[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 02-12091 September 15, 2003
________________________ THOMAS K. KAHN
D. C. Docket No. 99-01317-MD-PAS CLERK
VALLEY DRUG COMPANY,
LOUISIANA WHOLESALE DRUG COMPANY, INC.,
et al.,
Plaintiffs-Appellees,
versus
GENEVA PHARMACEUTICALS, INC.,
ABBOTT LABORATORIES
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(September 15, 2003)
Before TJOFLAT and ANDERSON, Circuit Judges, and STAFFORD*, District
Judge.
ANDERSON, Circuit Judge:
_____________________
*Honorable William H. Stafford, United States District Judge for the Norther District of
Florida, sitting by designation.
This case comes to us on interlocutory appeal from the district court's order
granting plaintiffs' motion for partial summary judgment. The issue with which we
are presented is whether the district court properly determined that two agreements
among the defendants were per se violations of § 1 of the Sherman Act, 15 U.S.C.
§ 1. Because we conclude that the district court incorrectly applied the law, the
order below will be reversed and the case remanded for further proceedings
consistent with this opinion.
I. BACKGROUND
This is a private antitrust lawsuit, or rather numerous private antitrust
lawsuits, brought against three pharmaceuticals manufacturers. The various cases
asserting antitrust injury from the actions of the defendants have been consolidated
by the Judicial Panel on Multidistrict Litigation in the Southern District of Florida.
Plaintiffs basically assert that two agreements, one between defendant-appellant
Abbott Laboratories ("Abbott") and defendant-appellant Geneva Pharmaceuticals
("Geneva") and another between Abbott and defendant Zenith Goldline
Pharmaceuticals ("Zenith"),1 entered into in 1998, violated the Sherman Act's
1
Zenith came to a tentative settlement following the district court's order granting
partial summary judgment and is not a party to this appeal.
2
prohibition against contracts in restraint of trade. Abbott, a manufacturer of the
pioneer drug Hytrin, entered separate agreements with generic manufacturers
Zenith and Geneva while those companies were pursuing FDA approval of generic
versions of Hytrin and while embroiled in patent litigation with those companies.
Because the facts of this case took place against a complex regulatory background,
we will first describe the relevant regulatory context, then the facts of the case as
they appear in the current procedural posture, and then the relevant procedural
history.
A. Regulatory Framework
No new drug can be marketed or sold in the United States without approval
from the Food and Drug Administration ("FDA"). 21 U.S.C. § 355(a).
Applications for FDA approval can be filed in one of two ways: as a new drug
application ("NDA") under § 355(b), or as an abbreviated new drug application
("ANDA") under § 355(j). A new drug application must include exhaustive
information about the drug, including reports of safety and efficacy studies. See 21
U.S.C. § 355(b)(1).
Prior to 1984, the NDA was the only method of obtaining FDA approval of a
new drug. Every applicant had to submit safety and efficacy studies, even if such
studies had already been performed for identical drugs or drugs with identical
3
active ingredients. Adding to this inefficiency was the fact that the conduct of
safety and efficacy studies would, if the new drug was the subject of a patent,
constitute infringement of that patent under 35 U.S.C. § 271(a).2 In an effort to
eliminate these twin impediments to the introduction of generic drugs to the
market, Congress enacted the Drug Price Competition and Patent Term Restoration
Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984), commonly known as the
Hatch-Waxman Act. The primary accomplishments of the Hatch-Waxman Act
were the creation of the ANDA, allowing a new drug applicant to piggyback on the
safety and efficacy studies conducted for the pioneer drug, see generally 21 U.S.C.
§ 355(j); modification of the definition of infringement, so that the conduct of
safety and efficacy studies for FDA approval is no longer infringing activity, see
generally 35 U.S.C. § 271(e); and allowing the extension of patent terms to
compensate for the period when a patented drug could not be marketed because it
was undergoing the FDA approval process, see generally 35 U.S.C. § 156.
Several of Hatch-Waxman's additions to 21 U.S.C. § 355 govern FDA
approval of ANDAs in the face of patent claims by pioneer drug makers. NDA
2
"Except as otherwise provided in this title, whoever without authority makes,
uses, offers to sell, or sells any patented invention, within the United States or imports into the
United States any patented invention during the term of the patent therefor, infringes the patent."
35 U.S.C. § 271(a).
4
applicants are required to submit the patent number and expiration date of any
patent that a generic manufacturer might infringe.3 If such a patent issues after
approval of the NDA, the holder of the application is required to file the patent
number and expiration date with the FDA no later than 30 days after the patent
issues. See 21 U.S.C. § 355(c)(2). The FDA publishes this patent information,
along with other information about the drug, in what is popularly known as the
Orange Book. See 21 U.S.C. § 355(j)(7)(A).
An ANDA applicant relying on the safety and efficacy studies filed with the
application of a drug listed in the Orange Book must make a certification with
respect to each patent claiming the listed drug or a method of using the listed drug
of which the applicant is aware. See 21 U.S.C. § 355(j)(2)(A)(vii). The applicant
must certify either that (1) the patent information has not been filed with the FDA;
(2) the patent is expired; (3) the patent will expire, identifying the expiration date;
or (4) the patent is invalid or will not be infringed by the manufacture, use, or sale
of the new drug. If the applicant certifies (1) or (2), FDA approval proceeds in
regular fashion, see 21 U.S.C. § 355(j)(5)(B)(i); if the applicant certifies (3), the
application will not be approved until the date the relevant patent expires, see 21
3
Specifically, any patent claiming the drug or method of using the drug that "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).
5
U.S.C. § 355(j)(5)(B)(ii).
If the ANDA applicant certifies that the relevant patents are invalid or will
not be infringed, commonly called a "paragraph IV certification," several things
happen. First, the applicant must notify the patent holder. 21 U.S.C. §
355(j)(2)(B). If the patent holder brings suit for patent infringement4 within 45
days of receiving this notice, the FDA automatically delays approval of the ANDA
for thirty months. See 21 U.S.C. § 355(j)(5)(B)(iii).5 If the court hearing the
infringement action declares the patent invalid or not infringed, this automatic
delay in FDA approval terminates, 21 U.S.C. § 355(j)(5)(B)(iii)(I), or, if the court
finds the patent valid and infringed, the approval date will be set for a date on or
after the patent's expiration, 21 U.S.C. § 355(j)(5)(B)(iii)(II); 35 U.S.C. §
271(e)(4)(A). If the court grants the patent holder a preliminary injunction prior to
4
It shall be an act of infringement to submit an application under section 505(j) of
the Federal Food, Drug, and Cosmetic Act [21 U.S.C. § 355(j)] . . . for a drug
claimed in a patent or the use of which is claimed in a patent . . . if the purpose of
such submission is to obtain approval under such Act to engage in the commercial
manufacture, use, or sale of a drug . . . claimed in a patent or the use of which is
claimed in a patent before the expiration of such patent.
35 U.S.C. § 271(e)(2)(A). This definition of infringement was added by Hatch-Waxman to allow
the invocation of the procedures described in the following paragraph of this opinion.
5
The patent holder is, of course, free to sue the applicant for infringement under 35
U.S.C. § 271(e)(2)(A) after the 45 day window expires. The 30-month stay of FDA approval,
however, will not be triggered.
6
the expiration of the 30-month stay, the application will be approved on the date on
which the court later holds the patent invalid or not infringed. See 21 U.S.C. §
355(j)(5)(B)(iii)(III).
The timing of FDA approval is affected by another provision of
Hatch-Waxman in the event that a listed drug is subject to more than one paragraph
IV certification. Approval of an ANDA that contains a paragraph IV certification
is automatically delayed if another ANDA was previously filed based on the same
listed drug and the previous ANDA contains a paragraph IV certification.
Approval of the subsequent ANDA is delayed until 180 days after the earlier of (1)
the first commercial marketing of the drug under the previous application or (2) the
date a court hearing an infringement action brought against the previous filer holds
the patent invalid or not infringed.6 See 21 U.S.C. § 355(j)(5)(B)(iv). This
6
When the agreements at issue were entered into, the FDA regulations defined the
relevant court decision triggering the end of the 30-month stay or the start of the first filer's 180-
day exclusivity period as the decision of the appellate court hearing the infringement action
against the first filer. This rule was challenged in court and held invalid by TorPharm Inc., v.
Shalala, No. 97-1925, 1997 U.S. Dist. LEXIS 21983 (D.D.C. Sep. 15, 1997), appeal withdrawn
and remanded, 1998 U.S. App. LEXIS 4681 (D.C. Cir. Feb. 5, 1998), vacated on other grounds
(D.D.C. April 9, 1998) (30-month stay expires upon judgment of the district court holding the
patent not infringed), and by Mylan Pharms., Inc., v. Shalala, 81 F. Supp. 2d 30 (D.D.C. 2000)
(180-day exclusivity period triggered by judgment of the district court holding the patent
invalid). Though the FDA was initially committed to continued adherence to the appellate
judgment rule, see 62 Fed. Reg. 63,268 (Nov. 28, 1997), it dropped the rule following the Mylan
decision, see 65 Fed. Reg. 43,233, 43,234 (July 13, 2000) (interim rule). The FDA now
considers the 180-day exclusivity period to be triggered by any district court judgment holding
the patent invalid, not infringed, or unenforceable, whether or not the judgment comes from the
district court hearing the infringement suit against the first filer. See Granutec, Inc., v. Shalala,
7
delaying mechanism gives the first generic manufacturer to file a paragraph IV
certification and successfully challenge the scope or validity of a patent on a
pioneer drug a 180-day period during which it is the exclusive competitor of the
pioneer manufacturer. This exclusivity period is a significant incentive for generic
manufacturers to challenge weak or narrow drug patents.
B. Factual History7
1. Zenith's and Geneva's ANDAs
Abbott manufactures Hytrin, a brand-name drug with the active ingredient
dihydrate terazosin hydrochloride.8 Hytrin is used to treat hypertension and
enlarged prostate, and has been a very successful product for Abbott. Abbott
obtained FDA approval of its NDA for Hytrin in 1987 and has held a number of
patents related to terazosin hydrochloride over the years. Its first patent, issued in
Nos. 97-1873 & 97-1874, 1998 WL 153410, *8-9 (4th Cir. April 3, 1998) (unpublished, table
decision reported at 139 F.3d 889) (endorsing the FDA's position that, if the successful defense
requirement is invalid, the court decision triggering the 180-day exclusivity period is the decision
of any district court). See also Teva Pharms., USA, Inc. v. FDA, 182 F.3d 1003 (D.C. Cir. 1999)
(reversing district court's denial of an injunction to require the FDA to recognize the dismissal
with prejudice of an infringement suit against a subsequent filer as triggering the first filer's 180-
day exclusivity period). See post at n.12 for a discussion of the successful defense requirement.
7
The facts are largely uncontested by the parties.
8
Terazosin hydrochloride is a crystal. Dihydrate terazosin hydrochloride is a
particular crystalline polymorph of terazosin hydrochloride. The opinion will refer to terazosin
hydrochloride and its polymorphs simply as terazosin hydrochloride unless greater specificity is
appropriate.
8
1977, covered the basic terazosin hydrochloride compound. See Abbott Labs. v.
Novopharm Ltd., Nos. 96-C-611 & 95-C-6657, 1996 WL 131498, *1 (N.D. Ill.
March 15, 1996). That patent has since expired, though Abbott has been issued
other patents for various crystalline forms of the compound and various methods of
using and preparing the compound.
Geneva filed four ANDAs based on Hytrin between 1993 and 1996, each
time making paragraph IV certifications with respect to Abbott's listed patents.
Abbott brought infringement suits under 35 U.S.C. § 271(e), invoking the
30-month stay of FDA approval of Geneva's ANDAs. On April 29, 1996, Geneva
filed two additional ANDAs based on Hytrin, one for a capsule form of terazosin
hydrochloride and one for a tablet form9, making paragraph IV certifications with
respect to the relevant patents. Within 45 days of receiving notice of Geneva's
paragraph IV certifications, Abbott filed an infringement suit based on the
submission of the tablet ANDA, asserting that the Geneva's tablet terazosin
hydrochloride product infringed Abbott's patent number 5,504,207 ("the '207
patent").10 In the suit, Geneva admitted infringement but contested the patent's
validity. Apparently through oversight, Abbott failed to file an infringement suit
9
The active ingredient in these two drugs is anhydrous terazosin hydrochloride.
10
The '207 patent, issued on April 2, 1996, claims a method of preparing anhydrous
terazosin hydrochloride. The patent is due to expire in October of 2014.
9
based on the submission of the capsule ANDA. FDA consideration of that ANDA,
therefore, proceeded unhindered, and Geneva's capsule ANDA was approved in
March of 1998. When Abbott was notified of this approval, it began efforts to
amend its complaint to allege that Geneva's terazosin hydrochloride capsule
infringed the '207 patent.
Zenith, meanwhile, filed an ANDA for a terazosin hydrochloride drug11 in
June of 1994, making a paragraph IV certification with respect to Abbott's Hytrin
patents. Abbott was issued a patent claiming forms of terazosin hydrochloride on
May 2, 1995, patent no. 5,412,095 ("the '095 patent"), and another on April 2,
1996, the '207 patent. Abbott timely filed this patent information with the FDA,
which then required Zenith to amend its ANDA to make a certification with regard
to these newly listed patents. Zenith resisted, hoping to avoid the 30-month stay of
approval and the 180-day delay of approval based on Geneva's earlier-filed
ANDAs.12 Instead of certifying, Zenith brought suit against Abbott in an attempt to
11
The active ingredient of this drug is anhydrous terazosin hydrochloride.
12
Prior to 1998, the FDA applied the "successful defense" requirement to ANDA
filers hoping to take advantage of the 180-day exclusivity period. A subsequently-filed ANDA
would only have its approval date delayed by 180 days if the first-filer had successfully defended
against an infringement suit. See 59 Fed. Reg. 50,338, 50,367 (Oct. 3, 1994) (adopting
successful defense regulation as a final rule, codified at 21 C.F.R. § 314.107). If Zenith's ANDA
were ready for approval before Geneva successfully defended Abbott's infringement suit, then the
ANDA would be approved without the 180-day delay. If Zenith were forced to make a paragraph
IV certification with respect to Abbott's '095 and '207 patents, however, Abbott could invoke the
30-month stay of approval, giving Geneva more time to defend Abbot's infringement action
10
force Abbott to delist its '095 and '207 patents, relieving Zenith of the obligation to
certify with respect to those patents, and seeking a declaration that its terazosin
hydrochloride drug did not infringe those patents. Zenith's suit alleged that Abbott
listed the '095 and '207 patents knowing that the patents did not claim Hytrin or a
method of using Hytrin. Abbott counterclaimed for infringement. Zenith's attempt
to obtain a preliminary injunction against the listing of the patents was
unsuccessful. See Zenith Labs. v. Abbott Labs., No. 96-1661, 1997 U.S. Dist.
LEXIS 23954 (D.N.J. Oct. 1, 1997). Zenith appealed the denial to the Federal
Circuit.
2. The Agreements
The agreements challenged by the plaintiffs arose against this backdrop. On
March 31, 1998, Abbott and Zenith entered an agreement dismissing Zenith's
delisting claims and Abbott's infringement counterclaims ("Zenith Agreement"). In
the Zenith Agreement, Zenith acknowledged the validity of each of Abbott's
patents claiming terazosin hydrochloride and admitted that any terazosin
against it.
The successful defense requirement was eventually held to be an unreasonable
interpretation of the Hatch-Waxman Act by two courts of appeals. See Mova Pharm. Corp. v.
Shalala, 140 F.3d 1060, 1069-70 (D.C. Cir. 1998); Granutec, 1998 WL 153410, at *6-7. The
Mova court enjoined the FDA from enforcing the regulation, and the FDA dropped the
requirement effective November 10, 1998. See 63 Fed. Reg. 59,710, 59,711 (Nov. 5, 1998)
(interim rule).
11
hydrochloride product Zenith might market would infringe these patents. Zenith
agreed not to sell or distribute any pharmaceutical product containing any form of
terazosin hydrochloride until someone else introduced a generic terazosin
hydrochloride product first or until Abbott's patent no. 4,215,532 (the '532 patent)
expired.13 Zenith agreed not to sell or transfer its rights under any ANDA
application relating to a terazosin hydrochloride drug, not to aid any other person in
gaining FDA approval of a terazosin hydrochloride drug, and not to aid any other
person in opposing or invalidating any of Abbott's patents claiming terazosin. In
return, Abbott agreed to a payment schedule according to which Abbott would pay
Zenith $3 million up front, $3 million after three months, and $6 million every
three months thereafter until March 1, 2000, or until the Agreement terminated by
its own terms. If another generic manufacturer introduced a terazosin
hydrochloride drug and obtained a 180-day exclusivity period, Abbott's payments
would be halved until the period expired. Abbott agreed not to sue Zenith for
infringement if it entered the market consistent with the Agreement.
Abbott entered an agreement with Geneva on April 1, 1998 ("Geneva
Agreement"). According to the Geneva Agreement, Geneva agreed not to sell or
13
The '532 patent claims dihydrate terazosin hydrochloride, the active ingredient in
Hytrin. That patent expired on February 17, 2000.
12
distribute any pharmaceutical product containing any form of terazosin
hydrochloride until either Abbott's '532 patent expired, someone else introduced a
generic terazosin hydrochloride drug, or Geneva obtained a court judgment that its
terazosin tablets and capsules did not infringe the '207 patent or that the patent was
invalid. This latter condition required a final judgment from which no further
appeal could be taken, including petition for certiorari to the Supreme Court.
Geneva agreed not to transfer or sell its rights under its ANDAs, including its right
to the 180-day exclusivity period. Geneva also agreed to oppose any subsequent
ANDA applicant's attempt to seek approval of its application based on Geneva's
failure to satisfy the then-existing successful defense requirement and to join and
support any attempt by Abbott to seek an extension of the 30-month stay of FDA
approval on Geneva's tablet ANDA. In return, Abbott agreed to pay Geneva $4.5
million each month until either someone else brought a generic terazosin
hydrochloride product to market or Abbott won a favorable decision in the district
court on its infringement claim. If Geneva won in district court, Abbott's $4.5
million monthly payments would go into escrow pending resolution of the appeal,
with the escrowed funds going to the party prevailing on appeal. Abbott reserved
the right to terminate its payments after February 8, 2000, if no other generic
terazosin hydrochloride product had been marketed as of that date. If Abbott
13
exercised this right, it would execute a release in Geneva's favor of any claims of
infringement based on the '207 patent.
3. Termination of the Agreements
The district court hearing Abbott's infringement suit against Geneva handed
down its decision on September 1, 1998. Abbott Labs. v. Geneva Pharms., Inc.,
Nos. 96-C-3331, 96-C-5868, & 97-C-7587, 1998 WL 566884 (N.D. Ill. Sept. 1,
1998). The court held the '207 patent invalid because the crystalline form of
terazosin hydrochloride claimed in the patent was on sale in the United States more
than one year before Abbott applied for the patent, see 35 U.S.C. § 102(b). 1998
WL 566884 at *7. Abbott appealed to the Federal Circuit, which affirmed on July
1, 1999. 182 F.3d 1315 (Fed. Cir. 1999). Abbott's petition for certiorari was
denied on January 10, 2000. 528 U.S. 1078, 120 S.Ct. 796 (2000).
The Agreements did not terminate on their own terms, however. The parties
terminated the Agreements on August 13, 1999, apparently in response to an FTC
investigation of those Agreements. The FTC action resulted in a consent
settlement. See Matter of Abbott Labs., No. C-3945, 2000 WL 681848 (F.T.C.
May 22, 2000), also available at http://www.ftc.gov/os/2000/05/c3945.do.htm.
C. Procedural History
All class action and individual antitrust plaintiffs filed a joint motion for
14
summary judgment that the Agreements were per se illegal under § 1 of the
Sherman Act on February 18, 2000. The district court issued an order granting the
motion on December 13, 2000. Permission to take an interlocutory appeal from the
order under 28 U.S.C. § 1292(b) was granted on April 19, 2002.
D. The Order Granting Summary Judgment
The December 13, 2000, Order granting plaintiffs' motion for partial
summary judgment concluded that the Agreements were per se violations of § 1 of
the Sherman Act. The Order characterized the Agreements as geographic market
allocation Agreements between horizontal competitors, essentially allocating the
entire United States market for terazosin drugs to Abbott, who shared its monopoly
profits with the other cartel members during the life of the Agreements.
The court found that on the eve of the Agreements,
both Geneva and Zenith were poised to market generic versions of
Hytrin in the United States. Geneva received final FDA approval for
its generic capsule in March subject to "validation," and the 30-month
stay on its generic tablet proposal was set to expire in October. Zenith
declared that it was ready to market a generic tablet upon receipt of a
favorable decision from the Federal Circuit and final FDA approval.
In re Terazosin Hydrochloride Antitrust Litig., 164 F. Supp. 2d 1340, 1345-46
(S.D. Fla. 2000). Despite being poised to enter the market, however, "Geneva and
Zenith forswore competing with Abbott in the United States market for terazosin
15
hydrochloride drugs . . . ." Id. at 1348-49.
The court identified four elements of the Agreement with Geneva that were
anticompetitive: (1) Geneva's promise not to market its terazosin capsule until the
Agreement terminated; (2) Geneva's promise not to market its terazosin tablet until
the Agreement terminated; (3) Geneva's promise not to sell its rights in its capsule
and tablet ANDAs until the Agreement terminated; and (4) Geneva's promise to aid
Abbott in opposing any attempt by other ANDA applicants to enter the market
before the Agreement terminated. The court identified three anticompetitive
elements of the Agreement with Zenith: (1) Zenith's agreement to dismiss its
delisting suit; (2) Zenith's promise not to aid any other entity's challenge to the
validity of Abbott's terazosin patents; and (3) Zenith's promise not to market a
generic terazosin product until the Agreement terminated. The essence of the
Agreements, the court concluded, was to "dissuade[] Geneva and Zenith from
marketing the first generic terazosin hydrochloride drugs in the United States for an
indefinite period [and] eliminat[e] the risk that either drug maker would sell or
purchase the right to introduce such drugs in the interim . . . ." Id. at 1349.
Despite holding the Agreements per se unlawful, the court nonetheless
entertained, and rejected, the defendants' arguments that the Agreements were
16
either pro-competitive or benign.14 Defendants argued that the Agreements
eliminated the "substantial legal and financial risks" that accompany market entry
while patent disputes remain unresolved. This justification was rejected for three
reasons. First, the Agreement with Geneva was unnecessary to avoid these risks,
because Geneva's unilateral decision to forego entry would achieve the same result.
Second, the Agreement with Geneva did not resolve the patent litigation; "in fact, it
tended to prolong that dispute to Abbott's advantage." Id. at 1350. The litigation
was prolonged by the provisions extending the Agreement until the patent dispute
was finally resolved, including Supreme Court review, and by Geneva's promise to
aid Abbott in any motion seeking to extend the 30-month stay of FDA approval of
Geneva's tablet ANDA. Finally, the court rejected the argument that the provision
of the Agreement permitting Geneva to enter the market if Abbott elected to
suspend its payments was pro-competitive. Although the court may have been
willing to "infer that this clause was a catalyst for competition if Geneva paid
Abbott for it, [] the suggestion that Abbott handsomely paid Geneva to spur
14
Defendants also argued that the Agreements were immune from antitrust liability
under the Noerr-Pennington doctrine, see United Mine Workers v. Pennington, 381 U.S. 657, 85
S.Ct. 1585 (1965); Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127, 81 S.Ct. 523 (1961); that the Agreements were not subject to per se treatment because of
their novelty; and that the Agreements could not have anti-competitive effects because
independent regulatory prohibitions prevented market entry by Geneva and Zenith until at least
August of 1999. The court rejected these arguments, as well. The defendants do not raise their
Noerr-Pennington or ineffective restraints arguments on appeal.
17
competition in its own lucrative domestic market for terazosin hydrochloride
products is patently unreasonable." Id. at 1351. The court did not analyze any
potentially efficiency-enhancing effects of the Agreement with Zenith, concluding
that the Agreement "would indefinitely postpone Zenith's entry into the United
States market and would permit competition only once Abbott lost its exclusive
market." Id.
Defendants argued that because the Agreement with Geneva was analogous
to an interim patent settlement and the Agreement with Zenith terminated the
litigation between Zenith and Abbott, the court should treat the Agreements as
patent litigation settlements. The court rejected this argument as well, concluding
that the Agreement with Geneva did not resolve Abbott's infringement suit and that
the termination of litigation between Zenith and Abbott "was part of a larger
scheme to restrain the domestic sale of generic terazosin hydrochloride products."
Id. at 1353. Even if the Agreements were patent litigation settlements, the court
held, such settlements were not immune from per se analysis. Id.
E. Issues Appealed
On appeal, Abbott and Geneva argue that the district court erred in
concluding that the Agreements were per se violations of § 1 of the Sherman Act
and that genuine issues of material facts remain in dispute.
18
Appellants argue that courts lack sufficient experience with agreements of
the kind at issue to draw the conclusion that "history and analysis have shown that
in sufficiently similar circumstances the rule of reason unequivocally results in a
finding of liability." Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1567
(11th Cir. 1991) (quotation and citation omitted). Appellants also argue that there
are pro-competitive justifications for the Agreements that warrant analysis under
the rule of reason. Appellants argue that genuine issues of material fact are in
dispute with regard to these potential pro-competitive effects. Finally, Appellants
argue that the Agreements are patent litigation settlements that must be analyzed
under the rule of reason unless it is shown that the settlements were "sham."15
II. STANDARD OF REVIEW
We review a district court's grant of summary judgment de novo, applying
the same legal standards applied by the district court. Bailey v. Allgas, Inc., 284
F.3d 1237, 1242 (11th Cir. 2002). Summary judgment is appropriate if "the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material
15
Indeed, all of appellants' arguments rely primarily on the circumstance that the
Agreements arose in the context of patent litigation.
19
fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.
Civ. P. 56(c). We view the evidence in the light most favorable to the non-movant,
resolving all reasonable doubts and drawing all reasonable inferences in that party's
favor. Bailey, 284 F.3d at 1243.
III. DISCUSSION
Section 1 of 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, or with foreign nations . . . ." 15 U.S.C. § 1. It is understood
that the ban on "contract[s] in restraint of trade" means only unreasonable
restraints, State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 279 (1997), that is,
restraints that impair competition, Chicago Board of Trade v. United States, 246
U.S. 231, 238, 38 S.Ct. 242, 244 (1918). Some types of agreements are so
obviously anticompetitive, or so unlikely to be pro-competitive, that such
agreements can be deemed to violate the Sherman Act without much more than an
examination of the agreement itself and the relationships of the parties to the
agreement. State Oil, 522 U.S. at 10, 118 S.Ct. at 279; Arizona v. Maricopa
County Medical Soc., 457 U.S. 332, 344, 102 S.Ct. 2466, 2473 (1982). These
agreements are labeled "per se" violations. Regardless of terminology, the ultimate
20
purpose of the antitrust inquiry is to form a judgment with respect to the
competitive significance of the restraint at issue. National Collegiate Athletic
Ass'n v. Bd. Regents Okla. Univ., 468 U.S. 85, 103, 104 S.Ct. 2948, 2962 (1984).
The analytic focus should be on what conclusions regarding the competitive impact
of a challenged restraint can confidently be drawn from the facts demonstrated by
the parties. See California Dental Ass'n v. FTC, 526 U.S. 756, 779-81, 119 S.Ct.
1604, 1617-18 (1999), NCAA, 468 U.S. at 103-04, 104 S.Ct. at 2961-62.
The district court focused on the agreements by Geneva and Zenith not to
enter the market with FDA-approved (or approval pending) generic terazosin
drugs, holding that this exclusionary effect of the Agreements constituted an
allocation of the market between horizontal competitors and that the Agreements
were therefore per se illegal. We begin our discussion by addressing this
exclusionary effect of the Agreements.
A.
An agreement between competitors to allocate markets is, as the district
court noted, clearly anticompetitive. Such an agreement has the obvious tendency
to diminish output and raise prices. When a firm pays its only potential competitor
not to compete in return for a share of the profits that firm can obtain by being a
monopolist, competition is reduced. See, e.g., Palmer v. BRG of Georgia, Inc., 498
21
U.S. 46, 49-50, 111 S.Ct. 401, 403 (1990) (per curiam) (agreements not to compete
within certain territorial limits are obviously anticompetitive); United States v.
Topco Assocs., 405 U.S. 596, 608, 92 S.Ct. 1126, 1133-34 (1972) (observing that
an agreement between competitors to allocate territories is a "classic example" of a
per se violation of the Sherman Act, with no purpose other than reducing
competition).
If this case merely involved one firm making monthly payments to potential
competitors in return for their exiting or refraining from entering the market, we
would readily affirm the district court's order. This is not such a case, however,
because one of the parties owned a patent. For reasons explained below, and in
light of the fact that all parties seem to agree that the ANDAs that were the subjects
of the infringement suits infringed Abbott's ‘207 patent, we reject the district
court's characterization of the instant Agreements as illegal per se. We believe any
such characterization is premature without further analysis of the kind suggested in
this opinion. Because the market allocation characterization was central to the
district court's conclusion that the Agreements in their entireties are per se
violations of § 1 of the Sherman Act, we will reverse the grant of summary
judgment.
A patent grants its owner the lawful right to exclude others. See 35 U.S.C.
22
§§ 271(a) (defining infringement) & 283 (providing injunctive relief for
infringement); Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215, 100
S.Ct. 2601, 2623 (1980) ("[T]he essence of a patent grant is the right to exclude
others from profiting by the patented invention."). This exclusionary right is
granted to allow the patentee to exploit whatever degree of market power it might
gain thereby as an incentive to induce investment in innovation and the public
disclosure of inventions. Bonito Boats, Inc., v. Thunder Craft Boats, Inc., 489 U.S.
141, 150-51, 109 S.Ct. 971, 977-78 (1989); United States v. Studiengesellschaft
Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Cir. 1981). The exclusionary right
cannot be exploited in every way -- patentees cannot pool their patents and fix the
prices at which licensees will sell the patented article, for example, see United
States v. New Wrinkle, Inc., 342 U.S. 371, 72 S.Ct. 350 (1952) -- but a patentee
can choose to exclude everyone from producing the patented article or can choose
to be the sole supplier itself, see, e.g., In re Indep. Serv. Orgs. Antitrust Litig., 203
F.3d 1322, 1328 (Fed. Cir. 2000); SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1209
(2d Cir. 1981); or grant exclusive territorial licenses carving up the United States
among its licensees, see 35 U.S.C. § 261. Within reason, patentees can also
subdivide markets in ways other than territorial, such as by customer class. Gen.
Talking Pictures Corp. v. Western Elec. Co., 304 U.S. 175, 58 S.Ct. 849, aff'd on
23
reh'g, 305 U.S. 124, 59 S.Ct. 116 (1938) (approving a license restricting the
licensee's sales to non-commercial customers). Such arrangements undoubtedly
tend to result in lower production and higher prices of the patented article than if
competition were unrestrained, but these anticompetitive tendencies do not render
them in violation of the Sherman Act.
The above discussion illustrates the point that a patentee's allocation of
territories is not always the kind of territorial market allocation that triggers
antitrust liability, and this is so because the patent gives its owner a lawful
exclusionary right. In characterizing the Agreements as territorial market
allocations agreements, the district court did not consider that the '207 patent gave
Abbott the right to exclude others from making, using, or selling anhydrous
terazosin hydrochloride until October of 2014, when it is due to expire.16 To the
extent that Zenith and Geneva agreed not to market admittedly infringing products
before the '207 patent expired or was held invalid, the market allocation
characterization is inappropriate.
Zenith's agreement not to market an infringing generic terazosin
hydrochloride drug terminated, by its own terms, when either another generic
16
The ‘207 patent was, of course, declared invalid on September 1, 1998, a
judgment affirmed on January 10, 2000. The antitrust consequences of this subsequent
invalidation will be addressed below.
24
manufacturer marketed a terazosin product and any exclusivity period expired or
Abbott's ‘532 patent expired in February of 2000. The effect of the Zenith
Agreement on the production of Zenith's infringing terazosin product appears to be
no broader than the potential exclusionary effect of the ‘207 patent, and was
actually narrower to the extent it permitted Zenith to market its drug before the '207
patent expired. Geneva's agreement not to market an infringing terazosin product
terminated at the earliest of (1) a final, unappealable judgment holding the '207
patent invalid; (2) the marketing of a terazosin product by another generic
manufacturer; or (3) the expiration of the '532 patent. The effect of the Geneva
Agreement on the production of Geneva's infringing generic terazosin product may
have been no broader than the potential exclusionary effect of the ‘207 patent. The
'207 patent may have allowed Abbott to obtain preliminary injunctive relief or a
stay of an adverse judgment pending appeal, which also would have prevented
Geneva from marketing its terazosin hydrochloride products during this period.17
With respect to the foregoing aspects of the two Agreements' exclusionary
effects, which were the foundation of the district court's characterization of the
17
We say “may” because we do not hold that the ‘207 patent would have allowed
Abbott to obtain a preliminary injunction or a stay of an adverse judgment pending appeal. We
mean only that these are among the considerations that the district court should address on
remand. We do note that appellees have not at this stage argued that Abbott would have been
unable to obtain such relief.
25
Agreements as market allocation agreements, these are at the heart of the patent
right and cannot trigger the per se label.18 Unlike some kinds of agreements that
are per se illegal whether engaged in by patentees or anyone else, such as tying or
price-fixing, the exclusion of infringing competition is the essence of the patent
grant. As one court has concluded, "when patents are involved . . . the
exclusionary effect of the patent must be considered before making any
determination as to whether the alleged restraint is per se illegal." In re
Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp. 2d 188, 249 (E.D.N.Y.
2003). Because the district court failed to consider the exclusionary power of
Abbott's patent in its antitrust analysis, its rationale was flawed and its conclusion
that these Agreements constitute per se violations of the antitrust laws must be
reversed.
While our holding at this early stage of the litigation is appropriately narrow,
18
Appellees argue that the Agreements have broader exclusionary tendencies in that
they also prohibited the marketing of non-infringing terazosin products, prohibited Geneva from
marketing infringing products beyond the date a district court held the '207 patent invalid, and
prohibited Geneva from waiving its 180-day exclusivity period. As we explain below, these
prohibitions may be beyond the scope of Abbott's lawful right to exclude and, if so, would
expose appellants to antitrust liability for any actual exclusionary effects resulting from these
provisions that appellees can prove at the causation and damages stages of litigation. Our point
thus far is that appellees have failed to prove that appellants should face per se antitrust liability
for treble damages for the failure of Zenith and Geneva to market admittedly infringing products
when no court had declared Abbott's patent invalid or unenforceable at the time of the
Agreements.
26
the decision below and the arguments of the parties invite our discussion of several
matters that promise to be relevant on remand. We first discuss appellees'
argument that the antitrust analysis need not consider Abbott's patent rights
because the ‘207 patent was declared invalid. We then discuss appellees' argument
that the lawful right of exclusion does not include the right to pay competitors not
to produce infringing products. Finally, we offer several observations with respect
to the framework to be developed on remand for deciding the appropriate antitrust
analysis.
B.
The individual Sherman Act plaintiffs-appellees argue that because the '207
patent was declared invalid after the Agreements were entered into, Abbott never
had any patent rights and our antitrust analysis need not consider the '207 patent.
We reject the appellees' argument that the agreements by Geneva and Zenith not to
produce infringing products are subject to per se condemnation and treble-damages
liability merely because the '207 patent was subsequently declared invalid. We
begin with the proposition that the reasonableness of agreements under the antitrust
laws are to be judged at the time the agreements are entered into. Polk Bros. v.
Forest City Enters., 776 F.2d 185, 189 (7th Cir. 1985); SCM Corp., 645 F.2d at
1207. At the time the Agreements were entered into, no court had declared
27
Abbott's ‘207 patent invalid, and the appellees have advanced no argument other
than mere invalidity. 19 We hold that the mere subsequent invalidity of the patent
does not render the patent irrelevant to the appropriate antitrust analysis.
The right of exclusion conferred by a patent has been characterized as a
defense to an antitrust claim, see Walker Process Equip., Inc., v. Food Mach. &
Chem. Corp., 382 U.S. 172, 179, 86 S.Ct. 347, 351 (1965) (Harlan, J., concurring),
or as a limited exception to the general rule that markets should be free from
barriers to competition, see id., 382 U.S. at 176, 86 S.Ct. at 350; United States v.
Line Material Co., 333 U.S. 287, 309, 68 S.Ct. 550, 561 (1948); id., 333 U.S. at
310, 68 S.Ct. at 562. Appellees' argument implies that this defense is unavailable
with respect to the Agreements because the '207 patent was subsequently held
invalid.
The only time the Supreme Court has addressed the circumstances under
which the patent immunity from antitrust liability can be pierced, it held that the
antitrust claimant must prove that the patentee enforced a patent with the
knowledge that the patent was procured by fraud on the Patent Office. Walker
19
That is, appellees have neither alleged nor asserted that the patent was procured by
fraud, that appellants knew the patent was invalid, that there was no objective basis to believe
that the patent was valid, or any such similar allegations. We therefore are not called upon to
decide what the antitrust consequences of such circumstances might be.
28
Process, 382 U.S. at 177, 86 S.Ct. at 350 (considering a monopolization claim
against a patentee for suing to enforce a patent allegedly procured by fraud). Good
faith procurement furnishes a complete defense to the antitrust claim. Id. Justice
Harlan's concurrence explained that the effect of antitrust liability on the incentives
for innovation and disclosure created by the patent regime must be taken into
account when a court considers whether a patentee is stripped of its immunity from
the antitrust laws:
It is well also to recognize the rationale underlying this decision,
aimed of course at achieving a suitable accommodation in this area
between the differing policies of the patent and antitrust laws. To
hold, as we do, that private suits may be instituted under § 4 of the
Clayton Act to recover damages for Sherman Act monopolization
knowingly practiced under the guise of a patent procured by deliberate
fraud, cannot well be thought to impinge upon the policy of the patent
laws to encourage inventions and their disclosure. Hence, as to this
class of improper patent monopolies, antitrust remedies should be
allowed room for full play. On the other hand, to hold, as we do not,
that private antitrust suits might also reach monopolies practiced under
patents that for one reason or another may turn out to be voidable
under one or more of the numerous technicalities attending the
issuance of a patent, might well chill the disclosure of inventions
through the obtaining of a patent because of fear of the vexations or
punitive consequences of treble-damage suits. Hence, this private
antitrust remedy should not be deemed to reach § 2 monopolies carried
on under a nonfraudulently procured patent.
382 U.S. at 179-80, 86 S.Ct. at 351-52. This approach is commonly used by courts
considering the intersection of patent law and antitrust law. See, e.g., SCM Corp.,
29
645 F.2d at 1203-06 (considering antitrust claims against a patentee for acquiring
and refusing to license various patents); Handgards, Inc., v. Ethicon, Inc., 601 F.2d
986, 992-93 (9th Cir. 1979) (considering a monopolization claim against a patentee
for asserting a patent it allegedly knew to be invalid). A suitable accommodation
between antitrust law's free competition requirement and the patent regime's
incentive system is required by the complementary objectives of the two:
It is commonly said . . . that the patent and antitrust laws necessarily
clash . . . At the same time, the two regimes seek the same object: the
welfare of the public . . . [A]ntitrust law forbids certain agreements
tending to restrict output and elevate prices and profits above the
competitive level. Patent law also serves the interests of consumers by
protecting invention against prompt imitation in order to encourage
more innovation than would otherwise occur.
H. Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their
Application, ¶ 1780a (1999) ("Hovenkamp") (citations and quotations omitted).
See also D. Crane, “Exit Payments in Settlement of Patent Infringement Lawsuits:
Antitrust Rules and Economic Implications,” 54 Fla. L. Rev. 747, 748 n.1 (2002)
("It is generally recognized that antitrust and patent law, although polar opposites
in their treatment of monopolies, share common objectives."); Zenith Elecs. Corp.
v. Exzec, Inc., 182 F.3d 1340, 1352 (Fed. Cir. 1999) ("The patent and antitrust laws
are complementary in purpose in that they each promote innovation and
competition . . . .") (citation omitted).
30
Employing this approach, we conclude that exposing settling parties to
antitrust liability for the exclusionary effects of a settlement reasonably within the
scope of the patent merely because the patent is subsequently declared invalid
would undermine the patent incentives. Patent litigation is too complex and the
results too uncertain for parties to accurately forecast whether enforcing the
exclusionary right through settlement will expose them to treble damages if the
patent immunity were destroyed by the mere invalidity of the patent.20 This
uncertainty, coupled with a treble damages penalty, would tend to discourage
settlement of any validity challenges except those that the patentee is certain to win
at trial and the infringer is certain to lose. By restricting settlement options, which
would effectively increase the cost of patent enforcement, the proposed rule would
impair the incentives for disclosure and innovation. See Ciprofloxacin, 261 F.
Supp. 2d at 256 (expressing concern for the effect of settlement-restricting antitrust
liability rules on the incentives for research and development); cf. Walker Process,
20
The cost and complexity of most patent litigation is a familiar problem to the
court system. See, e.g., Blonder-Tongue, 402 U.S. at 331-32 & 334-38, 91 S.Ct. at 1444 &
1445-48; Cyber Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1475-76 (Fed. Cir. 1998) (Rader, J.,
dissenting) (discussing claim construction); Matter of Schering-Plough Corp., No. 9297, 2002
WL 1488085, *166-67 & *239-40 (F.T.C. June 27, 2002), also available at
http://www.ftc.gov/os/caselist/d9297.htm. See also Crane, 54 Fla. L. Rev. at 757. The cost
savings of settlement, both to the parties and to the public, are equally widely-recognized. See
Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1372 (6th Cir. 1976) ("Public policy favors
settlement of disputes without litigation. Settlement is of particular value in patent litigation, the
nature of which is often inordinately complex and time consuming.").
31
382 U.S. at 180, 86 S.Ct. at 352 (Harlan, J., concurring) (permitting antitrust
liability based on a showing mere invalidity "might well chill the disclosure of
inventions through the obtaining of a patent because of fear of the vexations or
punitive consequences of treble-damages suits").
There may be circumstances under which the unreasonableness of a
settlement agreement regarding a subsequently-invalidated or unenforceable patent
would be sufficiently apparent that antitrust liability would not undermine the
encouragement of genuine invention and disclosure. Cf. Walker Process, 382 U.S.
at 179-180, 86 S.Ct. at 351 (Harlan, J., concurring) (noting that exposing patentees
to antitrust liability for the assertion of a patent known to have been procured by
fraud "cannot well be thought to impinge upon the policy of the patent laws to
encourage inventions and their disclosure"). In this regard we note that some lower
courts have extended Walker Process to permit antitrust claims against patentees
for the anticompetitive effects of infringement lawsuits when the antitrust claimant
proves that the patentee knew that the patent was invalid, Handgards, 601 F.2d at
994-96, or knew that the patent was not infringed, Loctite Corp. v. Ultraseal Ltd.,
781 F.2d 861, 876-77 (Fed. Cir. 1985), overruled on other grounds by
32
Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059 (Fed. Cir. 1998).21
To the extent that the appellees have demonstrated nothing more than subsequent
invalidity, we hold that this alone is insufficient to render the patent's potential
exclusionary effects irrelevant to the antitrust analysis.
C.
The class action plaintiffs-appellees argue that the patent right does not
include the right to pay infringers, with the implication that any exclusion resulting
from payment rather than judicial enforcement is not protected from per se antitrust
liability by the patent laws. Our discussion with regard to the important role played
by settlement in the enforcement of patent rights leads us to reject this argument as
well. Appellees have not explained why a monetary payment as part of a patent
litigation settlement should be flatly prohibited as a per se violation, particularly
where the alleged infringer has not yet caused the patentee any harm and the
patentee does not have a damages claim to bargain with. See Ciprofloxacin, 261 F.
Supp.2d at 251-52 (discussing the asymmetries of litigation risk created by
Hatch-Waxman and rejecting the argument that payments from the patentee to the
21
Similarly, it has been suggested that the “sham” exception to the antitrust
immunity afforded by the Noerr-Pennington doctrine is or may be available also to antitrust
plaintiffs seeking to pierce the patent immunity. See Independent Services Organizations, 203
F.3d at 1326-27. Because the parties have not briefed such potential exceptions to the patent
immunity from antitrust liability, we do not address them at this time.
33
infringer are subject to per se antitrust analysis); Crane, 54 Fla. L. Rev. at 774
(discussing the dynamics of settlement before the alleged infringer has entered the
market).
We cannot conclude that the exclusionary effects of the Agreements not to
enter the market were necessarily greater than the exclusionary effects of the '207
patent merely because Abbott paid Geneva and Zenith in return for their respective
agreements. If Abbott had a lawful right to exclude competitors, it is not obvious
that competition was limited more than that lawful degree by paying potential
competitors for their exit. The failure to produce the competing terazosin drug,
rather than the payment of money, is the exclusionary effect, and litigation is a
much more costly mechanism to achieve exclusion, both to the parties and to the
public, than is settlement. See Aro Corp., 531 F.2d at 1372. To hold that an
ostensibly reasonable settlement of patent litigation gives rise to per se antitrust
liability if it involves any payment by the patentee would obviously chill such
settlements, thereby increasing the cost of patent enforcement and decreasing the
value of patent protection generally. We are not persuaded that such a per se rule
would be an appropriate accommodation of the competing policies of the patent
and antitrust laws.
It may be that the size of the payment to refrain from competing, sometimes
34
called a "reverse payment" or an "exit payment," raises the suspicion that the
parties lacked faith in the validity of the patent22, particularly when those payments
are non-refundable in the event that the patentee prevails on the infringement claim
(as a bond posted as part of a preliminary injunction would be). However, in the
instant case and given the state of the current record, it is difficult to infer from the
size of the payments alone that the infringement suits lacked merit. We do not
know, for example, what lost profits Abbott expected from generic competition or
what profits Geneva and Zenith expected to gain from entry, the risk of the
defendants' inability to satisfy a judgment, or the litigation costs each side expected
to save from settlement. We do not know how much of the payment might have
been in exchange for provisions of the Agreements other than Zenith's and
Geneva's acknowledgment of validity. 23 Without these facts we cannot confidently
draw the conclusion, merely from the size of the payments, that there were no
genuine disputes over the validity of the patent. Given the asymmetries of risk and
large profits at stake, even a patentee confident in the validity of its patent might
22
For example, the size of the payments might be evidence supporting a claim that
the patentee knew that the patent was procured by fraud, or knew that the patent was invalid, or
that there was no objective basis to believe the patent was valid. See discussion in Part B, supra.
23
For example, it seems reasonable to assume that part of the payments to Geneva
were in return for Geneva's agreement not to waive its 180-day exclusivity period. Payments for
provisions other than the acknowledgment of validity would not shed light on the parties'
evaluations of the merits of the validity issue.
35
pay a potential infringer a substantial sum in settlement. See, e.g., Ciprofloxacin
Hydrochloride, 261 F. Supp. 2d at 196, 234 (settlement agreements under which a
patentee paid an infringer $49.1 million to acknowledge the validity of a patent,
and at least $398 million for the infringer to remain off the market, though the
patent was subsequently approved by the PTO on reexamination and
unsuccessfully challenged in court three times).
Another possibly suspicious characteristic of the payments to Geneva is their
structure (i.e., tying their duration to the length of the litigation), which, as the
district court noted, may have given Geneva an incentive to delay resolution of the
infringement suit.24 But if the payments were in furtherance of the seemingly
reasonable purpose of compensating Geneva for any lost profits during the course
of litigation (much like a bond posted as part of a preliminary injunction), it is
difficult to imagine how else to structure the payments but by tying them to the
length of the litigation.
We recognize that the Sixth Circuit appeared to take the opposite view in In
re Cardizem CD Antitrust Litig., 332 F.3d 896, 908 (6th Cir. 2003) ("[I]t is one
thing to take advantage of a monopoly that naturally arises from a patent, but
24
Neither appellees nor the district court have offered any similar suspicions with
regard to the structure of payments under the Zenith Agreement.
36
another thing altogether to bolster the patent's effectiveness in inhibiting
competition by paying the only potential competitor $40 million per year to stay
out of the market.").25 When the exclusionary power of a patent is implicated,
however, the antitrust analysis cannot ignore the scope of the patent exclusion.
"[T]he protection of the patent laws and the coverage of the antitrust laws are not
separate issues." Studiengesellschaft, 670 F.2d at 1128. As the above discussion
indicates, we do not think that a payment from the patentee to the alleged infringer
should be automatically condemned under the antitrust laws 26, nor do we think that
the evidence regarding the exit payments in this case allows a confident conclusion
to be drawn at this stage of the litigation that the exclusionary effect of the
25
The terms of the agreements at issue in the Cardizem CD case were similar to the
terms of the Agreements in this case.
26
The Sixth Circuit seems to have placed considerable reliance upon the generic's
agreement to delay entering the market in exchange for exit payments, although it may also have
been influenced by other provisions of the agreement which might more readily seem to exceed
the potential exclusionary power of the patent. For example, the Sixth Circuit mentioned the
effect of the agreements regarding the 180-day exclusivity period as well, and its reference to the
district court opinion in that case might reflect some reliance on the restriction on non-infringing
products. See Cardizem CD, 332 F.3d at 907-08; In re Cardizem CD Antitrust Litig., 105 F.
Supp. 2d 682, 705 (E.D.Mich. 2000). However, the Sixth Circuit opinion did not purport to
measure the several provisions against the exclusionary power of the patent, or differentiate
between provisions that fell within the scope of the patent's protection and those which did not.
Cf. Cardizem CD, 105 F. Supp. 2d at 701 ("The anticompetitive effects of [the] patent are
likewise not at issue."). To the extent that the Sixth Circuit suggests that a settlement of patent
litigation was a per se violation of the antitrust laws merely because it involves a generic's
agreement to delay marketing until resolution of the patent infringement case in exchange for exit
payments, we respectfully disagree. We believe that the potential exclusionary power of the
patent must first be considered.
37
Agreements were bolstered by the exit payments to a degree that exceeds the
potential exclusionary power of the patent.
Because these matters were given scant attention in the district court,
considering the court's primary conclusion that the Agreements were market
division agreements like those in Palmer and Topco, these questions have not been
explored. We simply note them here to explain our conclusion that the presence of
an exit payment as part of the settlement does not alone demonstrate that the
Agreements had obvious anticompetitive tendencies above and beyond Abbott's
potential exclusionary rights under the '207 patent.
D.
Our discussion so far has been limited to the exclusionary effects of the
instant Agreements to delay entrance into the market, the subsequent invalidation
of the patent, and the mere fact of exit payments. To the extent that these or other
effects of the Agreements are within the scope of the exclusionary potential of the
patent, such effects are not subject to per se antitrust condemnation.27 From the
preceding discussion, we conclude that deciding the antitrust implications of these
27
Application of rule of reason analysis is similarly inappropriate, as the
anticompetitive effects of exclusion cannot be seriously debated. Rule of reason and per se
analysis are both aimed at assessing the anticompetitive effects of particular conduct; what is
required here is an analysis of the extent to which antitrust liability might undermine the
encouragement of innovation and disclosure, or the extent to which the patent laws prevent
antitrust liability for such exclusionary effects.
38
exclusionary effects requires an analysis of the effects of antitrust liability on the
innovation and disclosure incentives created by the patent regime, with the aim of
"achieving a suitable accommodation between the differing policies." Walker
Process, 382 U.S. at 179, 86 S.Ct. at 351 (Harlan, J., concurring).
As alluded to earlier, however, see supra at ___ n.18 (M/S at 26, n.18), the
instant Agreements are not confined to matters involving restrictions on infringing
products, exit payments, and a subsequent court decision declaring the patent
invalid. Appellees also challenge other provisions of the Agreements, such as
those prohibiting the marketing of "any" generic terazosin product; Geneva's
agreement not to waive its 180-day exclusivity period; and Geneva's agreement not
to come to market until a final, unappealable judgment of invalidity rather than on
a district court judgment. These arguments require consideration of the scope of
the exclusionary potential of the patent, the extent to which these provisions of the
Agreements exceed that scope, and the anticompetitive effects thereof. Because
these considerations require a different analytic framework than that applied by the
district court and advocated by the parties on appeal, it is appropriate to remand to
the district court to apply an appropriate framework derived from this decision, and
the arguments of the parties and the facts developed on remand. To aid in the
development of an appropriate framework, we offer the following observations.
39
We recognize the patent exception to antitrust liability, but also recognize
that the exception is limited by the terms of the patent and the statutory rights
granted the patentee. "[T]he precise terms of the grant define the limits of a
patentee's monopoly and the area in which the patentee is freed from competition
of price, service, quality or otherwise." Line Material, 333 U.S. at 300, 68 S.Ct. at
557. See also New Wrinkle, 342 U.S. at 378, 72 S.Ct. at 353 ("Patents give no
protection from the prohibitions of the Sherman Act to [price fixing] when the
licenses are used, as here, in the scheme to restrain."); United States v. Masonite
Corp., 316 U.S. 265, 277, 62 S.Ct. 1070, 1077 (1942) ("The owner of a patent
cannot extend his statutory grant by contract or agreement. A patent affords no
immunity for a monopoly not fairly or plainly within the grant.").
The appropriate analysis on remand will likely require an identification of
the protection afforded by the patents and the relevant law28 and consideration of
the extent to which the Agreements reflect a reasonable implementation of these.
Appellants, for example, contend that certain provisions of the Geneva Agreement
are analogous to a consensual preliminary injunction and stay of judgment pending
appeal. To evaluate this claim, the provisions of this Agreement should be
28
We express no view at this time on what role the FDA's regulation of market entry
might play in the appropriate antitrust analysis.
40
compared to the protections afforded by the preliminary injunction and stay
mechanisms and considered in light of the likelihood of Abbott's obtaining such
protections. Cf. Hovenkamp at ¶ 2046 ("some care must be taken to ensure that . . .
the settlement . . . is not more anticompetitive than a likely outcome of the
litigation").
Any provisions of the Agreements found to have effects beyond the
exclusionary effects of Abbott's patent may then be subject to traditional antitrust
analysis to assess their probable anticompetitive effects in order to determine
whether those provisions violate § 1 of the Sherman Act.29 Standard Oil Co., Ind.,
v. United States, 283 U.S. 163, 175, 51 S.Ct. 421, 425-26 (1931) (recognizing that
cross-licensing agreements and a division of royalties could be used to monopolize
or fix prices and examining the evidence to assess the potential for anticompetitive
effects as a result of the agreements at issue). The appropriate analysis of the
market effects of such provisions may depend on the nature of the provision
challenged. It may be that some challenged provisions are so obviously
anticompetitive that they can be condemned as illegal on the evidence so far
29
Courts have not hesitated to apply traditional antitrust principles to agreements
not within the scope of the patent protection. See Line Material, 333 U.S. at 307, 68 S.Ct. at 560
(holding a patent pooling agreement that fixed the prices at which licensees would sell the
patented product per se illegal); Masonite, 316 U.S. at 274, 62 S.Ct. at 1076 (holding a price-
fixing agreement among patentees and their licensees per se illegal).
41
adduced, or it may be that the tendencies of some challenged provisions cannot be
confidently predicted without further inquiry.
[T]here is generally no categorical line to be drawn between restraints
that give rise to an intuitively obvious inference of anticompetitive
effect and those that call for more detailed treatment. What is
required, rather, in an enquiry meet for the case, looking to the
circumstances, details, and logic of a restraint.
Cal. Dental, 526 U.S. at 780-81, 119 S.Ct. at 1618.30 If on remand the court should
conclude that part, but not all, of the provisions of the Agreements violate the
Sherman Act, it may also be helpful to identify with specificity which provisions or
combination of provisions are illegal31 and the nature of the anticompetitive effects
of those provisions or combinations in order to aid subsequent determinations on
causation and antitrust injury. Finally, the particular circumstances of this case and
the arguments of the parties on remand may demonstrate other relevant
30
Because the appellants' arguments supporting the application of the rule of reason
rely primarily on the circumstance that the Agreements arise out of patent litigation, and because
the determination of the appropriate analysis should await the inquiries to be made on remand,
we decline at this time to address the issue further. We note, however, that the application of the
rule of reason is not synonymous with exhaustive factual inquiry. “[S]ome rule-of-reason cases
can be disposed of merely on the basis of the parties’ arguments and, more often, on the basis of
a limited summary judgment record.” Hovenkamp, ¶ 1508.
31
This is not to suggest that the provisions should be considered in isolation;
agreements that are anticompetitive when considered in isolation (such as covenants not to
compete) can still be lawful if they are ancillary to another agreement and, when viewed in
combination, will have the overall effect of enhancing competition. See Business Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717, 729, 108 S.Ct. 1515, 1523 & n.3 (1988), Polk Bros., 776 F.2d
at 189. We simply suggest that careful consideration of individual provisions may be helpful
should it appear that the Agreements are unlawful only in part.
42
considerations.
IV. CONCLUSION
The district court's order granting partial summary judgment is REVERSED
and this case is REMANDED for further proceedings consistent with this
opinion.32
32
All pending motions are DENIED.
43