditional leverage that a patent owner has against a typical infringer — obtaining damages from the court — -and also subjected Bayer to enormous losses if Barr invalidated its pioneer patent.
It is uncontested that parties settle cases based on their perceived risk of prevailing in the litigation. In a traditional patent litigation, Barr normally would have had to enter the market with its product, incurring the costs of clinical trials, manufacturing and marketing. This market entry would have driven down Bayer’s profits, as it took sales away. As a result, Bayer would have sued Barr, seeking damages for lost profits and willful infringement. If this were a traditional scenario, and Bayer and Barr settled (assuming a valid patent), the money would flow from Barr to Bayer because Barr would have put its company at risk by making infringing sales.
By contrast, in creating an artificial act of infringement (the ANDA IV filing), the Hatch-Waxman Amendments grant generic manufacturers standing to mount a validity challenge without incurring the cost of entry or risking enormous damages flowing from infringing commercial sales. See id. This statutory scheme affects the parties’ relative risk assessments and explains the flow of settlement funds and their magnitude. Because of the Hatch-Waxman scheme, Barr’s exposure in the patent litigation was limited to litigation costs, but its upside — exclusive generic sales — was immense. The patent holder, however, has no corresponding upside, as there are no infringement damages to collect, but has an enormous downside — losing its patent.
Moreover, patent holders realize that it is a “gamble” to place “a technology case in the hands of a lay judge or jury.” Seymour E. Hollander,
Why ADR May be Superior in Patent Disputes,
2 No. 1 Intel! Prop. Strategist 1, 6 (1995). In settling the patent litigation, Bayer not only saved litigation expenses but achieved essentially all that it could hope to achieve by continuing to litigate, i.e., a determination that, as to Barr, the 444 Patent is valid and Barr promises not to infringe the patent in the future.
See
Hay Deck ¶ 21. In addition, Barr obtained less than it would have received if it had won (i.e., the court invalidated the patent) but more than it would have received if it had lost.
See
Downey Decl. ¶ 82; Hausman Deck ¶ 39
&
n. 21. To compromise, consideration
In fact, even in the traditional context, implicit consideration flows,from the patent holder to the alleged infringer. For instance, suppose a case is ready for trial and the patent holder can prove damages (infringing sales) of $100 million. The parties settle before trial with the alleged infringer paying the patent holder $40 million and agreeing to cease sales of its product. In addition to the $40 million payment to the patent holder, there is an implicit $60 million payment to the alleged infringer to cease its sales. In reality, what has occurred is the alleged infringer is permitted to keep a portion of the profits from its sales. Under plaintiffs’ analysis, a settlement such as this, where the patent holder forgoes collecting all damages due, would be a per se violation. Such a rule would discourage any rational party from settling a patent case because it would be an invitation to antitrust litigation. Thus, in sum, because of the generic manufacturer’s entitlement under the Hatch-Waxman Amendments to institute patent litigation merely by filing an ANDA TV, the statutory scheme has the unintended consequence of altering the litigation risks of patent lawsuits. Accordingly, so-called reverse payments are a natural byproduct of the Hatch-Waxman process, and — even if such payments were not contemplated or intended by the amendments — plaintiffs have not shown that they are so nefarious in this case as to subject the challenged agreements, which provide for such payments, to per se treatment. Second, plaintiffs assert that the challenged agreements in this case are per se illegal because they restrain other parties — HMR, Rugby, Sherman, and Apo-tex — that were not parties to the Bayer/Barr patent litigation. However, Bayer asserts that it was proper and legal to enter into agreements with these other parties because each party had a relationship to either Barr or the underlying litigation. See Bayer Summ. J. Mem. at 41. In fact, the HMR/Rugby Settlement Agreement acknowledges that “HMR and Rugby have maintained co-control with Barr of the defense against Bayer’s claims in the Case and have paid or reimbursed Barr for a portion of its cost of defending against Bayer’s claims in the Case.” Pis.’ J.A., Ex. C ¶ 1. In addition, the Sherman/Apotex Settlement Agreement notes that “Sherman owns, directly or indirectly, a majority of the outstanding voting stock of, and controls, Apotex, Inc.” and “owns, directly or indirectly, a majority of the outstanding common stock of, and controls, Barr Laboratories, Inc.” See id., Ex. D ¶¶ 1, 2.
The Supreme Court has recognized, outside the context of patent litigation, that a judgment in an action is binding on a person “who assists in the prosecution or defense of an action in aid of some interest of his own” as if he or she were a party to the record.
See Montana v. United States,
Plaintiffs next argue that the challenged agreements restrict Barr, HMR and Rugby not only in regard to the 444 Patent — the patent at issue in the Bayer/Barr patent litigation — but also in regard to other Cipro patents by allegedly prohibiting the filing of any ANDA IV on any formulations of generic Cipro. As support, plaintiffs cite Section 5(a) of the Barr Settlement Agreement, which provides, in relevant part, “Barr agrees hereafter not to, and to cause its subsidiaries not to, file any [ANDA] related to Cipro with, or amending the Pending AND As to have, a certification made pursuant to Paragraph IV of the Act.” Pis.’ J.A., Ex. B § 5(a); see also id., Ex. C § 4(a) (setting forth similar restriction on HMR and Rugby). However, plaintiffs interpretation of the Settlement Agreements appears to be flawed and to fly in the face of subsequent actions taken by the parties.
In the Barr and HMR/Rugby Settlement Agreements, “Cipro” is defined as “the novel compound commonly known as ciprofloxacin.” Pis.’ J.A., Ex. B at 1; accord id., Ex. C at 1. Defendants persuasively argue that, in effect, the Settlement Agreements preclude Barr, HMR and Rugby from filing ANDA IVs in which they certify that the 444 Patent itself is invalid. This, they maintain, is consistent with Barr’s stipulation that the 444 Patent is valid and that Barr’s ANDA IV infringed the patent. According to defendants, the agreements, do not, however, place any restrictions on Barr, HMR and Rugby filing ANDA IVs concerning other Cipro patents. Thus, viewing the evidence in the light most favorable to defendants, the challenged agreements restrict no more than the 444 Patent.
This conclusion is bolstered by provisions in the Supply Agreement and Barr’s subsequent actions. Indeed, in Section 11.01(b) of the Supply Agreement, Bayer grants Barr and HMR a limited license to “manufacture and distribute Product in the same sizes, shapes and colors as Product offered for sale by Bayer in the United States or Puerto Rico as of the date of termination ...,
subject to any patent rights of Bayer ...
that are in force at such time.” Pis.’ J.A., Ex. E § 11.01(b) (emphasis added).
66
According to defendants, this provision recognizes that to obtain FDA approval to market these licensed products, independent of Bayer, Barr and/or HMR/Rugby must file with the FDA an ANDA IV certifying that the sale of their product will not infringe any of Bayer’s patents. FDA regulations describe what an ANDA IV certification should include when the basis for non-
Moreover, plaintiffs interpretation of the phrase “relating to Cipro” is inconsistent with Bayer and Barr’s conduct since the settlement. Under the Barr Settlement Agreement, it appears that Barr is free to file ANDA TVs at any time on the ground that its generic product does not infringe any of Bayer’s patents (except the 444 Patent per the stipulation). Plaintiffs have not demonstrated otherwise. Under FDA regulations, a Paragraph IV Certification can certify either that the patent “is invalid or ... will not be infringed by the manufacture, use, or sale of the [generic] drug.” 21 U.S.C. § 355(j)(2)(A)(vii) (emphasis added); see also 21 C.F.R. § 314.94(a)(12)(A)(4). In fact, on April 11, 2002, Barr notified Bayer that it had filed an ANDA IV to supplement its pending ANDA III and to certify that its proposed generic Cipro tablets will not infringe Bayer’s tablet formulation patent. See Bayer App., Ex. 22. Under plaintiffs logic, this action would breach the Barr Settlement Agreement, yet there is no indication that Bayer has taken any action. Thus, assuming FDA approval of Barr’s ANDAs, it appears that Barr would be free to sell a noninfringing generic Cipro tablet after the 444 Patent expires, despite any provision of the Barr Settlement Agreement.
Lastly, plaintiffs challenge the Settlement Agreements because Barr, HMR, Rugby, Sherman, and Apotex agreed to acknowledge (and not to challenge) the validity of certain Bayer patents other than the 444 Patent. See Pis.’ J.A., Ex. B § 4; id., Ex. C § 3; id., Ex. D § 1. The patents are described as “related to the synthesis, manufacture, compound or precursors to ciprofloxacin and any pharmaceutical formulation containing ciprofloxa-cin existing throughout the world....” Pis.’ J.A., Ex. B ¶ 3; accord id., Ex. C ¶ 3; id., Ex. D ¶ 7; see also generally Petro-vicki Decl. 67 Specifically, Dr. Petrovicki— Bayer’s patent portfolio manager — explains the patents as follows:
All of the U.S. patents and U.S. patent applications identified in Schedule I are closely related to one or more of Bayer’s Cipro products. Several of these patents claim chemical intermediates or processes that can be used, although they are certainly not necessary, to make ciprofloxacin.... The remainder of the patents and the pending application relate to specific formulations ofBayer’s Cipro products: tablets ...; oral liquid ...; and intravenous....
Petrovieki Decl. ¶ 8 (emphasis added). Until the 444 Patent expires in December 2003, the alleged acknowledgment of validity restraints are of no moment because, as discussed above, the 444 Patent precludes any generic product that includes Cipro, regardless of formulation or delivery method. 68
With respect to the period after expiration of the 444 Patent, defendants maintain that plaintiffs fail to establish any per se violation and that the rule of reason should therefore apply for two reasons: (1) the alleged restraints are ancillary to a license and (2) the restraints further the parties’ desires to settle all actual and potential patent disputes in connection with Cipro. These arguments miss the mark. 69 Defendants have not persuasively argued that this agreement is a bona fide licensing agreement, and they offer no evidence that any of the additional patents were either the subject of the current litigation or the subject of a dispute between the parties. Nonetheless, as discussed above, nothing in the challenged agreements appears to prevent these parties from filing ANDA IVs that certify that a generic product does not infringe any of these additional patents or ANDA Ills that seek to manufacture generic products after the 444 Patent (or any other patent) expires. Accordingly, evaluating the evidence in the light most favorable to defendants, plaintiffs have not adequately demonstrated that the Settlement Agreements and Supply Agreement contain restrictions that extend beyond the lawful confines of Bayer’s 444 Patent and, thus, are subject to per se treatment.
(7)
Proper Analysis in this Case
The policies behind the patent laws and the Sherman Act are to some extent in conflict. All patent license agreements are market allocation agreements, and divorced from the patent monopoly rights, these restrictions would likely be illegal. However, the purposes of the patent law renders these restrictions lawful. The flexibility necessary to balance these competing policies, particularly in the context of a new statutory scheme, suggests that a rule of reason rather than a per se analysis should be employed in this case.
The Hatch-Waxman Amendments sought to balance respect for the property rights conferred by the patent laws with the public interest in preventing invalid patents from being used to deprive the public of low-cost generic drugs. One of the ways the amendments sought to accomplish this goal was by encouraging challenges to questionable patents, a prac
In addition, the American legal process encourages the settlement of lawsuits where possible, and unless the law explicitly states otherwise, neither party is obligated to litigate to a final conclusion. Nothing in the legislative history supports a conclusion that Hatch-Waxman lawsuits cannot be settled. Moreover, a rule that makes it per se illegal to settle a Hatch-Waxman lawsuit, like the Bayer/Barr patent litigation, limits the options available to both generic and brand-name manufacturers. If brand-name manufacturers are unable to control or limit their risk by settling Hatch-Waxman litigation, they, like gеneric manufacturers, may be less inclined to invest the research and development (“R & D”) costs associated with bringing new drugs to the market. The pharmaceutical industry depends greatly on R & D and the economic returns to intellectual property created when a successful new drug is brought to market. See Hausman Deck ¶ 61. A rule prohibiting settlements of Hatch-Waxman patent litigation can have grave consequences for R & D and, in turn, severe consequences for consumers:
The outcomes of ... R & D have extremely large effects on the economic welfare and medical well-being of U.S. customers. The pharmaceutical industry in the U.S. spent $26 billion on R & D in 2000 with the average cost of developing a new drug now estimated at $802 million. Yet only 30% (or less) of marketed drugs produce revenues that equal or exceed their average R & D costs. If incorrect judicial determinations are made that decrease the value of the intellectual property, expected returns on R & D will decrease and new drug innovation in the U.S. will decrease. The results will be fewer new drugs that have led in the past to healthier and more productive lives for U.S. customers and large gains to the U.S. economy.
Hausman Deck ¶ 61 (footnotes omitted).
Although a policy in favor of settlement of litigation cannot save a
per se
violation from the strictures of the Sherman Act, a rule that too quickly condemns actions as
per se
illegal, potentially chilling efforts to research and develop new drugs and challenge the patents on brand-name drugs, does competition — and thus, the Sherman Act — a disservice.
Cf.
Hausman Deck ¶ 51 (“[T]he ability to settle a patent challenge on flexible terms can have a pro-competitive effect because it increases the number of patent challenges by decreasing barriers
While an unfortunate aspect of the Hatch-Waxman Amendments is that pioneer and generic drug manufacturers have often been entering into mutually beneficial agreements that result in delayed entry of generic drugs into the market place, the cases that have found such agreements per se illegal involve findings that the agreements at issue restrained noninfring-ing products, delayed generic entry and perpetuated litigation. Such is not the ease here. At this early juncture, this case should not be relegated to the per se category reserved for the most blatant antitrust violations. Bayer’s compound patent precludes all generic entry of a product containing Cipro until the 444 Patent either expires or is invalidated. Plaintiffs have failed to show that the Settlement Agreements and Supply Agreement impose restraints with anticompetitive effects broader than the exclusionary effects of Bayer’s patent. Therefore, for all the reasons stated above, the Settlement Agreements and Supply Agreement do not warrant per se condemnation under Section 1 of the Sherman Act.
Motion to Dismiss — State Law Claims
At this time, the court is not in a position to rule on the defendants’ motions to dismiss the Indirect Purchaser Plaintiffs’ state law claims because they require interpretations of the laws of at least twelve states and their relationship to the rulings made in this case. I am considering appointing an acadеmic expert or experts to provide a report and recommendation to the court with respect to each relevant state law with an opportunity for the parties to comment. I would appreciate receiving by June 30, 2003 any views that the parties may have with respect to this proposal or any alternative proposal that they may wish to offer.
Conclusion
This court is mindful that its determination in this case — that is, to deny the motion to dismiss on the basis that but for the challenged agreements, Bayer would have issued a license for generic Cipro and to refuse to find the challenged agreements
per se
illegal- — may at first blush appear somewhat contradictory. Of course, in denying a motion to dismiss, all facts pleaded by plaintiffs are assumed to be true. Whether plaintiffs will even be able to establish that Bayer would have granted a license at a price substantially benefitting consumers rather than litigate its infringement claim remains an open question. Moreover, it should be noted that this decision is not meant to indicate that the
Therefore, in sum,
• All defendants’ motions to dismiss each of the four complaints in this case for alleged common deficiencies is granted in part and denied in part;
• Watson’s motion to dismiss the Aston Complaint and Indirect Purchaser Plaintiffs’ Complaint in granted, and Watson is dismissed from this case;
• Generic Defendants’ motion to dismiss the Organizational Plaintiffs’ claims in the Aston Complaint as time-barred is granted; and
• Plaintiffs’ motion for partial summary judgment is denied.
SO ORDERED.
Notes
. Barr and Rugby are in the business of, among other things, manufacturing and marketing generic drugs. Rugby was the U.S. generic drug subsidiary of HMR until February 1998, when Rugby was acquired by Watson, a company that produces and distributes generic and brand-name drugs. Watson is
. Four complaints were filed in this case, each of which raises virtually identical arguments:
Direct Purchaser Complaints:
(1)Second Amended and Consolidated Class Action Complaint filed by Louisiana Wholesale Drug Company, Inc. and Arthur’s Drug Store, Inc. on behalf of a class of direct purchasers ("D.P.Compl.”);
(2) Second Amended Complaint filed by CVS Meridan, Inc. and Rite Aid Corporation ("CVS Compl.”);
Indirect Purchaser Complaints:
(3) Indirect Purchaser Class Plaintiffs' Amended and Consolidated Class Action Complaint filed by Marie LoCurto and other plaintiffs ("I.P.Compl.”); and
(4) Second Amended Class Action Complaint filed by Mark Aston and other plaintiffs ("Aston Compl.”).
. The Hatch-Waxman Amendments require a NDA to list any patents "which claim! 1 the drug ... or which claim[ ] a method of using such drug and with respect to which a claim of patent infringement could reasonably be asserted if a person not licensed by the owner engaged in the manufacture, use, or sale of the drug." 21 U.S.C. § 355(b)(1). The FDA maintains and publishes this information in the Approved Drug Products with Therapeutic Equivalence Evaluations (commonly referred to as the "Orange Book”). See id. § 355(j)(7)(A).
. As this court previously noted,
It seems relatively clear ... that if there is no resolution of the patent litigation and a stay is not granted, and the patent holder has not obtained preliminary injunctive relief, the ANDA filer may begin to market its product. In such an instance, the ANDA filer assumes the risk it might be found liable for infringing the pioneer manufacturer’s patent.
In re Ciprofloxacin Hydrochloride Antitrust Litig.,
. The facts pertinent to the current motions are drawn from each of plaintiffs' complaints and the parties' respective statements pursuant to Local Civil Rule 56.1. Unless otherwise indicated, the facts are not in dispute.
. Specifically, Barr's ANDA sought permission to manufacture ciprofloxacin hydrochloride tablets, U.S.P. 250 mg, 500 mg and 750 mg.
. Bayer notes that Barr did not, in fact, allege that its proposed generic product would not infringe the 444 Patent, if such patent was held to be valid and enforceable. See Bayer's Resp. to Pis.’ Joint Statement of Material Facts Pursuant to Local Civ. R. 56.1 ("Bayer's 56.1 Stat.") ¶7 (citing Bayer App., Ex. 27). Instead, Barr maintained that the 444 Patent is invalid and unenforceable. See Pis.’ J.A., Exs. H ¶¶ 15-19, I ¶¶ 16-23. By way of explanation, Barr's Chairman and CEO stated that, in this case, "where the patent in question covers the active ingredient of the listed drug, the generic applicants’ [i.e., Barr’s] bioequivalent prоduct necessarily infringes the patent. Hence, the only route for challenging the patent would be to claim that the patent is invalid." Decl. of Bruce L. Downey, G.Defs.’ Summ. J. Mem., Ex. A ("Downey Decl.”) ¶ 9; see also id. ¶¶ 17, 18.
. Plaintiffs assert in their complaints that, absent the stipulation, the 30-month statutory period would expire on January 4, 1994, see D.P. Compl. ¶ 37; I.P. Compl. ¶ 64, or January 6, 1994, see Aston Compl. ¶ 66; CVS Compl. ¶ 28. Although the automatic stay is ordinarily 30 months, "in the case of new drug products, like Cipro, that contain active ingredients that have never before received FDA approval, 21 U.S.C. § 355(j)(5)(D)(ii) automatically extends the stay, in the event of an ANDA (IV) lawsuit, until 7.5 years after the date of the drug's initial approval by FDA, thus yielding an expiration date of April 22, 1995 in this case.” Mem. of Law in Supp. of Def. Bayer's Mot. to Dismiss all MDL 001383 Compls. ("Bayer’s Mot. Dismiss Mem.”) at 15 n. 19. Plaintiffs conceded this fact at oral argument. See Tr. at 32:6-32:19.
. HMR, Rugby, Sherman, and Apotex were not parties to the patent litigation. At the time of the Settlement Agreements, Barr, HMR and Rugby were parties to the Litigation Funding Agreement, see Pis.’ J.A., Ex. P, and Sherman was the majority shareholder of both Barr and Apotex. See id., Ex. D ¶¶ 1, 2. Therefore, Bayer contends that it was proper to enter into agreements with these parties because they participated either directly or indirectly in the patent challenge. See Bayer's 56.1 Stat. ¶ 17. This contention is discussed infra.
. These patents claim, among other things, starting materials and intermediaries for use in preparing Cipro, some of the processes for preparing Cipro, and the specific tablet, oral suspension, and intravenous formulations that Bayer uses in its proprietary Cipro products. See generally Decl. of Dr. Wolfgang Petro-vicki, Bayer App., Ex. 23 (“Petrovicki Decl.”).
. The "Barr Escrow Account” is a bank account established by Barr and HMR to receive payments made by Bayer. On January 9, 1997, Barr and HMR executed an escrow agreement that established this account and provided that Barr and HMR each would receive one-half of all funds paid by Bayer into the account. See Pis.’ J.A., Ex. F.
.Plaintiffs dispute this fact. See All Pis.’ Joint Reply of Material Facts Pursuant to Local Civ. R. 56.1 ("Pis.’ Reply 56.1”) Í37.
. The parties disagree as to whether the Supply Agreement and Settlement Agreements were intended to be confidential. Under these agreements, the parties were permitted to make, and did indeed make, press releases regarding the settlement and the major terms of the Supply Agreement. See Pis.' J.A., Ex. B § 8; id., Ex. C § 6; id., Ex. E § 13.02; see also G.Defs.’ App., Tabs 10, 11. In addition, Barr submitted a redacted copy of the Supply Agreement in a public Securities and Exchange Commission filing. See Pis.’ J.A., Ex. Z. Nonetheless, “with the intention to keep the terms of the Settlement Agreements and the Supply Agreement” confidential, each agreement obligates the parties to use "reasonable best efforts” not to disclose the terms of the agreements, except as provided by law, regulation or government authority. Id., Ex. B § 7; id., Ex. C § 6; id., Ex. D § 4.
. Defendants’ arguments in support of their motions to dismiss are contained in five mem-oranda:
(1) Memorandum of Law in Support of Defendants Bayer AG’s and Bayer Corporation's Motion to Dismiss All MDL-001383 Complaints (“Bayer Mot. Dismiss Mem.”);
(2) Memorandum of Law in Support of the Generic Defendants’ Motion to Dismiss the Direct Purchasers' Second Amended and Consolidated Class Action Complaint (“G.Defs.1 Mot. Dismiss Mem.”);
(3) Memorandum of Law in Support of the Generic Defendants' Motion to Dismiss the Indirect Purchaser Plaintiffs' Amended Consolidated Complaint ("G.Defs’ I.P. Pis. Mem.”);
(4) Memorandum of Law in Support of the Generic Defendants’ Motion to Dismissthe Organizational Plaintiffs’ Second Amended Complaint [i.e., Aston Complaint] (''G.Defs.' Org, Pis. Mem.”); and
. To date, Bayer AG has been served with complaints only in the consolidated indirect purchaser case and the CVS Meridian, Inc. case. Accordingly, Bayer AG moves to dismiss only those complaints with which it has been properly served.
. Neither Direct Purchaser Plaintiffs' Complaint nor the CVS Complaint name Watson as a defendant.
. This argument will be addressed infra after the discussion of plaintiffs' motion for summary judgment.
. All of the Direct Purchaser Plaintiffs seek treble damages for defendants’ alleged violations of the Sherman Act. Indirect Purchaser Plaintiffs seek treble damages only for defendants' alleged violations of the antitrust laws of Indirect Purchaser Plaintiffs' states.
. All plaintiffs seek injunctive relief to enjoin defendants from continuing their allegedly unlawful conduct.
. Unlike the CVS Complaint, the Direct Purchaser Plaintiffs' Complaint does not expressly espouse this theory. Rather, the complaint alleges that "but for the agreements, Barr would have received final FDA approval of its generic version of Cipro, and would have come to market with that version.” D.P. Compl. ¶ 61. Nonetheless, in their memorandum, Direct Purchaser Plaintiffs cite paragraph 61 of the their complaint in support of the theory that but for the challenged agreements, Barr would have prevailed in the patent litigation. See D.P. Mot. Dismiss Mem. at 7. Construing the allegations of the complaint in favor of plaintiffs, and drawing all reasonable inferences in their favor, Direct Purchaser Plaintiffs' Complaint alleges such a theory since the passage quoted above can be read to assert that Barr would have entered the market either pending the outcome of the patent litigation or upon a favorable outcome of such litigation.
.Plaintiffs cite the Supreme Court's decision in
United States v. Olano, 507
U.S. 725,
.
See Schein & Mylan,
. This court can take judicial notice of these cases since they are "capable of accurate and ready determination” through reliable sources. Fed.R.Evid. 201(b);
see also Kramer v. Time Warner, Inc.,
. For purposes of the stipulation, "final judgment” would not occur until the exhaustion of all appeals to the Court of Appeals for the Federal Circuit or the expiration of the time permitted for such appeals. See CVS Compl. ¶ 26.
. As an initial matter, this argument may be foreclosed by the stipulation among the parties to extend the statutory waiting period. Although the Aston Complaint alleges (and other complaints imply) that the stipulation between Bayer and Barr extending the waiting period was invalid, this argument is without merit. Plaintiffs assert that Bayer and Barr did not advise the district court of the statutory requirement that the period could be extended only if one of the parties fails to reasonably cooperate in expediting the lawsuit. See CVS Compl. ¶ 27; see also 21 U.S.C. § 355(j)(5)(B)(iii). Moreover, plaintiffs allege that in fact neither Barr nor Bayer failed to cooperate in the prosecution of the patent litigation. See CVS Compl. ¶ 27. However, a review of the stipulation reveals that Judge Knapp was apprised of the requirement set forth in 21 U.S.C. § 355(j) for extending the statutory stay, and in fact, the stipulation contains an example of the parties' failure to cooperate in commencing trial before the waiting period was scheduled to expire in April 1995.
. This court recognizes that in
Andrx,
the D.C. Circuit rejected the argument that "any rational actor ... would not market its generic drug until the patent infringement suit against it was resolved,” finding that a jury could infer from an agreement under which the patent holder paid the generic manufacturer to prevent market entry that but for the payments, the generic manufacturer would have entered the market.
. Subsequently, the parties in
Warfarin
settled their dispute pursuant to a Stipulation of Settlement and Compromise that was approved by the court.
See generally
No. 98 MDL 1232,
. Although the complaints allege that the Purchase Agreement was dated February 25, 1997, it was in fact dated August 25, 1997. See Watson Mot. Dismiss Mem., Ex. A. ¶ 1.
. This court can properly consider the entirety of the Purchase Agreement and the other two documents alleged by plaintiffs to establish Watson's anticompetitive conduct. The Second Circuit has stated that when deciding a motion to dismiss pursuant to Rule
.In fact, the Term Sheet only provides that HMR will share the payments with Rugby: “Rugby will receive one-half of any amounts received by Parent [HMR] under the [Supply Agreement] or the [Litigation Funding Agreement], other than payments made or related to events prior to the launch of the Product by Parent and Barr.” Watson's Mot. Dismiss Mem., Ex. A of Ex. A ¶ 7. Nonetheless, as noted above, the Side Letter provides for HMR and Watson to share one-half of any such amounts. See Watson’s Mot. Dismiss Mem., Ex. A § 1.
. The relevant provision reads as follows:
Transfer by Parent to Rugby will be at a price that achieves a target profit percentage to Rugby in relation to the then prevailing market price for the Product. No Product will be priced by Rugby as a loss leader, tie-in or in any other manner intended to increase the sale of other products then being sold by Rugby or any affiliate. Barr is also subject to such limitation on Product pricing.
Watson Mot. Dismiss Mem., Ex. A. of Ex. A ¶ 6.
. Where a generic drug is bioequivalent to a pioneer or brand-name drug, the FDA assigns the generic drug an "AB” rating. According to the FDA, a bioequivalent drug rated “AB” may be used and substituted interchangeably with the referenced brand-name drug. The complaints assert that Barr recognized these facts on its website. See, e.g., I.P. Compl. ¶ 43.
. This argument seems illogical. Plaintiffs are interpreting the phrase "any product AB-rated” to include generic Cipro. Thus, plaintiffs are asserting that the Term Sheet prohibits Rugby from selling generic Cipro with Cipro during the terms of the distribution agreement. However, the Term Sheet contemplates Rugby distributing Cipro when it is supplied to HMR pursuant to the Litigation Funding Agreement and the Supply Agreement. These agreements both appear to contemplate Bayer supplying Cipro to be marketed under a generic label.
. Watson completed a successful tender offer for Schein in July 2000. See Aston Compl. ¶ 90; I.P. Compl. ¶ 108.
. This court can adopt Watson's argument, because "if the allegations of a complaint are contradicted by documents made a part therefore, the document controls and the court need not accept as true the allegations in the complaint.''
Sazerac Co., Inc. v. Falk,
. Moreover, although not properly before this court on a motion to dismiss, Schein no longer even owns an ANDA for generic Cipro. In fact, in January 2001, Schein transferred all rights to its ANDA for Cipro to Dr. Reddy's Laboratories Ltd., who, according to Watson, is an independent third party. See Watson Mot. Dismiss Mem. at 7-8; see also Reply Mem. in Supp. of Def. Watson's Mot. to Dismiss. Ex. 1.
. The statute reads as follows: "Any action to enforce any cause of action under sections 15, 15a or 15c of this title shall be forever barred unless commenced within four years after the cause of action accrued." 15 U.S.C. § 15b.
. Defendants summarily claim that Organizational Plaintiffs would not be proper members of any indirect purchaser class action suit in any event because they would not satisfy the constitutional requirements for standing with regard to representative organizations. This argument is more fully briefed in Generic Defendants’ motion to dismiss Indirect Purchaser Plaintiffs’ state law claims. However, for the reasons set forth in this
. Federal Rule of Civil Procedure 9(b) provides in relevant part: “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ.P. 9(b).
. These plaintiffs also assert that defendants falsely represented to the public that Barr was vigorously challenging Bayer’s patent rights. As an example, Organizational Plaintiffs quote Barr's website, on which it stated that “Barr Laboratories actively challenges the patents protecting certain branded pharmaceutical products where it believes such patents are either invalid, unenforceable or not infringed by the Company’s products.” Aston Compl. ¶ 101. In their memoranda, however, plaintiffs appear to abandon this allegation.
.At first blush, it appears that Organizational Plaintiffs' allegations are based solely on the stipulation to extend the 30-month waiting period for FDA approval. However, construing the allegations in the light most favorable to plaintiffs, one can infer from the second sentence of Paragraph 101 of the Aston Complaint that Organizational Plaintiffs claim that defendants fraudulently concealed the Settlement Agreements and the Supply Agreement, which they allege operate to "stifle competition by Cipro generic equivalents.” Aston Compl. ¶ 101.
. In addition, although not acknowledged in the Aston Complaint, Barr made a similar press release on the same day, which sets forth virtually identical information as the Bayer press release. See I.P. Compl. ¶ 87.
. In addition, the
Hendnclcson
court found affirmative acts of concealment, such as burning and shredding incriminating documents, agreeing not to talk to any third parties regarding the conspiracy and agreeing that one member of the conspiracy would testify falsely if called before a grand juty.
See
. Specifically, Organizational Plaintiffs allege that ''[o]n information and belief, plaintiff and members of the Class were unaware of, and could not through due diligence have discovered, the existence of these meetings and the unlawful agreements which resulted in the Stipulation.” Aston Compl. ¶ 101.
. In fact, in their memorandum, plaintiffs acknowledge that the terms of the allegedly illicit agreements would put them on notice of an antitrust violation. Indeed, plaintiffs argue that the fact of the settlement (and the Consent Judgment) in and of itself does not lead to the conclusion that the parties violated the antitrust laws and that "[i]t is only the terms of the secret Cipro Agreements that gave Plaintiffs' notice of their claims arising out of the Cipro Agreements.” Indirect Purchaser Class Pis.' Mem. in Opp'n to all Defs.' Mot. to Dismiss the I.P. Compl. at 85. Plaintiffs neglect to mention the fact that the terms of the agreements were disclosed in press releases that were issued the very next day after the agreements were executed.
. As Hovenkamp explains, "the continuing violation issue only arises when the initial act violating the antitrust laws ... has not been improperly concealed.” II Hovenkamp, Antitrust Law ¶ 320c. In other words, if Organizational Plaintiffs had adequately alleged that defendant’s conduct was not known to them, the fraudulent concealment rule would have tolled the statute in any event. See id.
. Indeed, the cases cited by Bayer acknowledge such a practice. In those cases, the
. The Second Circuit in
Capital Imaging
articulated a burden-shifting approach to the rule of reason. “[P]laintiff bears the initial burden of showing that the challenged conduct has had an
actual
adverse effect on competition as a whole in the relevant market...."
. The Supply Agreement contains some exceptions to this limitation: Barr and HMR may manufacture Cipro to maintain qualifications of suppliers, qualify new suppliers, make qualifying batches, make validation batches, conduct product development work, or file a new ANDA for Cipro. See Pis.’ J.A., Ex. E § 3.01.
. In addition, if a court were to find the 444 Patent invalid or unenforceable as to a particular person (triggering a "Generic Date") or as to all persons (triggering an “Invalidity Date”), see Pis.’ J.A., Ex. E § 1.01, Bayer agreed to supply Cipro to Barr and HMR. See id. (defining "Supply Period”); id. § 3.06 (setting forth royalty payment).
. However, the Barr Settlement Agreement permits Barr to "amend the certification relating to its Pending ANDAs to be a certification pursuant to Paragraph IV of the Act” if the 444 Patent is "declared invalid or unenforceable by a court of competent jurisdiction or by administrative determination or becomes invalid or unenforceable by operation of law.” Pis.'J.A., Ex. B § 5(a).
. The court did acknowledge, however, that the agreement resolved Andrx’s antitrust and unfair practice counterclaims against HMR.
See Cardizem,
. Notably, at the time of the challenged agreements in
Terazosin,
the FDA’s “successful defense” requirement for 180-day exclusivity was still in effect. Thus, even if Geneva had final FDA approval of its tablet formulation, it could not market exclusively a generic terazosin hydrochloride tablet until it successfully defended its ANDA IV against Abbott in the patent infringement case.
See
. Abbott paid Zenith the initial $3 million payment in exchange for Zenith dropping its suit against Abbott, in which it claimed that Abbott improperly listed patents in the Orange Book. The $6 million quarterly payments were in exchange for Zenith refraining from distributing generic terazosin hydrochloride.
See Terazosin,
. Plaintiffs emphasize that a court decision from 1989 placed the successful defense requirement in substantial doubt before the challenged agreements in this case were executed.
See Inwood Labs., Inc. v. Young,
. This court recognizes that the court in Andrx rejected an argument by the generic manufacturer in the Cardizcm case that it had no ability to put a “cork in the bottle” because, under prevailing law, it was entitled to exclusivity only if it successfully defended the patent litigation. See Andrx, 256 F.3d at 803. In doing so, the court stated that the agreement, although dated September 24, 1997, did not go into effect until three months after the circuit court ruling in Mova in July 1998. See id. Thus, the court stated that "the timing of the Agreement and the demise of the successful defense requirement" defeats the generic manufacturer’s claim. Id. The Andrx case is distinguishable from this case. In this case, the challenged agreements were entered into in January 1997, two months before the initial district court ruling in Mova, which invalidated the successful defense requirement. When the agreements in Andrx were signed, there was uncertainty as to the successful defense regulation, as two conflicting district court decisions had been rendered. When the agreements in this case were executed, there was no such uncertainty.
. To corroborate their claims, plaintiffs submit various letters from Barr to regulatory agencies stating Barr’s belief that amending its patent certification does not render it ineligible for 180-day exclusivity. See App. to Aff. of Joseph Lipofksy in Supp. of Indirect Purchaser Class Pis.’ Reply Mem. of Law (“I.P.App.”), Ex. 22 at 5; see also Supp. Mem. in Supp. of Indirect Purchaser Class Pis.' Mot. for Partial Summ. J. ('T.P.Supp.Mem.”), Exs. 2, 5, 6. In one such letter dated August 13, 1999, Barr claimed that it still retained the 180-day exclusivity рeriod for Cipro despite its amendment. See I.P. Supp. Mem., Ex. 5 at 5.
. As in this case, in the tamoxifen citrate case, Barr was the first generic manufacturer to submit an ANDA IV, prompting a lawsuit by the brand-name manufacturer, which was ultimately settled. The corresponding agreement required Barr to (and Barr did in fact) amend its ANDA IV to an ANDA III.
. The
Henney
decision was subsequently vacated as moot because Pharmachemie, the applicant denied final approval because of Barr’s claimed exclusivity, lost its challenge to the tamoxifen citrate patent. Pharmache-mie thus could not obtain final approval at all (during the life of the patent), and the appeal was moot.
See Pharmachemie,
. Among other submissions, the proposed rules provided as follows: "If the first applicant subsequently withdraws its application or changes or withdraws its paragraph IV certification, either voluntarily or as a result of a settlement or defeat in patent litigation, no ANDA applicant will be eligible for 180-day exclusivity.” 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed.Reg. at 42875.
. Current FDA regulations provide that the FDA will approve subsequent ANDAs if "the applicant submitting the first application is not actively pursuing approval of its abbreviated application....” 21 C.F.R. § 314.107(c)(3).
. It is fairly evident that the district courts in
Cardizem
and
Terazosin
did not employ this analysis and, instead, immediately labeled the challenged restraints
per se
illegal horizontal market allocation agreements. Indeed, the
Cardizem
court expressly stated that "[t]he anticompetitive effects of [HMR]'s patents are ... not at issue.”
. For this reason, Barr’s Chairman and CEO explained that Barr's only option for challenging the 444 Patent was to file an ANDA IV certifying that the 444 Patent was invalid. See Downey Decl. ¶ 9.
. Of course, as previously mentioned, since the 444 Patent is a compound patent that covers the active ingredient in all Cipro products, any ANDA IV for a generic Cipro product will infringe the 444 Patent. Thus, Bayer, HMR and Rugby cannot file such ANDA IVs until the 444 Patent either is invalidated or expires.
. At this point, it is worth reiterating that a Paragraph IV Certification can include one of two certifications with regard to the brand-name manufacturer’s patents: (1) that the patent is invalid or (2) that the proposed product does not infringe the patent. See 21 U.S.C. § 3550)(2)(A)(vii); see abo 21 C.F.R. § 314.94(a)(12)(A)(4). Defendants in this case emphasize that Barr’s ANDA IV contained only the former certification.
. "Product” is defined in the agreement as "all oral dosages forms of ciprofloxacin presently or subsequently marketed by Bayer or any of its subsidiaries in the United States under a New Drug Application or a Supplemental New Drug Application of Bayer or any of its subsidiaries and pursuant to or under the authority of (i) the Patents or (ii) the Patents and other patents owned by Bayer or any of its subsidiaries....” Pis.’ J.A., Ex. E § 2.
. The patents in existence at the time of the Settlement Agreement — 12 U.S. patents and two U.S. patent applications — are listed on Schedule 1 to that agreement. See id., Ex. B, Sch. 1. Since the challenged agreements were executed, two of the patents expired, and one of the referenced applications has matured into two additional U.S. patents. See Petro-vicki Decl. ¶ 3. In addition, Bayer has abandoned the other patent application that was referenced in Schedule 1. See id. ¶ 3 & n. 2.
. For this reason, defendants argue that plaintiffs have no present injury and, thus, lack standing to seek a declaration that the challenged agreements are per se illegal based on alleged restraints that will not become relevant until the 444 Patent expires later this year. It is not necessary to determine this issue because, for the reasons discussed, plaintiffs' argument does not support per se treatment.
. Bayer asserts that it was entitled to include the additional patents in the agreements to avoid undefined future disputes.
See
Bayer Summ. J. Mem. at 47. The cases cited by Bayer, however, do not support this proposition. For instance, in
Foster v. Halloo Manufacturing Co.,
the parties' settlement included only those patents at issue in the litigation (and their foreign counterparts).
See