Drug Manufacturers’ Collusion to Block Market Competition Harms California Consumers
Krause Kalfayan Benink & Slavens LLP (“KKBS”) represents California consumers and third party payors in a class action lawsuit against Bayer Corporation and four generic pharmaceutical manufacturers. The lawsuit alleges that Bayer paid generic competitors substantial cash payments in exchange for their agreement not to produce generic versions of Ciprofloxacin hydrochloride (“Cipro”). Cipro is a popular antibiotic prescribed to treat over fourteen different infections including sinusitis, urinary tract infections, and bone infections. These agreements prohibited the entry of affordable, generic equivalents of Cipro into the U.S. marketplace, keeping the price of the drug artificially high in violation of antitrust and consumer protection laws.
THE “CIPRO AGREEMENTS”
In January 1997, Bayer entered into agreements with its generic-producing competitors, Defendants Barr Laboratories, Inc., Hoechst Marion Roussel, Inc., and The Rugby Group, Inc. (“the generic defendants”) to preclude generic competition to its drug Cipro. Under these agreements (the “Cipro Agreements”), the generic defendants agreed not to sell or manufacture a lower cost, generic version of Cipro in the United States through at least 2003. In exchange, Bayer agreed to pay over $398.1 million to the generic defendants. This type of agreement is known as a “reverse payment” or “pay for delay” agreement.
The Cipro Agreements came on the heels of litigation between Bayer and Barr regarding Bayer’s patent for Cipro. In the early 1990’s, with financial support from The Rugby Group, Barr challenged Bayer’s Cipro patent as invalid and unenforceable. After Bayer’s motion for summary judgment was denied, Bayer paid Barr to settle the patent litigation, rather than risk its Cipro patent being found invalid. Only a few months later, Bayer and all of the generic defendants entered into four private agreements, the Cipro Agreements. The Cipro Agreements between Bayer and the generic defendants ensured that Cipro would have no generic competition for at least six years, granting Bayer an unlawful monopoly. Without these agreements, a generic version of Cipro would have been available as early as 1997.
With no threat of competition, Bayer was able to raise prices on Cipro by more than 16% above the average wholesale price. Until the expiration of the agreements, California consumers and third party payors were forced to pay much higher prices, while Bayer and the generic defendants enjoyed years of monopoly profits.
THE CALIFORNIA LITIGATION
In 2000, KKBS filed the first action in California on behalf of consumers and third party payors who purchased Cipro and were overcharged as a result of the defendants’ conduct. In 2002, the Superior Court certified a class of all individuals and entities in the State of California who indirectly purchased, paid and/or reimbursed for Cipro intended for consumption by themselves, their families, members, participants, employees or insureds from January 8, 1997.
Throughout the litigation, Plaintiffs successfully defeated many of the defendants’ challenges, however, in 2009 the Court granted the defendants’ motions for summary judgment. Plaintiffs filed appeals that ultimately reached the California Supreme Court in early 2012; however, the Court stayed the proceedings pending decisions by the United States Supreme Court in similar pharmaceutical patent cases.
While the case was still pending before the California Supreme Court, Plaintiffs and Bayer were able to reach a tentative settlement agreement resolving all claims against Bayer. In June 2013, Bayer agreed to pay Plaintiffs $74 million in exchange for the release of all claims. The settlement is subject to court approval. This outstanding settlement helps compensate California purchasers for the high cost of medication. On August 12, 2013 the Court issued an Order Granting Plaintiffs’ Motion for Preliminary Approval of the Class Action Settlement and on October 1, 2013, Plaintiffs filed their Motion for Final Approval of the Class Action Settlement.
Importantly, this settlement represents only a partial settlement of the claims, as Plaintiffs have yet to reach an agreement with the generic defendants. However, the Supreme Court issued a very important decision in June of 2013 in Federal Trade Commission v. Actavis, Inc. No. 12-416 (U.S. June 17, 2013), which will likely have a significant impact on the pending litigation with the generic defendants. In FTC v. Actavis, the Supreme Court discussed “reverse payment” or “pay for delay” agreements, similar to the Cipro Agreements between Bayer and the generic defendants. The Supreme Court laid some basic ground rules for “pay for delay” agreements. First, antitrust law applies so challengers will have to prove that the agreement was harmful to competition and therefore illegal under the “rule of reason” analysis. Second, these types of agreements are not immune to challenges just because the “no competition” deal would only last the life of the patent. In light of the Actavis decision, the California Supreme Court will be reviewing the California Cipro case and will set a new briefing schedule once the trial court has considered the Bayer settlement.
In the meantime, a decision regarding the final approval of the Bayer settlement is expected in November. Once the court approves the settlement, class members will have until the end of March 2014 to submit claims for payment from the settlement.
To learn more about reverse payment agreements and the Actavis decision, Ralph Kalfayan provides a look into the world of pharmaceuticals and reverse payment agreements in his article: Ensuring Access to Affordable Medication: The Supreme Court’s Opinion in F.T.C. v. Actavis, Inc
 (1) Barr Laboratories, (2) Hoechst Marion Roussel, Inc (3) The Rugby Group and (4) Watson Pharmaceuticals – (which purchased the Rugby Group from Hoechst Marion Roussel in 1998).