IN RE CIPRO CASES I & II

Appellants’ Reply to Supplemental Brief

Cal.February 14, 2014

S198616 IN THE SUPREME COURT OF CALIFORNIA Prank A. MetGuire C Coordination Proceeding Special Title (Rule 1550(b)): Prank A. McGuire Clerk Deputy CIPRO CASES I & II Judicial Council Coordination Proceeding Nos. 4154 & 4220 After a Decision by the Court ofAppeal, Fourth Appellate District, Division One SUPPLEMENTAL REPLY LETTER BRIEF OF APPELLANTS ADDRESSING THE RELEVANCEOF FTC V. ACTAVIS, INC. Eric B. Fastiff (State Bar No. 182260) Dan Drachler (pro hac vice) Brendan Glackin (State Bar No. 199643) ZWERLING, SCHACHTER & Dean M. Harvey (State Bar No. 250298) =ZWERLING, LLP Jordan Elias (State Bar No. 228731) 1904 Third Avenue, Suite 1030 LIEFF, CABRASER, HEIMANN & Seattle, WA 98101 BERNSTEIN, LLP Telephone: (206) 223-2053 275 Battery Street, 29th Floor Facsimile: (206) 343-9636 San Francisco, CA 94111-3339 Telephone: (415) 956-1000 Ralph B. Kalfayan (State Bar No. 133464) Facsimile: (415) 956-1008 KRAUSE, KALFAYAN, BENINK & — SLAVENS Joseph R. Saveri (State Bar No. 130064) 550 West C Street, Suite 530 JOSEPH SAVERI LAW FIRM,INC. San Diego, CA 92101 505 Montgomery Street, Suite 625 Telephone: (619) 232-0331 SanFrancisco, CA 94111 Facsimile: (619) 232-4019 Telephone: (415) 500-6800 oo Facsimile: (415) 395-9940 Mark A. Lemley (State Bar No. 155830) DURIE TANGRI LLP 217 Leidesdorff Street San Francisco, CA 94111 Telephone: (415) 362-6666 Attorneysfor Plaintiffs, Appellants and Petitioners TABLE OF CONTENTS Page I. SUMMARYOF REPLYoouio..coc.ccccccscsssseeseceecsssececscssssscccstccecsssscseceseeee 1 Il. THE GENERICS IGNORE THE HOLDINGS OF ACTAVIS........... 2 Ill. THE GENERICS MISCHARACTERIZE THE PAST PROCEEDINGS000... occ cece ccccceccccscceccceececeecccccccccecsecececcscsssssstessssnssacecces 3 IV. THE CIPRO AGREEMENTS LACK ANY PROCOMPETITIVE JUSTIFICATION ..0............cccccccecesescessesscesecees 6 V. THE GENERICS FAIL TO DISTINGUISH ACTAVIS.0........000000000 7 VI. THE CIPRO AGREEMENTS AND BAYER’S CONDUCT RESULTED IN THE SEALING OF PRIOR ART EVIDENCE THAT WAS UNAVAILABLE TO SUBSEQUENTLITIGANTSuuuccccceesccscccccceccesseecsesssceeessnenaes 11 VII. THE COURT SHOULD ARTICULATE A STANDARD TO GUIDE THE LOWER COURTSw.00..occcc ccc ccccccccccccccccceccessceecsecsceses 13 CERTIFICATE OF WORD COUNT..........c.cccccccccccccceccececcececsssessesserscsaees 16 TABLE OF AUTHORITIES Page CASES Fruit Mach. Co. v. F. M. Ball & Co. (1953) 118 CalApp.2d 748 ooccsccssssssessscnsensessesscsesssssscesessessesatsessaseaseaceeees 5 FTC y. Actavis, Inc. (2013) 570 U.S. [133 S.Ct. 2223]occcecsccsecsecseesesessesesesseesssesseneess passim In re Cipro Cases I & IH (2011) 200 Cal.App.4th 442 ooo. ccccccccccsscseecssessssssercssssscsssssscsussecssesecaseas 4,5,8 In re Ciprofloxacin Hydrochloride Antitrust Litig. (Fed.Cir. 2008) 544 F.3d 1323 ooccccccccssssesessssessssssesssscsssscssssssssscecsesaes 12 In.re Swanson (Fed.Cir. 2008) 540 F.3d 1368.00cccccseseeseecsseessecseeeaescecsesacenseeseeusenseesesessesaeesseeaes 9 In re Tamoxifen Citrate Antitrust Litig. (2d Cir. 2006) 466 F.3d 187eeseseescesseesssessesstecssseescsscsseseessescaeeuseecsecssssscssssecsrsessas 5 Merck & Co. v. Louisiana Wholesale Drug Co., Inc. Sune 24, 2013) 133 S.Ct. 2849oeeccessssesssssssssesseeseessesscssescssesessssscsessussessssssecseessssasacenss 8 Rambus, Inc. v. FTC (D.C.Cir. 2008) 522 F.3d 456.eescecceeessssetessssesssesssacescasesenesesesscsssseceessseecsssesssesececerees 8 Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Co., Inc. (June 24, 2013) 133 S.Ct. 2849occsscsscsessssessccecsscssscessesssesssesesacees 8 Vulcan Powder Co. v. Hercules Powder Co. (1892) — 96 Cal. 510 oooeeccccessesnessssssscssessessseeseessessesscsssaeesesesessenseeseceseseeenesecsass 5 OTHER AUTHORITIES 1 Herbert Hovenkampeftal. (2013 Supp.) IP and Antitrust § 15.2a)ccccc eccccsscsseseesseressscccesscssecessesenssessees2 LO Edlin, Hemphill, Hovenkamp,and Shapiro, Activating Actavis (2013) vol. 28, No. 1, Antitrust 16..... duveseceeccecccccsecsceeceecsscesceceecescccscsscescecesscceeceeees 3 -ii- UL SUMMARY OF REPLY FTC v. Actavis, Inc. (2013) 570 U.S. __ [133 S.Ct. 2223], rejected the “scope of the patent” test and held that a payment delaying the risk of competition is anticompetitive. These holdings destroy the foundation of the lower court opinions in this action and mandate reversal. Further, Actavis supports adoption of a standard under which the Generic Respondents have no prospect for success given the facts of this case. The $398.1 million payment they received cannot be understood as buying anything other than their agreement to droptheir patent challenge and delay the risk ofgeneric competition. Such conduct is, according to Actavis, an antitrust violation. The Genericsresist this stark reality in two ways. First, they pretend that the U.S. Supreme Court embracedthe conclusions of the lower courts here, whenin fact it repudiated them. The Generics’ argument conflates two very different versions ofthe rule of reason. The version adopted in Actavis constrains the permissible justifications for reverse payments. The version adopted by the lower courts below,in contrast, is in essence a rule ofper se legality and would permitvirtually any justification for a settlement that purports to remain within the scope ofthe patent. The Generics ignorethis crucial distinction and the reasoning in Actavis | generally. | No doubt sensing the weaknessofthis first argument, the Generics alternatively ask this Court to remand without giving the lower courts any -guidance. Never mind that the Generics already madethis request in a motion this Court denied. (See Section VII, infra.) Never mindthat the Genericsfail to identify any specific reason the record needs further developmentbefore the applicable legal standard could or should be clarified. The Generics wouldlike the opportunity to reassert in the lower courts all of the positions they nowassert, without this Court’s guidance on howthey should be resolved. Although the Generics prefer uncertainty and confusion, Appellants respectfully submit that the issue of reverse payments’illegality is ripefor decision, especially in light ofActavis. This case alone has been pending for over a decade. Thelitigants and the lower courts would benefit from a clarification of California antitrust law, and theclarification should bethat a paymentto delay the risk of competition violates California law. Il. THE GENERICS IGNORE THE HOLDINGS OF ACTAVIS The Generics strain credulity with the following syllogism: Actavis said the rule ofreason applies to reverse payments; the Court ofAppeal below applied the rule of reason; therefore, under Actavis, the lower court rulings shouldbe affirmed. Theglaring flaw in this syllogism is thatit ignores how each court applied the rule of reason. The legal standard of Actavis is diametrically opposed to the standard the lower courts applied in this case. Actavis endorseda stringent standard that renders many reverse paymentsillegal, whereas the courts below adopted a toothless standard that would immunize almostall ofthem.' If the Generics were right, Actavis would have affirmedrather than reversed the decision on appeal there. After all, the lower courts in Actavis applied the same version ofthe rule ofreason—the “scope ofthe patent” test, 133 S.Ct. at p. 2227—as the lower courts did here, and according to the Generics, so did Actavis itself. But the Supreme Court did not affirm;it reversed. (Id. at p. 2238.) So should this Court. ' (See Generics Letter Br. at p. 9 {conceding that Actavis may “warrant[] a more fulsome Rule ofReason analysis” than was applied below].) The Generics’ Letter Brief says remarkably little about the reasoning - ofActavis andits implications for how courts should analyze a reverse payment. It is as if the Supreme Court concluded that the rule of reason applies without any elaboration. However, as the Court’s opinion makes clear—andas respected commentators have confirmed—Actavis did much more. (See, e.g., Edlin, Hemphill, Hovenkamp, and Shapiro, Activating Actavis (2013) vol. 28, No. 1, Antitrust 16.) Actavis recognized only two potential justifications for reverse payments—avoidedlitigation costs and a fair exchange for goodsor services. (Actavis, supra, 133 S.Ct. at p. 2236.) Significantly, Actavis also held that the size of a reverse payment can supply evidence ofboth an antitrust violation and market power. (/bid.) Andthe anticompetitive harm Actavis identified is avoidance ofthe risk of competition, the determination ofwhich normally makesit unnecessary to assess the strength of the patent in question. (Jbid.) The Generics fail to grapple with any ofthese holdings. They are, therefore, wrong to suggest Actavis appliesthe rule of reason simpliciter. Instead, Actavis-placed severe constraints-on the analysis that render many reverse payments illegal. The courts below, in contrast, held that virtually any settlement within the formal scope of a patent is automatically legal. Ill. THE GENERICS MISCHARACTERIZE THE PAST PROCEEDINGS The Generics succumb to wishful thinking whenthey claim that Actavis confirmsthe courts’ rulings below. (Generics Letter Br. at pp. 4— 5.) Actavis rejects the “near-automatic antitrust immunity” the lower courts applied. (Actavis, supra, 133 S.Ct. at pp. 2233, 2237 [disagreeing that “a patent holder may simply pay a competitor to respect its patent . .. without any antitrust scrutiny whatever.”], internal quotation and alteration marks -3- omitted.) Because the Generics can find no support for their arguments in the text of the decision, they reinterpret the opinions below in line with Actavis, claimingthe trial court and the Fourth District Court of Appeal applied traditional rule of reason analysis. Yet the lower courts based their reasoning upon the very “scope ofthe patent test” Actavis repudiated. To the extent the lower courts purported to apply the rule of reason, they applied a rule coterminous with the “scope ofthe patent” test. The Superior Court began and endedits inquiry with the boundaries of the ‘444 patent, stating that the key issue was “whether the agreement fell within the scope ofthe patent, because if it does, there is no antitrust violation.” (Super. Ct. Order at p. 6, 11AA 2687.) The court rejected the evidence of anticompetitive effects—e.g., payment size and price increases—as being “within the rights of the patent holder”or “not relevant to the antitrust analysis.” (/bid.) In doing so, the trial court immunized the Cipro agreements on the groundsthat “there are no anticompetitive effects on competition beyond the exclusionary scope ofthe patentitself.” Ibid.) Affirming this reasoning, the Court ofAppeal held that where “‘the settlement restrains competition only within the scope of the patent,”it is not unlawful because “an agreementis not unlawful under California and federal antitrust law ifit restrains competition only within the exclusionary scope... .” (In re Cipro Cases I & IT (2011) 200 Cal.App.4th 442, 449, 467.) The Court ofAppeal therefore “conclude[d] that because the Cipro agreements undisputedly did not restrain competition beyond the exclusionary scope of the ‘444 patent, they do not violate the Cartwright Act.” Ud. at p. 470.) Thus, the lower courts expressly applied the “scope of the patent”test, following the lower federal courts that permitted a drug company to engage in any type of malignant conduct so long asit claims a valid patent and the conduct doesnot purport to extendthe patent’s scope. (Ud.at pp. 457-466 [citing, inter alia, In re Tamoxifen Citrate Antitrust Litig. (2d Cir. 2006) 466 F.3d 187]; Super. Ct. Order at pp. 3-4, 1LAA 2684-85 [same; “[f]ederal case law is not only instructive . . . it is dispositive.”].) Actavis has required the Generics to reverse themselves. Previously, they defended the opinions below as having applied a rule of reason coterminous with the “scope of the patent” test. According to the Generics’ AnswerBrief, the lower courts held that Appellants “could not establish the first step of the Rule of Reason—showing an actual adverse effect on competition—becausethe settlement restrained no more competition than the exclusionary potential of the Cipro patentitself.” (Generics AnswerBr. at p. 15, citing Ct. App. slip op. at pp. 33-34; Super. Ct. Orderat p. 10, 11AA 2691.) The Generics reiterated that Appellants consequently could not show an “actual adverse effect on competition” underthe rule of reason “because the Cipro settlement limited no more competition than the patent already limited.” (Generics AnswerBr.at p. 17.) The Generics are now speaking outofthe other side of their mouths. Having previously equated the rule of reason in this context with a “scope of the patent” understanding of anticompetitive effects, they now suggest — the Court might view the two standards as distinct. (Generics Letter Br.at pp. 4-5.) But the rule applied below no longer holds sway, andthe rule of reason that replaced it for federal claims rejects an immunity based on patent scope. (Actavis, supra, 133 S.Ct. at p. 2231.) * The lower courts also misapplied existing California case law. (See Appellants’ Reply Br. at pp. 9-11& fn. 5 [discussing, inter alia, Vulcan PowderCo. v. Hercules Powder Co. (1892) 96 Cal. 510, and Fruit . Machinery Co. v. F. M. Ball & Co. (1953) 118 Cal.App.2d 748].) IV. THE CIPRO AGREEMENTS LACK ANY PROCOMPETITIVE JUSTIFICATION The “unjustified anticompetitive harm”on display in this factual record resulted from agreements by which Bayer shared “monopoly profits to avoid the risk of patent invalidation ....” (Actavis, supra, 133 S.Ct. at p. 2236.) The Generics, however, mischaracterize the record with the claim that “far from preventing competition, the Cipro settlement was pro- competitive.” (Generics Letter Br. at-p. 6.) There was nothing procompetitive about this pay-for-delay agreement. The record shows Bayer paid Barr nearly $400 million, for no purpose other than delay. The settlement injured consumers and other purchasers such as the insurance companiesin this certified class by denying them a competitive Cipro market and imposing high monopoly prices for years. These harmful effects were not offset by any of the exceptions to antitrust condemnation Actavis identified. Bayer’s $398.1 million cash agreement with the Generics evidences none ofthe “traditional settlement considerations, such as avoided litigation costs or fair value for services,” that the Supreme Court stated might be “legitimate justifications” for such an agreement. (Actavis, supra, 133 S.Ct. at pp. 2235-2236.) The Generics make no attemptto addressthis part of the Court’s analysis—nor could they. Their cash settlement vastly exceeded Bayer’s remaining litigation costs in defending its patent from Barr’s challenge, and the Generics have no plausible claim that the payment provided fair value for services rendered bythem on Bayer’s behalf. Simply put, the Generics do not and cannot show that the reverse payment covered costs or services. The Genericsstill refuse to acknowledge the Cipro agreements’ negative effects on consumers,who had to pay much higherprescription drug pricesifthey could afford their medicineatall. (See Appellants’ -6- Opening Br. at p. 28.) The evidence showsthat because of the Cipro settlement, prices went up for seven consecutive years. Beforethis settlement, Bayer’s annualrates ofprice increases on the three major Cipro dosages were 4.56%, 4.85%, and 4.33%, but in the seven yearsthat followed the settlement—and because of it—Bayeraccelerated price increasesat annual rates of 10.53%, 11.66%, and 74.83%. (6AA 1208.) Absent the Cipro agreements, consumers would have paid only $1.10 per genericpill; under the improperly fortified monopoly, consumers paid upwards of $5.30 for the same dose. (SAA 1093.) It is nonsense for the Genericsto assert a procompetitive effect from Barr’s entry six months before the patent expired. (Compare Generics Letter Br. at p. 3, with Appellants’ Letter Br. at p. 12, fn. 10.) Under the limited license that permitted Barr to market and sell Bayer-manufactured Cipro, Barr was required to purchase the drug from Bayer at 85% ofits current price—which Barr then re-sold at prices that equaled or exceeded Bayer’s prices. (SAA 999, 1037; 6AA 1207-08.) Consumers in no way benefited from this arrangement. Bayer and the Generics alone profited. Vv. THE GENERICS FAIL TO DISTINGUISHACTAVIS Having failed to establish that Actavis supports the decisions below, the Generics next argue Actavis is inapposite. (Generics Letter Br. at pp. 7— _ 8.) Yet their effort to distinguish the case is no more successful than their argumentthat Actavis dictates affirmance of the decisions on appeal. Thefirst distinction the Generics attempt to draw is that the Federal Trade Commission broughtthe claims in Actavis while private plaintiffs brought this case. But there is no authority, cited or otherwise, suggesting that a different substantive legal standard for adjudging a reverse payment. | applies to government as opposedto private plaintiffs. Nor does the reasoning in Actavis give so muchas hintthat a different standard should -7- apply to private litigants. To the contrary, the Court vacated and remanded the Third Circuit’s decision in K-Dur, a private case, makingit clear that Actavis applies to private claims. (See Merck & Co. v. Louisiana Wholesale Drug Co., Inc. (June 24, 2013) 133 S.Ct. 2849 [vacating and remanding “for further consideration in light of [Actavis]|”]; Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Co., Inc. (June 24, 2013) 133 S.Ct. 2849 [same].) The Generics alternatively claim that, even if the same standard applies to government andprivate plaintiffs challenging a reverse payment, private plaintiffs must satisfy two additional elements: antitrust injury and causation. This claim is dubious; federal courts have applied both elements to governmentplaintiffs as well as to private ones.? More important, the claim is irrelevant. The decisions on appeal addressed only liability, concludingthat as a matter of law, Appellants failed to show a Cartwright Act violation. (Cipro Cases I & II, supra, 200 Cal.App.4th at p. 470.) Indeed, the Generics themselves admit that the issues of antitrust injury and causation played no role in the lower courts’ decisions and are not currently before this Court. (Generics Letter Br. at p. 8 [“[T]he lower courts had no occasion to consider whetherplaintiffs could satisfy the antitrust injury and causation requirements, and these issues are not before the court.”].) In other words, the Generics admittedly offer a distinction without a difference. | Similarly unpersuasive is the Generics’ argumentthat this case diverges from Actavis because the patent at issue here was upheld in other litigation, even though suchlitigation did not involve these Appellants. * (See, e.g., Rambus, Inc. v. FTC (D.C.Cir. 2008) 522 F.3d 456, 463, 467 {reversing a Federal Trade Commission judgmentfor failure to show defendant caused harm to competition]). First, this argument contradicts the predicate ofActavis. The Supreme Court held that the anticompetitive effect of the reverse paymentis to eliminate the risk ofcompetition. (Actavis, supra, 133 S.Ct. at p. 2236 [prohibiting payments “to avoid the risk of patent invalidation or a finding of noninfringement”], italics added.) A reverse paymenteliminates that risk at the time a generic company dropsa legal challenge in exchangefor ' payment. (/bid.) The Court therefore concludedthat it is generally not necessary to assess patent strength to determine whether a reverse payment violates federal law. (/bid. [“[I]t is normally not necessary to litigate patent validity to answerthe antitrust question.”].) Second, any determination regarding the Cipro patent does not bind Appellants in this action. Appellants were not parties or privies to any Cipro patent litigation, as they would havehad to be for collateral estoppel to apply. (in re Swanson (Fed.Cir. 2008) 540 F.3d 1368, 1377.) Third, the patentat issue in this antitrust litigation is not the same one that was upheld in post-settlement patent litigation. (See Section VI, infra.) Finally, policy considerations weigh against this Court departing from Actavis and allowing non-binding patent assessments to inform litigation over a reverse payment. Plaintiffs in antitrust reverse payment cases would then have strong incentive to intervene—and complicate— cases directly challenging the patentat issue in the antitrust case. And courts adjudicating antitrust reverse payment claims could become immersedin evaluating past litigation over a patent and perhapscollateral patent issues themselves. Hence, by directing courts to focus on the anticompetitive effect of reverse payments at the time they are made, Actavis is not only theoretically sound but also practically wise. The Generics nonetheless attempt to resist Actavis’ holding that “it is normally not necessary to litigate patent validity to answerthe antitrust question ....” (133 S.Ct. at p. 2236.) How? They rewrite the sentence, suggesting that the Supreme Court held “it is not always ‘necessary to litigate patentvalidity to answerthe antitrust question’ in every case.” (Generics Letter Br. at p. 6, fn. 2, italics added.) But judicial opinions are not subject to after-the-fact editing by litigants. Moreover, the Genericsfail to explain how their revisionist approach could avoid the routine, improper assessmentofpatent validity. Indeed, under their approach, defendants in antitrust reverse payment cases would normally assert patent validity as a defense. This is precisely what Actavis bars. - The Genericsfurther contend that the Supreme Court acknowledged the foundational need to balance the privileges of patent holders against antitrust prohibitions. (/bid.) True. But the Supreme Court was merely explaining its reasoning in striking the proper balancein this context. It wasnot extending an invitation to parties—or lower courts—to do so afresh | in every case. The balance the Supreme Court struck placed significant constraints on the antitrust analysis, limiting the justifications for reverse payments. Andthe desire “to avoid the risk of patent invalidation or a finding of noninfringement”is foreclosed asajustification. (Actavis, supra, 133 S.Ct. at p. 2236.) That is “the very anticompetitive consequence” the Supreme Court prohibited. (/bid.) The Court’s ban on payments that avoidthe risk of a patent challenge has a critical implication. It implies that what matters is the effect of the reverse payment agreement atthe time it is made, not anylater determination aboutthe validity or scope of a patent. (1 Herbert Hovenkampetal., IP and Antitrust (2013 Supp.) § 15.2a1[D], p. 15-44 [“[D]ecisions prior to Actavis have madeclear that the right time for assessing the competitive effects of the settlement is at the time of settlement, not afterwards. ... Thus, we are skeptical that subsequent -10- evidence ofvalidity or invalidity ought to carry much weightin the rule of reason inquiry.”].) The Generics’ contention that antitrust fact finders in reverse paymentcases should take into accountlater, non-binding rulings on patent validity would in effect rewrite Actavis. VI. THE CIPRO AGREEMENTS AND BAYER’S CONDUCT RESULTED IN THE SEALING OF PRIOR ART EVIDENCE| THAT WAS UNAVAILABLE TO SUBSEQUENT LITIGANTS Even werethis Court inclined to find that special circumstances may warrant taking into account whethera patent has survived litigated challenge in a different proceeding, this case would be a poor vehicle to addressthat issue. That is so because ofthe strong evidence that Bayer’s patent was unenforceable and that Bayer recognized the Generics were in a particularly strong position to mount a challengeto its patent. Bayer’s actions—paying offwould-be horizontal competitors, concealing priorart, sealing evidence, and narrowingits patent in a reexamination proceeding— demonstrate Bayer’s belief that the original Cipro patent was highly vulnerable. The Generics lean too heavily on Bayer’s success in defending the narrowed ‘444 patent in post-settlement lawsuits, failing to inform the Court that the challengers in these suits did not have access to key evidence unearthed by Barr’s attorneys concerning the Cipro patent’s unenforceability. (See Generics Letter Br. at p. 6.) The express termsof. the Cipro agreements required Barr to “collect and destroy, other than one copy, whichshall be held by [Barr’s patent lawyers], all Documents [including attorney work product] in the possession of or under the control of any ofthe foregoing”—effectively entombing the evidence of Bayer’s bad faith conduct from future litigants. (4AA 704-05.) Bayer also made sure the Generics’ counsel were muzzled and their work product concerningthe prior art kept secret, through the cross-retention ofBarr’s -1l- lawyers in order to obtain attorney-client privilege—and concomitant silence—on whythe patent was unenforceable. (7AA 1467-68; 6AA 1173.) In this regard, “[t]he issue of inequitable conduct wasnot adjudicated in any ofthe actions.” (Jn re Ciprofloxacin Hydrochloride Antitrust Litig. (Fed.Cir. 2008) 544 F.3d 1323, 1329.)4 Additionally, the Cipro patentat issue in the follow-on patent cases was different and substantially narrower than the patentat issue in this case. After the Cipro agreements, Bayer re-submitted the Cipro patent via a new PTO petition that voluntarily terminated certain claims, narrowed other claims, added new claims, and finally disclosed the German ‘850 and ‘070 applications Bayer had earlier withheld. (7AA 1471-75, 1482-88.) As patent expert Michael Jester explained, “Bayer’s voluntary disclaimer of certain naphthyridine claims of the ‘444 Cipro patent followed by the substantial narrowing of claims (including Claim 1) during reexamination, coupled with the belated disclosure of the German ‘070 and ‘850 publications during reexamination,[implies] Bayer’s concern that the patentability of at least some ofthe original broad claimsofthe patent over the prior art (including German ‘070 and ‘850) wasin serious doubt . . . .” (8AA 1855-56, footnote omitted.) It is oflittle momentthat, with time | running out on its term, this narrowed patent survived validity attacks. (See Appellants’ Opening Br. at p. 62.) It is the broader, since-abandoned patent Bayerasserted against Barr thatled to their reverse paymentsettlement. * Bayer’s Germanpatent agent, Dr. Simon, admitted the company knew that the German ‘850 patent application was disqualifying prior art. (3AA 1853.) Rather than deny its deception, Bayer attacked its employees. It attested that Dr. Simon suffered from depression that impairedhis abilities, and that anotherofits attorneys who admitted Bayer knowingly concealed prior art also suffered from a degenerative mental disease. (7AA 1478-80.) -12- The Generics also avoid any mention of the nearly $400 million settlement amount, justifiably fearful ofillustrating the Actavis Court’s rule of thumbthat“the size of the unexplained reverse payment can provide a workable surrogate for a patent’s weakness ... .” (Actavis, supra, 133 S.Ct. at pp. 2236-2237.) The simple size of this payoff refutes the Generics’ assertion of Bayer’s faith in the patent’s enforceability and likely success against Barr’s attack. Bayer’s actions in paying off not just the Generics but also asubsequentchallenger, Ranbaxy (see 7AA 1522-30, 1591-93), reveal a strategy of co-opting strong claimants—andhiding their evidence—while choosingto litigate weaker claims. Vil. THE COURT SHOULD ARTICULATE A STANDARD TO GUIDE THE LOWER COURTS The Generics’ final suggestion in their brief—that this Court might - remand without providing any guidance to lower courts—reflects a strategic maneuver to sow confusion and cause further delay. The Generics would not ask this Court to remand without explaining Actavis if that case — lent any support to their position. They seem to recognize that uncertainty and inefficiency are their best hope. In fact, the Generics’ suggestion represents an improper attempt to relitigate an issue they have already lost. After Appellants settled with Bayer, the Generics on July 2, 2013, moved this Court to transfer the case as a whole to the Court ofAppeal with instructions to remandit to the Superior Court. (See Generics’ Mot. Transfer Without Decision.) This Court denied that motion. (OrderofJuly 10, 2013.) The Generics should not be permitted to renew the same request again. Moreover, the Generics’ request for remand without guidance would cause needless delay. They are arguing before this Court that the decisions ofthe lower courts should stand under Actavis. They would no doubt do -13- the same on remand and in any subsequent appeals. No additional discovery is necessary to resolve this argument. Were the Court to grant the Generics’ request to avoid the central issues in thisappeal, the coordinated California Ciprolitigation would continue for many more years, and could end up before this Court once again in a posturelittle different from today. This litigation has already been pending for over a decade. The passage oftime has allowed the Generics toretain their ill-gotten gains at the expense of California consumers. Appellants respectfully submitthatit is time to clarify the legal standard that applies to reverse payments, so the trial court can adjudicate these claims and California courts can do the same in other reverse paymentcases. Accordingly, the Court should reverse the grant of summary judgmentand hold that a paymentto delay the riskof competition violates California law. Dated: February 14, 2014 Respectfully submitted, LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP By: = Es FRAGT Eric B. Fastiff Eric B. Fastiff (State Bar No. 182260) Brendan Glackin (State-Bar No. 199643) Dean M.Harvey (State Bar No. 250298) Jordan Elias (State Bar No. 228731) 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 Telephone: (415) 956-1000 Facsimile: (415) 956-1008 -14- ZWERLING, SCHACHTER & ZWERLING, LLP By. he Dan Drachler (pro hac vice) 1904 Third Avenue, Suite 1030 Seattle, WA 98101 Telephone: (206) 223-2053 Facsimile: (206) 343-9636 achler oo Class Counsel JOSEPH SAVERI LAW FIRM,INC. Joseph R. Saveri Jost(h R. Saveri (State Bar No. 130064) JOSEPH SAVERI LAW FIRM,INC. 505 Montgomery Street, Suite 625 San Francisco, CA 94111 Telephone: (415) 500-6800 Facsimile: (4415) 395-9940 Mark A. Lemley (State Bar No. 155830) DURIE TANGRI LLP 217 Leidesdorff Street San Francisco, CA 94111 Telephone: (415) 362-6666 Ralph B. Kalfayan (State Bar No. 133464) KRAUSE, KALFAYAN, BENINK & SLAVENS 550 West C Street, Suite 530 San Diego, CA 92101 Telephone: (619) 232-0331 Facsimile: (619) 232-4019 Attorneysfor Plaintiffs, Appellants and Petitioners -15- CERTIFICATE OF WORD COUNT [California Rule of Court 8.204(c)(1)] Pursuant to the California Rules of Court and this Court’s Order of December11, 2013, counsel ofrecord certifies that this Supplemental Reply Brief uses 13-point Roman type and contains 4,107 words, including footnotes. Counsel relies on the count of the computer program usedto prepare this Brief. Dated: February 14, 2014 LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP By: deo / Jordan Elias -16-