The U.S. Supreme Court, rebuffing calls to scrutinize “pay for delay” drug settlements, refused to revive a suit accusing Bayer AG (BAYN) of paying almost $400 million to forestall competition to its Cipro antibiotic.
The court, without comment, today rejected an appeal from drugstore chains that sought to press an antitrust suit over a 1997 settlement between Bayer and Barr Laboratories Inc., now part of Teva Pharmaceutical Industries Ltd. (TEVA) Under the accord, Bayer paid Barr $398 million, while Barr dropped its challenge to a Bayer patent and agreed not to sell a generic version of Cipro until June 2003.
Opponents say such settlements are rampant in the drug industry, costing consumers $3.5 billion a year, according to the Federal Trade Commission, which has led the criticism. Consumer advocates and 32 states joined the pharmacies and a drug wholesaler in urging Supreme Court review.
“This case involves one of the most controversial business practices in the United States in one of the most important segments of the economy,” the chains argued in their appeal. The group includes two of the three largest U.S. drugstore companies, CVS Caremark Corp. (CVS) and Rite-Aid Corp. (RAD)
The drugstores faced an especially high hurdle in seeking a Supreme Court hearing because two justices, Elena Kagan and Sonia Sotomayor, didn’t take part in the court’s consideration of the case. The court accepts an appeal only when four justices vote to hear a case.
Drugmakers say the settlements are a legitimate way of resolving patent disputes between brand-name manufacturers and would-be generic rivals. In the Cipro case, Bayer said the accord benefited consumers by letting Barr sell its version six months before the drug was scheduled to lose patent protection in December 2003.
“Because the settlement was within the scope of Bayer’s patent, it excluded no more competition than the patent itself lawfully excluded,” Bayer argued. The company is based in Leverkusen, Germany.
Cipro treats conditions caused by bacteria including anthrax, conjunctivitis and pneumonia.
The high court has now turned away challenges to a “pay for delay” settlement on six occasions, including an appeal in a second case involving the Cipro settlement in 2009.
Since then, the government has taken a harder line toward the accords, with the Justice Department’s antitrust division arguing that courts have been too lenient in assessing them. The Justice Department filed a brief backing the plaintiffs in the Cipro case at a federal appeals court in New York.
A three-judge panel of the appeals court threw out the lawsuit, pointing to an earlier decision that gave drugmakers broad leeway to craft settlements over legitimate patents. All three judges questioned that earlier ruling while saying they were bound by it.
CVS and Rite Aid said the payments made by Bayer suggest that its patent was of questionable validity. Barr had won a preliminary round in the litigation and the case was heading toward trial before the companies settled it.
Bayer countered that it won every other challenge to its Cipro patent, including a Mylan Inc. lawsuit that led to a federal appeals court ruling upholding the patent in 2002.
The case is Louisiana Wholesale Drug v. Bayer, 10-762.