IN RE CIPRO CASES I & II

Appellants’ Petition for Review

Cal.December 13, 2011

9198616 om ~~ In the Supreme Court ofthe State of California IN RE CIPRO CASESI & II a, ) PreFonee K. OnIriGt Chapt Rereezaoe casa ne rarer, CALIFORNIA COURT OF APPEAL : FOURTH APPELLATE DISTRICT - NO. D056361 SUPERIOR COURT OF SAN DIEGO - HON. RICHARD E.L. STRAUSS NOS. JCCP 4154 AND JCCP 4220 SERVICE ON ATTORNEY GENERAL AND DISTRICT ATTORNEY REQUIRED UNDER BUSINESS AND PROFESSIONS CODE§ 17209 AND CRC8.29 PETITION FOR REVIEW JOSEPH R. SAVERI, Esq.(130064) DAN DRACHLER,ESQ.(pro hac vice) ERIc B. FASTIFF, Esq. (182260) ZWERLING, SCHACHTER & ZWERLING, LLP BRENDAN GLACKIN,Esq.(199643) 1904 Third Avenue, Suite 1030 JORDANELIAS,Esq. (228731) Seattle, Washington 98101 DEAN M.HARVEY,Esa. (250298) (206) 223-2053 Telephone LIEFF CABRASER HEIMANN (206) 343-9636 Facsimile & BERNSTEIN, LLP RALPH B. KALFAYAN,Esq.(133464) 275 Battery Street, 29th Floor KRAUSE KALFAYANBENINK& SLAVENS, LLP San Francisco, California 94111-3339 625 Broadway, Suite 635 (415) 956-1000 Telephone San Diego, California 92101 (415) 956-1008 Facsimile (619) 232-0331 Telephone (619) 232-4019 Facsimile ‘ Attorneysfor Plaintiffs-Appellants and all others similarly situated g COUNSEL PRESS : (800) 3-APPEAL PRINTED ON RECYCLED PAPER eo TABLE OF CONTENTS Page ISSUES PRESENTED.........c.cccssssssssssessscssessssssesccesscsreassesesasscassseesesesesacees 1 WHY REVIEW SHOULD BE GRANTED......csesccssessesscsessesesscesssessseseesees 1 BACKGROUND...eesessessssssssesssessssrsesscscssaveraratsusesssassusacasseserssaveneesecess 6 LEGAL ARGUMENT..00...eccsesssssssssssesssssscsssscsssesvsssasscsesucsesessvstsesscsasensens 8 A. The Court ofAppeal Wrongly Eliminatedthe Ability of a Reasonable California Jury to Find the Cipro Market Exclusion Payment Unlawful... .cccsccsesesessessesses 10 B. The Preemption Ruling Incorrectly and Imprudently Restricts the Scope of California Law..........cccccccssscsssssessess 19 C. The Court ofAppeal Misapplied California Supreme Court Precedent by Condoningthe Trial Court’s Blanket Overruling of Petitioners’ Evidentiary Objections, and by Failing to Resolve the Objections......... 24 CONCLUSION.....cccsscsssssssssesecssseesesessescesesscsessssssssscsessascatsarsnssesnssececenecass 26 CERTIFICATE OF WORD COUNT.......cccccscsssssssssssssestecssesssscsesessssseccence 28 OPINION DECLARATION OF SERVICE TABLE OF AUTHORITIES Page CASES American Well Works Co. v. Layne &Bowler Co. (1916) 241 U.S. 257oiesesesssssssssesssssesesssvesssssstssssesssssvesecsersestaeseseaes 21 Arkansas Carpenters Health and Welfare Fund v. Bayer AG (2d Cir. 2010) 604 F.3d 98.0... ccccesessssssssssssssssscssscsrscscscsessessesesseecsees 9,19 Biljac Associates v. First Interstate Bank (First Dist. 1990) 218 Cal. App. 3d 1410 wo.cessessessescceseseseseseees 25 Blank v. Kirwan (1985) 39 Cal. 3d 311 ooccstsscssessesessesessssscscssssssscassesnssacecacaeessasaeres 21 Blonder-Tongue Labs., Inc. v. Univ. ofIll. Found. (1971) 402 U.S. 313iceseeecssssesssssssssessessserssssssasessssearesaceseceraesavaees 16 Blumenfeld v. Arneson Prods., Inc. (First Dist. 1971) 172 U.S.P.Q. 76 ...ccccccsssssssessssssssessssesscsssssscecsasscsesesees 22 California Ass'n ofPsychology Providers v.Rank (1990) S51 Cal. 3d 1 ooeeeecssssessssesesssssessssscssssssscsscssseetasecersseseasaeses 19 Cianci v. Super. Ct. (1985) 40 Cal. 3d 903 ooeecscsssessssesssssssssensesssssssccscsessenesacssaseseucnerss 26 Classen v. Weller (First Dist. 1983) 145 Cal. App. 3d 27 wo. ccccsscssecssessecssscescsessscasseseees 18 Clayworth v. Pfizer, Inc. (2010) 49 Cal. 4th 758 oossssssssesessssssssssssssssssscessecsssrsnesassssvaceassessees 9 Corwin v. Los Angeles Newspaper Serv. Bureau, Inc. (1971) 4 Cal. 3d 842 ooccsssesssseseseessssssessssssssscscsassestseaserssssaseeeusnss 19 Dairy Foods Inc. v. Dairy Maid Prods. Co-op. (7th Cir. 1961) 297 F.2d 805 .....ccecccssssessssssssssscscscscssscsecsrsncessscssacaees 18, 21 Dow Chem. Co. v. Exxon Corp. (Fed. Cir. 1998) 139 F.3d 1470...cecccssssscssssssssecesesseessseesees 21, 23, 24 Edward Katzinger Co. v. ChicagoMetallic Mfg. Co. (1947) 329 U.S. 394ec eeccssssssssssesesesssssssessssessssssssssrseesessesaestesscaracacacaves 16 -ii- TABLE OF AUTHORITIES (continued) Page Freeman v. San Diego Ass’n ofRealtors (Fourth Dist. 1999) 77 Cal. App. 4th 171 vocccscssssecssscssscscesssscseesecsees 9 Fruit Machinery Company v. F. M. Ball & Company (First Dist. 1953) 118 Cal. App. 2d 748 oo. cccccsssssssesssesssessesscssecessees 18 Illinois Corporate Travel v. American Airlines (7th Cir. 1989) 889 F.2d 751 vice ccccsssssssscsscssssessssscscssesscsecsseresecesceecees 11 In re Barr Labs., Inc. (D.C. Cir, 1991) 930 F.2d 72 voce ccccsscssccsssssseseseessssesesssstecsesessecsesceceeceees 5 In re Cardizem CD Antitrust Litigation (6th Cir. 2003) 332 F.3d 896 ooo eccsssscescescscsscssssescssessssecsecceceeescees 13, 16 In re Cipro Cases I and II (Fourth Dist. 2004) 121 Cal. App. 4th 402wcceeccsccscscscscessscecessessseves 8 In re Etter (Fed. Cir. 1985) 756 F.2d 852.0... ccesssccsssssesosessesscsecsessesssssscesscsecceceeceees 17 In re Farm Raised Salmon Cases (2008) 42 Cal. 4th 1077 viccesccsscssssscesssssessesssssescsesessecesessessececeses 22 In re Jose C. (2009) 45 Cal. 4th 534 occccscsscsssscsssssssssssessesscsssssssssessecsessesseceeees 22 In re Tamoxifen Citrate Antitrust Litigation (2d Cir. 2006) 466 F.3d 187.0... ccccccsscssccsscssssssssecsecsesccssccecseceseeseece passim International Travel Arrangers v. NWA,Inc. (8th Cir, 1993) 991 F.2d 1389 oecsccsssssssssscssessssecessessesessecsecsesceccece 25 Kewanee Oil Co. v. Bicron Corp. (1974) 416 U.S. 470... ccccsssccssccscssssscsecssssescsecsesessessrsssseecassessersesseces 22 Lear v. Adkins (1969) 395 U.S. 653 occ cecscssscscsscsssssssssecssssssscssssseseessessessessecseccsssesceceecs 22 Marin County Bad. ofRealtors, Inc. v. Palsson (1976) 16 Cal. 3d 920... ceeccscsscescscssssecscssccsscsseceeseseeseccececees 3,4 Mattel, Inc. v. Luce, Forward, Hamilton & Scripps (Second Dist. 2002) 99 Cal. App. 4th 1179 vc cccsscsssssccsescscccsssseceeecee. 21 - ili - TABLE OF AUTHORITIES (continued) Page Mercoid Corp. v. Mid-Continent Investment Co. [1944] 320 USS. 661neeeessecessssssscsssessessssssssscsssveesssstseseecsesersesseeenss 15 Miller v. Lucas (Second Dist. 1975) 51 Cal. App. 3d. 774 ...cccscssssscsssssstsssssesesseseesseees 21 Nutrition 21 v. United States (Fed. Cir. 1991) 930 F.2d 867.......ccscscsscsesssssssssscssssevsessesecessssrsessseacssans 14 Palmer v. BRG ofGa., Inc. (1990) 498 U.S. 46.eeccssssssssesssesesescsessssscscsssssssssesscssscacecssaravacacsees 24 Polk Bros., Inc. v. Forest City Enters., Inc. (7th Cir. 1985) 776 F.2d 185 occcccssssssesessesssssssscsesssssseseeecssnssecesscscsees 25 Pope Mfg. Co. v. Gormully [1892] 144 US. 224ecscesssessssssesesesesssssssssssssssscerssssessasasstacseaeeneee 16 Potvin v. Met. Life (2000) 22 Cal. 4th 1060 oo.cccssssesssseessssssssssessscsessrsestetsesesesterssnnens 4 Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co. (1945) 324 U.S. 806.0... ccsesssssesssescssessssssscscssstssssscscsssecstsecessensestseseesesees 16 R.E. Spriggs Co. v. Adolph Coors Co. (Second Dist. 1974) 37 Cal. App. 3d 653 .....ccccscscssscccssscsssesesesesestesseees 22 Reid v. Google, Inc. (2010) 50 Cal. 4th 512 ooceseccsssssssesssssessssessssesstscsceeesseesesenss 1, 24, 25 River Garden Farms,Inc. v. Super. Ct. (Third Dist. 1972) 26 Cal. App. 3d 986 .......cccccccssessesescsesssesesessssseseess 13 Sinclair v. Aquarius Elec., Inc. (First Dist. 1974) 42 Cal. App. 3d 216 wo. cccccscccccscssssssescecssssessssssesesees 20 Stratoflex, Inc. v. Aeroquip Corp. (Fed. Cir. 1983) 713 F.2d 1530... .ccccssssssssscsssessssessnssssecsssescscscssasscenenes 14 Timney v. Lin (First Dist. 2003) 106 Cal. App. 4th 1121 voccsecssescssessseeess 12, 13 Transitron Elec. Corp. v. HughesAircraft Co. (D. Mass. 1980) 487 F. Supp. 885 .....cccscsssssssscssessssssecsesssassesssrsssssessees 12 -iv- TABLE OF AUTHORITIES (continued) Page United States v. Line Material Co. (1948) 333 U.S. 287cccccssccsscscsscssscssssssecesessesssessesccscssssesssassarecsseseeeses 16 United States v. Masonite Corp. (1942) 316 U.S. 265 viciccccscscsssscscssscccsccssssssscssesssssesssssssessssseeseaserseesseees 11 United States v. Sealy, Inc. (1967) 388 U.S. 350wcccsssccsssscscccssecssscsscsscstessessescsssssussesecucsssesseesss 11 United States v. Singer Mfg. Co. (1963) 374 U.S. 174ccccssccescesssscessssssessssssscssssssssecssersuccsssneessace 12, 13 United States v. Univis Lens Company (1942) 316 U.S. 241viicccscsscesscsssscseccssecessecsesrsceerseussssssecesscesseees 10 Viva! Int'l Voicefor Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal. 4th 929 oooeesecsscssecssscssccsscssessecsecssusscestecssserecess 22 Vulcan Powder Company v. Hercules Powder Company (1892) 96 Cal. 510 vceieeesesscsseccssssssessecssscsssssssssecsscssscssceneseeees 17, 18 Wright v. Ryder (1868) 36 Cal. 342 voce cccssccssscssccssssccssecssscessrssscesecscsussssevesseeetesseesess 17 STATUTES 21 US.C.§ 355 (the Drug Price Competition and Patent Term Restoration Act of 1984 (“Hatch-Waxman Act”)) ..ccccssccsesessscesesees 4 35 ULS.C. § 282 occccsssccsssssscccsssssscsececssssseserscsesesesseseseessssssucaseseessceeeees 14 Cal. Bus. & Prof. Code §§ 16700, et seg. (the Cartwright Act)........cccccccssscesecessesteeeees passim §§ 17200, et seq (the Unfair Competition Law) ........cccc cesses: passim Health & Safety Code . § 130500; Stats. 2006.0... cesesssccsscscsssecssccsssccssesssssessecsusesescesserseceeseees 4 TABLE OF AUTHORITIES (continued) Page OTHER AUTHORITIES 12 Philip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis ofAntitrust Principles and Their Application ] 2046 (2d ed. 2003)oeeccsessssssssessssssssesssssscssssescsssssssctsescsecsessreacers 16 148 Cong. Rec. S 7566 (daily ed. July 30, 2002)........ccsscescsesesssessssesssssssssssrseceseeterscseessssessseesens 23 2 McCormick on Evid. § 344 (6th ed. 2006) oo.eecssssssssescsesesesesesssssssssssscscessevscsssssceceravscesenss 14 ABASECTION OF ANTITRUST LAW, STATE ANTITRUST PRACTICE AND STATUTES, California 6-1 (3d ed. 2004)... cccsessesesssesssssssssssssssssssesetsssessestacsescessees 9 Amici Curiae Brief of Thirty-Eight States, 2008 WL 576744 (Fed. Cir, 2008) 0...esesesssesessssssssssscesscssssesscesssscssssssscsaceracsesesesacsesessasanes 20 Emily R. Cox, et al., Medicare Beneficiaries’ Management ofCapped Prescription Benefits, Medical Care, vol. 3 (2001) uu... .cssssesescssssescsssssstssssssssvsessceseceusasssseacsesesees 5 Michael A. Carrier, Unsettling Drug Patent Settlements: A Frameworkfor Presumptive Illegality, 108 MICH.L. REV. 37 (2009).......cceccsssssssssscsesssescsssescsssssscssaseesssseeseasacees 13 The Drug Competition Act of 2001, S. Rep. No. 107-167 (2002)... eesesssessssssesesesssessssessessssecsssesseetensaeeeeeees 23 -vi- ISSUES PRESENTED 1. Doesthe law of California forbid a pharmaceutical patent holder from paying its competitors hundredsofmillions of dollars—part of its monopoly profits—in exchange for their agreement notto sell cheaper competitive generic drugs? 2. Dothe facts of this case demonstrating egregious patent misuse in the form ofa large cash payment, made to headofflikely invalidation, that drove up prescription drugprices in an areacritical to social welfare, preclude federal preemption of California law? 3, Are the trial court and reviewing court required to expressly rule on evidentiary objections raised at summary judgment underthis Court’s decision in Reid v. Google, Inc. (2010) 50 Cal. 4th 512? WHY REVIEW SHOULD BE GRANTED This Court’s review is necessary to establish the law of California with respect to the anticompetitive conduct ofpharmaceutical manufacturers under the Cartwright Act, Business and Professions Code section 16700, et seq., and the Unfair Competition Law (“UCL”), Business and Professions Code section 17200, et seq. This appeal presents issues of vital importance to the people of California. The claims focus on Bayer’s $398.1 million payoff to Barr and others for the explicit purpose ofpreventing Barr from entering the market and selling generic Cipro at low prices. With prescription drug prices continuing their unchecked rise, drug companies owningprescription drug patents must not be permitted to suppress competition by buying off their would-be rivals. That is why the California Attorney General’s Office has denounced anticompetitive agreementslike the one at issue here,finding olthey cause “collusive delays” to generic drug competition and the availability of affordable prescription medicines. The Court ofAppeal erroneously blessed Bayer’s $398.1 million payment to Barr—madeto secure Barr’s express agreement not to compete or sell affordable generic versions ofthe antibiotic Cipro for nearly seven years. The payment was wrong-wayor “reverse”in that Barr, the defendantin the litigation whose generic formulation allegedly infringed the Cipro patent, received massive consideration instead ofpaying a dime. Bayer made the paymentto avoidtrial on Barr’s invalidity counterclaim and the resulting patent invalidation that would have taken awayits monopoly profits. This was wrong. In affirming a grant of summary judgment to these companies, Defendants in this action, the Court ofAppeal accepted a misdirected line of recent federal authority that has no place in California jurisprudence. This Court should grant review to prevent the adoption ofthis flawed line of federal decisions as the law of California. Ifthese decisions were to becomethe law of California, the aggrieved patients and consumers who makeup this Class, and whopaid high prices for Cipro from 1997 to 2004, would be deniedtheir right to pursue recovery of hundreds of millions of dollars in illegal overcharges. Denial of review would pave the way for competitors to continue flaunting California law and public policy. “Pay-for-delay” deals result in American consumers paying an additional $3.5 billion every year in inflated prescription drug costs.” The present case involves the largest such ! http://ag.ca.gov/publications/biennial_report_07-08.pdf, at p. 3 (Appellants’ Appendix (“AA”), vol. 10, at 2337). ? http://www.fic.gov/os/2010/01/100112payfordelayrpt.pdf, at p. 2. deal of all time.* There is no better vehicle than this case to safeguard and promote consumeraccess to reasonably priced prescription drugs. The Court ofAppeal held that Bayer’s ownership of a Cipro patent immunized Bayer from Cartwright Act liability, even though the patent had never been upheld in court at the time ofBayer’s payment, and even though Bayer’s paymentallowedit to share its monopoly—and monopoly profits— with its competitors. The Court committed numerouserrors. It misapplied California law and gave no weight to the harm Bayer’s payment not to compete inflicted on patients and consumersin California. The opinion turned a blind eye to Defendants’ naked horizontal market allocation, which led to drastic price increases borne by California citizens. Such agreementsare perse illegal under the Cartwright Act. In deferring to recent federal decisions, the opinion failed to address applicable high court authority, including decisions of this Court, and ignored that in legitimate litigation, the patent holder does notpay the alleged infringer to settle. The opinion also misunderstood patent law, allowing a private agreement surrounding an untested—and unenforceable—patent to supply the same bulwark against competition asa fully litigated patent upheld on its merits. Indeed, the $398.1 million paymentto the patent challenger here is the functional equivalent of a victory by the entity asserting the patent was invalid. But consumers gained no benefit and ultimately funded the settlement. The reasoning and result below are abhorrentto the central purposes ofthe Cartwright Act: requiring competition and protecting consumers from monopolists. See Bus. & Prof. Code section 16700, et seg.; Marin 3 http://democrats.energycommerce.house.gov/Press_111/20090331/ testimony_hemphillpdf, at p. 9 (LOAA 2261). County Bad. ofRealtors, Inc. v. Palsson (1976) 16 Cal. 3d 920, 935 (“Antitrust laws are designed primarily to aid the consumer.”). The decisionalso offends the California public policy and public interest with respect to health care. In particular, health care occupies “a special moral status and therefore a particular public interest” in California, as this Court held, and the Legislature declared,“[a]ffordability is critical in providing access to prescription drugs for California residents, particularly the uninsured and those with inadequate insurance.” Potvin v. Met. Life (2000) 22 Cal. 4th 1060, 1070; Health & Safety Code § 130500; Stats. 2006, c. 619, s. 1 (A.B. 2911). Further, if adopted as the law of California, the Court ofAppeal’s holding would vitiate California’s patent abuse doctrine, under which California courts have long recognizedthat a patent holder can be found to violate the Cartwright Act through unlawful acts, even acts confined to the patent parameters. The doctrine looks to whether a patent was misused in subversion ofthe public interest. See Pages 10-19,infra. The Court of Appealignored this completely. Ajury could reasonably find that Bayer’s payment was madeto avoid invalidation ofits Cipro patent and the price competition that would haveresulted. The size of the payment (far more than Bayer’s competitors stood to earn from generic Cipro sales in a competitive market), and the clear proof of Defendants’ intent to foreclose competition, raise an inference of unlawful patent abuse and support a finding of Cartwright Act liability. Payoffs to generic drug competitors are troubling. First, they eliminate competition. Second, they foreclose thetesting ofpatents, a core focus of the case law regardingpatents and patentlitigation.’ Third, they lead to higher drug prices, adversely affecting the public health and welfare.” See Brief Amici Curiae of 78 Intellectual Property Law, Antitrust Law, Economics, and Business Professors in Support of Appellant, filed in the Court ofAppeal on November29, 2010. Fourth,in the area of pharmaceutical pricing, such payments blocking generic competition directly undermine the purpose of the Drug Price Competition and Patent Term Restoration Act of 1984 (“Hatch-Waxman Act”), 21 U.S.C. § 355, which was designedto “get generic drugs into the hands ofpatients at reasonable prices—fast.” Jn re Barr Labs., Inc. (D.C. Cir. 1991) 930 F.2d 72, 76. The California Attorney General’s Office, thirty-seven otherstate attorneys general, the Federal DepartmentofJustice and the Federal Trade Commission have beseechedcourts to overrule the rule applied below,as have a broad array ofpublic policy, consumerprotection and other non- profit organizations: the American Medical Association; AARP;the American Antitrust Institute; Consumers Union; the National Association of Chain Drug Stores; Prescription Access Litigation; Consumer Federation * Far from being sacrosanct, patents, especially pharmaceutical patents, are frequently challenged and invalidated. (6AA 1177.) ° Scientific studies in peer-reviewed journals have found that manypatients do not take someorall of their prescribed medicine whenit is too expensive and becomes unaffordable. See, e.g., Emily R. Cox, et al., Medicare Beneficiaries’ Management ofCapped Prescription Benefits, Medical Care, vol. 3, at 296 (2001) (finding that 23.6 percent of Medicare beneficiaries who wereatrisk of reachingtheir prescription cap took less than the prescribed amount ofmedication, 16.3 percent stopped using medications, and 14.7 percent went without food, clothing, or shelter) (9AA 1999; see also 9AA 1970-2002). ofAmerica; the Public Patent Foundation; the National Legislative Association for Prescription Drug Prices; and U.S. PIRG. The Court ofAppeal’s secondary, wide-reaching federal preemption ruling might be even moredisturbing than its unquestioning adoption ofthe unsound federal standard. The preemption ruling will unwisely and unduly limit the ability of California courts to adjudicate disputes touching upon issues of patent law. See Pages 19-24,infra. The Court ofAppeal incorrectly determinedthat Petitioners’ basis for seeking liability conflicts with federal law. Rather, the Federal Trade Commission has foundthat, underfederal law, these kind of anticompetitive “pay-for-delay” agreements represent “one of the greatest threats American consumers face today.”® To counteractthat threat, to settle legal issues of vital importance to California patients, consumers and public law enforcementofficials, to provide guidancetolitigants in California and throughout the United States where California law is applied, and to establish the proper balance between California competition law and federal patent law, this Court should grant review andresolve the question offirst impression presented by this appeal. The opinion below should be vacated andthe grant of summary judgmentreversed so the claims may proceedtotrial, consistent with a correct understanding of California law. BACKGROUND These Cartwright Act claims derive from agreements amongseveral competitors. Defendants Bayer AG and Bayer Corp. (“Bayer”) held the patent to the blockbuster anti-infection drug ciprofloxacin hydrochloride ® http://www.fte.gov/os/testimony/P040101antitrust_laws.pdf, at p. 4 (1OAA 2182). (“Cipro”). In late 1996, Bayer stood at a crossroads. Its internal financial projections showedit would earn at least $1.614 billion in monopoly profits if it could continueto sell Cipro without competition through December 2003. However,after five years of a patent infringementaction against a generic competitor, Defendant Barr Laboratories,Inc. (“Barr”), Bayer faced trial on Barr’s counterclaimsthat the Cipro patent was invalid and unenforceable. Discovery in that case, including the testimony ofBayer’s patent lawyers, established that Bayer deliberately concealed prior art from the U.S. Patent and Trademark Office (“PTO”), rendering the Cipro patent void, unenforceable, and incapable ofbeing infringed. Trying to rebut this and other evidence ofbad faith, Bayer was reducedto claiming those lawyers suffered from mental infirmities that madetheir testimony incredible. (JAA 1478—79.) Confronting the likelihood that it would lose a trial on the merits— and the resulting “patent destruction,” the phrase used in a Bayer Board presentation (1AA 150)—Bayerprojected that nearly a billion dollars in corporate profits were at risk. Affordable generic medicine would capture 90 percent ofthe Cipro market within one year, and “there is no credible cost reduction strategy that would overcome such a massive hemorrhage,” a Bayervice-president wrote. (6AA 1283.) Rather than compete, Bayer conspired. Bayer paid Barr andits financial backers a $398.1 million bribe to drop their patent challenge and terminate their efforts to compete with Bayer. (4AA 701-813.) This was an offer Barr could not refuse: it was more than double the $148 million to $177 million Barr predicted it would earn selling generic ciprofloxacin in a competitive market through 2003. (6AA 1203; 1OAA 2352-2401.) After making this large paymentto secure the generics’ agreement to stay out of the market, Bayer increased the price of Cipro by 16 percent. (6AA 1167.) Between 1997 and 2003, Bayer gained revenues of approximately $5.717 billion, and profits of approximately $4.859 billion, from sales of Ciprotablets including to the California residents who make up the Class here. (6AA 1202.) Pursuantto their agreement, Bayer funded the payment to Barr and others by charging supra-competitive prices for Cipro. Petitioners representthe certified Class of “hundreds ofthousands” of California consumers and third-party payor insurers who purchased Cipro during the Class period. Jn re Cipro Cases I and II (Fourth Dist. 2004) 121 Cal. App. 4th 402, 408. Petitioners filed their consolidated amended complaint on August 5, 2002, alleging violations of the Cartwright Act, the UCL, and the commonlaw doctrine prohibiting monopolistic acts. The case was removedto federal court, then remanded to Superior Court in San Diego. The Superior Court granted the Defendants’ motions for summary judgment on August 21, 2009, entering final judgment on September24, 2009. The Court of Appeal affirmed, in an opinion issued on October 31, 2011. Neither the Superior Court nor the Court of Appeal applied the antitrust law of California. Instead, they limited the Cartwright Act by adopting the rule from the heavily criticized majority opinion in Jn re Tamoxifen Citrate Antitrust Litigation (2d Cir. 2006) 466 F.3d 187 (“Tamoxifen”). LEGAL ARGUMENT Whether California law forbidding payments not to compete should be limited by Tamoxifen presents an important question, a questionoffirst impression. In evaluating Cartwright Act claims, “federal precedents must be used with caution because the acts, although similar, are not coextensive.” Freeman v. San Diego Ass’n ofRealtors (Fourth Dist. 1999) 77 Cal. App. 4th 171, 183 n.9 (citation omitted). The Legislature enacted the Cartwright Act in 1907 “in reaction to perceived ineffectiveness” of the Sherman Act. ABASECTION OF ANTITRUST LAW,STATE ANTITRUST PRACTICE AND STATUTES,California 6-1 (3d ed. 2004). The Cartwright Act supplies the utmost protection to Californiacitizens, “maximizing effective deterrence of antitrust violations.” Clayworth v. Pfizer, Inc. (2010) 49 Cal. 4th 758, 764. The most recent federal appellate court to have reviewed the Tamoxifen standard expressed grave reservations about its soundness: “we believe there are compelling reasonsto revisit Tamoxifen ....” Arkansas Carpenters Health and Welfare Fund v. Bayer AG (2d Cir. 2010) 604 F.3d 98, 110. That court, however, was boundbyits prior decision in Tamoxifen, and thus unable to reach a different conclusion. Jd. at 108. This Court, on the contrary, is not so bound.’ This standard cannot be reconciled with long-settled principles of antitrust law and patent law and should be rejected for California. Additionally, the preemption holding will allow litigants to deny access to California courts simply by invoking a patent law element to otherwise redressable business and consumerdisputes. Finally, the evidentiary ruling overlooks precedentofthis Court. ’ Tamoxifen adopted a rule ofper se legality that gives a free pass to an exclusion-paymentsettlement except where: (1) the agreement goes outside the “exclusionary zone”ofthe patent; (2) the infringement suit was a sham;or(3) the patent was fraudulently procured. 466 F.3d at 213. A. The Court of Appeal Wrongly Eliminated the Ability of a Reasonable California Jury to Find the Cipro Market Exclusion Payment Unlawful. Triable issues of fact exist under the Cartwright Act. Bayer’s anticompetitive agreements and $398.1 million paymentviolate the Cartwright Act. The agreements obtained more exclusion than was warranted in light of the prospect ofpatent invalidation. Asa result, the agreements unreasonablyrestrained trade. See Bus. & Prof. Code section 16700, et seq. The court below erroneously concluded that a patent-based agreement is immune from antitrust scrutiny if the agreement does not affect rights outside the patent’s own parameters. See, e.g., Opinion at 38 (“We conclude that because the Cipro agreements undisputedly did not restrain competition beyond the exclusionary scope ofthe . . . patent, they do not violate the Cartwright Act.”). This is incorrect. While a patent may confer a limited monopoly, it also creates opportunities for abuse. When such abuse has occurred,restraints beyond a patent’s technical scope are not necessary to a finding ofliability. It is settled that the antitrust law prohibits a patent owner from entering into any agreement, even one limited to the patent’s scientific and temporal scope, that unreasonably restrains trade. The court below relied on a different, erroneous understanding to foreclose application of the Cartwright Act to address the Cipro agreements’ unreasonably anticompetitive purpose andeffect. Consider four seminal cases that go unmentioned in the Court of Appeal’s opinion. First, in United States v. Univis Lens Company (1942) 316 USS. 241, 248-49, the U.S. Supreme Court deemedit “unnecessary”to antitrust liability to determine whether the defendant’s patents covered the products subjected to vertical price restraints. -10- Second, in United States v. Sealy, Inc. (1967) 388 U.S. 350, 356 n.3, the Court held that it was “not consequential” whether the schemeto allocate markets affected activity “beyond the protection of the trademark[.|” Third, the patent-basedprice-fixing agreement found unlawful in United States v. Masonite Corp. (1942) 316 U.S. 265, 376, did not confer any “monopolyor restraint other than the monopolyorrestraint granted by the patents[.]” The Masonite Court explained that, in cases where antitrust and patent law intersect, the rights and welfare of the community must be fairly dealt with and effectually guarded. Considerations of individual emolument can never be permitted to operate to the injury of these. That mustbe the point of departure for decision on the facts of cases such as the presentone lest the limited patent privilege be enlarged by private agreements so as to by-pass the Sherman Act.... Active and vigorous competition then tend to be impaired not from any preference of the public for the patented product but from the preference of the competitors for a mutual arrangement. 316 U.S. at 278, 281. That aptly describes what happened here.® Byudge Easterbrook has described Masonite in termsparticularly appropriate to application in this case: “Several makersofparticle board reached an agreement under whichall but Masonite retired from the business; those who quit became Masonite’s ‘del credere agents’ and sold its product at fixed prices. This was horizontal in an economically meaningful way. Producers to which consumers might turn for supply suddenly withdrew from the market. With supply downprice hadtorise, producing a monopoly overcharge. Although the (former) rivals contended that they were just knuckling underto the force ofMasonite’s patents, the Supreme Court saw a moresinister arrangement—properly so unless the patent was both broad andiron-clad, which could not be knownonce the formerrivals started cooperating.” Illinois Corporate Travel v. American Airlines (7th Cir. 1989) 889 F.2d 751,753. While the Cipro patent may Footnote continues on nextpage. -1l- . Fourth, the Court ofAppealalso failed to mention the seminal decision in United States v. Singer Mfg. Co. (1963) 374 U.S. 174, involving a clear antitrust violation: American, Italian, and Swiss sewing machine companiesarrived at patent settlements to head off an open destructive fight over validity. 374 U.S. at 180, 185. “There is a public interest here,” Justice White wrote in concurrence, “which the parties have subordinated to their private ends” through agreements “between businessrivals to encroach upon the public domain and usurp it to themselves.” Jd. at 200 (White, J., concurring). That is what happenedhere. Asthese and other cases demonstrate, a patent holder “may commit patent misuse in improperexploitation of the patent either by violating the antitrust laws or extending the patent beyondits lawful scope.” Transitron Elec. Corp. v. Hughes Aircraft Co. (D. Mass. 1980) 487 F. Supp. 885, 893 (emphasis added). The present case involves the former, notthelatter situation—and the question ofwhether Bayer misusedits patentis for the jury. Despitethetriable issues arising from the Cipro agreements and from Bayer’s $398.1 million payment to avert competition, the Court of Appealheld that the payment deserves apresumption oflegality becauseit was madeto settle litigation and the law generally favors settlement.’ See Opinion at 28-30. To the contrary, California law does not authorize or condonesettlements that violate public policy, particularly a settlement where competitors are paid offto prevent competition. Timney v. Lin (First have been broad, the evidence showsit was far from iron-clad. Indeed, Bayer paid as muchasit did in clear-eyed recognition ofthe likelihood of invalidity. ” Thereis no California statute—or for that matter a federal analogue—that specifically authorizes or protects settlements. -12- Dist. 2003) 106 Cal. App. 4th 1121, 1127; River Garden Farms, Inc. v. Super. Ct. (Third Dist. 1972) 26 Cal. App. 3d 986, 1000; see also Singer, 374 U.S. 174 (patent settlements violated the antitrust laws). Apparently, the Court ofAppeal was concernedthat scrutiny of these agreements underantitrust law mightchill patentlitigation or settlements. See Opinion at 35-36. The concern is entirely misplaced. For example, the record showsthat pharmaceutical companies do not need to make cash paymentsin orderto settle patent litigation. Between 2000 and 2004—-whensuch payments wereheld to be per se illegal under In re Cardizem CD Antitrust Litigation (6th Cir. 2003) 332 F.3d 896—“not one oftwenty reported agreements involved a brand firm paying a generic filer to delay entering the market. During this period, parties continuedto settle their disputes, but in wayslessrestrictive of competition, such as through licenses allowing early generic entry.” Michael A. Carrier, Unsettling Drug Patent Settlements: A Frameworkfor Presumptive Illegality, 108 MICH.L. REV. 37, 75 (2009). During this period, when such agreements weretreated as illegal and pharmaceutical companies conducted themselves accordingly, the patent system continued to operate, innovation continued, new products came to market andpartieslitigated their patent disputes in court, settling virtually all of them. In contrast, the subsequentretreat by certain federal courts from the Cardizem regimehasled to growing numbersofanti-consumer “pay-for-delay”settlements featuring monetary consideration. Fourteen such deals were reached in 2007, 16 in 2008, 19 in 2009, 31 in 2010,and 28(to date) in 2011.’ No one seriously disputes that such agreements are anticompetitive and lead to higherprices. '” http://www.ftc.gov/os/201 1/10/1110mmachart.pdf. -13- The Court ofAppeal further based its erroneous holding on the rebuttable presumption ofpatent validity. See Opinion at 31, 33. The Court of Appeal misinterpreted this presumptionasirrebuttable, foreclosing plaintiffs from offering evidence to overcomeit. Yet a presumption that cannotbe rebutted is no presumptionat all. The “only effect” of a rebuttable presumptionis “to shift the burden ofproducing evidence with regard to the presumedfact. If that evidence is produced by the adversary, the presumptionis spent and disappears.” 2 McCormick on Evid. § 344 (6th ed. 2006). The Court ofAppeal wrongly treated patents as conclusively valid whenthey are only presumptively valid. See 35 U.S.C. § 282. In fact, the statutory presumption ofpatent validity is only “a procedural device, not substantive law,”and it does not apply except in a full adjudication on the merits. Stratoflex, Inc. v. Aeroquip Corp. (Fed. Cir. 1983) 713 F.2d 1530, 1534; Nutrition 21 v. United States (Fed. Cir. 1991) 930 F.2d 867, 869. Nevertheless, adopting Tamoxifen, the Court ofAppealheld that _ holders of “fatally weak” patents can maintain their monopolies with cash payments even when those paymentsviolate the Cartwright Act by eliminating competition to an unreasonable degree. 466 F.3d at 212. The “fatally weak” concession reveals Tamoxifen’s fatal flaw—its affront to the important principle “that competition should not be repressed by worthless patents[.]” United States v. Glaxo Group Ltd. (1973) 410 U.S. 52, 58. In 2009, the United States Department of Justice opposed Tamoxifen onthis ground,stating it “offers no protection to the public interest in eliminating undeserved patents” and “[t]here is no basis for a standard that treats the presumption ofvalidity as virtually conclusive and allowsit to serve as a -14- ‘substantive basis to limit the application of”antitrust law.!! See also Tamoxifen, 466 F.3d at 224 (Pooler, J., dissenting) (finding that the majority’s rule “is not soundly grounded in Supreme Court precedentandis insufficiently protective of the consumer interests safeguarded by the Hatch-Waxman Act andthe antitrust laws.”). Judge Pooleris correct. The United States Supreme Court has “emphasiz[ed] the necessity ofprotecting our competitive economy by keeping open the way for interested persons to challenge the validity of patents which might be shownto be invalid,” to further the “often expressed policy that ‘It is the public interest which is dominant in the patent system,’ Mercoid Corp. v. Mid-Continent Investment Co. [1944] 320 U.S. 661, 665, and that the right to challenge ‘is not only a private right to the individual, but it is founded on public policy, which is promotedby his Ml http://www.justice.gov/atr/cases/f247700/247708.htm (11AA 2569, 2572-73). The DOJ has consistently taken the position that Tamoxifen should be revisited and overturned. In 2007, Paul Clement—the United States Solicitor General under the Administration of George W. Bush— Criticized the Tamoxifen standard as “erroneous”and “insufficiently stringent .. . for scrutinizing patent settlements.” http://www.justice.gov/ osg/briefs/2006/2pet/6invit/2006-0830.pet.ami.inv.pdf, at pp. 12-13. Likewise, FTC Commissioner Thomas Rosch observedthat “[s]ince this issue first arose in 1998, every single member ofthe Commission,past and present—whether Democrat, Republican, or Independent—has supported the Commission’s challenges to anticompetitive ‘pay-for-delay’ deals. ... The threat that these agreements poseto our nation’s health care system is a matter ofpressing national concern. ... [T]hese settlements are harmful becausethe parties are resolving their dispute at the expense of consumers.” (9AA 2008, 2018.) In 2009, then-Attorney General Brown joined the FTCinfiling antitrust claims against pharmaceutical companies that—through exclusionary settlement agreements—“plotted to keep cheap generic drugsoffthe market, costing consumers millions. This was a predatory move pure and simple, increasing drug companyprofits at the‘expense ofcritically ill patients.” (9AA 2004.) -15- making the defense, and contravened by his refusal to makeit.” Pope Mfg. Co. v. Gormully [1892] 144 U.S. 224, 235.” Edward Katzinger Co.v. Chicago Metallic Mfg. Co. (1947) 329 U.S. 394, 399-401. The public standsto gain, in the form of lower aggregate prices, from adversarial testing of vulnerable patents; so the law “encourage[s] authoritative testing ofpatent validity.” Blonder-Tongue Labs., Inc. v. Univ. ofIll. Found. (1971) 402 US. 313, 343-44 (citing, in part, Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co. (1945) 324 U.S. 806, 816); see also United States v. Line Material Co. (1948) 333 U.S. 287, 319 (Douglas,J., concurring) (directing courts to condemn patent-based arrangements which create “a powerful inducementfor the abandonment of competition, for the cessation oflitigation concerning thevalidity of patents”). Tamoxifen, on the other hand, allows the ownerofan invalid patent to short-circuit adversarial testing of that patent by doling out a large chunk ofits monopolyprofits. The sheer enormity ofBayer’s payment—more moneyeven than Barr stood to gain from selling generic Cipro—raises a powerful inference that the Cipro patent was a “paper tiger” with no bite or ability to defend Bayer’s monopoly.” Cardizem, 332 F.3d at 915. Valid patents are enforced against infringers through injunctions, not private deals and cash pay-offs. Bayer must not be permitted to pay for a monopolythat its patent likely could not sustain. The court below ruledto the contrary. ” The leading antitrust law treatise concludes that market-exit payments to generic manufacturers disproportionately larger than the cost oflitigation “indicate that the parties harbored significant doubt that the patents in question were validor infringed, which entails a significant possibility that, if pursuedto a judicial outcome, generic competition would have entered the market. Such amounts are presumptively unreasonable ....” 12 Philip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis ofAntitrust Principles and Their Application { 2046, at 333 (2d ed. 2003). _ -16- The Court ofAppeal mistakenly relied on subsequentlitigation in which Bayer defended an amended, “cleaned up” Cipropatent,failing to see that Bayer’s intervening petition seeking reexaminationofthe patent itself raises suspicion that the original Cipro patent would have been found unenforceable. In re Etter (Fed. Cir. 1985) 756 F.2d 852, 857-58 (en banc) (purposeofa re-examination petition is to “cur[e] defects” in “patents thought ‘doubtful.’”) (citation omitted). Moreover, the court also ignored that such evidence is inadmissible because it postdates the restraint under scrutiny: Bayer’s 1998 bribe. See Page 25, infra. Neither the general policy in favor of settlement, nor the rebuttable presumption ofpatent validity, overcomesthe venerable California rule against such cash payments to perpetuate monopolies. “Contracts which go to the total restraint of trade, as that a man will not . . . carry on his business anywherein the State, are void, upon whatsoeverconsideration they may be made.” Wright v. Ryder (1868) 36 Cal. 342, 359 (emphasis in original) (citations omitted) (nullifying payment made to block a competing steamship firm from entering the California market). In Vulcan Powder Company v. Hercules Powder Company (1892) 96 Cal. 510, this Court invalidated a horizontal market allocation contract between competitors who claimed they were harmlessly exchanging their patent rights to dynamite. Rejecting this defense, the Court foundit significant that the plaintiff and another party to the contract did not own a dynamite patent. This fact established that the money those parties received did notresult from their sale or exchangeofpatent rights. Instead—like Barr in the present case—they received moneyonly in exchange for their agreementnot to compete, not because ofa valid patent. Id. at 515 (“[I]t is obvious that the consideration moving from them was their covenantto refrain from competition in the dynamite business, and -17- that they had no patentrights to ‘interchange.’”). The Court went on to note that the restraints in question exceeded the technological scope ofthe patent at issue. This was presented as an aggravating,not a dispositive, factorin the antitrust analysis. Id. The Court ofAppeal ignored Vulcan andits teachings, while misconstruing another relevant California precedent, Fruit Machinery Company v. F. M. Ball & Company (First Dist. 1953) 118 Cal. App. 2d 748.3 See Opinion at 34-35. The divergent royalty rates challenged in Fruit Machinery passed scrutiny under the Cartwright Act, not because the licenses wererestricted to the patented products, but because the “differential in royalty rates” bore “a reasonablerelationship to differences in costs and capital risks between the two types of uses” at issue under the licenses. Id. at 762. Indeed, the court acknowledgedthat a patent holder can be subjected “to the proscriptions and penalties ofthe antitrust laws” when the circumstancesraise an inference of patent abuse or subversion of public interest. Jd. The Court ofAppealin this case quoted Fruit Machinery’s disjunctive ruling without recognizing its true import: “Defendant has not shownthatthe parties . . . exercised rights or powers not accorded them by the patent law or abused anyrights or powers accorded them by that law.” Opinion at 34 (quoting Fruit Machinery, 118 Cal. App. 2d at 762) (emphasis added). 3 According to the California Court ofAppeal, “[t]he leading federal authority” on antitrust injury arising from patentlitigation is Dairy Foods Inc. v. Dairy Maid Prods. Co-op. (7th Cir. 1961) 297 F.2d 805. Classen v. Weller (First Dist. 1983) 145 Cal. App. 3d 27, 38. But elements of the Tamoxifen rule upend a key holding in Dairy Foods, that an “adjudication that claimed patentrights are unenforceable is not an element prerequisite to the maintenanceofan antitrust action for damagesor injunctiverelief based on misuse ofthe patent.” 297 F.2d at 809-10 (emphasis added). - 18 - Bayer’s horizontalallocation of monopoly profits from the likely unenforceable Cipro patent was abusive. Betweenits oversize cash paymentfo the alleged infringer, its subsequentprice hikes, and its weak defense ofits patent (based on contentions that its patent agents were insane),’* the record here contains strong evidence of abusive conduct, more than enoughto reach a jury. Corwin v. Los Angeles Newspaper Serv. Bureau, Inc. (1971) 4 Cal. 3d 842, 855 (“Whethera restraint of trade is reasonable in the context ofthe Cartwright Act is a question of fact to be determinedat trial.”). Had the Court ofAppeal properly applied California law, a jury could also have concluded that the Cipro agreements lacked “any redeeming virtue.” Opinionat 32." B. The Preemption Ruling Incorrectly and Imprudently Restricts the Scope of California Law. Because patents restrain competition, California courts strictly construe therights ofpatent holdersin light of the California “policy '4 As Petitioners’ expert in patent practice, Michael H. Jester, observed, Bayer’s assertionsthat its patent agents “had mental problems and by inference that this somehow demonstratesa lack of intent to deceive, are incredible and unbelievable. No person could perform such meticulous and complex legal work involving sophisticated pharmaceutical chemistry over such an extended period oftime without comprehending the consequences of his intended actions.” (8AA 1856.) 8 The Court ofAppeal’s final commentregarding this important question of law (see Opinion at 38, fn. 9) reflects nothing less than a complete abdication of its judicial responsibilities. “[T]he courts are the ultimate arbiters of the construction ofa statute.” California Ass’n ofPsychology Providers v. Rank (1990) 51 Cal. 3d 1, 7. It is clear that the Hatch- Waxman Actwasintendedto prohibit the agreements at issue here. “As co-authorofthe [Hatch-Waxman] Act, I can tell you that I find these type of reverse payment collusive arrangements appalling,” Senator Hatch said. (LOAA 2234.) See Arkansas Carpenters, 604 F.3d at 109 (“[R]emarks by an Act’s author do nottrigger the typical concern about post-enactment legislative history, namely that ‘the losers in the legislative arena hopeto persuadethe courts to give them the victory afterall.’” (citations omitted)). -19- favoring free competition, dissemination of ideas and maximum utilization ofintellectual resources.” Sinclair v. Aquarius Elec., Inc. (First Dist. 1974) 42 Cal. App. 3d 216, 224 (citation omitted). The Court ofAppeal’s preemption ruling, however, threatens to preventstate courts from adjudicating cases touching onpatents at all. That is why the attorneys generalofthirty-eight States, including California, opposed federal preemptionin this context, noting it would “thwart the states’ express intention to provide monetary recovery to their consumers for antitrust violations.” Amici Curiae Brief of Thirty-Eight States, 2008 WL 576744, at *3 (Fed. Cir. 2008). The Court ofAppeal did not apply California law butinstead limited it, based on its wholesale adoption of T.amoxifen. The court heldthat, because the Cipro agreements did not go beyondthe scopeofthe patent (andbecause Petitioners do not claim fraudulent patent procurement), Petitioners must establish sham litigation to maintain a Cartwright Act claim. The court then held that any effort to establish sham litigation is preempted by federal law. Underthis analysis, the scope of the Cartwright Act is—exactly zero. That cannotbe. The court’s footnote 15 (see Opinion at 49) will provide small comfort to future litigants hoping to use California law to vindicate their rights in patent-related disputes. The footnote betrays the court’s recognition that its sweeping and unprecedented preemptionruling will shut the courthouse door, at a minimum,to any aggrieved party whose claim involves purportedly baseless infringementlitigation. Asan initial matter, Noerr-Pennington antitrust immunity andits sham litigation requirement do not belong in this analysis. The decision to apply Noerr-Pennington immunity is plainly wrong and alone warrants review. The Noerr-Pennington doctrine safeguards the First Amendment - 20 - as well as comity between branches of government—neither ofwhich is implicated by Bayer’s payoff. Compare Blank v. Kirwan (1985) 39 Cal. 3d 311, 320-28 (discussing the First Amendment and comity interests which justify Noerr-Pennington antitrust immunity), with Tamoxifen, 466 F.3d at 213 (importing the sham litigation requirement from Noerr-Pennington jurisprudence). A California court should be empoweredto adjudicate these damage claims, evenif liability depends on whether Bayer’s infringement suit was baseless. The claimsarise understate law, so jurisdiction exists; and they are not displaced by federal law because they entail separate, extra showings, beyond Bayer’s deceptive conduct before the PTO,in order for liability to be established. Under the Cartwright Act, the fact finder would necessarily have to decide whether the payment had anticompetitive effects. But, the fact finder would not need to decide whetherthe original Cipro patent was unenforceableto find the Cartwright elements satisfied. Dairy Foods, 297 F.2d at 809-10. Unfair competition claims that depend onpatent validity determinations can proceed in California court. Mattel, Inc. v. Luce, Forward, Hamilton & Scripps (Second Dist. 2002) 99 Cal. App. 4th 1179, 1186 (citing Miller v. Lucas (Second Dist. 1975) 51 Cal. App. 3d 774, 776 (citing American Well Works Co. v. Layne & Bowler Co. (1916) 241 U.S. 257 (Holmes,J.) (allowing a state-law competitor claim to proceed where the defendantallegedly filed baseless patent infringementsuits for business advantage; explaining “[t]he fact that the justification may involve the validity and infringementof a patent is no more material to the question under whatlaw the suit is brought than it would be in an action of contract .... The State is master of the whole matter .. . .”); see Dow Chem. Co.v. Exxon Corp. (Fed. Cir. 1998) 139 F.3d 1470, 1475 (“[A]lthough state -21- court is without powerto invalidate an issued patent, there is no limitation on the ability of a state court to decide the question of validity when properly raised in a state court proceeding.”) (citation omitted); Learv. Adkins (1969) 395 U.S. 653, 675-76 (instructing California courts to resolve patent invalidity defense in state-law breach of contract action); Kewanee Oil Co. v. Bicron Corp. (1974) 416 U.S. 470, 492 (vacating and remandingcase to “the California Supreme Court . . . to pass on the question of patent validity”). In cases arising under state law, then, California courts have the express authority “to determine mattersoftitle, infringementor validity ofpatents where such determination is ancillary and necessary to the main action.” Blumenfeld v. Arneson Prods., Inc. (First Dist. 1971) 172 U.S.P.Q. 76, 78. | Although Petitioners’ claims unmistakably arise under California law, the Court ofAppeal neglected to apply the “strong presumption against preemption”of California law. In re Farm Raised Salmon Cases (2008) 42 Cal. 4th 1077, 1088 (emphasis added). This presumption applies with particular force to statutes, such as the Cartwright Act, that fall within the State’s historic police powers because they deter businesses from taking advantage of consumers. Id.; R.E. Spriggs Co. v. Adolph Coors Co. (Second Dist. 1974) 37 Cal. App. 3d 653, 664-66. Nor did the Court of Appeal even pay lip service to this Court’s recent guidance that conflict preemption exists only when “simultaneous compliance with both state and federal directives is impossible,” and that California law “will be displaced only when affirmative congressional action compels the conclusion it must be.” Viva! Int’l Voicefor Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal. 4th 929, 936; In re Jose C. (2009) 45 Cal. 4th 534, 550. -22- Applying these standards, the Defendants easily could have complied with both federal law and California law, had they simply refrained from trying to make a $398.1 million deal to protect a tenuous monopoly and avoid trial on the weak Cipro patent. Asfor Congress,it has never suggestedthat federal law displaces state-law claims against drug companiesthat transfer millions of dollars to perpetuate dubious 716 andamonopolies. Senator Hatch has called such deals “appalling, Senate Judiciary Committee report strongly condemned “pacts between big pharmaceutical firms and makers of generic versions ofbrand name drugs, that are intended to keep lower-cost drugsoff the market. Agreeing with smallerrivals to delay or inhibit competition is an abuse ....”!” That one source ofproofin the analysis would be Bayer’s inequitable conduct before the PTO scarcely renders these claims preempted. In Dow,the court reversed a holding that federal patent law preempted a state-law unfair competition claim groundedin allegations that Exxon had threatened baseless infringementlitigation. Jd. at 1471-72. Even though the claim depended on a showing ofExxon’salleged inequitable conduct before the PTO,the claim did not impermissibly conflict with federal law. The businesstort at issue in Dow,like the Cartwright Act and UCL claimshere, is not premised upon bad faith misconduct in the PTO, but rather is premised upon badfaith misconductin the marketplace. . . . [I]t plainly is not a preempted alternative or additional state law remedy for inequitable conduct. Ratherit is a long-established independenttort remedy for improprieties in the marketplace. '6 148 Cong. Rec. S 7566 (daily ed. July 30, 2002) (L0AA 2234). '’ Report entitled “The Drug Competition Act of 2001,” S. Rep. No. 107- 167 (2002), at 4 (emphasis added) (10AA 2239). -23- Id. at 1477. Moreover,“that the sourceofproofofbadfaith, just one elementofthe tort, was purported inequitable conduct before the PTO, does not make thistort a patent issue preempted by federal law... .” Jd. at 1477-78 (emphasis here). Dow is instructive here. EvenifPetitioners’ Cartwright Act claim were to require proofthat Bayer’s infringement suit was a sham, and even if such proof, in turn, depended on a showing ofBayer’s inequitable conduct before the PTO,Petitioners can prevail only if they also show that Bayer’s $398.1 million payment had anticompetitive intent and effects. See CACTI3411 (Cartwright Act jury instructionssetting forth traditional Rule ofReasonantitrust analysis). Therefore, the state-law claims here are not coterminous with or dependent uponthe federal defense of inequitable conduct, and, like the business competitor claim in Dow, are not preempted. Petitioners’ claims under California law are consistent with the objectives of federal law. See Palmer v. BRG ofGa., Inc. (1990) 498 U.S. 46, 50 (under federal law, an agreementthat precludesa potential competitor from marketentry is “unlawful on its face.”). The Court of Appeal’s preemption ruling is not only wrong, but it abandonsthe citizens of California. C. The Court of Appeal Misapplied California Supreme Court Precedent by Condoningthe Trial Court’s Blanket Overruling of Petitioners’ Evidentiary Objections, and by -Failing to Resolve the Objections. The Court of Appeal failed to require the trial court to rule on Petitioners’ written objections to the evidence, contravening this Court’s recent ruling in Reid v. Google, Inc. (2010) 50 Cal. 4th 512. In Reid, the Court held that “[t]he trial court must rule expressly on” evidentiary objections raised with a motion for summary judgment. Jd. at 532. The -24- Court disapproved ofBiljac Associates v. First Interstate Bank (First Dist. 1990) 218 Cal. App. 3d 1410,“to the extent it permits the trial court to avoid ruling on specific evidentiary objections.” Reid, 50 Cal. 4th at 532 n.8. The Court ofAppeal failed to hold the trial court to this Court’s clear directive in Reid that each evidentiary objection must be separately addressed. Instead, the Court ofAppeal created a false distinction between sustaining an objection and overruling it, excusing a trial court’s blanket ruling so longasit only overrules objections. Opinion at 51-52. This distinction has no basis in law and creates confusion around the Court’s ruling in Reid. Petitioners filed 30 evidentiary objections prior to the summary judgmenthearing and preserved several specific objectionsat the hearing. (IAA 233-241; Tr. ofAug. 21, 2009 Hearing, Reporter’s Transcript, at 264:8—22.) Petitioners at all times, for example, maintained a specific objection to the admission of evidence concerning Bayer’s successful defense of a re-examined Cipropatent in four post-1998 cases. (Opening Br. at 54-55, 65-55; Reply Br. at 22-23, 40-41; MSJ Opp. at 67 (LAA 215).) This evidence is inadmissible becausethe trier of fact must weigh a givenrestraint’s effect on active and vigorous competition against the extent to which it “promoted enterprise and productivity at the time it was adopted.” Polk Bros., Inc. v. Forest City Enters., Inc. (7th Cir. 1985) 776 F.2d 185, 189 (emphasis added); see International Travel Arrangersv. NWA, Inc. (8th Cir. 1993) 991 F.2d 1389, 1400 (holding that a government study ofairline competition was “properly excludedas irrelevant becauseit dealt with a time subsequent to the events involvedin this case.”). Thetrial court nevertheless overruled all of Petitioners’ objections in a one-line blanket statement: “Plaintiffs’ evidentiary objections are -25- overruled.” (11AA 2688.) Neitherthe trial court nor the Court ofAppeal actually ruled on Petitioners’ individual objections, and, in finding noerror in the trial court’s terse blanket overruling, the Court ofAppeal seemed to miss the entire point of Petitioners’ objections to Bayer’s subsequentpatent cases. “Wedo notfind the admission of this evidenceto be prejudicial, . . . because the essential facts of those suits were established as undisputed by plaintiffs’ responses to Bayer’s separate statement ofundisputed facts in support of its motion for summary judgment, Nos. 29-33.” Opinion at 52, fn. 16 (emphasis added). Petitioners did not dispute whether the subsequentpatent cases occurred, but instead sought to exclude evidence of them asirrelevant and inadmissible. (See Opening Br. at 54-55; Reply Br. at 22-23.) Indeed, Petitioners reiterated their position on irrelevancy and inadmissibility in the very responses the Court ofAppeal cited. (2AA 253— 54.) To prevent confusion and similar misapplication of law, this Court should grant review andreiterate that courts must rule on specific evidentiary objections. CONCLUSION “Consumer welfare is a principal, if not the sole, goal” of California’s antitrust laws. Cianci v. Super. Ct. (1985) 40 Cal. 3d 903, 918. The federal courts whosefaulty analysis the Court ofAppeal adopted do not share this Court’s obligation to protect the citizens of California. Adopting Tamoxifen misconstrues the Cartwright Act and the Unfair Competition Law. It imposes a new standard on California, impairing the ability of the State and private citizens to vindicate their rights. The Court should grant review to fulfill its obligation to the People and to settle these important questions of law. - 26 - Dated: December 12, 2011 Respectfully submitted, LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP Joseph R. Saveri R. Saveri (State Bar No. 130064) Eric B.Fastiff(State Bar No. 182260) Brendan Glackin (State Bar No. 199643) Jordan Elias (State Bar No. 228731) Dean M.Harvey (State Bar No. 250298) 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 Telephone: (415) 956-1000 Facsimile: (415) 956-1008 ZWERLING, SCHACHTER & ZWERLING, LLP py_hler Dan Drachler Dan Drachler (Pro Hac Vice) 1904 Third Avenue, Suite 1030 Seattle, WA 98101 Telephone: (206) 223-2053 Facsimile: (206) 343-9636 Class Counsel Ralph B. Kalfayan (State Bar No. 133464) KRAUSE, KALFAYAN,BENINK & SLAVENS 625 Broadway,Suite 635 San Diego, CA 92101 Telephone: (619) 232-0331 Facsimile: (619) 232-4019 | Liaison Counsel Attorneysfor Plaintiffs, Appellants, and Petitioners -27- CERTIFICATE OF WORD COUNT [California Rule ofCourt 8.204(c)(1)] Thetextofthis brief, including footnotes, consists of 7,622 words as counted by the word-processing program used to generate the brief. Dated: December 12,2011 LIEFF, CABRASER, HEIMANN& BERNSTEIN, LLP By: - 28 - OPINION CERTIFIED FOR PUBLICATION COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA aE ape a] IN RE CIPRO CASES I& II D05636! (JCCP Nos. 4154 & 4220) [Nine coordinated cases*] APPEAL from ajudgmentofthe Superior Court of San Diego County, Richard E. L. Strauss, Judge. Affirmed. Lieff, Cabraser, Heimann & Bernstein, Joseph R. Saveri, Eric B. Fastiff, Brendan Glackin, Jordan Elias, Dean M. Harvey; Krause, Kalfayan, Benink & Slavens, Ralph B. Kalfayan; Zwerling, Schachter & Zwerling and DanDrachler for Plaintiffs and Appellants. | Mark A. Lemley for 78 Law, Economics, Business and Public Policy Professors as Amici Curiae on behalf or Plaintiffs and Appellants. Edleson & Rezzo, Joann F. Rezzo; and Kathryn E. Karcher for Defendants and Respondents. Luce, Forward, Hamilton & Scripps, Charles A. Bird, Christopher J. Healey, Todd R. Kinnear; Jones Day, Kevin D. McDonald; Bartlit Beck Herman Palencher & Schott and Peter B. Bensinger,Jr., for Defendant and Respondent Bayer Corporation. Stinson, Morrison, Hecker, David E. Everson, Heather S. Woodson and Victoria Smith for Defendants and Respondents Hoechst Marion Roussel, Inc., The Rugby Group, Inc., and Watson Pharmaceuticals, Inc. Kirkland and Ellis, Edwin John U, Karen N. Walker, and Gregory Skidmorefor Defendant and Respondent Barr Laboratories, Inc. Theplaintiffs in this coordinated class action proceeding sued brand-name drug manufacturer Bayer AG andits subsidiary Bayer Corporation(collectively Bayer); generic drug manufacturers Barr Laboratories, Inc. (Barr), Hoechst Marion Roussel,Inc. (HMR), and HMR's former subsidiary The Rugby Group, Inc. (Rugby) (collectively the generic defendants); and Watson Pharmaceuticals,Inc. (Watson), which purchased Rugby from HMR. Bayer manufactures and markets Cipro, the brand name for ciprofloxacin hydrochloride (ciprofloxacin), an antibiotic prescribed for the treatment of infections. Bayer owned U.S. Patent No. 4,670,444 (the '444 patent), which claimed the ciprofloxacin hydrochloride molecule, until the patent expired in December 2003. Plaintiffs asserted causesof action against all defendants for violation ofthe Cartwright Act (Bus. & Prof. Code, § 16720et seq.); violation of the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.); and common law monopolization,arising from an agreementsettlinglitigation between Bayer and Barr concerning the validity of Bayer's '444 patent and related agreementsinvolving the other defendants (collectively, the Cipro agreements or Ciprosettlement). Plaintiffs appeal from ajudgmententered in favor of defendants after the court granted summaryjudgment motions filed by Bayer, the generic defendants, and Watson. Plaintiffs contend (1) the court erred by not tuling that the Cipro agreements are unlawful per se: (2) ifthe Cipro agreements are not unlawful perse, thereis a triable issue of fact as to whetherthey violate the Cartwright Act under the "rule ofreason applied in antitrust cases;" (3) the court followed incorrectly decided federal court decisions in ruling that the Cipro agreements were lawful because they did notrestrict competition outside the exclusionary zoneofthe '444 patent; (4) there is a triable issue of fact under the case law the courtfollowed; (5) the court erred in ruling thatit did not have jurisdiction to determine whether Bayer engaged in fraud or inequitable conductin obtaining the '444 patent because that determination involves substantial questions of patent law;(6) the court erred in granting Watson's motion for summary judgment; and (7) the court erred by not providing any explanation for overrulingall of plaintiffs' evidentiary objections. Wehold that a settlement of a lawsuit to enforce a patent does not violate the Cartwright Act if the settlement restrains competition only within the scopeofthe patent, unless the patent was procuredby fraudorthe suit for its enforcement was objectively baseless. Because the Cipro agreements undisputedly did notrestrain competition beyond the exclusionary scope ofthe '444 patent, we conclude they do not violate the Cartwright Act. We further concludethat plaintiffs' claim that Bayer's infringementsuit against Barr was objectively baseless due to Bayer's inequitable conduct before the U.S. Patent and Trademark Office (PTO)in procuringthe patentis preempted by federal patent law becauseplaintiffs’ rightto relief on that claim necessarily depends on resolution of a substantial question of federal patent law. Accordingly, we affirm the judgment. FACTUAL AND PROCEDURAL BACKGROUND A. The '444 Patent Bayer's '444 patent covers or "claims" the ciprofloxacin hydrochloride molecule, whichis the active ingredient in Cipro. The '444 patent expired in December 2003, but the United States Food and Drug Administration (FDA) granted Cipro pediatric exclusivity until June 9, 2004. Consequently, no generic ciprofloxacin product could be lawfully marketed before June 9, 2004, under federal law. (21 U.S.C. § 355a.) | B. Hatch-Waxman Act In 1991 Barr sought FDA approvalofa generic version ofCipro underthe federal Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act) (21 U.S.C. § 355). The Hatch-Waxman Act streamlined the process of obtaining approval of generic versions ofbranded drugs by allowing a generic manufacturer tofile an abbreviated new drug application (ANDA)under 2] United States Code section 355(j). (Merck KGaA v. Integra LifesciencesI, Ltd. (2005) 545 U.S. 193, 196,fn. 1.) The generic manufacturer does not have to make an independent showingthat the generic drug is safe and effective: it need only show thatthe drug contains the same active ingredients as, and isbioequivalentto, the branded drug. (Jbid., citing 21 U.S.C. § 355Q)(2(A)Gi) & (iv); § 355G)(8)(B).) Regarding any patents that claim the branded drug, the generic manufacturer's ANDAmust certify one of the following: "(I) that such patent information has not been 4 filed, [{] (II) that such patent has expired,[J] (III) . . . the date on which such patent will expire, or [{] (IV) that such patentis invalid or will not be infringed by the manufacture, use, or sale of the new drug for whichthe application is submitted." (21 U.S.C. § 3559)(2)(A)(vii).) A generic manufacturerthat files a paragraph IV certification (ANDA IV) must give notice ofthecertification to any affected patent owners. (21 U.S.C. § 355G)(2B),) The service of the ANDAIV gives an affected patent owner 45 daystofile a patent infringement lawsuit against the generic manufacturer. (21 U.S.C.§ 355(j)(2)(B)(iii).) If the patent ownerfiles an infringementsuit within the 45-day period, FDA approval ofthe generic manufacturer's ANDAis stayed for 30 months or until a federal district court enters a decision that patentis invalid or not infringed. (21 U.S.C. § 355(j)(2)(B)(iii)M); In re Ciprofloxacin Hydrochloride Antitrust Litigation (E.D.N.Y. 2003) 261 F.Supp.2d 188, 193 (Cipro J).) Asan incentive for generic manufacturersto file ANDA IV certifications and challengepatents on brand-namedrugs,the first ANDA IVfiler has the right to exclusively market its generic version of the branded drug for 180 days from the dateit begins to commercially market the drug orthe date of a final court decision finding the branded drug's patentto be invalid or not infringed. (21 U.S.C. § 355(§)(5)(B)iv); 21 C.F.R. § 314.07(c)(1) (2009); Cipro I, supra, 261 F.Supp.2d at p. 193.) C. Barr's ANDA andthe Ensuing PatentLitigation In October 1991 Barr filed an ANDAfor a generic version of Cipro with an ANDAIVcertification asserting that Bayer's '444 patent was invalid or would not be 5 infringed by the manufacture, use or sale ofBarr's generic ciprofloxacin. After receiving notice ofBarr's ANDA IV, Bayer filed a patent infringementsuit against Barr in the United States District Court for the Southern District ofNew York. Barr filed affirmative defenses and counterclaimsalleging that the '444 patent was invalid and unenforceable due to Bayer's inequitable conduct before the U.S. Patent and Trademark Office (PTO)in procuring the patent. In March 1996 Barr and Rugby entered into an agreement under which Rugby agreed to finance a portion ofthe cost of Barr's patentlitigation and Barr agreed to provide Rugby halfofthe profits from its sale ofgeneric ciprofloxacin. In December 1996 Barr, Rugby, and HMR executed an amendmentto that agreement providing that HMR succeededto all ofthe rights and obligations ofRugby under the agreement. D. The Cipro Agreements | In January 1997, after the district court in the patent litigation had denied cross- motionsfor partial summary judgmentfiled by Bayer and Barr and the case had beenset for trial, Bayersettled the patentlitigation with Barr and other generic drug manufacturers by entering into the Cipro agreements, which consisted of three separate settlement agreements—onewith Barr, one with nonparties HMR and Rugby, and one with nonparties Bernard Sherman (Sherman) and Apotex,Inc. (Apotex)}—and a"supply agreement" with Barr and HMR. Underthe settlement agreements, Barr, HMR, Rugby, Sherman, and Apotex acknowledged the validity ofthe '444 patentandrelated patents held by Bayer. In the settlement agreement between Bayer and Barr, Barr agreed to amendits ANDAto 6 change its ANDAIVcertification to an ANDA III certification, precluding Barr from obtaining FDA approvalto market generic Cipro until the '444 patent expired. The agreement also provided for an immediate paymentof$49.1 million from Bayer toa "Barr Escrow Account." Underthe supply agreement, Barr and HMR agreed not to manufacture ciprofloxacin or have it manufactured in the United States. The supply agreement gave Bayerthe option ofeither supplying ciprofloxacin thatit manufactured to Barr and HMR for distribution in the United States or making quarterly payments to Barr from January 1998 until the '444 patent expired. Bayer chose to makethe payments. By December ' 2003 when Bayer ceased making payments,its payments to Barr totaled approximately $398 million, including theinitial payment of$49.1 million. E, Reexamination ofand Subsequent Challenges to the '444 Patent Aftersettling the patentlitigation, Bayer filed a request for reexamination ofthe '444 patent with the PTO. The PTO issued a reexaminationcertificate confirming the patent's validity, including the validity of claim 12, which covered the ciprofloxacin hydrochloride molecule. (See In re Ciprofloxacin Hydrochloride Antitrust Litigation (E.D.N.Y. 2005) 363 F.Supp.2d 514, 519 (Cipro I).) Subsequently, four generic manufacturers—Ranbaxy Pharmaceuticals, Inc. and Ranbaxy Laboratories Limited (collectively Ranbaxy), Schein Pharmaceutical, Inc., (Schein) Mylan Pharmaceuticals, Inc. and Mylan Laboratories, Inc. (collectively Mylan), and Carlsbad Technology, Inc.—filed ANDAsfor ciprofloxacin with ANDAIVcertifications and challenged the validity of the reexamined '444 patentin infringementactionsthat Bayerfiled against them, Ranbaxy withdrew its ANDAIVcertification and stipulated with Bayerto the dismissal ofthe claims and counterclaimsin the patent action between them after entering into a licensing agreement with Bayer. Bayer successfully moved for summary judgmentagainst Schein, Mylan andothers on thevalidity ofthe '444 patent. (BayerAG & Bayer Corp. v. Schein Pharmas, (D.N.J. 2001) 129 F.Supp.2d 705, affd. (Fed.Cir. 2002) 301 F.3d 1306.) After a benchtrial, a federal district court upheld the validity of the '444 patentandruled in favor ofBayer in its infringement action against Carlsbad Technology,Inc. F, Federal Cipro Litigation In 2000 and 2001, direct and indirect purchasers of Cipro and advocacy groups filed a numberofantitrust actions in federal courts challenging the Cipro agreements. The actions were consolidated as "Multidistrict Litigation" (MDL)in the Eastern District ofNew York. Thereafter, the MDLplaintiffs filed a consolidated complaint against Bayer and the same manufacturers that are generic defendants in the presentcase, alleging that the Cipro agreements constituted an illegal restraint of trade in violation of the Sherman Act (15 U.S.C. §§ 1-7 et seq.) and variousstate antitrust and consumer protection laws. (In re Ciprofloxacin Hydrochloride Antitrust Litig. (Fed. Cir. 2008) 544 F.3d 1323, 1329 (Cipro II.) After the district court denied the MDL plaintiffs' motion for partial summary judgmentthat the Cipro agreements wereillegal per se under the Sherman Actandstate antitrust laws, the plaintiffs amendedtheir complaint to add a state 8 law claim that Bayer violated state antitrust law through fraud on the PTO and sham litigation in bringingits patent infringementsuit against Barr. (Cipro III, supra, 544 F.3d at pp. 1329-1330.) The parties filed cross-motions for summary judgmentandthedistrict court denied theplaintiffs' motion and granted the defendants' motion. (Cipro II, supra, 363 F.Supp.2d 514.) In the district court's view, the "ultimate question"in the case was "not whether Bayer and Barr had the powerto adversely affect competition for ciprofloxacin as a whole, but whether any adverse effects on competition stemming from the [Cipro agreements] were outside the exclusionary zoneofthe '444 [p]atent." (Jd. at p. 523.) The court stated that "[u]nless and until the patent is shown to have been procured by fraud, or a suit for its enforcementis shown to be objectively baseless, there is no injury to the market cognizable underexisting antitrust law, as long as competition is restrained only within the scopeofthe patent." (Jd. at p. 535.) The court notedthat because "Talt least four generic companies filed ANDAIVsafter Bayer and Barr enteredthe [Cipro agreements,] . . . it cannot be reasonably arguedthat the [a]greementscreated a bottleneck to future generic challenges." (Id. at p. 540.) ] The Cipro IH court referred to the MDLplaintiffs' fraud-on-the-PTO claim as a "Walker Process type" state law claim. The court explained: "In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.[(1965) 382 U.S. 172 (Walker Process)], the Supreme Court held that the enforcementof a patent procured by fraud on the patent office may be a violation of the Sherman Act provided that the other elements necessary to a Sherman Actclaim are present. [Citation.] Here, however, the plaintiffs alleged a violation ofstate antitrust laws." (Cipro III, supra, 544 F.3d at p. 1330,fn. 6.) The Cipro II court concludedthat "in the absence of any evidencethat the [Cipro agreements] created a bottleneck on challengesto the '444 [p]atent, or that they otherwise restrained competition beyond the scopeofthe claims ofthe '444 [pJatent, the [a]greements havenot had anyanti-competitive effects on the marketfor ciprofloxacin beyond that which are permitted under the '444 [pJatent. Thefact that Bayerpaid what in absolute numbers is a handsome sum to Barr to settle its lawsuit does not necessarily reflect a lack of confidence in the '444 [p]Jatent, but rather the economic realities ofwhat was at risk. There is simply no precedentforplaintiffs’ argumentthat the parties to a settlement are required to preservethe public's interest in lower prices. Such a rule would only result in parties being less likely to reach settlements, aside from undermining well-settled principles ofpatent law. Finally, to even attempt to quantify the public's interest in a patent settlement betweenprivate parties would require devaluingpatents acrossthe board, a result that would contravene the presumptionof [patent] validity afforded by Congress and impact the very way patentlicenses are handled in countless daily transactions." (Cipro II, supra, 363 F.Supp.2d at pp. 540-541 ) The Cipro II court also granted the defendants' motionto dismiss the indirect purchaserplaintiffs' state law Walker Process type claim on the groundit was preempted by federal patent law (28 U.S.C. § 1338(a)) becauseit dependedentirely on a showing of misconduct before the PTO andrested entirely on patent law. (Cipro IT, supra, 363 F.Supp.2d atpp. 542-546.) The court further found that "Bayer's successin its [patent infringement] litigations against Schein, Mylan and Carlsbad forecloses any argument thatits lawsuits were shams." (Id. at p. 547.) The court rejected the plaintiffs' argument 10 that Bayer's success in those actions was immaterial because the '444 patent had undergone reexamination,stating: "[R]eexamination does not cure inequitable conduct, and the defense was availableto all of the generic challengers." (Jbid.) Theplaintiffs timely appealed to the Second Circuit Court ofAppeals, which retained jurisdiction over the direct purchaser plaintiffs’ appeal but transferred the indirect purchaser and advocacy group plaintifs appeal to the federal circuit. (Ark. Carpenters Health & Welfare Fund v. Bayer AG (2d Cir. 2010) 604 F.3d 98, 103 (Arkansas . Carpenters); Cipro III, supra, 544 F.3d at p. 1327.) The federal circuit affirmedthe | dismissal ofthe indirect purchasers’ state Walker Process type claims and the "grant of summaryjudgment. . . that the [Cipro agreements] were not in violation of . . . the Sherman Act because any anti-competitive effects caused by the [a]greements were within the exclusionary zoneofthe ['444] patent." (Cipro III, supra, 544 F.3dat p. 1341.) In the direct purchasers' appeal, the Second Circuit likewise affirmed the judgment, noting that most courts considering theissue, including the SecondCircuit in Inre Tamoxifen Citrate AntitrustLitigation (2nd Cir. 2006) 466 F.3d 187 (Tiamoxifen) "have held that the right to enter into reverse exclusionary payment[2] agreements fall[s] 2 The Arkansas Carpenters court explainedthat the terms "reverse exclusionary payment” and "pay-for-delay”refer to a settlement in which "the patent holder (Bayer) agree[s] to pay the alleged infringerto settle the lawsuit, and in exchange, the alleged infringer agree[s] not to enter the market." (Arkansas Carpenters, supra, 604 F.3d at p. 102.) The Tamoxifen court referred to such payments as "reverse payments." (Tamoxifen, supra, 466 F.3d at p. 205.) 11 within the terms ofthe exclusionary grant conferred by the branded manufacturer's patent." (Arkansas Carpenters, supra, 604 F.3d at p. 105.) The Arkansas Carpenters court noted that the Tamoxifen court ruled that a reverse payment agreementsettling patentlitigation between a branded drug manufacturer and a generic drug manufacturer "did not exceed the scope ofthe patent where (1) there was norestriction on marketing non-infringing products; (2) a generic version ofthe branded drug wouldnecessarily infringe the branded firm's patent; and (3) the agreementdid not bar other generic manufacturers from challenging the patent." (Arkansas Carpenters, supra, 604 F.3d at p. 106, citing Tamoxifen, supra, 466 F.3d at pp. 213-215.) The Arkansas Carpenters court concluded that "as long as Tamoxifen is controlling law,plaintiffs' claims cannot survive." (Arkansas Carpenters, supra, 604 F.3d at p. 110.) The court invited the plaintiffs to file a petition for rehearing en banc (ibid.) and the plaintiffs didso, but the petition was denied. (Ark. Carpenters Health & Welfare Fund v. BayerAG (2d Cir. . 2010) 625 F.3d 779.) G. The Present Action Plaintiffs' operative pleading in this action is a second amended complaint they filed after this and other state actions were removedto federal court and remanded back to state court in Jn re Ciprofloxacin Hydrochloride Antitrust Litigation (E.D.N.Y. 2001) 166 F.Supp.2d 740. As noted, the second amended complaint includes causes of action for violation ofthe Cartwright Act (Bus. & Prof. Code, § 16720et seq.); violation ofthe UCL(Bus. & Prof. Code, § 17200 et seq.); and common law monopolizationarising from the Cipro agreements. Thetrial court granted plaintiffs' motion for class certification and 12 this court upheld a modifiedcertification in In re Cipro Cases I & II (2004) 121 Cal.App.4th 402.3 In November 2004 thetrial court vacated thetrial date and continuedthe hearing date it had set for defendants' motions for Summaryjudgment pendingthe federal district court's decision on defense motions for summaryjudgmentfiled in the MDL. In March 2005the district court granted the motions for summaryjudgmentand dismissed the MDLcasein the Cipro II decision. Theparties in the present action then stipulated to stay the action pending the MDLplaintiffs’ appeal ofthe summary judgment. After the federal circuit issued its decision in Cipro III affirming the summary judgment, the parties stipulated, and the court ordered, that the defendants would file new motions for summary judgment. The court granted motions for summary judgmentfiled by Bayer, the generic defendants, and Watson, and entered judgmentin favor of defendants. Thecourt ruled that the Cipro agreements did notviolate the Cartwright Act because "[t]he undisputed evidence establishes that notriable issue of material fact exists that the agreementdid not fall outside the exclusionary scopeofthe ['444] patent; there is noevidence that the patent suit by Bayer against Barr was objectively baseless; and Plaintiff[s] cannot establish that the settlement was otherwise unlawful." The court ruled the agreements werenotillegal per se and did notviolate the Cartwright Act underthe "rule ofreason" 3 The modification was to excludeall Cipro purchasers who paid a flat copayment and would have paid the same copaymentfor generic ciprofloxacin under the terms of their health coverage. (Jn re Cipro Cases I & I, supra, 121 Cal.App.4th at p. 419.) 13 applied in antitrust cases. The court found that as a matter of law,plaintiffs could not establish that the Cipro settlement unreasonably restrained trade because there was no triable issue of fact as to whether it had "anticompetitive effects on competition beyond the exclusionary scope ofthe {'444] patentitself." The court stated that "[t]his finding also precludes Plaintiffs' UCL claim and commonlaw monopoly claim as they are based on the same factual allegations that support the Cartwright Act claim." The court ruled that its summary judgment tuling as to Bayerandthe generic defendants was dispositive as to Watson's summary judgment motion as well. The court additionally found there was notriable issue of fact as to whether Watson did anything to restrain trade as to ciprofloxacin. The court noted, amongother facts, that Watson was notinvolved in the Cipro agreements and had norelationship to HMR or Rugby when those agreements were made. DISCUSSION "' "Since a summary judgment motionraises only questions of law regarding the construction and effect ofthe supporting and opposing papers, we independently review them on appeal, applying the same three-step analysis required ofthetrial court. [Citations.] First, we identify the issues framed by the pleadings sinceit is these allegations to which the motion must respond byestablishing a complete defense or otherwise showingthereis no factual basis for relief on any theory reasonably contemplated by the opponent's pleading. [Citations.] [{]] [Second], we determine whether the moving party's showinghas. established facts which negate the opponent's claim and justify a judgmentin [the] movant's favor. ... [{] When a summary judgment 14 motion prima facie justifies a judgment, the third andfinal step is to determine whether the opposition demonstrates the existence ofa triable, material factual issue." '" (Pepperell v. Scottsdale Ins. Co. (1998) 62 Cal.App.4th 1045, 1054.) I. Legality ofthe Cipro Agreements Plaintiffs first contend the court erred by notruling that the Cipro agreements are illegal per se under the Cartwright Act. The Cartwright Act (Bus. & Prof. Code,4 § 16700 et seq.) "prohibits every trust, defined as 'a combination of capital, skill or acts by twoor more persons' for specified anticompetitive purposes. (§ 16720.) Section 16720 generally codifies the commonlaw prohibition against restraintoftrade. [Citation.][5] [9] "The federal Sherman Act prohibits every ‘contract, combination . . . or conspiracy, in restraint oftrade.' (15 U.S.C. § 1.) 'The similar language ofthe twoacts reflects their commonobjective to protect and promote competition. [Citations.] Since the Cartwright Act andthe federal Sherman Act share similar language and objectives, California courts often look to federal precedents under the Sherman Actfor guidance.'" (Fisherman's WharfBay Cruise Corp. v. Superior Court (2003) 114 Cal.App.4th 309, 334.) 4 All further statutory references are to the Business & Professions Codeunless otherwise noted. 5 Section 16720, subdivision (a) specifies as a trust purpose a combination "[t]o create or carry outrestrictions in trade or commerce." Subdivisions(b) through (e) of section 16720 specify various anticompetitive schemes and agreements constituting trusts, and section 16726 states that, except as otherwise specified in the Cartwright Act, "every trust is unlawful, against public policy and void." 15 Courts havelimited the reach of the Cartwright Acttorestraints oftrade that are unreasonable, (UAS Management, Inc. v. Mater Misericordiae Hospital (2008) 169 Cal.App.4th 357, 364.) "Generally, in determining whether conduct unreasonably restrains trade,'[a] rule ofreason analysis requires a determination of whether. .. its anti- competitive effects outweigh its pro-competitive effects.' " (Bert G. Gianelli Distrib. Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1048, disapproved on other grounds in Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389-390, 394, fn. 2.) However, " '[c]ertain restraints [oftrade] which lack redeemingvirtue are conclusively presumed to be unreasonable’ "and therefore deemedillegalperse. (UAS Management, Inc. v. Mater Misericordiae Hospital, supra, 169 Cal.App.4th at p. 364; Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 540.) Plaintiffs contend the Cipro agreements areillegal per se, andthetrial court would have found them soif it had not followed Tamoxifen and other federal cases supporting the proposition that a reverse-paymentsettlement between a patent holder and alleged infringer in Hatch-Waxman litigation is legal as long as the settlement does not restrain competition beyond the exclusionary scope of the patent, and thereis no showing that the patent was procured by fraud orthat the suit for its infringement was objectively baseless. Plaintiffs contend these cases were wrongly decided. We disagree. In Tamoxifen, branded drug manufacturer and patent holder Zeneca, Inc., and related entities (collectively Zeneca) and generic drug manufacturer Barr entered into a reverse exclusionary paymentsettlementafter a federal district court rendered a judgment declaring Zeneca's patent for the drug tamoxifen invalid, and while Zeneca's appeal of | 16 thatjudgmentwas pending. (Tamoxifen, supra, 466 F.3d at pp. 193-194.) Theplaintiffs in Tamoxifen alleged the settlement violated antitrust laws. (Id. at pp. 196-197.) Considering the sufficiency ofplaintiffs' complaint, the 7;amoxifen court declined to conclude, and noted that the plaintiffs did not ask it to conclude, "that reverse payments areper se violations ofthe Sherman Act such thatan allegation of an agreementto make reverse payments suffices to assert an antitrust violation." (Jd. at p. 206, original italics.) The Tamoxifen court adopted the holding in Cipro IJ that " ‘{u}nless and until the patentis Shown to have beenprocured by fraud,or a suit for its enforcement is shown to be objectively baseless, there is no injury to the market cognizable under existing antitrust law, as long as competitionis restrained only within the scope ofthe patent.' " (Tamoxifen, supra, 466 F.3dat p. 213, quoting CiproII, supra, 363 F.Supp.2dat p. 535.) Affirming the district court's judgmentdismissing the complaint and denyingplaintiffs leave to amend, the Tamoxifen court concludedthat "in the absence of any plausible allegation that Zeneca's patentinfringement lawsuit was baseless or that the Settlement Agreement otherwiserestrained competition beyondthe scope of the tamoxifen patent, [the plaintiffs'] complaint would fail to state a claim on whichrelief can be granted.” (Tamoxifen, supra, 466 F.3d at p. 221.) | Before Tamoxifen was decided, the district court in Cipro I addressing the Cipro settlementchallenged here, noted that "per se analysis is reserved for a small number of cases involving agreements inrestraint oftrade that experience teaches have no redeeming value and a pernicious anticompetitive effect. This case involvesthe rights of a patent holder whosepatent has been scrutinized on reexamination by the PTO and 17 repeatedly challenged in court, but has never been foundinvalid. This case also involves the Hatch-Waxman Amendments—a new statutory schemecreating a novel, low-cost method for challenging the validity ofdrug patents. Lastly, this case involves settlement agreements, the type of agreements, generally speaking, encouraged by thelegal system and entered into with great frequency. These circumstances pose significant obstacles to perse treatmentofthe challenged agreements." (Cipro J, supra, 261 F.Supp.2d atp. 233.) | The Cipro I court stated that "when patents are involved, case law directs that the exclusionary effect ofthe patent must be considered before making any determination as to whether the alleged restraint is per se illegal. Therefore, the proper analysisin this case is whethertheplaintiffs have proven as a matter of law that the challenged agreements restrict competition beyond the exclusionary effects ofthe 444 Patent." (Cipro I, supra, 261 F.Supp.2d at p. 249.) The court observed that because the '444 patent covered the active ingredientin all Cipro products, until the patent "either is invalidated or expires, it lawfully precludes the manufacture and use of any generic product containing the compoundciprofloxacin hydrochloride regardless of the form or method of delivery. Therefore, the restrictions in the Supply Agreement on manufacturing Cipro appear within the confines ofBayer's lawful patent monopoly." (Id. at p. 250.) The court concluded that the Cipro agreements, including the supply agreement, "do notrestrict competition in areas other than those protected by Bayer's 444 Patentand, thus, are notper se illegal under the Sherman Act." ([bid.) 18 Notingthat the policies underlying patent law and the Sherman Act conflict to someextent, the Cipro J court reasoned that "[t]he flexibility necessary to balancethese competingpolicies, particularly in the context of a new Statutory scheme, suggests that a rule ofreason rather than aper se analysis should be employed in this case." (Cipro J, supra, 261 F.Supp.2dat p. 255.) The court noted incentives created by the Hatch- Waxman Act "have led to generic investmentin product development,patent review and product challenges through litigation.. .. To maximize these incentives, a generic company shouldbe permitted to choose not only when to commencepatentlitigation, but also whento terminate it. Otherwise, theincentives to mount an ANDA IV challenge could be reduced." (Jd. at p. 256.) The Cipro J court also recognizedthat the public policy favoringthe settlement of disputes was an importantfactorin its analysis, Stating: "[T]he American legal process encourages the settlement of lawsuits where possible, and unless the law explicitly states otherwise,neither party is obligated tolitigate to a final conclusion. Nothing in the legislative history supports a conclusion that Hatch-Waxman lawsuits cannot besettled. Moreover,a rule that makesitper se illegal to settle a Hatch-Waxman lawsuit, like the Bayer/Barr patentlitigation, limits the options available to both generic and brand-name manufacturers. Ifbrand-name manufacturers are unable to controlorlimit their risk by settling Hatch-Waxman litigation,they, like generic manufacturers, may beless inclined to invest the research and development(‘R&D’) costs associated with bringing new drugs to the market. The pharmaceuticalindustry depends greatly on R&D and the economic returns to intellectual property created when a successful new drugis broughtto 19 market. ... A rule prohibiting settlements ofHatch-Waxman patentlitigation can have grave consequences for R&D and, in turn, severe consequencesfor consumers." (Cipro I, supra, 261 F.Supp.2dat p. 256.) "Although a policy in favor of settlementoflitigation cannot save aperse violation from the [strictures] ofthe Sherman Acct, a rulethat too quickly condemnsactions asper se illegal, potentially chilling efforts to research and develop new drugs and challengethe patents on brand-name drugs, does competition—and thus, the Sherman Act—a disservice." (Ibid.) In another decision predating Tamoxifen, the Eleventh Circuit Court ofAppeals, considering a reverse paymentsettlement ofa Hatch-Waxman infringementsuit that the district court had foundtobeillegal per se, stated: "If this case merely involved one firm making monthly payments to potential competitors in return fortheir exiting or refraining from entering the market, we would readily affirm thedistrict court's order [granting summary judgment]. This is not such a case, however, because oneofthe parties owned a patent." (Valley Drug Co. v. Geneva Pharms., Inc. (11th Cir. 2003) 344 F.3d 1294, 1304 (Valley Drug).) The Valley Drug court noted that "[a] patent grants its owner the lawful right to exclude others" (ibid.) and that "a patentee can choose to exclude everyone from producingthe patented article or can chooseto bethe sole supplieritself.” (Jd. at p. 1305.) "Unlike some kinds of agreementsthat are per se illegal whether engagedin by patentees or anyoneelse, such as tying or price-fixing, the exclusion of infringing competition is the essenceofthe patentgrant. .. . '[W]hen patents are involved . . . the exclusionary effect of the patent must be considered before making any determination as 20 to whetherthe allegedrestraintisper se illegal.' " (Id. at p. 1306, quoting Cipro I, supra, 261 F.Supp.2d at p. 249.) The Valley Drug court noted that the only time the United States Supreme Court “has addressed the circumstances under which the patent immunity from antitrust liability can bepierced,it held that the antitrust claimant must provethat the patentee enforced a patent with the knowledge that the patent was procured by fraud on the Patent Office." (Valley Drug, supra, 344 F.3d at p. 1307, citing Walker Process, supra, 382 U.S.at p. 177.) "Goodfaith procurement furnishes a complete defenseto the antitrust claim. [Citation.] Justice Harlan's concurrence [in Walker Process] explainedthat the effect of antitrust liability on the incentives for innovation and disclosure created by the patent regime must be taken into account whena court considers whethera patentee is stripped ofits immunity from the antitrust laws: [{] 'Itis well also to recognize therationale underlying this decision, aimedofcourseat achieving a suitable accommodationin this area between the differing policies of the patent and antitrust laws. To hold, as we do, that private suits maybe instituted under § 4 of the Clayton Act to recover damagesfor Sherman Act monopolization knowingly practiced under the guise of a patent procured by deliberate fraud, cannotwell be thoughtto impinge uponthepolicy ofthe patent laws to encourage inventions andtheir disclosure. Hence,as to this class of improperpatent monopolies, antitrust remedies should be allowed room forfull play. On the other hand, to hold, as we donot, that private antitrust suits mightalso reach monopolies practiced under patents that for one reason or another may turn out to be voidable under one or more ofthe numerous technicalities attending the issuance ofa patent, might well chill 21 the disclosure of inventions through the obtaining ofa patent becauseoffear ofthe vexations or punitive consequencesoftreble-damagesuits. Hence,this private antitrust remedy should not be deemed to reach § 2 monopolies carried on undera nonfraudulently procured patent.'" (Valley Drug, supra, 344 F.3d at p. 1307, quoting Walker Process, supra, 382 U.S. at pp. 179-180, conc. opn. ofHarlan, J.) Further addressing the needto balancethe conflicting polices behind patent law and antitrust law, the Valley Drug court noted that although patent and antitrust laws necessarily clash, " 'the two regimes seek the same object: the welfare ofthe public... Antitrust law forbids certain agreements tendingtorestrict output and elevate prices and profits above the competitive level. Patent law also servesthe interests ofconsumers by protecting invention against prompt imitation in order to encourage more innovation than would otherwise occur.'" (Valley Drug, supra, 344 F.3d at pp. 1307-1308.) The Valley Drug court concluded thatthe fact the district court found the patentat issuein that case to be invalid alone was "insufficient to render the patent's potential exclusionary effects irrelevant to the antitrust analysis." (Id. at p. 1309.) Theplaintiffs in Valley Drug argued that patent rights do not includetheright to pay infringers—an argumentthe Valley Drug court viewed as implying "that any exclusion resulting from paymentrather than judicial enforcementis not protected from perse antitrustliability by the patent laws." (Valley Drug, supra, 344 F.3d at p. 1309.) Thecourt rejected that argument based on the importantrole settlement playsin the enforcementofpatentrights, stating: "Appellees have not explained why a monetary paymentaspart ofa patentlitigation settlementshould beflatly prohibited as aper se 22 Violation,particularly wherethe alleged infringer has not yet causedthe patentee any harm and the patentee does not have a damagesclaim to bargain with. [Citations.] [9] Wecannot concludethat the exclusionary effects ofthe Agreements notto enter the market were necessarily greater than the exclusionary effects of the '207 patent merely because Abbott paid Geneva and Zenith in return fortheir respective agreements. If Abbott had a lawful right to exclude competitors,it is not obvious that competition was limited morethan that lawful degree by paying potential competitors for their exit. The failure to produce the competingterazosin drug, rather than the paymentofmoney,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. [Citation.] To holdthat an ostensibly reasonablesettlementofpatentlitigation gives rise to per se antitrustliability if it involves any payment by the patentee would obviously chill such settlements, thereby increasingthe cost ofpatent enforcement and decreasing the value ofpatent protection generally. We are not persuadedthat such a per se rule would be an appropriate accommodation ofthe competing policies ofthe patentandantitrust laws." (Ibid.). Althoughthe Valley Drug court stated that the size of a reverse or "exit" payment may raisesuspicion that the settling parties lacked faith in the validity of the patent in question, the court also noted that "[g]iven the asymmetries ofrisk and large profits at stake, even a patentee confidentin the validity ofits patent may pay a potential infringer a substantial sum in settlement." (Valley Drug, supra, 344 F.3d at p. 1310.) As an example, the court noted the $398 million that Bayer paid Barr in the Ciprosettlement 23 even "though the ['444] patent was subsequently approved by the PTO on reexamination and unsuccessfully challenged in court three times." (Ibid, citing Cipro I, supra, 261 F.Supp.2d at p. 234.) The Valley Drug court, in remanding the case to the district court, concluded that neitherper se analysis nor the rule ofreason was an appropriate approach for determining whetherthe settlement at issue violated antitrust law, stating: “Rule ofreason andper se analysis are both aimedat assessing the anticompetitive effects ofparticular conduct; what is required here is an analysis ofthe extent to which antitrust liability might undermine the encouragement ofinnovation and disclosure, or the extent to which the patent laws preventantitrustliability for such exclusionary effects." (Valley Drug, supra, 344 F.3d at p. 1311, fn. 27.) In Schering-Plough Corp. v. FTC (11th Cir. 2005) 402 F.3d 1056 (Schering), the Eleventh Circuit Court ofAppeals vacated a decision by the Federal Trade Commission (FTC)finding that Hatch-Waxman settlements between branded drug manufacturer Schering-Plough Corporation (Schering) and generic manufacturers Upsher-Smith Laboratories, Inc. (Upsher) and ESI Lederle, Inc. (ESI) violated the FTC Act andthe Sherman Act. (Id. at p. 1062.) Schering manufactured and marketed an extended release potassium chloride product called K-Dur 20, and owneda formulation patent on the extended-release coating that surrounds the potassium chloride on the product. (Schering, supra, 402 F.3d at p. 1058.) Upsherfiled an ANDA IV seeking FDAapproval of a generic version of K-Dur 20 andScheringfiled a patentinfringementsuit against Upsher. (dd. at pp. 1058-1059.) Schering and Upsherentered into a settlementofthe 24 infringementsuit that included Schering's agreeing to an early entry date for Upsher’s generic version ofK-Dur, and Uphser's granting Schering licenses to market five other Upsherproducts, includinga time-release niacin product used to reduce cholesterol. (Id. at p. 1059.) Thesettlementinvolved a "three-part license deal, which called for Schering topay [Upsher] (1) $60 million in initial royalty fees; (2) $10 million in milestone royalty payments; and(3) 10% or 15% royalties on sales." (Id. at p. 1060.) ESI also sought FDA approval for a generic version ofK-Dur 20 and was sued by Schering for patent infringement. (Schering, supra, 402 F.3d at p. 1060.) Schering and ESI entered into a settlement agreement under which Schering allowed ESI to marketits competing generic three years before Schering's patent expired (ibid.) and "agreed to pay ESI a $5 million noncontingent payment, representing legal fees, and an additional $10 million contingent on ESI's FDA approval. Schering and ESIalso entered into a contemporaneouslicense agreement whereby ESI granted Scheringthe licenses to {two ESI drugs] in exchangefor $15 million." (/d. at p. 1061, fn. 8.) The FTC filed an administrative complaint challenging the legality of the settlements under the FTC Act and the Sherman Act, and the complaint was tried before an administrative law judge (ALJ) whorejected the FTC's theories that the settlement agreements at issue were anticompetitive. (Schering, supra, 402 F.3d at p. 1061.) Noting that the FTC's theories required either a presumption that Schering's patent in question was invalid or that Upsher's and ESI's generic products did notinfringeit, the ALJ ruled that the presumptions had nobasis in law or fact. (Jbid.) The ALJ foundthat the fact the settlements included payments did not make them anticompetitive per se. "Rather, the 25 strength ofthe patentitself andits exclusionary power needed to be assessed. The [ALJ's] decision highlighted the FTC's failure to provethat, absent a payment, either better settlement agreements orlitigation results would have effected an earlier entry date for the generics. Finally, the ALJ found no proofthat Schering maintained an illegal monopoly within the relevant... market." (Jd. at pp. 1061-1062.) On appeal ofthe ALJ's decision to the full Commission, the Commission reversed the ALJ, ruling the settlements included agreements to defer generic entry dates that injured competition and consumers. (Schering, supra, 402 F.3d at p. 1062.) Regarding the settlement payments, "the Commission determined that neither the $60 million to Upsher northe $30 million to ESI represented legitimate consideration for the licenses granted by Upsheror ESI's ability to secure FDA approvalofits generic. Consequently, the Commission prohibited settlements under which the generic receives anythingof value and agrees to defer its own research, development, production or sales activities." (id. at p. 1062, fn. omitted.) The Schering court noted that both the ALJ and Commission applied the rule of reason in analyzing the Scheringsettlements, albeit under twodifferent methodologies. (Schering, supra, 402 F.3d at p. 1064.) Following Valley Drug, the court stated: "We think that neither the rule ofreason nor the per se analysis is appropriatein this context. Weare boundbyourdecision in Valley Drug where we held both approachesto beill- suited for an antitrust analysis ofpatent cases because they seek to determine whetherthe challenged conduct had an anticompetitive effect on the market. [Citation.] Bytheir nature, patents create an environmentofexclusion, and consequently, cripple 26 competition. The anticompetitive effect is already present. 'Whatis required hereis an analysis ofthe extent to which antitrustliability might undermine the encouragement of innovation anddisclosure, or the extent to which the patent laws preventantitrustliability for such exclusionary effects.’ [Citation.] Therefore, in line with Valley Drug, we think the proper analysis ofantitrustliability requires and examination of: (1) the scope ofthe exclusionary potential ofthe patent; (2) the extent to which the agreements exceedthat scope; and(3) the resulting anticompetitive effects," (Schering, supra, 402 F3d at pp. 1065-1066, fh. omitted.) The Schering court noted that "[a]lthough the exclusionary powerofa patent may seem incongruous with the goalsofantitrust law, a delicate balance must be drawn between the two regulatory schemes. Indeed, application ofantitrust law to markets affected by the exclusionary statutes set forth in patent law cannotdiscountthe rights of the patent holder. [Citation.] Therefore, a patent holder does notincur antitrust liability when it chooses to exclude others from producingits patented work." (Schering, supra, 402 F.3d at p. 1067.) "What patent law does not do, however, is extend the patentee's monopoly beyondits statutory right to exclude." (/bid.) The Schering court also addressed the policy favoring settlement, Stating: "The general policy ofthe law is to favor the settlementoflitigation, and the policy extends to the settlement ofpatentinfringementsuits. [Citations.] Patent owners should not be in a worse position, by virtue of the patentright, to negotiate andsettle surrounding lawsuits. Wefind the termsofthe settlement to be within the patent's exclusionary power, and 27 ‘reflect a reasonable implementation’ofthe protections afforded by patent law." (Schering, supra, 402 F.3d at p. 1072.) In considering whether the settlements at issue had anticompetitive effects — i.e., were an " ‘unfair method of competition’ " (Schering, supra, 402 F.3d at p. 1072) — the Schering court elaborated on the policy favoring settlement of litigation and the detriment that would result from a rule prohibiting reverse paymentsettlements in patentlitigation. _ The court reiterated that "[t}he efficiency-enhancing objectives of a patent settlement are clear, and '[pJublic policy strongly favors settlement of disputes withoutlitigation.'" (Id. at pp. 1072-1073.) The court stated that "[t]he Commission's inflexible compromise- without-payment theory neglects to understand that '[r]everse payments are a natural by- product of the Hatch-Waxman process.'[6] [Citation.] ... A prohibition on reverse- 6 The Tamoxifen court explained that "reverse payments are particularly to be expected in the drug-patent context because the Hatch-Waxman Actcreated an environmentthat encourages them." (Tamoxifen, supra, 466 F.3d at p. 206.) The court noted that "under the Hatch-Waxman Act, the patent holder ordinarily bringssuit shortly after the paragraph IV ANDAhas beenfiled — before thefiler has spent substantial sums on the manufacturing, marketing,or distribution ofthe potentially infringing generic drug. The prospective generic manufacturer therefore has relatively little to lose in litigation precipitated by a paragraph IV certification beyond litigation costs and the opportunity for future profits from selling the generic drug .. . [] Accordingly,a generic marketer has few disincentivesto file an ANDA with a paragraphIV certification. The incentive [to file and ANDA IV], by contrast, may be immense: the profits it will likely garner in competing with the patent holder without having invested substantially in the developmentofthe drug, and, in addition, possible entitlement to a 180-day period(to be triggered at its inclination) during which it would be the exclusiveseller of the generic drug in the market." (Jd. at pp. 206-207, fn. omitted.) On the other hand, "[t]he patent holder's risk if it loses the resulting patent suit is correspondingly large: It will be stripped ofits patent monopoly. At the sametime,it standsto gain little from winning ‘other than the continued protection ofits lawful monopoly over the manufacture andsale ofthe drug in question. [{] 'Hatch-Waxman essentially redistributestherelative risk 28 paymentsettlements would ‘reduce the incentive to challenge patents by reducing the challenger's settlement options should he be sued for infringement, and so mightwell be | thought anticompetitive.' [Citation.] [¥] There is no question thatsettlements provide a numberofprivate and social benefits as opposedto the inveterate and costly effects of litigation. [Citation.] Patentlitigation breeds a litany of direct and indirectcosts, ranging from attorney and expert fees to the expenses associated with discovery compliance. Other costs accrue for a variety ofreasons,beit the result ofuncompromising legal positions, differing strategic objectives, heightened emotions, lawyer incompetence, or sheer moxie. [Citations.] [§] Finally, the caustic environment ofpatentlitigation may actually decrease product innovation by amplifying the period of uncertainty around the drug manufacturer's ability to research, develop, and market the patented product or allegedly infringing product." (/d. at pp. 1074-1075.) The Schering court foundthat the settlement agreements at issue "fell well within the protectionsofthe [subject] patent, and were therefore not illegal." (Schering, supra, 402 F.3d 15 p. 1076.) The court concluded: "Simply because a brand-name pharmaceutical companyholding a patentpaid its generic competitor money cannot be the sole basis for a violation ofantitrust law. This alone underscores the need to evaluate thestrength ofthe patent. Our conclusion,to a degree, and we hopethat the FTC is mindfulofthis, reflects policy. Giventhe costs oflawsuits to the patties, the public assessments and explains the flow ofsettlement funds and their magnitude. Because of the Hatch-Waxman scheme,[the generic challengers] gain[] considerable leverage in patentlitigation: the exposureto liability amount(s] to litigation costs, but pale[s] in comparison to the immense volumeofgeneric sales and profits.'" (Ibid.) 29 problems associated with overcrowded court dockets, and the correlative public and private benefits of settlements, we fear andrejecta rule of law that would automatically invalidate any agreement wherea patent-holding pharmaceutical manufacturersettles an infringement case by negotiating the generic's entry date, and, in an ancillary transaction, pays for other products licensed by the generic. Such a result does not represent the confluence ofpatent and antitrust law." (/bid.) In the same month that Schering was decided, the district court in Cipro II granted defendant's motions for summary judgment and dismissal. As noted above,the Cipro IT judgmentwas affirmed in Cipro III as to the direct purchaserplaintiffs and Arkansas Carpenters as to the indirect purchaser and advocacy groupplaintiffs. The Cipro IIT court stated: "[I]n cases suchas this, wherein all anticompetitive effects ofthe settlement agreement are within the exclusionary powerofthe patent, the outcomeis the same whether the court begins its analysis under antitrust law by applyinga rule of reason approachto evaluate the anti-competitive effects, or under patent law by analyzing the right to exclude afforded by the patent. The essenceofthe inquiry is whetherthe agreements restrict competition beyond the exclusionary zone ofthe patent. This analysis has been adopted by the Second and the Eleventh Circuits and bythe district court below and wefind it to be completely consistent with Supreme Court precedent." (Cipro IIT, supra, 544 F.3d at p. 1336, citing Walker Process, supra, 382 U.S.at pp. 175- 177 [although the Sherman Act may be violated when a patent is procured by fraud, a patent is an exception to the general rule against monopolies].) 30 The Cipro ITcourt concluded: " Pursuanttostatute, a patentis presumedto be valid, [35 United States Code section 282], and patent law bestowsthe patent holder with ‘the right to exclude others from profiting by the patented invention.’ [Citation.] A settlementis not unlawfulif it serves to protect that to which the patent holderis legally entitled — a monopoly over the manufacture anddistribution ofthe patented invention. [Citation.] Thus, the district court correctly concluded that there is no legal basis for restricting the right of a patentee to chooseits preferred means of enforcement and no support for the notion that the Hatch-Waxman Act was intended to thwart settlements. [Citation.] . . . [I]f 'there is nothing suspicious about the circumstances of a patent settlement, then to prevent a cloud from being cast over the settlement process a third "party should not be permitted to haul the parties to the settlement over the hot coals of antitrust litigation.'" (Cipro III, supra, 544 F.3d at p. 1337, quoting Asahi Glass Co. v. Pentech Pharms., Inc. (N.D.Ill. 2003) 289 F.Supp.2d 986, 992.) Accordingly, the Cipro HI court found "the analysis by the district court to be fully supported in law and to demonstrate that it was cognizant ofthe legal standards applied by the regional circuits and governmental agencies in addressing agreements involving exclusion payments in the context of the Hatch-Waxman Act." (CiproIII, supra, 544 F.3d at p. 1337.) The Arkansas Carpenters court likewise affirmed the Cipro Ijudgment based on the holding in Tamoxifen and other courts that "the right to enter into reverse exclusionary payment agreements fall[s] within the terms ofthe exclusionary grant conferred by the branded manufacturer's patent.” (Arkansas Carpenters, supra, 604 F.3d at p. 105.) The Arkansas Carpenters court followed the T:amoxifen court's analysis that a 31 reverse payment agreementsettling patentlitigation between a branded drug manufacturer and a generic drug manufacturer does "not exceed the scope ofthe patent where (1) there [is] no restriction on marketing non-infringing products; (2) a generic version ofthe branded drug would necessarily infringe the branded firm's patent; and (3) the agreement[does] not bar other generic manufacturers from challenging the patent." (Arkansas Carpenters, supra, 604 F.3d at p. 106, citing Tamoxifen, supra, 466 F.3d at pp. 213-215.) Weagree with the reasoningofthese cases and concludethatit applies equally to antitrust claims under the Cartwright Act. Underthe Cartwright Act, as under the Sherman Act, the "illegal per se" designation is reserved for agreements or practices that have a pernicious effect on competition and lack any redeeming virtue. (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 8533 Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 540; Macmanus v. A. E. Realty Partners (1983) 146 Cal.App.3d 275, 285.) Considering the important public policies underlying patent law (Valley Drug, supra, 344 F.3d at pp. 1307-1308) and favoring the settlement ofpatent litigation (Schering, supra, 402 F.3d at pp. 1074-1075) and the fact that the Cipro agreements did not restrain competition outside the exclusionary zoneofthe '444 patent, we cannot view the Cipro agreements as lacking any redeemingvirtue. Accordingly, we conclude they are not unlawful perse. Wefurther conclude that the Cipro agreementsdo notviolate the Cartwright Act underrule-of-reason analysis or the analysis the Eleventh Circuit Court ofAppeals held to be applicable to settlements ofHatch-Waxman litigation in Valley Drug and Schering, 32 which requires "examination of: (1) the scope ofthe exclusionary potential of the patent; (2) the extent to which the agreements exceed that scope; and(3) the resulting anticompetitive effects." (Schering, supra, 402 F.3d at pp. 1065-1066, fn. omitted) We find the reasoningofthe federal cases discussed above regarding the legality of settlements ofHatch-Waxman patentlitigation to be sound and applicableto plaintiffs’ cause of action under the Cartwright Act. We agree with the Cipro III court that because a patentis presumed to be valid and gives the patent holderthe right to exclude others from marketingthe patented invention, a settlement ofpatent infringementlitigation "is “not unlawfulif it serves to protect that to which the patent holderis legally entitled — a monopoly over the manufacture anddistribution ofthe patented invention." (Cipro III, supra, 544 F.3d at p. 1337.) Therefore, in accordance with Cipro I and T.amoxifen, we conclude that unless a patent was procured by fraud,ora suit for its enforcement was objectively baseless, a settlement of the enforcement suit does notviolate the Cartwright Actifthe settlement restrains competition only within the scopeofthe patent. (Tamoxifen, supra, 466 F.3d at p. 213; Cipro II, supra, 363 F-Supp.2dat p. 535.) The principle that an agreementis not unlawful under California andfederal antitrust law ifit restrains competition only within the exclusionary scope ofa patentis reflected in Fruit MachineCo. v. F. M. Ball & Co. (1953) 118 Cal.App.2d 748 (Fruit Machine). In Fruit Machine,theplaintiff licensee of a patent holder successfully sued the defendantfor breach ofa contractual obligationto pay plaintiff royalties for use of a patented machine, and the defendantclaimedit was absolvedofthat obligation because, among otherreasons, the plaintiffhad created a monopoly in violation of state and 33 federal antitrust law. (Fruit Machine, supra, 1 18 Cal.App.2d at pp. 750, 760.) In rejecting that claim, the Fruit Machine court noted thatthe licensing arrangementin question was not "beyondthe scopeofthe patent rights and within the proscription of the antitrust laws ...." (/d. at p. 762.) The court noted it would not "be legally improper or incompetent for the patentee, his exclusive licensee, andthelatter's sublicensees, by agreements such as these parties have made,to give themselves a commercial advantage over others in industry. The very purposeofthe patent law is to encourage inventive effort by according the inventorandhis assigns control over theinvention and protection in the exercise ofthe rights accorded him as patentee. Defendant has not shownthat the parties, in executing and carrying out the sublicense agreementin suit, exercised rights orpowers not accorded them by the patent law or abused any rights orpowers accorded them by that law." (Ibid,, italics added.) The Fruit Machine court found various antitrust law decisions cited by the defendantto be inapplicable, noting that "[t]he greater number ofthem dealt with situations in which no patent rights were involved. In those in which the exercise ofpatentrights [was] involved,it appeared that the patentee orhis assignee went beyondthat which was necessary orincidental to the scope ofhis patent and brought himselfwithin the proscription ofthe antitrust laws." (Fruit Machine, supra, 118 Cal.App.2d at pp. 762-763.) 34 Plaintiffs and amici curiae’ focus on the reverse exclusionary paymentor pay-for- delay aspect ofthe Cipro settlementin arguing that the settlementviolates antitrust law. Plaintiffs argue that Hatch-Waxman litigation can and should besettled without reverse payments. However, we agree with the Valley Drug court's view that deeming an ostensibly reasonable settlementofpatentlitigation illegal per se under antitrust law if the settlement"involves any paymentby the patentee would obviously chill such settlements, thereby increasing the cost ofpatent enforcement and decreasing the value of patent protection generally." (Valley Drug, supra, 344 F.3d atp. 1309.) As the Schering court noted, "the size of the payment, or the mere presence of a payment, should not dictate the availability of a settlement remedy. Dueto the 'asymmetricsofrisk and large profits at stake, even a patentee confidentin the validity ofits patent may pay a potential infringer a substantial sum in settlement.'" (Schering, supra, 402 F.3d at p. 1075, quoting Valley Drug, supra, 344 F.3d at p. 1310.) Weagree with the Schering court's observation that reverse paymentsettlements are a natural byproduct ofpatentlitigation under the Hatch-Waxman Act andthata rule prohibiting them could harm competition by reducing the incentive to challenge patents by reducing the challenger's settlementoptionsin a suit for infringement. (Schering, supra, 402 F.3d at pp. 1074-1075.) Emphasizingthe private and social benefits that the. settlementofpatentlitigation provides, the Schering court appropriately concludedthat 7 A groupofprofessors filed an amici curiaebrief entitled: "BriefAmici Curiae of 78 Intellectual Property Law, Antitrust Law, Economics, and Business Professors in _ Support ofAppellant." 35 "[s]imply because a brand-name pharmaceutical companyholdinga patentpaidits generic competitor money cannotbethe sole basis for a violation ofantitrust law." (Id. at p. 1076.) Plaintiffs and amici curiae point to In re Cardizem CD Antitrust Litig. (6th Cir. 2003) 332 F.3d 896 (Cardizem) as showinga conflict in the federalcircuits regarding the legality of reverse payment settlements ofHatch-Waxman patentlitigation. In that case the district court found that a reverse-payment settlement between branded drug manufacturer HMR and generic manufacturer Andrx Pharmaceuticals,Inc., was illegal per se and the Cardizem court affirmed. However, the Cardizem court notedthat in condemning the HMR/Andrx agreement, the district court " ‘emphasizedthat the agreement. . . restrained Andrx from marketing other bioequivalent or generic versions of Cardizem that were notat issue in the pendinglitigation... . Thus,thecourt found that the agreement'srestrictions extended to noninfringing and/or potentially noninfringing versions ofgeneric Cardizem.'" (Jd. at p. 909,fn.13, quoting Cipro [, supra, 261 F.Supp.2d at p. 242.) __ In other words, the reverse paymentsettlement in Cardizem restrained competition beyond the exclusionary zoneofthe subject patent. As the Cipro III court noted, "although the Sixth Circuit founda perse violation ofthe antitrust laws in In re Cardizem,the facts ofthat case are distinguishable from this case and from the other circuit court decisions. In particular, the settlementin that case included, in addition to a reverse payment, an agreement by the generic manufacturerto notrelinquishits 180-day exclusivity period, thereby delaying the entry of other generic manufacturers. [Citation.] 36 Furthermore,the agreement providedthat the generic manufacturer would not market non-infringing versions of the generic drug. [Citation.] Thus, the agreementclearly had anticompetitive effects outside the exclusion zoneofthe patent." (Cipro III. supra, 544 F.3d at p. 1335,italics added.)8 We further note that unlike the Valley Drug, Schering and Tamoxifen courts, and the trial and appellate courts in the federal Cipro litigation, the Cardizem court did not consider, muchless attempt to balance, the competingpolicies underlying antitrust law and patent law or addressthe policy favoring settlement of litigation. Contrary to amici curiae's assertion that "[t]he Second Circuit rule endorsed by the trial court is far outside the mainstream ofjudicial . . . analysis of exclusionary settlements," every reported decision to date addressingthe legality of a reverse-payment settlement ofHatch-Waxman litigation that does not restrain competition beyond the exclusionary scope ofthe patent has concluded thatthe settlement does notviolate antitrust law. We concludethat because the Cipro agreements undisputedly did not 8 The Cipro II court added: "To the extent that the Sixth Circuit may have found a per se antitrust violation based solely on the reverse payments, we respectfully disagree." (Cipro II, supra, 544 F.3dat p. 1335.) 37 restrain competition beyond the exclusionary scopeofthe '444 patent, they do notviolate the Cartwright Act.? I. Sham Litigation Claim Plaintiffs contend that evenifthe Cipro settlement doesnotviolate California law unless the '444 patent is shown to have been procured by fraudora suitforits enforcement is shown to be objectively baseless, the court erred in granting summary judgmentbecause thereis as triable issue of fact as to whether Bayer's patent infringement action against Barr was an objectively baseless or "sham"lawsuit. "To prove sham litigation, a plaintiff must show (1) 'the lawsuit [to] be objectively baseless in the sense that no reasonablelitigant could realistically expect success on the merits,' and (2) thatthe litigant's 'subjective motivation' for bringing the action was a sham seeking to conceal a knowingattemptto interfere with a competitor." (CiproII, supra, 363 F.Supp.2d at p. 547,citing Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (1993) 508 U.S. 49, 60-61.) Plaintiffs’ position on appeal appears to be that they could show Bayer's patent infringementsuit was objectively baseless based on evidence of Bayer's inequitable conduct in procuring the '444 patent—an issue they 9 We acknowledgethat amicicuriae, the FTC, and the Department ofJustice have advocated various approaches under which reverse-paymentsettlements ofpatent infringementlitigation under the Hatch-Waxman Act could be deemedto violate antitrust law even whentheydo notrestrain competition beyond the exclusionary scope ofa patent. However, considering the necessity of maintaining a proper balance between the competingpolicies underlying patent law and antitrust law, we believe that any rule prohibiting such settlements ofHatch-Waxman litigation should be made by Congress rather than the courts. 38 contend wasnotlitigated in Bayer's suits against generic manufacturers for infringement ofthe '444 patent following the Ciprosettlement. Bayer argues,andthetrial court ruled, that plaintiffs! sham litigation claim was not a proper basis for opposing defendants’ summary judgment motions becauseit was not pleadedin plaintiffs' second amended complaint. Thetrial court further ruled that "[e]ven if such allegations were included in the [second amended complaint], there is no evidence orlegal support the suit was objectively baseless or was a sham." Thetrial court quoted the Cipro II court's finding that "Bayer’s successin its [patent infringement] litigations against Schein, Mylan and Carlsbad forecloses any argumentthatits lawsuits were shams." (CiproII, supra, 363 F.Supp.2d at p. 547.) Regardingplaintiffs’ inequitable conduct claim,thetrial court ruled: "Plaintiffs cannot meet the objectively baseless standard byresorting to allegations of inequitable conductsince the [second amended complaint] does not allege inequitable conduct, much less that Bayer's infringement suit against Barr was objectively baseless or a sham. Even if there were such allegations, inequitable conductis only an equitable defenseto a patent infringement suit which, ifproven, can renderthe entire patent unenforceable. [Citation.] As such, Bayer's alleged inequitable conductin procuring the patent is notrelevant to the case at handas it pertainsto [p]laintiffs' antitrust claims." Thetrial court also decided that the "determinationof. . . inequitable conduct would involve substantial questions of patent law, which this Court does not have jurisdiction to decide." It is difficult to fault the trial court's ruling that "[p]laintiffs failed to allege that Bayer's infringement suit was objectively baseless, [or] wassham litigation . . . and 39 [p]laintiffs cannot defeat the motion for summary judgment by doing so now." It is well _ Settled that "the pleadings set the boundaries ofthe issues to be resolved at summary judgment. [Citations.] A ‘plaintiff cannot bring up new, unpleadedissuesin his or her opposing papers. [Citation.]' [Citations.] A summaryjudgment or summary adjudication motion that is otherwise sufficient 'cannot be successfully resisted by counterdeclarations which create immaterial factual conflicts outside the scope ofthe pleadings; counterdeclarations are no substitute fot amended pleadings.' Thus,a plaintiff wishing ‘to rely upon unpleadedtheories to defeat summary judgment' must move to amend the complaint before the hearing." (Oakland Raiders v, National Football League (2005) 131 Cal.App.4th 621, 648.) It is a stretch to interpret the second amended complaintas raising the issue of whether Bayer's patent infringementsuit against Barr was objectively baseless dueto inequitable conductor for any other reason. The allegationsofthe second amended | complaint reflect plaintiffs' theory that the Cipro agreements injure competition in violation of the Cartwright Act regardless ofthe validity ofBayer's '444 patentor the merits ofits infringement suit against Barr, and merely suggestthat the '444 patent might _ have been ruledinvalid but for the Cipro settlement. The second amended complaint alleges that the patent holder and ANDAIV filer "must be adversaries" and that"the former presumesthe patentis valid, enforceable and infringed, while the latter must assert that the patent is invalid, unenforceable and/or not infringed." Thus,plaintiffs' allegations that Barr asserted the patent was invalid or unenforceable do notconstitute an allegation by plaintiffs that Bayer's infringement suit was baseless; they merely reflect 40 that Barr assumed the adversarial role it was required to assumein filing an ANDAIV. Theclosest the second amended complaint comesto expressly alleging that Bayer's infringementsuit lacked meritis the allegation that "{bjut for the Cipro Agreements and other agreements between Bayer and Barr: . . . thefinder-of-fact in the patentlitigation could have found that the 444patent was invalid, unenforceable or notinfringed." 10 (Italics & underscoring added.) This allegation, which essentially avers that Bayer might havelostits infringementsuit hadit been litigated to completion, is not reasonably construed as an allegation that the suit was objectively baseless or a sham. In any event, assuming the complaintsufficiently pleads the claim that Bayer's patent infringement suit was objectively baseless due to inequitable conduct, we agree’ with thetrial court and the Cipro JI court that "Bayer's successin its [patent infringement] litigations against Schein, Mylan and Carlsbad forecloses any argumentthatits lawsuits were shams."11 (Cipro I, supra, 363 F.Supp.2dat p. 547.) As the Cipro II court noted: "'A winning lawsuit is by definition a reasonable effort at petitioning for redress and therefore is not a sham.'" (Ibid., quoting ProfessionalReal Estate Investors, Inc. y. Columbia Pictures Industries, Inc., supra, 508 U.S.at p. 61, fn. 5) 10 Plaintiffs also suggest that Bayer's infringementsuit would not have been successful by alleging that "[b]ut for the Cipro Agreements, generic ciprofloxacin would have been on the United States market by January 1997." 11 The Cipro I court was addressing Bayer's motion "for summary judgmentthat Bayer's suits against Barr an the subsequent '444 Patent challengers were not sham litigation as a matter of law." (Cipro II, supra, 363 FSupp.2d at p. 547.) 4] Plaintiffs assert that noneofthe challengesto the '444 patent by generic manufacturers following the Cipro settlement andthe patent's reexamination involved the issue ofBayer's inequitable conduct. However, as the Cipro II court noted, "reexamination does not cure inequitable conduct, and the defense was availableto all of the generic challengers." (Cipro II, supra, 363 F.Supp.2d at p. 547.) It seems highly unlikely that a generic manufacturer motivated to challenge the '444 patent would overlookor forgo a meritorious defense to Bayer's infringementsuit that would render the suit objectively baseless. 12 Further, even if there is evidence creatinga triable issue of fact as to whether Bayer's patent infringement suit was objectively baseless due to Bayer's inequitable conduct in procuring the '444 patent, we concludethat plaintiffs' sham-litigation claim is preempted by federal patent law. "Thedistrict courts [ofthe United States] shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents .... Such jurisdiction shall be exclusiveofthe courts ofthe states in 12 The Cipro II court addressed this point, stating: "At oral argument, plaintiffs asserted that the court should give little weight to these subsequentfailed attacks because noneofthem raised what plaintiffs believe to be the most forceful attack on the '444 Patent-namely,inequitable conduct. Plaintiffs argue that this defense required extensive discovery and would take a long periodoftimeto prepare andtry, andthatthis explains why none ofthe subsequentchallengersraised this issue. [{] But this argumentis not very convincingin light ofthe fact that one ofthe challenges—Carlsbad's, on the ground of obviousness—also required extensive discovery and resulted in a nine-day benchtrial. It is difficult to accept the notion that Carlsbad abandoneda stronger argument becauseit would have presumably required a greater effort, especially since Barr had already done mostofthe preparatory work on the inequitable conduct issue." (Cipro II, supra, 363 F.Supp.2d at p. 530.) 42 patent .. . cases." (28 U.S.C. § 1338(a).) Federal jurisdiction over cases arising under patent law "'extend[s] only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action orthat the plaintiff's right to reliefnecessarily depends on resolution ofa substantial question offederalpatent law, in that patent law is a necessary elementofone of the well-pleaded claims.'" (Holiday Matinee, Inc. v. Rambus, Inc. (2004) 118 Cal.App.4th 1413, 1422, quoting Christianson v. Colt Industries Operating Corp. (1988) 486 U.S. 800, 808-809,italics added.) Plaintiffs’ right to reliefunder the Cartwright Act and UCL,undertheir sham litigation theory, depends onthe resolution ofwhether Bayer engagedin inequitable conductin the procurementofits '444 patent that renderedits infringementsuit against Barr objectively baseless. When a state law claim involves a patent holder's conduct in obtainingits patent, the claim is preempted by federal patent law unless the plaintiff pleads and proves that the patent holder engagedin fraud before the PTO.13 (Hunter Douglas, Inc. v. Harmonic Design, Inc. (Fed.Cir. 1998) 153 F.3d 1318, 1336-1337, overruled on other grounds in Midwest Industries, Inc. v. KaravanTrailers, Inc. (Fed.Cir. 1999) 175 F.3d 1356, 1358-1359; see also Nobelpharma AB vy. Implant Innovations, Inc. (Fed.Cir. 1998) 141 F.3d 1059, 1068 ["[W]hether conductin procuring or enforcing a patentis sufficientto strip a patentee ofits immunity from the antitrust lawsis to be - decided as a question ofFederal Circuit law." (Fn. omitted.)].) More specifically, a 13 Plaintiffs emphasize on appeal that they are not asserting a claim of fraud on the PTO. 43 determination ofwhetheralleged inequitable conductin the procurementofa patent constitutes unfair competition is within the exclusive jurisdiction ofthe Federal Circuit Court ofAppeals. (Lockwood v. Sheppard, Mullin, Richter & Hampton (2009) 173 Cal.App.4th 675, 686, citing Pro-Mold & Tool Co. v. Great Lakes Plastics (Fed.Cir. 1996) 75 F.3d 1568, 1574.) Thus, plaintiffs’ claim that Bayer's infringementsuit against Barr was objectively baseless due to inequitable conductis preempted by federal patent law becauseit necessarily dependson resolution ofa substantial question of federal patent law — i.e., whether Bayer engaged in inequitable conductin the procurementofits patent. Plaintiffs argue they are not seeking to hold Bayer liable for its conductin procuring or enforcing the '444 patent, but rather are challenging the"collusive payment" that ended the patent suit. However,it is immaterial to the federal jurisdiction issue that plaintiffs' claims do not directly seek to hold Bayerliable for inequitable conduct in procuring the '444 patent; plaintiffs' antitrust and unfair competition claimsare preempted by federal patent law because a necessary elementofthose claimsis that Bayer's infringementsuit against Barr was objectively baseless dueto Bayer's inequitable conduct in the procurementofthe patent and, accordingly, the '444 patent was invalid. In their reply brief, plaintiffs similarly contendtheir claims "are not premised on Bayer's conduct before the [PTO]; they are premised on Bayer's conduct in settling its own patent case with a payment not to compete." (Original boldface.) However, because the payment in question did not restrain competition beyond the exclusionary scope of the '444 patent, it does not subject defendantsto antitrustliability unless plaintiffs can 44 provetheir claim that the Bayer's infringement suit was objectively baseless, which claim is premised on Bayer's conductbeforethe patentoffice. Plaintiffs argue that statecourts havejurisdiction to determine patent law issues suchaspatentvalidity when such determination is ancillary and necessary to the main action,citing, among other authority, Mattel, Inc. v. Luce, Forward, Hamilton & Scripps (2002) 99 Cal.App.4th 1179, 1186. The Mattel court concluded that a State claim against the law firm for malicious prosecution was not preempted by federal copyright law even though the defendantasserted that the underlying trademark infringementaction could havebeen broughtonly in federal court. The court relied in part on cases holdingthat " ‘if the suit is to enforce or to revokea patent licensing or other similar agreement, it "is not a suit under thepatent laws ofthe United States, and cannot be maintained in a federal court as such." [Citations.] It follows . . . that in an action in a state court based upon such an agreement, the state court can, where it becomes necessary for it to do so in order to decide the case beforeit, pass upon the meaning, the scope,the validity, or the infringementofthe patent.'" (/d. at p. 1187.) However, the present action is nota contract action seeking to enforce or revokea patent licensing agreement;it arises from a settlementofpatentlitigation, and plaintiffs’ sham litigation claim requires adjudication ofthe validity ofthe patent in the context of the determination ofwhether Bayer's patent infringement suit against Barr was objectively baseless, Plaintiffs also rely on ClearPlay, Inc. v. Abecassis (Fed.Cir. 2010) 602 F.3d 1364, whichinvolved state law claims by ClearPlay, Inc. (ClearPlay), a manufacturer ofDVD players against patent holder Nissim Corp.(Nissim) arising from a patent licensing 45 agreementthatthe parties entered into in settlementofa patent infringementsuit that Nissim brought against ClearPlay. Nissim claimed that ClearPlay breached the license agreement andfiled a motion to enforcethe parties' settlement. While that motion was pending, Nissim informedretailers selling ClearPlay's products that the products werenot licensed andtheretailer's continuingto sell them could constitute patent infringement. (/d. at pp. 1364-1365.) ClearPlay responded by bringing a state law action against Nissim that included claimsfortortious interference with contractual relationships, tortious interference with potentially advantageous business relationships, breach ofthe license agreementbyinterfering with ClearPlay's business operations, breach ofthe covenant of good faith and fair dealing, and violation of Florida's Deceptive and Unfair Trade Practices Act. (/d. at pp. 1365, 1367-1368.) The ClearPlay court decided that although "questions ofpatent infringement are addressed at various points in the communicationsthat are at issue in ClearPlay's complaint, and whileit is possible that patent law issues couldarise in thecourse of litigating any one of ClearPlay’s claims,it is equally clear that none ofthose claims necessarily turns on an issue ofpatent law. That is, in the case ofeach asserted claim,thereis at least one theory ofreliefthat would not require the resolution ofa patent law issue." (Id. atp. 1368.) ClearPlay is inapposite. Because the Cipro settlement did not restrain competition beyond the exclusionary scope of the '444 patent, plaintiffs' claimshere, unlike state lawclaims in ClearPlay, necessarily turn on the patent law issue ofwhether Bayer's infringementsuit was objectively baseless due to inequitable conduct. 46 Plaintiffs argueit is error to revisit the federal jurisdiction issue decided bythe. district court in In re Ciprofloxacin Hydrochloride Antitrust Litigation, supra, 166 F.Supp.2d 740, when it remandedthis action to state court. However,as this court explained in Moreau v. San Diego Transit Corp. (1989) 210 Cal.App.3d 614 (Moreau): "In makingits jurisdictional determination on a motion for remand, the [federal] district court looks no further than the complaint and the motion for removal. This limitation is one aspect ofthe 'well-pled complaint' rule which holds a plaintiff is the ‘master’ ofhis complaint and he may craft his causesofaction, ifhe so desires, to exclude federal jurisdiction. Under therule a federal question must appear from the complaint and not from any preemption defense which mightbe raisedin state court and which might ultimately defeat the cause ofaction. [Citation.] [{] However, an independent corollary to the 'well-pled complaint’ ruleis the'artful pleading’ rule orthe ‘doctrine of complete preemption.' This doctrine states that while couchedin state contractor tort terms, federaljurisdiction exists ifthe issues actually raise an essentiallyfederal question. . . . [{]] When a federal court grants a motion for remand in the present context, it does nothing more than determine the complaintfails, either directly or by operation ofthe ‘artful pleading’ doctrine, to state a question arising under federal law. It does not determine whether a preemption defense can be successfully offered in state court when the entire case is considered." (Jd. at pp. 620-621,italics added; accord, Ruiz v. Sysco Food Services (2004) 122 Cal.App.4th 520, 531-532 ["[T]he trial court was not required or allowedto accord any collateral estoppel effect to the federal district court's remand order, which was nota final judgment butrather a procedural order concerning the 47 appropriate forum."]; McCormick v. Travelers Ins. Co. (2001) 86 Cal.App.4th 404 [after removalofstate tort claims to federal court and federal court's subsequent remandto state court, state court properly granted defendant's motion forjudgmenton the pleadings on the ground offederal preemption]; AT&T Communications, Inc. v. Superior Court (1994) 21 Cal.App.4th 1673, 1680 [doctrine of law ofthe case applies only to appellate court decisions and a remandrulingis a jurisdictionalruling, nota final judgmenton the merits of a preemption defense]; UnitedAirlines, Inc. v. Superior Court (1991) 234 Cal.App.3d 1085, 1090 ["The exercise of a federal district court's unreviewable powerto remand claimsto state court . . . is not necessarily the sameas a determination ofwhether those claims on their merits—even though not removable to federal court—would nonetheless be preempted by federal law if asserted by way of defensein state court."]; Coker v. Purdue Pharma Co. (Tenn.Ct.App., Nov. 30, 2006, No. W2005-02525-COA-R3-CV) 2006 Tenn. App. LEXIS 757 [after federal court remandedcaseto state court on the ground the complaint's allegations ofmisrepresentation to the PTO in the procurement of a patent could be proven without resorting to question of federallaw,state trial court properly determined federal preemption was a valid defenseto the misrepresentation claims and granted judgmentonthe pleadings].)!4 14 Although it is not essential to our preemption analysis, we note that the theory of liability alleged in plaintiffs’ second amended complaint that caused the federaldistrict court to remandthis caseto state court in Jn re Ciprofloxacin Hydrochloride Antitrust Litigation, supra, 166 F.Supp.2d 740lacksmerit, as the district court later acknowledged. The court remandedthe case based on its conclusion "that plaintiffs have assertedat least one theory by which they may establish state antitrust violations without resorting to a determination ofpatent law. Plaintiffs’ complaints allege there would have been generic 48 Plaintiffs' contention that thereis a triable issue offact as to whether Bayer's infringementsuit against Barr was objectively baseless due to inequitable conduct in procuring the '444 patentis not a basis to reverse the judgment. To the extent a sham- litigation claim is sufficiently pleadedin plaintiffs’ second amended complaint, it arises from and is preempted by federal patent law.15 competition in the market for ciprofloxacin prior to the expiration of Bayer's patent if Bayer had not reachedan unreasonably anti-competitive agreement with Barr, HMR, and Rugby... . [Plaintiffs] asserted that, as a matter of fact, Bayer would have authorized Barr to distribute ciprofloxacin by granting Barr a license, or by other means, had Barr not agreed to drop its challengeto the validity of the '444 patent in exchangefor large cash payments." (/d. at p. 748.) This theory ofliability fails because any restraint on competition resulting from Bayer's decision to enter into the Cipro agreements instead of some otherlicensing agreement was within the exclusionary zone ofthe '444 patent and thus is not a basis for imposing antitrust or unfair competitionliability on defendants, As the Cipro II court explained: "[P]laintiffs' assertion that Bayer's paymentto Barr is anti-competitive because, withoutit, Bayer and Barr would have agreed on an earlier entry date for Barr or would have otherwise fashioned a more pro-competitive agreement mustalsofail. This assertion ignores the fact that, if defendants were within their rights (more specifically, the patent right) in reaching the settlement they did, consumers have noright to second- guess whether some different agreement would have been more palatable." (Cipro II, supra, 363 F.Supp.2d at p. 536.) Regarding its basis for remanding thecase, the district court stated that "[u]pon further reflection, I have concludedthat patent law imposes no such restriction against cash payments bya patentholder, and, accordingly,antitrust law does not impose sucha restriction." (Id. at p. 536, fn. 21.) In other words, Bayer was not restricted by patent or antitrust law to settlementoptions more favorable to competition than the settlementit reached. 15 Wedonothold that the issue of whether a patent infringementsuitis objectively baseless can never be decided by a state court; there may be cases wherea suit can be shown to be objectively baseless without the necessity ofresolving a substantial question of federal patent law. 49 Il. Unfair Competition and Common Law Monopoly Claims Our conclusion that defendants are notliable under the Cartwright Act for entering into the Cipro agreements is also dispositive of plaintiffs' causes of action for violation of the UCL and common law monopolization. "The purposeoffederal and state antitrust lawsis to protect and promote competition for the benefit of consumers. [Citations.] Antitrust laws are designedto prohibit only unreasonablerestraints oftrade, meaning conductthat unreasonably impairs competition and harms consumers. [Citations.] If the same conductis alleged to be both an antitrust violation and an ‘unfair’ business act or practice for the same reason — becauseit unreasonablyrestrains competition and harms consumers — the determination that the conductis not an unreasonablerestraint oftrade necessarily implies that the conductis not 'unfair' toward consumers. To permit a separate inquiry into essentially the same question under the unfair competition law would only invite conflict and uncertainty and could lead to the enjoining of procompetitive conduct." (Chavez v. Whirlpool Corp. (2001) 93 Cal.App.4th 363, 375; accord, Drum v. San Fernando Valley Bar Assn. (2010) 182 Cal.App.4th 247, 254 [conduct that is deemed reasonable and condoned underantitrust law does not violate the UCL].) Regardingplaintiffs' cause of action for common law monopolization,itis questionable whether such a causeofaction exists under California law. Thefederal district court in In re Intel Corp. Microprocessor Antitrust Litigation (D.Del. 2007) 496 F.Supp.2d 404 dismissed a common law monopolization claim on the ground that "the commonlaw tort ofmonopolization is not cognizable under California law... ." (id. at 50 p. 420; accord, Lorenzo v. Qualcomm, Inc. (S.D.Cal. 2009) 603 F.Supp.2d 1291; Lixpro Corp. v. Apple, Inc (W.D.Ark. 2009) 658 F.Supp.2d 921, 933.) To the extent such a cause ofactionis cognizable under California law,it fails for the same reason plaintiffs' UCLcause ofaction fails—i.e., becauseit is based on the same conduct alleged to bea — violation of the Cartwright Act. Conduct that has been determined notto unreasonably restrain competition understatutory antitrust law cannot logically be deemed to unreasonably restrain competition under a common law monopolization theory. Thetrial court properly granted summary judgment on plaintiffs' causes of action for violation of the UCL and common law monopolization as well as their cause of action for violation of the Cartwright Act. The court also properly ruled that its summary judgmentruling as to Bayer and the generic defendants was also dispositive as to Watson's summaryjudgment motion,sinceplaintiffs sought to hold Watsonliable solely as a conspirator for the allegedly unlawful conduct ofthe other defendants. IV. Evidentiary Objections Plaintiffs contend the court erred by not providing any explanation for overruling all oftheir evidentiary objections, relying on Nazir v. UnitedAirlines, Inc. (2009) 178 Cal.App.4th 243, 254-257 (Nazir) in which the Court ofAppealheld thatthetrial court abusedits discretion by issuing a blanket ruling sustaining all but one of defendants' 764 evidentiary objections in a summary judgmentproceeding. Here, the court did not sustain the evidentiary objections in question; it overruled them. In Reid v. Google, Inc. (2010) 50 Cal.4th 512, 534, the California Supreme Court held that whena trial court ruling on a summaryjudgment motion "fails to rule expressly 51 on specific evidentiary objections,it is presumed that the objections have been overruled, the trial court considered the evidence in ruling on the merits of a summaryjudgment motion, and the objections are preserved on appeal." Thus,thetrial court's blanket ruling overruling plaintiffs’ evidentiary objections left plaintiffs in no worse a position than they would havebeenin if the court had failed to issue any rulingatall on the objections. The objections were preserved on appealand plaintiffs werefree to challengethetrial court's consideration of specific items of objected-to evidence on appeal. Because plaintiffs havenot argued that the admission of any specific evidence constituted prejudicialerror, the court's ruling on plaintiffs' evidentiary objections provides no basis to disturb the judgment.16 16 Wenotethat plaintiffs complain that the court improperly considered evidence concerningthelitigation challenging the '444 patent that occurred after the Cipro settlement and the reexamination of the patent. Wedo notfind the admissionofthis evidenceto be prejudicial, however, becausethe essential facts ofthose suits were established as undisputed byplaintiffs’ responses to Bayer's separate statementof undisputed facts in support of its motion for summary judgment, Nos. 29-33. 52 DISPOSITION The judgmentis affirmed. ) . ! NARES,J. WE CONCUR: Binbe BENKE,Acting P. J. Laer AARON,J. 53 Al BED PER Court of Appeal NSTeiMany, FOURTH APPELLATE DISTRICT 780 B STREET, SUITE 300 SAN DIEGO, CA 92101-8196 October 31, 2011 To: ALL PARTIES Re: D056361, In re Cipro Cases I & II An asterisked footnote was inadvertently omitted from the opinion in the above case filed on October 31, 2011. It should have appeared at the bottom ofpage 1, reading as follows: McGaughey v. Bayer Corporation (Super. Ct. San Diego County, No. GIC752290); Relles v. Bayer Corporation (Super. Ct. L.A. County, No. BC239083); Samole v. BayerAG (Super. Ct. S.F. City and County, No. 316349 ); Garber v. Bayer AG (Super. Ct. S.F. City and County, No. 316518); Lee v. Bayer AG (Super. Ct. S.F. City and County, No. 316670); Patane v. BayerAG (Super. Ct. S.F. City and County, No. 318457); Moore v. Bayer Corporation (Super.Ct. Sonoma County, No. SCZ228356); Moore v. Bayer Corporation (Super. Ct. Sonoma County, No. 228384); Senior Action Networkv. Bayer AG (Super. Ct. S.F. City and County, No. 400750). Very truly yours, Sandeats Sandra Feeny Judicial Assistant sf RECEIVED OY IK ogy LEFF CAB ’ RASER, 4A BERNSTEINMANN Court of Appeal De FOURTH APPELLATE DISTRICT 780 B STREET, SUITE 300 SAN DIEGO, CA 92101-8196 November 23, 2011 To: ALL COUNSEL Re: D056361, In re Cipro Cases I & II, filed October 31, 2011 Dear Counsel: The second sentence of the second paragraph beginningat page 30 ofthe opinion in the above case inadvertently reversed the positions ofthe direct purchaserplaintiffs and the indirect purchaser and advocacy group plaintiffs. That sentence should read: As noted above, the Cipro IIjudgment wasaffirmed in Cipro III as to the indirect purchaser and advocacy groupplaintiffs and Arkansas Carpenters as to the direct purchaserplaintiffs. Also due to clerical error, on page 29 in footnote 6, the word "and"in the bracket "(to file and ANDA IV]"should read: [to file an ANDA IV]. An additional correction should be madeto thecitation in the paragraph beginning on page 34. That citation should read Fruit Machinery Co. v. F. M. Ball & Co. (1953) 118 Cal.App.2d 748 (Fruit Machinery), Subsequent references should be to "Fruit Machinery"— not "Fruit Machine." Very truly yours. Candpeng Sandra Feeny Judicial Assistant cc: All parties State of California ) ProofofService by: County ofLos Angeles ) Y USPostal Service ) Federal Express I, Kirstin Largent , declare that I am nota party to the action, am over 18 years of age and my business address is: 354 South Spring St., Suite 610, Los Angeles, California 90013. On 12/12/2011 declarant served the within: Petition for Review upon: ; 1 Copies FedEx ¥ USPS 1 Copies FedEx ¥ USPS See Attached Service List Court of Appeal Fourth Appellate District, Division One Symphony Towers 750 "B" Street, Suite 300 San Diego, California 92101 Copies FedEx USPS Copies FedEx USPS the address(es) designated by said attorney(s) for that purpose by depositing the numberof copies indicated above, of same, enclosed in a postpaid properly addressed wrapperin a Post Office Mail Depository, under the exclusive custody and care of the United States Postal Service, within the State of California, or properly addressed wrapper in an Federal Express Official Depository, under the exclusive custody and care of Federal Express, within the State of California I further declare that this same day the original and copies has/have been hand delivered for filing ORthe original and 13 copies has/have been filed by ¥ third party commercial carrier for 1 li :next business day del very to Clerk of the Court SUPREME COURT OF CALIFORNIA 350 McAllister Street San Francisco, California 94102-4797 I declare und fat the foregoing is trug’and correct: SERVICE LIST Christopher J. Healey, Esq. Peter B. Bensinger, Esq. Luce, Forward, Hamilton & Scripps 54 West HubbardStreet, Suite 300 600 West Broadway, Suite 2600 Chicago,Illinois 60654 San Diego, California 92101 Kevin D. McDonald, Esq. 51 Louisiana Avenue, NW Washington, D.C. 20001 Attorneysfor Defendant-Respondent Bayer Corporation David E. Everson, Esq. Kathryn E. Karcher, Esq. Stinson Morrison Hecker LLP 401 B Street, Suite 2450 1201 Walnut, Suite 2600 San Diego, California 92101 P.O. Box 419521 Kansas City, Missouri 64141-6251 Joann F. Rezzo, Esq. EDELSON & REZZO 402 West Broadway, Suite 2700 San Diego, California 92101 Attorneysfor Defendants-Respondents Hoechst Marion Roussel, Inc., The Rugby Group, Inc., Barr Laboratories, Inc., and Watson Pharmaceuticals, Inc. Victoria Smith, Esq. Heather S. Woodson, Esq. Stinson Morrison Hecker LLP Stinson Morrison Hecker LLP 1201 Walnut, Suite 2600 1201 Walnut, Suite 2900 P.O. Box 419521 P.O. Box 419521 Kansas City, Missouri 64141-6251 Kansas City, Missouri 64141-6251 Attorneysfor Defendants-Respondents Hoechst Marion Roussel, Inc., The Rugby Group, Inc., and Watson Pharmaceuticals, Inc. Gregory Skidmore, Esq., Edwin John U., Esq. and Karen N. Walker, Esq. Kirkland & Ellis LLP 655 Fifteenth Street, NW Washington, D.C. 20005 Attorneysfor Defendant-Respondent Barr Laboratories, Inc. Clerk for Hon. Richard E.L. Strauss SUPERIOR COURT OF CALIFORNIA County of San Diego HALL OF JUSTICE 330 West Broadway San Diego, California 92101 Trial Court OFFICE OF THE ATTORNEY GENERAL P.O. Box 85266 San Diego, California 92186-5266 Appellate Division OFFICE OF THE DISTRICT ATTORNEY P.O. Box X-1011 San Diego, California 92112 Carlotta Tillman ADMINISTRATIVE OFFICE OF THE COURTS 455 Golden Gate Avenue Sixth Floor San Francisco, California 94102