(CN) - Bayer AG can pay another drug company to delay the introduction of a generic antibiotic, the 2nd Circuit ruled Thursday in an antitrust case filed by drug purchasers. The court said it was bound by precedent to uphold the so-called "pay-to-delay" settlement, but took the unusual step of inviting the plaintiffs, including CVS and Rite Aid, to seek a rehearing by the full court.
In 1997, Bayer agreed to pay Barr Pharmaceuticals $49.1 million and make quarterly payments of between $12.5 million and $17 million for the duration of its patent on Cipro. In exchange, Barr dropped all challenges to Bayer's patent and agreed not to sell a generic version before Bayer's patent expired.
A few years later, Cipro purchasers filed more than 30 antitrust lawsuits, claiming Bayer had effectively paid potential competitors hundreds of millions of dollars not to challenge its patent.
The delay tactic, known as "pay to delay," costs U.S. consumers $3.5 billion annually in higher drug prices, according to a report by the Federal Trade Commission.
A federal judge dismissed the consolidated cases, expressing concern that the use of antitrust law in a patent dispute would "undermine the presumption of validity of patents in all cases ... and would work a revolution in patent law."
In the judge's view, the buyers needed to prove that the settlement fell outside the scope of Bayer's patent rights.
The Manhattan-based appeals court said it is bound by a 2005 ruling on the drug Tamoxifen. In that case, the 2nd Circuit held that a patent holder is entitled to protect its "lawful monopoly over the manufacture and distribution of the patented product."
"[A]s long as Tamoxifen is controlling law, plaintiffs' claims cannot survive," the court wrote.
"However, there are several reasons why this case might be appropriate for reexamination by our full court," the three-judge panel added.
It cited the government's objection to the Tamoxifen decision, evidence that pay-to-delay settlements are on the rise, and criticism from Sen. Orrin Hatch, co-author of the Hatch-Waxman Act, who said he found the settlements "appalling."
"This case could provide our full court with an opportunity to revisit the issues in play in Tamoxifen and to analyze the competing interests that underlie antitrust challenges to reverse payment settlements in light of the full record," the court wrote.
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