Lead Opinion
This appeal, arising out of circumstances surrounding a lawsuit in which a drug manufacturer alleged that its patent for the drug tamoxifen citrate (“tamoxifen”) was about to be infringed, and the suit’s subsequent settlement, requires us to address issues at the intersection of intellectual property law and antitrust law. Although the particular factual circumstances of this case are unlikely to recur, the issues presented have been much litigated and appear to retain their vitality.
The plaintiffs appeal from a judgment of the United States District Court for the Eastern District of New York (I. Leo Glasser, Judge) dismissing their complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The plaintiffs claim that the defendants conspired, under an agreement settling a patent infringement lawsuit among the defendants in 1993 while an appeal in that lawsuit was pending, to monopolize the market for tamoxifen — the most widely prescribed drug for the treatment of breast cancer — by suppressing competition from generic versions of the drug. The settlement agreement included, among other things, a so-called “reverse payment” of $21 million from the defendant patent-holders Zeneca, Inc., AstraZeneca Pharmaceuticals LP, and AstraZeneca PLC (collectively “Zeneca”) to the defendant generic manufacturer Barr Laboratories, Inc. (“Barr”), and a license from Zeneca to Barr allowing Barr to sell an unbranded version of Zeneca-manufactured tamoxifen. The settlement agreement was contingent on obtaining a vacatur of the judgment of the district court that had heard the infringement action holding the patent to be invalid.
The district court in the instant case concluded that the settlement did not restrain trade in violation of the antitrust laws, and that the plaintiffs suffered no antitrust injury from that settlement. Because we conclude that we have jurisdiction to hear the appeal and that the behavior of the defendants alleged in the complaint would not violate antitrust law, we affirm the judgment of the district court.
REGULATORY BACKGROUND
Before setting forth the salient facts of this case and addressing the merits of the plaintiffs’ appeal, it may be helpful to outline the relevant regulatory background.
The Federal Food, Drug, and Cosmetic Act, ch. 675, 52 Stat. 1040 (1938) (codified at scattered sections of title 21 of the United States Code), prohibits the introduction or delivery for introduction into interstate commerce of “any new drug, unless an approval of an application filed pursuant to subsection (b) or (j) of [21 U.S.C. § 355] is effective with respect to such drug.” 21 U.S.C. § 355(a). Subsection (b) describes the process of filing a New Drug Application (“NDA”) with the United States Food and Drug Administra
An ANDA filer must certify, with respect to each patent that claims the listed drug for the bioequivalent of which the ANDA filer is seeking approval,
An ANDA filer that elects a paragraph IV certification must notify each affected patent owner of the certification. Id. § 355(j)(2)(B)(i). The patent owner then has forty-five days after the date it receives such notice to bring suit against the ANDA filer for patent infringement. Id. § 355(j)(5)(B)(iii). If no patent owner brings such a lawsuit during this period, the FDA may immediately approve the ANDA. Id. If, however, the patent owner brings suit during this period, the FDA’s final approval of the ANDA is stayed for thirty months after the date the patent owner received the requisite notice or until a district court
Any approval letter sent by the FDA before the expiration of the prescribed stay and before a court ruling of patent invalidity or non-infringement is tentative. See 21 C.F.R. § 314.105(d). If before the thirty months expire a court rules that the patent is either invalid or not infringed, the tentative approval of the ANDA is made effective as of the date of judgment. 21 U.S.C. § 355G)(5)(B)(iii)(I). If after thirty months there has been no ruling on patent validity or infringement and the stay expires, the ANDA filer can distribute and market the drug but, depending on the court’s later patent ruling, an ANDA filer that chooses to follow this course may thereafter become liable for infringement damages if infringement is found. See In re Ciprofloxacin Hydrochloride Antitrust Litig.,
As an incentive for generic manufacturers to choose the paragraph IV certification route and, in the course of pursuing such applications, to challenge weak patents, the Hatch-Waxman Act offers the first ANDA filer with a paragraph IV certification, under certain conditions, the opportunity to market its generic drug exclusively for 180 days. To this end, the FDA may not approve the ANDA of a subsequent filer until 180 days after the earlier of the date (1) the first ANDA filer commercially markets the generic drug or (2) a court of cоmpetent jurisdiction concludes that the patent in question is invalid or not infringed.
Until 1998 (and, therefore, at the time of the settlement that is the subject of this appeal), the 180-day exclusivity period was available to the first ANDA filer to elect a paragraph TV certification, but only if the ANDA filer successfully defended against a lawsuit for infringement of the relevant patent. See 21 C.F.R. § 314.107(c)(1) (1995). This so-called “successful defense” requirement was challenged in 1997 in two separate lawsuits. In each, the circuit court rejected the requirement as inconsistent with the Hatch-Waxman Act. See Mova Pharm. Corp. v. Shalala,
In June 1998, in response to these decisions, the FDA published a “Guidance for Industry.” See Ctr. for Drug Evaluation & Research, Food & Drug Admin., U.S. Dep’t of Health and Human Servs., Guidance for Industry: 180-Day Generic Drug Exclusivity Under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act (June 1998), available at http://www.fda.gov/cder/guidance/2576fnl.
FACTUAL AND PROCEDURAL BACKGROUND
Tamoxifen, the patent for which was obtained by Imperial Chemical Industries, PLC, (“ICI”) on August 20, 1985, is sold by Zeneca (a former subsidiary of ICI which succeeded to the ownership rights of the tamoxifen patent) under the trade name Nolvadex®.
In response, on November 2, 1987— within the required forty-five days of Barr’s amendment of its ANDA to include a paragraph IV certification — ICI filed a patent infringement lawsuit against Barr and Barr’s raw material supplier, Heumann Pharma GmbH & Co. (“Heumann”), in the United States District Court for the Southern District of New York.
ICI appealed the district court’s judgment to the United States Court of Appeals for the Federal Circuit. In 1993, while the аppeal was pending, the parties entered into a confidential settlement agreement (the “Settlement Agreement”) which is the principal subject of this appeal. In the Settlement Agreement, Zeneca (which had succeeded to the ownership rights of the patent) and Barr agreed that in return for $21 million and a non-exclusive license to sell Zeneca-manufactured tamoxifen in the United States under Barr’s label, rather than Zeneca’s trademark Nolvadex®, Barr would change its ANDA paragraph IV certification to a paragraph III certification, thereby agree
The plaintiffs allege that as a part of the Settlement Agreement, Barr “understood” that if another generic manufacturer attempted to market a version of tamoxifen, Barr would seek to prevent the manufacturer from doing so by attempting to invoke the 180-day exclusivity right possessed by the first “paragraph IV” filer. Compl. ¶ 58. According to the plaintiffs, this understanding among the defendants effectively forestalled the introduction of any generic version of tamoxifen, because, five years later — only a few weeks before other generic manufacturers were to be able to begin marketing their own versions of tamoxifen — Barr did in fact successfully claim entitlement to the exclusivity period. It thereby prevented those manufacturers from entering the tamoxifen market until 180 days after Barr triggered the period by commercially marketing its own generic version of the drug. In fact, Barr had not yet begun marketing its own generic version and had little incentive to do so because, pursuant to the Settlement Agreement, it was already able to market Zeneca’s version of tamoxifen.
Meanwhile, pursuant to the Settlement Agreement which was contingent on the vacatur of the district court judgment in Tamoxifen I, Barr and Zeneca filed a “Joint Motion to Dismiss the Appeal as Moot and to Vacate the Judgment Below.” See Tamoxifen II,
In the years after the parties entered into the Settlement Agreement and the Federal Circuit vacated the district court’s judgment,
While Mylan and Pharmachemie’s lawsuits were pending in district court, the FDA’s “successful defense” rule, requiring that a generic manufacturer seeking to market an allegedly patented drug “successfully defend” its patent infringement lawsuit in order to receive the 180-day exclusivity period — which at the time the Settlement Agreement was entered into would have excluded Barr from benefitting from the exclusivity period — was, as noted, held invalid. See Mova Pharm. Corp. v. Shalala,
At the time, Pharmachemie had received tentative approval from the FDA to distribute its version of the drug, Mylan was awaiting approval to do the same, and both Pharmachemie and Mylan’s thirty-month stays under section 355(j)(5)(B)(iii), triggered by Zeneca’s infringement lawsuits, were soon to expire. See Compl. ¶¶ 61-63 (stating that the 30-month stay for Mylan was scheduled to expire on July 10, 1998, and for Pharmachemie in August 1998);
Pharmachemie and Mylan challenged the FDA’s decision. On March 31, 2000, in Mylan Pharmaceuticals, the United States District Court for the District of Columbia ruled in Pharmachemie’s and Mylan’s favor.
On appeal, however, the District of Columbia Circuit vacated the district court’s decision as moot. Pharmachemie,
Proceedings in the District Court
While these generic manufacturers were litigating the validity of Zeneca’s patent on tamoxifen, consumers and consumer groups in various parts of the United States filed some thirty lawsuits challenging the legality of the 1993 Settlement Agreement between Zeneca and Barr. See Tamoxifen II,
On May 15, 2003, in a thorough and thoughtful opinion, the district court granted the defendants’ motion to dismiss. See id. at 140. The court noted that although market-division agreements between a monopolist and a potential competitor ordinarily violate the Sherman Act, they are not necessarily unlawful when the monopolist is a patent holder. Id. at 128-29. Pursuant to a patent grant, the court reasoned, a patent holder may settle patent litigation by entering into a licensing agreement with the alleged infringer without running afoul of the Sherman Act. Id. at 129. Yet, the court continued, a patent holder is prohibited from acting in bad faith “beyond the limits of the patent monopoly” to restrain or monopolize trade. Id. (quoting United States v. Line Material Co.,
Analyzing the terms and impact of the Settlement Agreement, the district court concluded that the agreement permissibly terminated the litigation between the defendants, which “cleared the field for other generic manufacturers to challenge the patent.” Id. at 133. “Instead of leaving in place an additional barrier to subsequent ANDA filers, the Settlement Agreement in fact removed one possible barrier to final FDA approval — namely, the existence of ongoing litigation between an existing ANDA filer and a subsequent filer.” Id. To the court, this factor distinguished the case from similar cases in which other circuits had held settlement agreements to be unlawful, where the agreement in question did not conclude the underlying litigation and instead prolonged the period during which other generic manufacturers could not enter the market. Id. (distinguishing the Settlement Agreement from the agreements addressed in In re Terazosin Hydrochloride Antitrust Litig.,
The district court was also of the view that the defendants could not be held lia
an attempt to petition a governmеntal body in order to protect an arguable interest in a statutory right based on recent developments in the court and at the FDA. As such, the FDA Petition was protected activity under the First Amendment, and long-settled law established that the Sherman Act, with limited exceptions, does not apply to petitioning administrative agencies.
Id. at 135. The court concluded that the plaintiffs’ complaint therefore did not sufficiently allege a bad-faith settlement in violation of the Sherman Act. Id. at 136.
The district court also concluded that even if the plaintiffs had stated an antitrust violation, they did not suffer antitrust injury from either Barr’s exclusivity period or the Settlement Agreement and the resulting vacatur of the district court’s judgment in Tamoxifen I invalidating the tamoxifen patent. Id. at 136-38. The court noted that “[ajntitrust injury ... must be caused by something other than the regulatory action limiting entry to the market.” Id. at 137. The court attributed “the lack of competition in the market” not to “the deployment of Barr’s exclusivity period, but rather [to] the inability of the generic companies to invalidate or design around” the tamoxifen patent, and their consequent loss of the patent litigation against Zeneca. Id. This was so, the district court concluded, even if Barr’s petition to the FDA had delayed the approval of Mylan’s ANDA. Id. at 137. Any “injury” suffered by the plaintiffs, said the court, “is thus not antitrust injury, but rather the result of the legal monopoly that a patent holder possesses.” Id. at 138.
The district court also rejected the plaintiffs’ contention that “the settlement and vacatur deprived other generic manufacturers of the ability to make the legal argument that the [Tamoxifen /] judgment (if affirmed) would collaterally estop Zeneca from claiming the [tamoxifen] patent was valid in future patent litigation with other ANDA filers.” Id. It reasoned that there is no basis for the assertion that “forcing other generic manufacturers to litigate the validity of the [tamoxifen] patent[ ] is an injury to competition.” Id. The court also referred to the other generic manufacturers’ subsequent litigation against Zeneca over the validity of the tamoxifen patent, in which Zeneca prevailed, as additional reason to reject the plaintiffs’ assertion that the Federal Circuit would have affirmed Judge Broderick’s judgment invalidating the tamoxifen patent. Id.
The district court therefore dismissed the plaintiffs’ Sherman Act claims. Id. It also dismissed the plaintiffs’ state-law claims, which had alleged violations of the antitrust laws of seventeen states and violations of consumer protection and unfair competition laws of twenty-one states, because those claims were based on the same allegations as the plaintiffs’ federal antitrust claims. Id. at 138-40. The plaintiffs appeal the dismissal of their claims.
On July 28, 2003, the defendants moved in this Court to transfer the appeal to the Federal Circuit on the ground that that court alone has jurisdiction to entertain this appeal. For the reasons stated below, we deny the defendants’ motion and affirm
DISCUSSION
I. Jurisdiction
The defendants argue that this Court does not have jurisdiction to hear this appeal because the case arises under federal patent law and the Federal Circuit has exclusive appellate jurisdiction over such appeals. The plaintiffs respond that we, rather than the Federal Circuit, have appellate jurisdiction because this case does not, on the basis of their well-pleaded complaint, substantially turn on issues of federal patent law. We agree with the plaintiffs.
The United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over an appeal from a federal district court “if the jurisdiction of that court was based, in whole or in part, on section 1338 of [title 28],” with exceptions not pertinent here. 28 U.S.C. § 1295(a)(1). Section 1338, in turn, provides that federal district courts shall have original and exclusive jurisdiction “of any civil action arising under any Act of Congress relating to patents.” Id. § 1338(a). Therefore, whether the Federal Circuit has jurisdiction over the instant case “turns on whether this is a case ‘arising under’ a federal patent statute.” Christianson v. Colt Indus. Operating Corp.,
A case “arises under” federal patent law if “a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiffs right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” Id. at 809,
Moreover, even if one theory supporting a claim essentially turns on an issue arising under patent law, as long as there is at least one alternative theory supporting the claim that does not rely on patent law, there is no “arising under” jurisdiction under 28 U.S.C. § 1338. In that case, as the Supreme Court concluded in Christianson: “Since there are reasons completely unrelated to the provisions and purposes of federal patent law why petitioners may or may not be entitled to the relief they seek under their monopolization claim, the claim does not arise under federal patent law.” Id. at 812,
Applying these principles to the case at hand, we conclude that we have jurisdiction to entertain this appeal. As we explain below, the defendаnts’ contention that “all of [plaintiffs’ claims arise under the patent law because each requires [pjlaintiffs to establish that the [tamoxifen] patent was invalid or unenforceable,” Appellees’ Reply Mem. Supp. Mot. to Transfer Appeal at 2, is mistaken. The theories that would enable the plaintiffs to prevail do not require us to examine whether Judge Broderick’s invalidation of the tamoxifen patent would have been upheld on appeal or whether the tamoxifen patent was otherwise enforceable and infringed.
If the plaintiffs alleged facts that, if proved, would establish that the Settlement Agreement provided the defendants with benefits exceeding the scope of the tamoxifen patent, they would succeed in alleging an antitrust violation. And if the plaintiffs plausibly alleged that the defendants entered into an agreement to manipulate the 180-day exclusivity period to the defendants’ joint benefit, and if they were able to prove based on the facts alleged that they suffered antitrust' injury as a result of that agreement, then that, too, would likely be sufficient to state an antitrust violation. Were they to allege and then prove facts sufficient to support either of these theories, the argument that the Settlement Agreement was unlawful “[e]ven if the [tamoxifen p]atent is presumed valid and enforceable,” Compl. ¶ 55, would, in our view, be persuasive.
Because we conclude that there are “reasons completely unrelated to the provisions and purposes of the patent laws why the plaintiff[s] may or may not be entitled to the relief [they] seek[ ],” Christianson,
II. Standard of Review
We review a decision on a motion to dismiss de novo. Gregory v. Daly,
“A pleading which sets forth a claim for relief ... shall contain ... a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R.Civ.P. 8(a)(2). “Given the Federal Rules’ simplified standard for pleading, a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Swierkiewicz v. Sorema N.A.,
In reviewing a decision on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), we “must accept as true all the factual allegations in the complaint,” Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit,
III. The Plaintiffs’ Antitrust Claims
A. The Tension between Antitrust Law and Patent Law
With the ultimate goal of stimulating competition and innovation, the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States,”
B. The Plaintiffs’Allegations
1. Settlement of a Patent Validity Lawsuit. The plaintiffs contend that several factors — including that Tamoxifen I was settled after the tamoxifen patent had been held invalid by the district court, making the patent unenforceable at the time of settlement — indicate that if their allegations are proved, the defendants violated the antitrust laws. They argue that the district court in the case before us erred by treating the tamoxifen patent as valid and enforceable. Instead, they say, in accordance with the never-reviewed judgment in Tamoxifen I, the district court in this case should have treated the patent as presumptively invalid for purposes of assaying the sufficiency of the plaintiffs’ complaint.
We begin our analysis against the backdrop of our longstanding adherence to the principle that “courts are bound to encourage” the settlement of litigation. Gambale v. Deutsche Bank AG,
It is well settled that “[wjhere there are legitimately conflicting [patent] claims ..., a settlement by agreement, rather than litigation, is not precluded by the [Sherman] Act,” although such a settlement may ultimately have an adverse effect on competition. Standard Oil Co. v. United States,
Rules severely restricting patent settlements might also be contrary to the goals of the patent laws because the increased number of continuing lawsuits that would result would heighten the uncertainty surrounding patents and might delay innovation. See Valley Drug,
We cannot judge this post-trial, pre-appeal settlement on the basis of the likelihood vel non of Zeneca’s success had it not settled but rather pursued its appeal. As the Supreme Court noted in another context, “[i]t is just not possible for a litigant to prove in advance that the judicial system will lead to any particular result in his case.” Whitmore v. Arkansas,
As the plaintiffs correctly point out, the Federal Circuit would have reviewed Judge Broderick’s factual findings underlying his conclusion of invalidity with considerable deference, rather than engaging in a presumption of validity. See Shelcore, Inc. v. Durham Indus., Inc.,
The facts of this case provide an additional reason for us to embrace the general rule that we will ordinarily refrain from guessing what a court will hold or would have held. As noted earlier, federal district courts in later lawsuits seeking to enforce the tamoxifen patent concluded, contrary to the court in Tamoxifen I, that the patent was, in fact, valid. While we do not think that these results enable us to estimate the chances that the Federal Circuit would have reversed the judgment of the district court in Tamoxifen I, they at least suggest the extent to which the outcome of such proceedings may be unpredictable.
We conclude, then, that without alleging something more than the fact that Zeneca settled after it lost to Barr in the district court that would tend to establish that the Settlement Agreement was unlawful, the assertion that there was a bar — antitrust or otherwise — to the defendants’ settling the litigation at the time that they did is unpersuasive.
2. Reverse Payments. Payments pursuant to the settlement of a patent suit such as those required under the Settlement Agreement are referred to as “reverse” payments because, by contrast, “fflypically, in patent infringement cases the payment flows from the alleged infringer to the patent holder.” David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 Food & Drug L. J. 321, 335 (2000). Here, the patent holder, which, if its patent is valid, has the right to prevent the alleged infringer from making commercial use of it, nonetheless pays that party not to do so. Seeking to supply the “something more” than the fact of settlement that would render the Settlement Agreement unlawful, the plaintiffs allege that the value of the reverse payments from Zeneca to Barr thereunder “greatly exceeded the value of Barr’s ‘best case scenario’ in winning the appeal ... and entering the market with its own generic product.” Appellants’ Br. at 27.
It is the size, not the mere existence, of Zeneca’s reverse payment that the plaintiffs point to in asserting that they have successfully pleaded a Sherman Act cause of action. In explaining our analysis, though, it is worth exploring the notion advanced by others that the very existence of reverse payments establishes unlawfulness. See Balto, supra, at 335 (“A payment flowing from the innovator to the challenging generic firm may suggest strongly the anticompetitive intent of the parties in entering the agreement and the rent-preserving effect of that agreement.”); Herbert Hovenkamp et al, Anti-competitive Settlement of Intellectual Property Disputes, 87 Minn. L.Rev. 1719, 1751 (2003) (“[T]he problem of exclusion payments can arise whenever the patentee has an incentive to postpone determination of the validity of its patent.”).
As other courts have noted, moreover, reverse payments are particularly to be expected in the drug-patent context because the Hatch-Waxman Act created an environment that encourages them. See Cipro II,
In the typical patent infringement case, the alleged infringer enters the market with its drug after the investment of substantial sums of money for manufacturing, marketing, legal fees, and the like. The patent holder then brings suit against the alleged infringer seeking damages for, inter alia, its lost profits. If the patent holder wins, it receives protection for the patent and money damages for the infringement. And in that event, the infringer loses not only the opportunity to continue in the business of making and selling the infringing product, but also the investment it made to enter the market for that product in the first place. And it must pay damages to boot. It makes sense in such a circumstance for the alleged infringer to enter into a settlement in which it pays a significant amount to the patent holder to rid itself of the risk of losing the litigation.
By contrast, under the Hatch-Waxman Act, the patent holder ordinarily brings suit shortly after the paragraph IV ANDA has been filed — before the filer has spent substantial sums on the manufacturing, marketing, or distribution of the potentially infringing generic drug. The prospective generic manufacturer therefore has
Accordingly, a generic marketer has few disincentives to file an ANDA with a paragraph IV certification. The incentive, by contrast, may be immense: the profits it will likely garner in competing with the patent holder without having invested substantially in the development of the drug, and, in addition, possible entitlement to a 180-day period (to be triggered at its inclination) during which it would be the exclusive seller of the generic drug in the market.
The patent holder’s risk if it loses the resulting patent suit is correspondingly large: It will be stripped of its patent monopoly. At the same time, it stands to gain little from winning other than the continued protection of its lawful monopoly over the manufacture and sale of the drug in question.
“Hatch-Waxman essentially redistributes the relative risk assessments and explains the flow of settlement funds and their magnitude. Because of the HatchWaxman scheme, [the generic challengers] gain[ ] considerable leverage in patent litigation: the exposure to liability amount[s] to litigation costs, but pale[s] in comparison to the immense volume of generic sales and profits.” Schering-Plough,
Under these circumstances, we see no sound basis for categorically condemning reverse payments employed to lift the uncertainty surrounding the validity and scope of the holder’s patent.
[o]nly if a patent settlement is a device for circumventing antitrust law is it vulnerable to an antitrust suit. Suppose a seller obtains a patent that it knows is almost certainly invalid (that is, almost certain not to survive a judicial challenge), sues its competitors, and settles the suit by licensing them to use its patent in exchange for their agreeing not to sell the patented product for less than the price specified in the license. In such a case, the patent, the suit, and the settlement would be devices— masks — for fixing prices, in violation of antitrust law.
Asahi Glass,
There is something on the face of it that does seem “suspicious” about a patent holder settling patent litigation against a potential generic manufacturer by paying that manufacturer more than either party anticipates the manufacturer would earn by winning the lawsuit and entering the newly competitive market in competition with the patent holder. Why, after all— viewing the settlement through an antitrust lens — should the potential competitor be permitted to receive such a windfall at the ultimate expense of drug purchasers? We think, however, that the suspicion abates upon reflection. In such a case, so long as the patent litigation is neither a sham nor otherwise baseless, the patent holder is seeking to arrive at a settlement in order to protect that to which it is presumably entitled: a lawful monopoly
If the patent holder loses its patent monopoly as a result of defeat in patent litigation against the generic manufacturer, it will likely lose some substantial portion of the market for the drug to that generic manufacturer and perhaps others. The patent holder might also (but will not necessarily)
Of course, the law could provide that the willingness of the patent holder to settle at a price above the genеric manufacturer’s projected profit betrays a fatal disbelief in the validity of the patent or the likelihood of infringement, and that the patent holder therefore ought not to be allowed to maintain its monopoly position. Perhaps it is unwise to protect patent monopolies that rest on such dubious patents. But even if large reverse payments indicate a patent holder’s lack of confidence in its patent’s strength or breadth, we doubt the wisdom of deeming a patent effectively invalid on the basis of a patent holder’s fear of losing it.
[T]he private thoughts of a patentee, or of the alleged infringer who settles with him, about whether the patent is valid or whether it has been infringed is not the issue in an antitrust case. A firm that has received a patent from the patent office (and not by fraud ...), and thus enjoys the presumption of validity that attaches to an issued patent, 35 U.S.C. § 282, is entitled to defend the patent’s validity in court, to sue alleged infringers, and to settle with them, whatever its private doubts, unless a neutral observer would reasonably think either that the patent was almost certain to be declared invalid, or the defendants were almost certain to be found not to have infringed it, if the suit went to judgment. It is not “bad faith” to assert patent rights that one is not certain will be upheld in a suit for infringement pressed to judgment and to settle the suit to avoid risking the loss of the rights. No one can be certain that he will prevail in a patent suit.
Asahi Glass,
Such a rule would also fail to give sufficient consideration to the patent holder’s incentive to settle the lawsuit without reference to the amount the generic manufacturer might earn in a competitive market, even when it is relatively confident of the validity of its patent — to insure against the possibility that its confidence is misplaced, or, put another way, that a reviewing court might (in its view) render an erroneous decision. Cf. Schering-Plough,
This case is illustrative. It is understandable that however sure Zeneca was at the outset that its patent was valid, settlement might have seemed attractive once it lost in the district court, especially in light of the deferential standard the Federal Circuit was expected to apply on review. But its desire to settle does not necessarily
We are unsure, too, what would be accomplished by a rule that would effectively outlaw payments by patent holders to generic manufacturers greater than what the latter would be able to earn in the market were they to defend successfully against an infringement claim. A patent holder might well prefer such a settlement limitation — it would make such a settlement cheaper — while a generic manufacturer might nonetheless agree to settle because it is less risky to accept in settlement all the profits it expects to make in a competitive market rather than first to defend and win a lawsuit, and then to enter the marketplace and earn the profits. If such a limitation had been in place here, Zeneca might have saved money by paying Barr the maximum such a rule might allow— what Barr was likely to earn if it entered the market — and Barr would have received less than it could have if it were free to negotiate the best deal available — as it did here. But the resulting level of competition, and its benefit to consumers, would have been the same. The monopoly would have nonetheless endured — but, to no apparent purpose, at less expense to Zeneca and less reward for Barr.
It strikes us, in other words, as pointless to permit parties to enter into an agreement settling the litigation between them, thereby protecting the patent holder’s monopoly even though it may be based on a relatively weak patent, but to limit the amount of the settlement to the amount of the generic manufacturer’s projected profits had it won the litigation.
We are not unaware of a troubling dynamic that is at work in these cases. The less sound the patent or the less clear the infringement, and therefore the less justified the monopoly enjoyed by the patent holder, the more a rule permitting settlement is likely to benefit the patent holder by allowing it to retain the patent. But the law allows the settlement even of suits involving weak patents with the presumption that the patent is valid and that settlement is merely an extension of the valid patent monopoly. So long as the law encourages settlement, weak patent cases will likely be settled even though such settlements will inevitably protect patent monopolies that are, perhaps, undeserved.
We also agree with the Cipro III court’s observation that:
If courts do not discount the exclusionary power of the patent by the probability of the patent’s being held invalid, then the patents most likely to be the subject of exclusion payments would be precisely those patents that have the most questionable validity. This concern, on its face, is quite powerful. But the answer to this concern lies in the fact that, while the strategy of paying off a generic company to drop its patent challenge would work to exclude that particular competitor from the market, it would have no effect on other challengers of the patent, whose incentive to mount a challenge would also grow eommensurately with the chance that the patent would be held invalid.
Cipro III,
Every settlement payment to a generic manufacturer reduces the profitability of the patent monopoly. The point will come when there are simply no monopoly profits with which to pay the new generic challengers. “[I]t is unlikely that the holder of a weak patent could stave off all possible challengers with exclusion payments because the economics simply would not justify it.” Cipro III,
An alternative rule is, of course, possible. As suggested above, the antitrust laws could be read to outlaw all, or nearly all, settlements of Hatch-Waxman infringement actions. Patent holders would be required to litigate each threatened patent to final, unappealable judgment. Only patents that the courts held were valid would be entitled to confer monopoly power on their proprietors. But such a requirement would be contrary to well-established principles of law. As we have rehearsed at some length above, settlement of patent litigation is not only suffered, it is encouraged for a variety of reasons even if it leads in some cases to the survival of monopolies created by what would otherwise be fatally weak patents. It is too late in the journey for us to alter course.
We generally agree, then, with the Eleventh Circuit insofar as it held in Valley Drug that “ ‘simply because a brand-name pharmaceutical company holding a patent paid its generic competitor money cannot be the sole basis for a violation of antitrust law,’ unless the ‘exclusionary effects of the agreement’ exceed the ‘scope of the patent’s protection.’ ” Cipro III,
We further agree with the Cipro III court that absent an extension of the monopoly beyond the patent’s scope, an issue that we address in the next section of this opinion, and absent fraud, which is not alleged here, the question is whether the underlying infringement lawsuit was “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.” Prof l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
k. The Terms of the Settlement Agreement. Inasmuch as we conclude that neither the fact of settlement nor the amount of payments made pursuant thereto as alleged by the plaintiffs would render the Settlement Agreement unlawful, we must assess its other terms to determine whether they do. As we have explained in the previous section of this opinion, we think that the question is whether the “exclusionary effects of the agreement” exceed the “scope of the patent’s protection.” Schering-Plough,
First, the Settlement Agreement did not extend the patent monopoly by restraining the introduction or marketing of unrelated or non-infringing products. It is thus unlike the agreement the Sixth Circuit held per se illegal in Cardizem,
Like the patent for the compound ciprofloxacin hydrochloride, which was the subject of dispute in the Cipro cases, and unlike the patents at issue in Cardizem and Valley Drug, Zeneca’s tamoxifen patent is not a formulation patent, which covers only specific formulations or delivery methods of compounds; rather, it is a patent on a compound that, by its nature, excludes all generic versions of the drug. See Appellees’ Br. at 23; Cipro II,
Second, the Settlement Agreement ended all litigation between Zeneca and Barr and thereby opened the tamoxifen patent to immediate challenge by other potential generic manufacturers, which did indeed follow — spurred by the additional incentive (at the time) of potentially securing the 180-day exclusivity period available upon a victory in a subsequent infringement lawsuit, since by vacating the district court judgment and amending its ANDA to remove its paragraph IV certification, Barr appeared to ensure (under procedures in effect at the time) that it was not eligible for the exclusivity period. See Cipro II,
The disadvantage purportedly suffered by the plaintiffs is not that Barr somehow prevented others from challenging the patent and obtaining FDA approval; nor is it that no other generic manufacturer tried to do so. It is instead that each of the subsequent challenges failed. While it is true that, had the district court’s decision in Zeneca’s patent infringement lawsuit against Barr been affirmed, other generic manufacturers would have been allowed to market their drugs, there is no legal requirement that parties litigate an issue fully for the benefit of others. See, e.g., Nestle,
Thus the stated terms of the Settlement Agreement include nothing that would place it beyond the legitimate exclusionary scope of Zeneca’s patent: The Settlement Agreement did not have an impact on the marketing of non-infringing or unrelated products, and the Agreement fully resolved the litigation between Zeneca and Barr, clearing the way for other generic manufacturers to seek to enter the market.
Finally, the Settlement Agreement did not entirely foreclose competition in the market for tamoxifen. It included a license from Zeneca to Barr that allowed Barr to begin marketing Zeneca’s version of tamoxifen eight months after the Settlement Agreement became effective. The license ensured that money also flowed from Barr to Zeneca, decreasing the value of the reverse payment. By licensing tamoxifen to Barr, Zeneca added a competitor to the market, however limited the competition may have been. Unlike reverse payment settlements that leave the competitive situation as it was prior to the litigation,
We conclude that the facts as alleged in the plaintiffs’ complaint, if proved, would not establish that the terms of the Settlement Agreement violated the antitrust laws. In the absence of any plausible allegation that the reverse payment provided benefits to Zeneca outside the scope of the tamoxifen patent, the plaintiffs have not stated a claim for relief with respect to the Settlement Agreement. See Twombly,
5. Barr’s 180-Day Exclusivity Period. The plaintiffs also advance allegations regarding actions that Barr took with respect to the 180-day exclusivity period to which the first paragraph IV filer is entitled under the Hatch-Waxman Act. We confess that it is not altogether clear to us what the import of those allegations is. The plaintiffs contend that Barr’s attempt to assert its exclusivity period in 1998, five years after the date of the Settlement Agreement, should be viewed as “circumstantial evidence demonstrating the anticompetitive consequences of [the] agreement ]” among the defendants. Appellants’ Reply Br. at 13. They allege that the Settlement Agreement was drafted “careful[ly] to preserve Barr’s” ability to “strategically deploy[]” its claim to the exclusivity period. Compl. ¶ 57. And they further allege the existence of an understanding among the defendants as to when and under what circumstances “Barr would assert its claimed exclusivity period rights to prevent ... FDA approval” of other generic manufacturers’ ANDA applications, “even if Zeneca was unsuccessful in using patent litigation to keep another generic competitor off the market.”
The defendants contend in response that any consequences of the 180-day exclusivity period resulted from Barr’s petition to
We are not so sure. Athough Noerr-Pennington immunity may lend Barr’s actions some protection, it does not immunize all actions with respect to the 180-day exclusivity period from antitrust scrutiny. The doctrine does not extend protection to the defendants “where the alleged conspiracy ‘is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor.’ ” Cal. Motor Transp. Co. v. Trucking Unlimited,
We nonetheless do not think that the facts as alleged with respect to Barr’s
First, as we have explained, our review of the Settlement Agreement convinces us that, accepting the plaintiffs’ allegations as true, the defendants did not violate the antitrust laws merely by entering into it. Therefore, even if we were to view Barr’s actions with regard to the 180-day exclusivity period as somehow constituting “evidence” — “circumstantial” or otherwise — of the “anticompetitive consequences” of the Settlement Agreement, it would not affect our conclusion. The Agreement is no doubt “anticompetitivе” — the plaintiffs need no additional proof of that. It limited competition between generic tamoxifen and Zeneca’s branded product. But, as we have seen, because it did not exceed the scope of the tamoxifen patent, it was not an unlawful anticompetitive agreement.
Second, because we have concluded that the Settlement Agreement was not itself an unlawful conspiracy, Barr’s “block[ing of] generic entry” would not be unlawful as “in furtherance of’ an unlawful conspiracy. There would have to be an unlawful conspiracy before Barr’s actions could contribute to it.
Third, [t]he factual predicate that is pleaded does need to include [an unlawful] conspiracy among the realm of plausible possibilities. Twombly,
At the time the Settlement Agreement was entered into, the established law was that a generic manufacturer must “successfully defend” a patent infringement lawsuit in order to obtain exclusivity.
Moreover, the fact that Barr acted as it did with respect to the deployment of the exclusionary period is easily explained by Barr’s own interest in protecting itself from competition through a petition to the FDA for a statutorily prescribed benefit. Nothing that we can draw from the facts alleged in the complaint indicates how Barr’s actions in this regard suggest that it was in league with Zeneca.
To state a claim under the Sherman Act, a plaintiff, in addition to stating an antitrust violation, must allege facts sufficient to prove that it suffered “antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
Accepting for the sake of argument that the plaintiffs have stated an antitrust violation by alleging an agreement or understanding between Barr and Zeneca to manipulate the 180-day exclusivity period, we are inclined to agree with the district court’s conclusion that any injury that the plaintiffs suffered nonetheless resulted from Zeneca’s valid patent and from the inability of other generic manufacturers to establish that the patent was either invalid or not infringed — and not from any agreement between Barr and Zeneca that Barr should employ its exclusivity powers to exclude competition. See Tamoxifen II,
As we have noted, at the time that Zeneca and Barr entered into the Settlement Agreement and caused the district court’s judgment of patent invalidity to be vacated, Barr was not entitled to the 180-day period of exclusivity. It was only after the FDA announced that it was abandoning the “successful defense” requirement that Barr asserted its claim to the exclusivity period. See Tamoxifen II,
Barr did not seek similar relief when Novopharm filed its ANDA and challenged the [tamoxifen] patent between 1994 and 1997. Only after the events in 1997 and 1998 ... did Barr attempt to assert its rights. If Barr intended to protect its exclusivity period on behalf of itself and Zeneca pursuant to the Settlement Agreement, Barr’s inactivity during the pendency of the Novopharm litigation is inexplicable.
Id. at 134 n. 9 (emphasis in original).
Therefore, the plaintiffs could not have suffered any antitrust injury with regard to an exclusivity period for Barr from the time the defendants signed the Settlement Agreement until the time the regulations were changed in 1997-1998. During that period, as far as all parties were concerned, the Settlement Agreement had indeed “cleared the field” so that other generic challengers could enter the market. Accordingly, any injury suffered by the plaintiffs during that time period was the result of Zeneca’s legitimate patent monopoly — which remained intact as a result
The plaintiffs also suffered no antitrust injury from the time the “successful defense” requirement was eliminated until, in 2000, the FDA rejected Barr’s claim to the exclusivity period, because the other ANDA filers with a paragraph IV certification ultimately lost their infringement suits against Zeneca. Even if Barr had not successfully petitioned the FDA, other generic manufacturers would not have been able to enter the market with their generic versions without infringing the tamoxifen patent. As the district court rightly noted, this allegation of injury is “based on the lack of competition that could have only existed by illegally infringing on the [tamoxifen pjatent.” Id. at 137-38. Thus, the plaintiffs did not suffer antitrust injury then either. See, e.g., Axis, S.p.A v. Micafil, Inc.,
Finally, there is clearly no antitrust injury with regard to Barr’s use of the exclusivity period after the FDA rejected Barr’s claim to the exclusivity period in 2000. From that time on, no one could have thought that Barr had a claim to an exclusivity period. Any injury suffered by the plaintiffs arose from Zeneca’s patent monopoly, which remained valid until its expiration in 2002, after which other generic manufacturers did, in fact, enter the market.
For the foregoing reasons, we conclude that the plaintiffs have not sufficiently stated an antitrust claim arising out of the defendants’ actions with regard to Barr’s 180-day exclusionary period.
IV. Leave To Amend
The plaintiffs contend that the district court erred in not addressing, and therefore in effectively denying, their request to amend their complaint to state a claim on which relief could be granted. The defendants reply that the district court acted within its discretion in effectively denying the plaintiffs’ request — which appeared in a footnote in the middle of their brief opposing the defendants’ motion to dismiss — -because the request was buried and because it was, in any event, futile.
Federal Rule of Civil Procedure 15(a) provides that “a party may amend the party’s pleading ... by leave of court ... and leave shall be freely given when justice so requires.” A district court has broad discretion to decide whether to grant leave to amend, a decision that we review for an abuse of discretion. Gurary v. Winehouse,
The plaintiffs’ assertion that, if granted leave to amend, they “would be able to redress perceived deficiencies” in their complaint, Appellants’ Br. at 56, does not persuade us. Even were plaintiffs to allege — as they now assert they are able to — that the defendants were concerned about the possibility that the Settlement Agreement might run afoul of antitrust law, or that the reverse payments were in excess of Zeneca’s litigation costs but “less than the substantial losses Zeneca antici
“[I]t appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief.” Conley v. Gibson,
CONCLUSION
For the foregoing reasons, the judgment of the district cоurt is affirmed.
Notes
. A similar description of the relevant statutes and regulations is set forth in the Eleventh Circuit’s opinion in Valley Drug Co. v. Geneva Pharms., Inc.,
. The ANDA process was intended to be available to manufacturers of generic versions of approved drugs. "A generic version ... contains the same active ingredients, but not necessarily the same inactive ingredients, as the pioneer drug. A generic drug, as the name implies, is ordinarily sold without a brand name and at a lower price.” Andrx Pharms.,
.
The applicant shall file with the application the patent number and the expiration date of any patent which claims the drug for which the applicant submitted the application or which claims 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).
.At the time of the settlement in this case, the statute did not specify that a district court decision would end the 30-month stay, and the FDA interpreted the statute to require a court decision "from which no appeal can be or has been taken.” Ctr. for Drug Evaluation & Research (CDER), Food & Drug Admin., U.S. Dep’t of Health & Human Servs., Guidance for Industry: Court Decisions, ANDA Approvals, and 180-Day Exclusivity Under the
. Like its interpretation of the type of court decision sufficient to end the 30-month stay of final FDA approval described above, at the time of the settlement in this case and until 2000, the FDA interpreted a court decision required to trigger the 180-day period to mean only a court decision "from which no appeal can be or has been taken.” See CDER, Court Decisions, supra, at 2 (quoting 21 C.F.R. § 314.107(e)(1) (1999)). That interpretation was subsequently changed in 2000, when the FDA concluded that a patent invalidity decision by a district court would be sufficient to trigger the commencement of the 180-day period. See id. at 3-5.
. In 2001, Zeneca's domestic sales of tamoxifen amounted to $442 million.
. Soon thereafter, Heumann was dismissed as a defendant after it agreed to be bound by a determination in that case as to the validity of the tamoxifen patent. Compl. ¶ 40.
. The rule in U.S. Bancorp does not apply retroactively. See U.S. Philips Corp. v. Seals Roebuck & Co.,
. After the Settlement Agreement was entered into and the vacatur ordered, Barr began to market its licensed version of Zeneca’s tamoxifen, selling its product to distributors and wholesalers at a 15 percent discount to the
. Pharmachemie initially filed a paragraph III certification in August 1994, but later amended it to include a paragraph IV certification. See Tamoxifen II,
. Mylan had agreed to follow the Pharmachemie court decision. See Tamoxifen II,
. The Christianson Court employed the "well-pleaded complaint'' test that is routinely applied to determine whether a federal district court has federal-question jurisdiction. See Christianson,
. "Although the Sherman Act, by its terms, prohibits every agreement 'in restraint of trade,' th[e Supreme] Court has long recognized that Congress intended to outlaw only unreasonable restraints.” State Oil Co. v. Khan, 522 U.S. 3, 10,
In most cases, however, conduct will be evaluated under a "rule of reason” analysis, "according to which the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect.” Id. (citation omitted).
The rule-of-reason analysis has been divided into three steps. First, a plaintiff must demonstrate “that the challenged action has had an actual adverse effect on competition as a whole in the relevant market.” Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs.,
. “The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp.,
. It is true that had the defendants not settled the underlying patent litigation and had the district court's judgment been affirmed on appeal, Zeneca would have been estopped from asserting the validity of its patent against others seeking to enter the market. See Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found.,
. It may be worth noting, although in and of itself it seems to us to prove little, that the Federal Circuit reversed district court determinations of patent invalidity at a relatively high rate during the relevant time period. See Donald R. Dunner et al., A Statistical Look at the Federal Circuit's Patent Decisions: 1982-1994, 5 Fed. Cir. B.J. 151, 154-55 (1995).
. We thus think that it was appropriate for the district court to take these decisions into account for the limited purpose of rebutting the plaintiffs' conclusory allegation that the Federal Circuit would have affirmed Judge Broderick’s decision invalidating the tamoxifen patent. See Mason v. Am. Tobacco Co.,
. Indeed, our Circuit requires civil litigants to go through a pre-argument, Court-sponsored process called the Civil Appeals Management Plan ("CAMP”), see http:llwww.ca2. uscourts.gov/Docs/Forms/CAMP.pdf and http:// www.ca2.uscourts.gov/Docs/Forms/ Preargument.pdf designed in part to facilitate just such post-judgment, pre-appellate argument settlements- — which it accomplishes with significant success. See Gilbert J. Ginsburg, The Case for a Mediation Program in the Federal Circuit, 50 Am. U. L.Rev. 1379, 1383 (2001) (reporting estimate that forty-five to fifty percent of civil cases pending before the Second Circuit settle each year).
. In this case, Barr could not at the time of the Settlement Agreement count on obtaining the 180-day exclusive period from the FDA because, as a settler rather than a "successful defender,” it at least appeared that it was unlikely to be entitled to the period of exclusivity — in other words, it appeared that, by settling, Barr was trading away its exclusivity period. It is noteworthy, nonetheless, that the 180-day period is of substantial benefit to the generic drug manufacturer who obtains it because it gives that manufacturer a significant head start over other manufacturers. See, e.g., Geneva Pharms. Tech. Corp. v. Barr Labs. Inc.,
. It has been observed that even the typical settlement of the ordinary patent infringement suit appears to involve what may be characterized as a reverse payment. See Cipro II,
. The Federal Trade Commission and some commentators have proposed similar or even more stringent rules. See In re Schering-Plough Corp., No. 9297, final order at 4,
. The dissent questions what it sees as our reliance on the presumption of validity of the patent at the time of the settlement. Post at 227-28. Even after a district court holds a patent invalid, it is treated as presumptively valid under 35 U.S.C. § 282 on appeal. See Rosco, Inc. v. Mirror Lite Co.,
. There is authority for the proposition that when its patent monopoly is ended, the patent holder might actually raise the price on its branded product, rather than lower it in response to generic competition. See Congr. Budget Office, How Increased Competition from Generic Drugs Has Affected Prices and Returns in thе Pharmaceutical Industry 29-31 (July 1998), available at http://www.cbo.gov/ ftpdocs/6xx/doc655/pharm.pdf (last visited May 12, 2005).
.To illustrate using a vastly oversimplified hypothetical example (ignoring, for example, legal fees and costs): Suppose the patent holder is selling 1,000,000 pills per year at a $1 profit per pill (for a total profit of $1,000,000). The generic manufacturer files .a paragraph IV ANDA, and the patent holder responds by bringing suit to protect its patent. If the patent holder projects that, should it lose the suit, it will thereafter sell only 250,-000 pills per year at a $.90 profit per pill (for a total profit of $225,000) in the competitive market, and the generic will sell 750,000 pills per year at a profit of $.60 per pill (for a total profit of $450,000) — so that total market profits are now down from $1,000,000 to $675,-000 — it would make economic sense for the patent holder to pay the generic manufacturer something more than the $450,000 the generic manufacturer would make in a competitive market to settle the litigation. If it paid $500,000 a year to the generic manufacturer — $50,000 more than the generic manufacturer could earn in the market in a "best case scenario” — for example, it would thereby re
. It seems to us odd for the dissent to urge, in the context of this case, that we have not given proper weight to "the public interest in having the validity of patents litigated.” Post at 224 The Settlement Agreement was a virtual invitation to other generic manufacturers to file paragraph IV certifications and thereby court litigation as to the validity of the tamoxifen patent. It was an invitation that was accepted three times leading to three lawsuits, two of them litigated to judgment, as to the validity of the tamoxifen patent. Accepting the value of litigating the validity of patents in these circumstances, it has hardly been undermined here.
. The dissent "see[s] no reason why the general standard for evaluating an anti-competitive agreement, i.e., its reasonableness, should not govern in this context.” Post at 226. We think, such a rule, making every settlement of patent litigation, at least in the Hatch-Wax-man Act context, subject to the inevitable, lengthy and expensive hindsight of a jury as to whether the settlement constituted a "reasonable” restraint (and, in this case, whether the Federal Circuit would have affirmed or reversed in a patent appeal), would place a huge damper on such settlements contrary to the law that we have discussed at some length that settlements are not only permitted, they are to be encouraged.
. The reasoning of the dissent, which quotes an excerpt from this statement, post at 223, is, in our view, largely based on a repeated mischaracterization of our views in this regard. We do not, as the dissent states in one form or another many times, see post at 223, 223-24, 226, 227, and 228, think that there is a "requirement” that antitrust plaintiffs "must show that the settled litigation was a sham, i.e., objectively baseless, before the settlement can be considered an antitrust violation ...," id. at 191. There is no such requirement. The central criterion as to the legality of a patent settlement agreement is whether it "exceeds the 'scope of the patent's protection.’ " As we pointed out at the outset of this discussion, we think that "[i]f the plaintiffs alleged facts that, if proved, would establish that the Settlement Agreement provided the defendants with benefits exceeding the scope of the tamoxifen patent, they would succeed in alleging an antitrust violation." Ante at 200; see also, e.g., post at 213 (“[T]he question is whether the 'exclusionary effects of the agreement' exceed the 'scope of the patent’s protection.' Schering-Plough,
. See Asahi Glass,
. Of course, as it turned out, Zeneca was successful in subsequently protecting its patent in the courts.
. "The competitive concern is that the 180-day exclusivity provision can be used strategically by a patent holder to prolong its market power in ways that go beyond the intent of the patent laws and the Hatch-Waxman Act by delaying generic entry for a substantial period.” Balto, supra, at 331. An agreement that a "generic manufacturer would not relinquish its 180-day exclusivity ... prevents] other generic manufacturers from entering as well.” Id. at 335; see also Hovenkamp et al, supra, at 1755 ("It is widely understood that the 180-day exclusivity period offers the potential for collusive settlement arrangements between pioneers and generics. A pioneer could initiate a patent infringement suit against a first generic ANDA filer and settle the litigation with a 'non-entry' payment to the generic, under which the generic would delay commercialization of the generic product, thus postponing the commencement of the 180-day exclusivity period and locking other generics out of the market indefinitely.”).
. In Andrx, the defendant attempted unsuccessfully to claim that it was unable to cause any delay in generic entry because the “successful defense” requirement would prеvent it from doing so. Andrx Pharms.,
. The dissent says that a reasonable fact-finder might conclude that sophisticated parties would not have included a provision that allowed Barr to re-file under paragraph IV absent an unlawfully anticompetitive purpose because it "had no potential benefit to either
Dissenting Opinion
I respectfully dissent. I believe that the opinion of the court, which dismisses plaintiffs’ complaint at the Rule 12(b)(6) stage, shortcuts a process necessary to balance the interests at stake in this litigation. These interests include, on one side, the encouragement of innovation fostered by the patent laws, the public and private interest in amicable settlements, and judicial economy; and, on the other side, an interest in vigorous competition protected by the Sherman Act as well as the interest of consumers in having the validity of a patent litigated. I agree with the majority that balancing is required but differ from them as to (1) the proper balancing analysis, and (2) the ability to perform this analysis without further development of the factual record. In my view, plaintiffs’ allegations were sufficient to allow discovery and, thereafter, a more fully informed balancing analysis.
BACKGROUND
I. Plaintiffs’ relevant allegations.
Plaintiffs allege that the various agreements described in the majority opinion are a cover for an agreement to allow Zeneca
II. The majority’s analysis.
The majority’s resolution of this appeal rests on a series of premises. First, the majority states that the Sherman Act aims to encourage competition by prohibiting agreements that unreasonably restrain trade. Majority op. at 201-02 & n.13. The majority next states that the patent laws also ultimately aim to stimulate competition and innovation, but that they do so through a system that grants an inventor a time-limited exclusive right in her invention or formulation. Id. at 202. These contrasting goals, the majority posits, create a tension in cases where patent and antitrust overlap and require “a delicate balance.” Id. at 202 (quoting Schering-Plough Corp. v. FTC,
After thus recognizing the inherent tension between antitrust and patent law, the majority goes on to articulate principles that it believes should be used to resolve this tension in the context of an antitrust challenge to a Hateh-Waxman settlement agreement. First, it notes the general principle that settlements, including patent settlements in the pharmaceutical area, are to be encouraged because they promote the public interest and the interests of the parties. Id. at 202-03. In addition, the majority relies on the Supreme Court’s recognition that “ ‘where there are legitimately conflicting [patent] claims ... a settlement by agreement rather than litigation, is not precluded by the Sherman Act.’ ” Id. at 202 (quoting Standard Oil Co. v. United States,
The majority then suggests that rules that severely restrict patent settlements create undue uncertainty concerning patents and thus might delay the entry of innovative products into the market. It also reasons that, although forcing patent litigation to continue might be pro-competitive in some cases, resolving disputes may also allow the entry into the market of valuable inventions. Id. at 203-04.
Turning to the agreements at issue in this case, the majority states that it cannot find them unreasonable based on the likelihood that Barr would maintain its victory on appeal becausе courts are ill positioned to predict the outcome of litigation. Id. at 204. Puzzlingly, after noting that the validity of a settlement agreement must be judged from the viewpoint of the time in which it was made, id. at 204, the majority relies on the fact that other district courts reached a different conclusion from that of the Southern District of New York to show that it is difficult to assess Barr’s likelihood of success on appeal, id. at 205. It finds “of little moment” the fact that the parties reached settlement “after the district court ruled against Zeneca” because all parties have a motivation to eliminate risk on appeal, but finds it significant “[t]hat Zeneca had sufficient confidence in its patent to proceed to trial rather than find some means to settle the case first.” Id. at 205.
The court concludes “that without alleging something more than the fact that Zeneca settled after it lost to Barr in the
Next, after conceding that reverse payments that, like the one alleged here, exceed the profits the generic might expect to make if it prevailed in the underlying litigation look suspicious, the majority holds that such excessive reverse payments are not unlawful, explaining that “so long as the patent litigation is neither a sham nor otherwise baseless, the patent holder is seeking to arrive at a settlement in order to protect that to which it is presumably entitled: a lawful monopoly over the manufacture and distribution of the patented product.” Id. at 208.
The court then articulates its standard for judging whether a Hatch-Waxman settlement agreement violates the antitrust laws: “[A]bsent an extension of the monopoly beyond the patent’s scope ... and absent fraud ... the question is whether the underlying infringement lawsuit was ‘objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.’ ” Id. at 213 (quoting Prof'l Real Estate Investors, Inc. v. Columbia Pictures, Inc.,
The majority next considers whether the exclusionary effects of the agreements exceed the patent’s scope and concludes thаt they do not because (1) the agreements did not bar the introduction of any non-infringing products; (2) they ended all litigation between Zeneca and Barr, thus opening the field to other generic challengers; and (3) they did not entirely foreclose competition because they allowed Barr to market Zeneca’s version of Tamoxifen. Id. at 213-16. Finally, the majority considers plaintiffs’ allegations concerning Barr’s manipulation of the exclusivity period. It concludes that although “an agreement to time the deployment of the exclusivity period to extend a patent’s monopoly power might well constitute anticompetitive action outside the scope of a valid patent,” id. at 217, because the agreements themselves did not exceed the scope of Zeneca’s lawful patent, Barr’s actions could not be unlawful as in .furtherance of an original conspiracy, id. at 217-18.
The court dismisses as speculative any claim by plaintiffs that Barr and Zeneca entered into a side agreement that Barr would use its exclusivity period in the way it did, claiming that “[although the Agreement in this case did include a provision allowing Barr to revert its paragraph III certification back to a paragraph IV certification in the event another generic manufacturer successfully invalidated the patent, it seems farfetched, in light of the law at the time, to construe the provision as a conscious and unlawful attempt to manipulate the exclusivity period.” Id. at 218. The law .to which the majority refers is a former federal regulation requiring that in order to obtain an . exclusivity period, the
DISCUSSION
I differ with both the majority’s standard for pleading a Hatch-Waxman-settlement antitrust violation and with several subsidiary holdings, conclusions, or assumptions. The requirement that-unless an antitrust plaintiff demonstrates 'that a settlement agreement exceeds the scope of the patent-it must show that the settled litigation was a sham, i.e., objectively baseless, before the settlement can be considered an antitrust violation is not soundly grounded in Supreme Court precedent and is insufficiently protective of the consumer interests safeguarded by the Hatch-Wax-man Act and the antitrust laws. Beyond that overarching difference, the majority has, in my view, wrongly (1) accorded dis-positive deference to Zeneca’s patent rights when its рatent had been declared invalid at the time of the settlement; (2) focused on subsequent litigation concerning patent validity rather than the litigation posture at the time of settlement; (3) held that the district court could not assess the likelihood that Zeneca would succeed on appeal; (4) held that plaintiffs insufficiently alleged a conspiracy between Barr and Zeneca to deploy Barr’s paragraph IV certification when it would delay the market entry of another generic manufacturer; and (5) failed to recognize that whether plaintiffs’ injuries stem from the alleged Barr/Zeneca conspiracy or from the failure of other generics to invalidate the patent cannot be resolved on the pleadings.
I. The pleading standard.
Relying principally on Professional Real Estate Investors, the majority concludes that, in order to attack a Hatch-Waxman settlement on antitrust grounds, plaintiffs must allege either that the agreement gave the patent holder benefits beyond the scope of the patent or that the agreement was a sham, that it was “objectively baseless in the sense that no reasonable litigant would realistically expect success on the merits.” Majority op. at 213 (quoting
Professional Real Estate Investors is not apposite because it did not involve the settlement of Hatch-Waxman patent litigation. Rather, plaintiffs brought a copyright infringement case, and defendants countersued, alleging that the suit was a sham and a violation of §§ 1 and 2 of the Sherman Act.
In fact, other leading eases cited in the majority opinion suggest, although I concede they do nоt mandate, a contrary conclusion. See Standard Oil,
Holding that a Hatch-Waxman settlement agreement cannot violate antitrust laws unless the underlying litigation was a sham also ill serves the public interest in having the validity of patents litigated. See United States v. Glaxo Group Ltd.,
A Hatch-Waxman settlement, by definition, protects the parties’ interests as they see them. Whether it also promotes the public’s interest depends on the facts. If the validity of the patent is clear, and the generic company receives a license to market the patent holder’s product, competition is increased. However, if, as in this case, the patent has already been shown to be vulnerable to attack and the generic manufacturer is paid to keep its generic product off the market, it is hard to see how the public benefits.
The Hatch-Waxman Act provides an incentive for the second kind of agreement that other patent laws do not provide. Patent litigation other than Hatch-Wax-man patent litigation generally proceeds along familiar lines. A patent holder sues an alleged infringer, and the infringer either chooses to go to trial to vindicate its view that the patent is invalid or pays the patent holder money as compensation for damages the patent holder has suffered or as the priсe of a license. In this context, one can perhaps assume that the parties’ relative views on the strength of a patent will result in a pro-competitive or neutral result. If the patent holder believes its patent is strong, it will proceed to trial, knowing that it can collect damages at the end. The generic manufacturer, if it believes the patent holder’s patent is weak, may be willing to risk damages and market its product during the litigation, thereby promoting competition. And if the claims are in relative equipoise, a licensing arrangement may well result.
In contrast, a generic competitor subject to Hatch-Waxman cannot enter the market for the first thirty months after litigation is commenced against it. See 21 U.S.C. § 355(j)(5)(B)(iii). In addition, whether its attack against the patent is strong or weak, the benefit it will obtain by successfully litigating to the finish is not great. At best, it will obtain 180 days in which it will be the exclusive generic on the market. See 21 U.S.C. § 355(j)(5)(B)(iv). On the other hand, the benefits to the public from the completion of litigation can be enormous if the generic challenger prevails as it did, at least initially, here. Once the 180-day exclusivity period is over, any generic that wishes to market a generic product and that can establish its product is bioequivalent to the patented product can enter the market, thus providing increased competition.
Moreover, the thirty-month stay provides an incentive to the patent holder to pay its generic competitor more than the generic company could have realized from winning the lawsuit. This is so because once the settlement is reached and the litigation dismissed, another generic manufacturer will have to wait at least thirty months after litigation is commenced
For instance, Herbert Hovenkamp, Mark Janis, and Mark A. Lemly propose that a Hatch Waxman Act settlement that includes a reverse payment be presumed illegal with the patent holder being allowed to rebut this presumption “by showing both (1) that the ex ante likelihood of prevailing in its infringement lawsuit is significant, and (2) that the size of the payment is no more than the expected value оf litigation and collateral costs attending the lawsuit.” Herbert Hovenkamp et al, Anticompetitive Settlement of Intellectual Property Disputes, 87 Minn. L.Rev. 1719,1759 (2004).
Daniel A. Crane urges a standard somewhat more favorable to the settling parties. See Daniel A. Crane, Ease Over Acuracy in Assessing Patent Settlements, 88 Minn. L.Rev. 698, 709 (2004) (urging that the dispositive factor should be “the ex ante likelihood that the defendant would be excluded from the market if the case was finally adjudicated”). Id. at 709. Because the settling parties will typically have the most documentation relevant to the issue, he contends that “there is relatively little social cost in requiring the settling parties to retain documents going to the core issues in the patent infringement lawsuit.” Id. However, to avoid unduly chilling patent settlements, Crane, unlike Hovenkamp et al, would not shift the burden of proof to the settling parties. Id.
Thomas F. Cotter’s approach occupies the middle ground. Cotter would leave on the antitrust defendants the burden of demonstrating the legality of a reverse-payment settlement, but he does not adopt Hovenkamp’s position that the reverse payment must be limited to litigation costs. See Thomas F. Cotter, Refining the “Presumptive Illegality” Approach to Settlements of Patent Disputes Involving Reverse Payments: A Commentary on Hovenkamp, Janis and Lemley, 87 Minn. L.Rev. 1789, 1795-97, 1802 (2003). Rather, he argues that “when the antitrust defendants can show that the payment is below the expected amount of the patent defendant’s loss if an injunction were to issue, the burden of proving validity and infringement should be somewhat easier to satisfy than at a full-blown infringement trial.” Id. at 1814. Cotter rejects, and the other commentators implicitly reject, the approach adopted by the majority. See id. at 1811 (noting that requiring antitrust plaintiffs to show that patent litigation is a sham “would permit too many anticompetive settlements to escape scrutiny. A suit with only a 25% chance of success may not be a sham, but a settle
Thus, commentators, precedent, and policy suggest the majority’s requirement that an antitrust plaintiff show that a Hatch-Waxman lawsuit settled by agreement was a sham-assuming that the agreement did not convey benefits beyond the scope of the patent-is unjustified. A more searching inquiry and a less stringent standard are required to properly protect all interests. I see no reason why the general standard for evaluating an anti-competitive agreement, i.e., its reasonableness, should not govern in this context.
II. Ancillary issues.
A. Capacity of the district court to evaluate Zeneca’s likelihood of success on appeal.
It appears that the court may have been motivated to adopt the “sham” or objectively baseless standard because it overestimated the difficulty of estimating Zeneca’s chance of prevailing on appeal. See Majority op. at 203 (citing principally Whitmore v. Arkansas,
B. The strength of Zeneca’s patent.
As the majority states, the reasonableness of agreements under antitrust law must be judged by the circumstances existing at the time when the agreements were made. Majority op. at 204; cf. SCM Corp. v. Xerox Corp.,
The majority, citing Rosco, Inc. v. Mirror Lite Co.,
Alternatively the majority suggests that it is not important where the presumption of validity lay at the moment of appeal because the patent holder was still entitled to protect its monopoly. Majority op. at 209 n.22. However, even assuming, contrary to my view, that most patent settlements should be subject to the “sham litigation” standard, surely there are strong policy reasons for applying more searching scrutiny where a court of competent jurisdiction has found the patent to be invalid.
C. The majority’s reliance on Zeneca’s subsequent litigation victories.
The majority also focuses on the subsequent litigation between other generics and Zeneca to demonstrate that plaintiffs cannot support a claim that Zeneca’s litigation against Barr was sham litigation. Of course, in my view, plaintiffs need not plead or prove sham or objectively baseless litigation. But, in addition, the majority’s discussion of the later litigation appears to violate its own acknowledgment of the basic principle that “the reasonableness of agreements under the antitrust laws are to be judged at the time they are entered into.” Majority op. at 204 (quoting Valley Drug Co. v. Geneva Pharms., Inc.,
D. Conspiracy to use Barr’s paragraph IV certification in an anticompetive manner.
I turn now to the majority’s expressed belief that the complaint cannot be read to plausibly allege a conspiracy between Barr and Zeneca to deploy Barr’s putative exclusivity period to their joint benefit and to the detriment of other potential competitors and consumers. A complaint need “include only ‘a short and plain statement of the claim showing the pleader is entitled to relief.’ ” Swierkiewicz v. Sorema,
The court additionally attacks the plausibility of plaintiffs’ allegations because, at the time Barr and Zeneca entered into their agreements, a generic enjoyed the benefit of the exclusivity period only if it had successfully defended an infringement lawsuit. See Mova Pharm.,
E. Antitrust injury.
In addition to affirming dismissal of the paragraph IV certification claim because plaintiffs did not adequately describe an antitrust violation, the majority states that it has “grave doubt as to whether, even if the defendants agreed to deploy the exclusionary period to protect their shared monopoly power, the injury that the defendants allege they suffered in this regard constitutes ‘antitrust injury.’ ” Majority op. at 219. The majority’s doubt stems, in part, from Zeneca’s victories in subsequent patent litigation. Id. at 219 Because these victories could not have existed if (1) the settlement agreement had not been signed and (2) Barr had prevailed on appeal, they are not finally determinative of causation. Therefore, it is necessary to assess the strength of Zeneca’s patent in order to decide whether the injuries were really caused by the patent itself or by the agreements.
III. The inappropriateness of dismissal at the Rule 12(b)(6) stage.
Applying the reasonableness inquiry that I suggest requires a factual record not yet in existence. We have no sense of the value to Barr of the exclusivity period it gave up or the relationship of the value of this period to the reverse payment Zeneca made. Nor do we have any sense of the negotiations between the parties concerning the provision that allowed Barr to revivify its Paragraph IV certification. Finally no judge or appellate panel has attempted to discern whether Judge Broderick’s findings of facts were clearly erroneous. Allowing the parties to develop a record and make summary judgment motions would give the district court information it needs to assess the reasonableness of the agreements.
However, even under the majority’s newly articulated standard, I believe that it was wrong to affirm the dismissal. At a minimum, the plaintiffs should be allowed to develop a factual record to demonstrate that Zeneca’s litigation was sham because they had no reason to anticipate the standard articulated here. I note that the courts that have finally rejected antitrust challenges to Hateh-Waxman settlements have done so after reviewing a full record. See Schering-Plough,
CONCLUSION
Because I disagree with the majority’s test for judging whether a Hateh-Waxman agreement violates antitrust law, and because I believe it was inappropriate to dismiss plaintiffs’ complaint without allowing discovery, I respectfully dissent.
. Like the majority, I use "Zeneca” to refer collectively to defendants Zeneca, Inc., AstraZeneca Pharmaceuticals LP, and AstraZeneca, Inc. "Barr” refers to defendant Barr Labs, Inc.
. Noerr-Pennington immunity derives from both Noerr and United. Mine Workers of Am. v. Pennington,
. The majority suggests, [majority op. at 212 n.25] that this interest was adequately protected through the subsequent suits by other generics. I disagree. This position ignores the time gap between the Barr-Zeneca litigation and the subsequent litigation. During this period, had Barr maintained its victory on appeal, which, as I explain below, was quite likely, very ill consumers would have had access to low cost generic tamoxifen. In
. Of course, other generic challengers could file Paragraph IV certifications before the first litigation is resolved, but a second generic manufacturer has little incentive to incur the cost of litigation. Even if it wins, it will have to wait until after the first generic challengеr’s exclusivity period has expired to market its product.
. The majority argues that applying the general rule of reasonableness would "mak[e] every settlement of patent litigation, at least in the Hatch-Waxman Act context, subject to the inevitable, lengthy and expensive hindsight of a jury as to whether the settlement constituted a 'reasonable' restraint (and, in this case, whether the Federal Circuit would have affirmed or reversed in a patent appeal)'' and thus "place a huge damper on such settlements.” Majority op. at 212 n.26. I doubt that this doomsday scenario would, in fact, take place. Courts would eventually develop rules for judging the reasonableness of a settlement, and as with other litigation, the majority of cases would be resolved in motion practice. Moreover, the majority again emphasizes the acknowledged interest in settlements without acknowledging the absent party in Hatch Waxman litigation settlements, the consumer of medicines. Those consumers have no ability to affect the settlement, which, in some cases, may benefit both parties beyond any expectation they could have from the litigation itself while harming the consumer. There is a panglossian aspect to the majority's tacit assumption that the settling parties will not act to injure the consumer or competition.
. The majority also relies on Boehm v. Comm’r,
. I do not find persuasive the statistics the majority cites on the frequency of reversal in
. I recognize that it makes more sense to use the subsequent litigation to argue that plaintiffs could not prove the Zeneca lawsuit was not a sham. However, as noted, I do not believe this is an appropriate test.