KIRKLAND & ELLIS LLP
AND AFFILIATED PARTNERSHIPS
601 Lexington Avenue
NewYork, NY 10022
Jay P. Lefkowitz, P.C.
To Call Writer Directly: (202) 446-4800
Facsimile:
(212) 446-4970 (212) 446-4900
lefkowitz@kirkland.com www.kirkland.com
February 14, 2014 SUPREME COURT
Mr. Frank A. McGuire
Clerk of the Court
Supreme Court of California FEB 14 2014
350 McAllister St.
—
San Francisco, CA 94102-4797 Frank
A. McGuire Clerk
RE: Inre Cipro Cases I & II, No. 8198616 Deputy
Dear Mr. McGuire:
The Generic Defendants respectfully submit this reply pursuant to the court’s December
11, 2013 order.
SUMMARY
Despite plaintiffs’ argument that “Actavis supports application of a constrained rule of
- reason analysis... or, in the alternative, a precisely formulated per se illegality rule”
Chicago
(Appellants’ Supp. Br. 1 (Pls. Supp. Br.)), even a cursory review of the U.S. Supreme Court’s
decision showsthatit does nothing ofthe sort.
° First, Actavis expressly concluded that antitrust challenges to Hatch-Waxman
settlements must be proven “as_in other rule-of-reason cases”—and expressly
rejected both the per se approach and constrained “quick look” approach that
plaintiffs demand. (FTC v. Actavis, Inc. (2013) 570 U.S. __ [133 S.Ct. 2223, 2237}
(Actavis), emphasis added.) While plaintiffs may not like that Actavis rejected their
proposed approaches, they cannot simply wish Actavis away.
e Second, plaintiffs’ proposed approaches would create a federal preemption problem
because they depend on the presumption that Bayer’s patent was invalid. Federal law
makes clear, however, that patents are presumed valid as a matter of law, 35 U.S.C.
§ 282, and the U.S. Supreme Court concluded in Actavis that the Rule of Reason
provides the appropriate balance between patent rights and antitrust obligations.
Subjecting Hatch-Waxman patent settlements to a per se rule or quick-look
approach—through a newrule that applies only in California and in no other state—
Hong Kong London Los Angeles Munich New York Palo Alto San
Francisco Shanghai
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February 14, 2014
would create a conflict with federal law and undermine a patent holder’s lawful right
to exclude under-the federal Patent Act.
Third, plaintiffs’ contention that the superior court and the Court of Appeal granted
“immunity” to the Cipro Settlement ignores what the decisions themselves actually
say. While both of the lower court decisions considered the scope-of-the-patenttest
. that other courts had applied at the time, both decisions wenton to affirm the legality
of the Cipro Settlement under the well-established Rule of Reason. As the Court of
Appealheld,“the Cipro agreements do not violate the Cartwright Act underrule-of-
reason analysis or the [scope of the patent] analysis.” (Slip opn. 32-33, emphasis
added; see also 11 AA 2690 [superior court decision concluding “that the agreement
doesnot violate the Cartwright Act under the Rule of Reason”].)
Because both California law and federal law squarely reject plaintiffs’ effort to short-
circuit the traditional Rule of Reason, and becauseplaintiffs offer nothing more in this appeal,
the lower courts’ decisions should be affirmed.
ARGUMENT
Neither Actavis Nor California Law Supports Plaintiffs’ Request to Treat Hatch-
WaxmanPatentSettlements as Per Se Unlawful or Presumptively Unlawful Undera
Constrained Quick-Look Approach.
Plaintiffs’ Proposed Per Se Rule. Plaintiffs assert that Actavis supports “a precisely
formulated per se illegality rule” under which “proof of [a] payment [to a patent challenger]
would suffice to establish a violation of California antitrust law” unless the payment could be
“attributed to litigation costs or services provided.” (Pls. Supp. Br. 1, 11.)
The problem for plaintiffs, however, is that the Actavis decision squarely rejected per se
treatment. In declining the FTC’s request for a per se rule, the U.S. Supreme Court concluded
that Hatch-Waxmansettlements that include monetary consideration from the patent holderto
the patent challenger (so-called “reverse-payment” settlements) are neither presumptively lawful
nor presumptively unlawful—muchlessperse illegal. As the court explained:
[A]bandonment of the “rule of reason” in favor of presumptive rules ... is
appropriate only where “an observer with even a rudimentary understanding of
economics could conclude that the arrangements in question would have an
anticompetitive effect on customers and markets.” [Citations.] We do not believe
that reverse paymentsettlements, in the [Hatch-Waxman patentlitigation] context
we here discuss, meet this criterion.
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(Actavis, supra, 133 S.Ct. at p. 2237, quoting California Dental Assn. v. FTC (1999) 526 U.S.
756, 770, emphasis added.) In so holding, the court emphasized that the circumstances of each
case warrant consideration—instead of applying a rule that presumes anticompetitive effects for
this category of settlements as a whole. (See ibid.) In light of the court’s express ruling that
these types of agreements are to be judged under the Rule of Reason, plaintiffs’ effort to
manufacture perse rule from the Actavis decision is nothing short of wishful thinking.
Nor does plaintiffs’ proposed per se approach find any support in California law.
California courts have long held that the Rule of Reasonis “the prevailing standard of analysis”
for evaluating whether a challenged practice violates the Cartwright Act. (Bert G. Gianelli
Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1044 (Gianelli), disapproved on
another ground in Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 394, fn. 2.) “Under the
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. [Citations.]” (Slip opn. 32, citing, inter alia, Corwin v. L.A. Newspaper Service Bureau,
Inc. (1971) 4 Cal.3d 842, 853; see also Marin County Bd. ofRealtors, Inc. v. Palsson (1976) 16
Cal.3d 920, 930-931; 11 AA 2689 (Marin County).) As the superior court observed, “[p]laintiffs
have cited no California case, nor is there one, supporting that a per se illegal analysis is
applicable to” the type of agreementat issue here (11 AA 2689)—andthis remainstrue today.
Plaintiffs’ Proposed “Constrained Rule of Reason.” Plaintiffs alternatively argue that
the Cipro Settlement should be held presumptively unlawful, in what they have variously
described as a “quick-look Rule of Reason” (Appellants’ Reply Br. on the Merits 4 (Reply Br.))
or “constrained Rule of Reason” (Pls. Supp. Br. 1, 7). As plaintiffs explained in their opening
merits brief, that approach would be “only slightly less stringent than the per se rule” -
(Appellants’ Opening Br. on the Merits 37 (Opening Br.)) because it would eliminate thefirst
step of the Rule of Reason, assume that the settlement had actualadverse effects on competition,
and shift the burden to the defendants (seeid. at p. 42; 11 AA 2581-2582).
Once again, however, plaintiffs’ proposed standard finds no support in either Actavis or
California law. The U.S. Supreme Court expressly rejected a presumptively unlawful or quick-
look approachin Actavis: —
The FTC urges us to hold that reverse payment settlement agreements are
presumptively unlawful and that courts reviewing such agreements should
proceed via a “quick look” approach, rather than applying a “rule of reason.”
[Citations.] We decline to do so.
(Actavis, supra, 133 S.Ct. at p. 2237, emphasis added.)
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February 14, 2014
Actavis did not limit its holding to some types of settlements containing monetary
consideration from the patent holder to the patent challenger, or suggest that some such
settlements could be presumptively unlawful while others are not. Because such settlements
could be subject to any numberof “other justifications” even beyond the avoidanceoflitigation
costs or compensation for other services (Actavis, supra, 133 S.Ct. at p. 2236)—and because the
“existence and degree of any anticompetitive consequence may also vary” from one case to the
next (id. at p. 2237)the U.S. Supreme Court concluded that such settlements should be
analyzed under a traditional Rule of Reason analysis “as in other rule-of-reason cases.” (Ibid.,
emphasis added [““These complexities lead us to conclude that the FTC mustprove its case as in
other rule-of-reason cases.”].) Plaintiffs do not and cannotcite a decision from any court that has
adopted their proposed “constrained Rule of Reason”or “quick-look Rule of Reason”—apart
from an earlier citation in their merits reply brief to the Third Circuit’s now-vacated decision in
K-Dur. (Reply Br. 4, citing Jn re K-Dur Antitrust Litig. (3d Cir. 2012) 686 F.3d 197, vacated
sub. nom. Merck & Co. v. Louisiana Wholesale Drug Co. (2013) __ U.S. __ [133 S.Ct. 2849]
[vacating K-Durin light ofActavis].)
* * * *
At bottom, the relevance of Actavis is that it rejected the very same arguments that
plaintiffs have advanced throughoutthis appeal. Neither federal law nor California law supports
plaintiffs’ efforts to short-circuit the traditional Rule of Reason that is the “prevailing standard”
in antitrust cases. (Gianelli, supra, 172 Cal.App.3d at p. 1044.)
I. Adopting Plaintiffs’ Proposed Approaches Would Create a Federal Preemption
Problem By Undercutting What It Means to Have a Patent Under Federal Patent
Law.
Actavis also shows why adopting plaintiffs’ proposed standards would impermissibly
conflict with federal law and thereby create a preemption problem.
A. Plaintiffs’ Preemption Arguments Are Irrelevant and Incorrect.
At the outset, it bears emphasisthat plaintiffs’ preemption arguments address the wrong
preemption question. According to plaintiffs, the Court of Appeal improperly used federal
preemption to reject their theory that Bayer’s assertion of the patent against Barr constituted
“sham litigation” that rendered the Cipro Settlement unlawful even under the scope-of-the-patent
test. (Pls. Supp. Br. 13-16.) That argumentis a red herring.
What plaintiffs fail to point out is that the Court of Appeal’s disposition of their sham
litigation theory actually turned on the observation that plaintiffs had failed to plead such a
theory in their complaint. After reviewing the allegationsin plaintiffs’ operative complaint, the
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Court of Appeal (like the superior court) found that “‘[p]laintiffs failed to allege that Bayer’s
infringement suit was objectively baseless, [or] was sham litigation’” despite multiple rounds of
amendedpleadings. (Slip opn. 39, quoting 11 AA 2692, emphasis added.) Both courts further
emphasized that “‘[e]ven if such allegations were included in the [complaint], there is no
evidence or legal support the [Bayer-Barr patent] suit was objectively baseless or was a sham.’”
(Ibid., quoting 11 AA 2692;see also id. at pp. 41-42.) It was only then that the Court of Appeal
observed that a sham litigation claim would be preempted as well. (Ud. at pp. 42-49.)
_ Even on its own terms, the Court of Appeal’s preemption analysis was demonstrably
correct.’ After all, asking a state court jury to hold that Bayer’s assertion of the patent was
“objectively baseless” would invite a direct conflict with the holdings of multiple federal courts
that upheld the validity of the patent—and with the Federal Circuit’s conclusion that “no fraud
occurred” in Bayer’s procurement of the patent from the PTO. (See Jn re Ciprofloxacin
Hydrochloride Antitrust Litigation (Fed.Cir. 2008) 544 F.3d 1323, 1341 (Cipro II1).) The Court
of Appeal recognized this point, explaining that “‘Bayer’s success in its [patent infringement]
litigations against Schein, Mylan, and Carlsbad forecloses any argument that its lawsuits were
shams.’” (Slip. opn. 41, quoting Jn re Ciprofloxacin Hydrochloride Antitrust Litigation
(E.D.N.Y. 2005) 363 F.Supp.2d 514, 547 (Cipro I).) “‘A winning lawsuit is by definition a
reasonable effort at petitioning for redress andtherefore is not a sham.’” (Jbid., quoting Cipro II,
363 F.Supp.2d at p. 547; accord Professional Real Estate Investors, Inc. v. Columbia Pictures
Industries, Inc., (1993) 508 U.S. 49, 61 fin. 5 [same].)
B. Plaintiffs’ Proposed Approaches Would Conflict With Federal Patent Law.
If anything, the preemption doctrine shows why the decisions below should be affirmed
and whyplaintiffs’ proposed approaches should be rejected.
As an initial matter, both a per se rule and a constrained quick-look approach would
begin from the presumption that Bayer’s patent was invalid, because the antitrust lawsdo not
protect competition by would-be infringers, andit is undisputed that Barr’s generic ciprofloxacin
' Plaintiffs spend muchoftheir preemption discussion on cases that actually address jurisdiction.
(Pls. Supp. Br. 14.) Plaintiffs’ reliance on this case Jaw is misplaced. In any event, far from
effecting a sea-change in federal jurisdiction as plaintiffs suggest, the U.S. Supreme Court’s
decision in Gunn v. Minton (2013) _ U.S. __ [133 S.Ct. 1059, 1065] (Gunn), simply restated
(and actually quoted from) the substantial federal question test in Grable & Sons Metal Products,
Inc. v. Darue Engineering & Manufacturing (2005) 545 U.S. 308 (Grable). (See Gunn, supra,
133 S.Ct. at p. 1065, quoting Grable, supra, 545 U.S. at p. 314.) Nothing about the Court of
Appeal’s consideration of Grable in Lockwood v. Sheppard, Mullin, Richter & Hampton (2009)
173 Cal.App.4th 675, has changed.
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would have infringed Bayer’s compound patent—yetplaintiffs’ proposals automatically would
assumethat the Cipro Settlement had an adverse effect on competition. (Rubber Tire Wheel Co.
v. Milwaukee Rubber Works Co. (7th Cir. 1907) 154 F. 358, 364 [“[T]he public [i]s not entitled
to profit by competition among infringers.”]; Hynix Semiconductor Inc. v. Rambus Inc. (N.D.
Cal. 2007) 527 F.Supp.2d 1084, 1096 [“{A]n infringer” has “no legal right to be competingin the
product market.”]); see also Arkansas Carpenters Health & Welfare Fund-v. Bayer AG (2d Cir.
2010) 604 F.3d 98, 107 (Cipro IV) [observing that “there could not be an ANDA-IVcertification
for a non-infringing version of [ciprofloxacin] since Bayer had a compound patent”].) Plaintiffs’
contention that the Cipro Settlement was nothing more than a “naked payoff ... to suppress
competition”presupposes that Bayerdid nothavea valid patent.” (OpeningBr. 17.)
The problem for plaintiffs is that federal patent law commandsthat patents are presumed
valid. (35 U.S.C. § 282; see also Microsoft Corp. v. i4i Limited Partnership (2011) __ U.S. __
[131 S.Ct. 2238, 2242] [holding that the presumption of patent validity can only be overcome
“by clear and convincing evidence”].) As the Federal Circuit has explained, “[a] patent is born
valid [and][i]t remains valid until a challenger proves it was stillborn or had birth defects,orit is
no longer viable as an enforceable right.” (Roper Corp. v. Litton Systems, Inc. (Fed.Cir. 1985)
757 F.2d 1266, 1270, fn. omitted]; see also Cipro IIT, supra, 544 F.3d at p. 1337 [similar]). And
it would be especially nonsensical to adopt a presumption ofinvalidity in this case, when Bayer
defeated multiple challenges to the Cipro Patent—attrial and before the Federal Circuit—and the
patent was reaffirmed upon re-examination by the U.S. Patent and Trademark Office (“PTO”).
(See Bayer AG v. Schein Pharmaceutical, Inc. (D.N.J. 2001) 129 F.Supp.2d 705, affd. (Fed.Cir.
2002) 301 F.3d 1306; Bayer AG v. Carlsbad Technology,Inc. (S.D.Cal. June 7, 2002 and Aug. 7,
2002, No. 01CV0867-B) [opinions available at 1 RA 181-193, 195-227]; 2 AA 252 [plaintiffs’
admission that PTO reexamination confirmed validity of Bayer’s patent].)
2 Although plaintiffs repeatedly cite a paid expert’s speculation about whether Barr would have
earned more or less from settling versus litigating the patent case, the undisputedfacts in the
record demonstrate that the consideration Barr received under the settlement was substantially
less than it would have earned had its patent challenge succeeded (3 RA 670), and that the
settlement represented only 6.5% of Bayer’s U.S. gross sales of oral Cipro tablets for the
corresponding time period (1 RA 39).
3 Plaintiffs’ arguments about the preclusive effect of Bayer’s subsequentpatentvictories (see Pls.
Supp. Br. 11, fn. 8) are irrelevant. The relevant point is not whetherplaintiffs are bound by
Bayer’s victories, but instead that the multiple decisions upholding the Cipro Patent demonstrate
both the pro-competitive nature of the Cipro Settlement and the nonsensical nature of applying a
presumptionofinvalidity to the patent in this case.
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Actavis itself underscores the preemption problem that plaintiffs’ proposed approaches
would create. After all, the U.S. Supreme Court concluded that using the traditional Rule of
Reason was the appropriate meansof balancing patent rights against antitrust obligations, rather
than holding Hatch-Waxmansettlements either presumptively lawful or presumptively unlawful.
(See Actavis, supra, 133 S.Ct. at p. 2237.) Now that the U.S. Supreme Court hascast the balance
in that way, a rule subjecting such settlementsto per se illegal treatment or a constrained quick-
look approach would derogate the very balance that Actavis has cast—imposing a presumption
of invalidity only in California and in no other state—and thus undermine the lawful right to
exclude that a patent holder enjoys under the federal Patent Act. (See United States v. Gen.
Electric Co. (1926) 272 U.S. 476, 485 [“It is only when... he steps out of the scope of his patent
rights ... that he comes within the operation of the Anti-Trust Act.”]; see also E. Bement & Sons
v. Nat. Harrow Co. (1902) 186 U.S. 70, 91 [The fact that the conditions in the contracts keep up
the [patent] monopoly orfix prices does not render them illegal.”].) And it would be even more
remarkable to subject the Cipro Settlement—which resolved a federal patent case in U.S. District
Court for the Southern District of New York—to a new rule for Hatch-Waxmansettlements
applicable only in California and in no other state, especially when the Second Circuit and
Federal Circuit upheld the very same settlement agreement in an MDL antitrust case that
included California purchasers suing under California law. See Cipro IV, supra, 604 F.3d 98,
cert. denied sub nom. Louisiana Wholesale Drug Co. v. Bayer AG (2011) __—*U.S. __ [131 S.Ct.
1606]; Cipro I, supra, 544 F.3d 1323, cert. denied sub nom. Arkansas Carpenters Health and
Welfare Fund v. Bayer AG (2009) 557 U.S. 920; see also 1 AA 25 [Bayer’s Motion for Summary
Judg., explaining that the MDL case included California plaintiffs suing under the Cartwright
Act and section 17200].)
Plaintiffs are simply incorrect in claiming that Actavis calls for courts to ignore the
presence of a patent. (See Pls. Supp. Br. 10-11.) To the contrary, the U.S. Supreme Court
repeatedly stated that in conducting the Rule of Reason analysis, courts must “consider[]
traditional antitrust factors ... and potentially offsetting legal considerations present in the
circumstances, such as here those related to patents.” (Actavis, supra, 133 S.Ct. at p. 2231,
emphasis added; see also id. at pp. 2230-2231 [“[W]hat the holder of a valid patent could do
does not by itself answer the antitrust question,” emphasis added].). Although the court made
the unremarkable observation that it is not always “necessary to litigate patent validity to answer
the antitrust question” in every case (id. at p. 2236), it expressly emphasized that “courts must
‘balance the privileges of [the patent holder] and its licensees under the patent grants with the
prohibitions of the [antitrust laws] against combinations and attempts to monopolize’”(id. at p.
2231, quoting United States v. U.S. Gypsum Co. (1948) 333 U.S. 364, 390-391).
At bottom, the U.S. Supreme Court has long recognized that the patent rights conveyed
by the federal Patent Act reflect a “carefully crafted bargain” put in place by Congress, and that
“state regulation of intellectual property must yield to the extent that it clashes with the balance
struck by Congress in our patent laws.” (Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (1989)
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489. U.S. 141, 152.) Against this backdrop, plaintiffs’ per se rule and constrained quick-look
approach cannotnot be reconciled with the presumption of patent validity or with Actavis itself.
This court should decline plaintiffs’ invitation to go down this unprecedented path.
III. Actavis Confirms That the Decisions Below Should Be Upheld.
Plaintiffs’ supplemental brief also argues that the superior court and the Court of Appeal
improperly granted “immunity” to the Cipro Settlements by relying on the scope-of-the-patent
test instead of the approach embraced by Actavis. (Pls. Supp. Br. 1-2.) In making this claim,
plaintiffs again ignore the lower court decisions themselves.
To be sure, the lower courts considered the Cipro Settlement under the scope-of-the-
patent test, as the Second Circuit and Federal Circuit had done in concluding that this very
settlement was lawful. (See Slip opn. 37-38; 11 AA 2690.) Importantly, however, the lower
courts also considered the settlement under the Rule of Reason and, in light of California
precedent, including Marin County and Gianelli, found the settlement lawful underthat standard.
The superior court expressly concluded that “the [settlement] agreement does not violate the
Cartwright Act under the Rule of Reason.” (11 AA 2690, emphasis added.) The Court of
Appeallikewise held that “the Cipro agreements do not violate the Cartwright Act under rule-of-
reason analysis or the {scope of the patent] analysis.” (Slip opn. 32-33, emphasis added.)
Rather than “immunizing” the Cipro Settlement as plaintiffs contend, the lower courts actually
considered the Cipro Settlement under the Rule of Reason endorsed by Actavis and concluded
that the settlement was lawful. That decision was eminently correct.
Asan initial matter, plaintiffs cannot establish an adverse effect on competition as the
first step of the Rule of Reason requires. Plaintiffs try to satisfy this test by arguing that Barr
would have wonthe underlying patentlitigation absent the settlement—or that Bayer and Barr
would have reached an alternative settlement on different terms. (See, e.g., Br. of Appellants to
Ct. of Appeal 54-55; 1 AA 213 [Pls. Summary Judg. Opp’n].) Both of those theories are far too
speculative to support plaintiffs’ claims. (See, e.g., Casey v. Perini Corp. (2012) 206
Cal.App.4th 1222, 1237 [“Mere speculation or conjecture ... is insufficient to demonstrate the
existence ofa triable issue of fact to preclude summary judgment.”]; Saelzler v. Advanced Group
400 (2001) 25 Cal.4th 763, 775-776 [“[W]hen the matter remains one of pure speculation or
conjecture, or the probabilities are at best evenly balanced, it becomes the duty of the court to
direct a verdictfor the defendant.’ [Citation.]}”].)
Asthe superior court recognized, it would be rank speculation for a California jury to try
to determine whether a New York court hearing the patent case in 1997 would or should have
found the patent invalid, especially when every court to have considered the merits has found the
patent valid. (See 11 AA 2692 [“Plaintiffs’ allegations that Barr would have won the patent
challenge are speculative, and are dismissed as, ‘little more than dubious expectations or
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desires.’ [Citation.]”].) “[L]itigation is at best uncertain” Un re Adoption ofJoshua S. (2008) 42
Cal.4th 945, 954), and “[t]he litigation process ... is fraught with complexities, uncertainties,
delays, and risks of many kinds,” including that “[d]ifferent judges and juries may respond in
different ways to the same evidence and argument” (Neary v. Regents of Univ. of Cal. (1992)
3 Cal.4th 273, 280). As such, this court—like others across the country—hasheld that what the
outcome of a hypothetical trial or appeal might be “is a matter of pure speculation that should not
serve as a basis fortort liability.” (Forbes v. County ofSan Bernardino (2002) 101 Cal.App.4th
48, 59; see also Valley Drug Co. v. Geneva Pharmaceuticals, Inc. (2003) 344 F.3d 1294, 1308
(“Patent litigation is too complex andthe results too uncertain for parties to accurately forecast
whether enforcing the exclusionary right through settlement will expose them to treble
damages....”].)
It would be even more speculative for a California jury to decide whether Bayer and Barr
would (or could) have settled on different terms that would have allowed for earlier generic
entry. Simply put, there is no way that a jury could assess how a hypothetically different
settlement negotiation would have unfolded, whether that negotiation would have succeeded, —
whatthe terms of a different settlement structure would have been, and how those terms would
or would not have benefited indirect purchasers of Cipro. (See Stare v. Tate (1971) 21
Cal.App.3d 432, 440 [reversing as “based solely on conjecture” the trial court’s finding that a
party would have entered into a settlement agreement, and observing that “{sJettlement
negotiations of the kind that were had betweenthe parties are usually nothing but a high stake[s]
game of poker’”].) Plaintiffs cannot cherry-pick between the parts of the Cipro Settlement they
like and the parts that they do not, and then ask a jury to assume that Bayer and Barr would have
agreed to that hypothetical alternative. As another court has explained in rejecting an antitrust
challenge to a different Hatch-Waxman settlement, such a claim fails because it “relies on
speculation as to what might have been negotiated in a hypothetical agreement,” and because
“(t]he antitrust laws are not designed to ensure the most productive competition or the most
procompetitive agreement.” (Kroger Co. v. Sanofi-Aventis (S.D.Ohio 2010) 701 F.Supp.2d 938,
959; see also Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP (2004) 540
U.S. 398, 415-416 [explaining that the antitrust laws do not require “that a monopolistalterits
way of doing business whenever someother approach might yield greater competition”].)
* The speculative nature ofplaintiffs’ theories also underscores whyplaintiffs would be unable to
demonstrate antitrust injury and causation—to show that it actually was the settlement, and not
the patentitself, that caused any alleged harm. Becauseplaintiffs could notsatisfy the first step
of the Rule of Reason by demonstrating an adverse impact on competition, the proceedings
below had no occasion to address whetherplaintiffs could satisfy these additional elements of an
antitrust claim. Actavis also did not consider these requirements because it was a case brought
by the FTC under the FTC Act, which does not require the government to establish either
elementto prevail. (See Generic Defs. Supp. Br. 7-8.)
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Moreover, the Cipro Settlement had significant pro-competitive effects. The settlement
enabled Barr to sell a competing ciprofloxacin product six months before the challenged patent
expired and a full year before Bayer’s FDA exclusivity ended—during which time Barr achieved
significant market penetration, resulting in increased competition and lower drug prices.) (2RA
374-375, 378-380.) By contrast, Mylan, Schein, and Carlsbad pursued their own challenges to
Bayer’s patent. All of them lost in court and could notsell ciprofloxacin until affer Bayer’s
_ exclusivity ended—a year after Barr was able to enter. The Cipro Settlement also provided
certainty to Barr and the other Generic Defendants by removing the inherent uncertainty of
litigation and freeing up resources to develop other products and pursue additional patent
challenges. (See Jn re Ciprofloxacin Hydrochloride Antitrust Litigation (E.D.N.Y. 2003) 261
F.Supp.2d 188, 252 (Cipro J) {recognizing that Hatch-Waxmanpatentsettlements facilitate the
challenge of additional patents by generic pharmaceutical companies].)
All of this underscores why the lower courts’ decisions should be affirmed. Throughout
this case, plaintiffs have demanded nothing short of a per se rule or quick-look approach that
deviates from the traditional Rule of Reason analysis. (Reply Br. 4.) Actavis rejects the
reasoning behind plaintiffs’ proposed approaches, both of which would disregard patent rights
and the policies favoring settlement altogether. Because the lower courts expressly applied the
Rule of Reason—andplaintiffs fail to offer anything beyond their now-rejected approaches—the
decisions below in this 14-year-old case should be affirmed.
CONCLUSION
For the foregoing reasons, the Generic Defendants respectfully request that the court
affirm the decision below or, in the alternative, remand the case without decision to the Court of
Appeal with instructions that the case be remandedto the superior court for further proceedings.
Sincerely,
n - S —
Jay > Pefkowitz, P.C,
> Althoughplaintiffs assert that Barr sold ciprofloxacin “at prices 5-10% higher than” Bayer’s
prices (Pls. Supp. Br. 12, fn. 10), the very testimonythatplaintiffs cite confirms that Barr in fact
set the price of its competing product “eight percent lower” than Bayer’s price. (5 AA 996.)
Plaintiffs’ real complaint is that wholesalers, retailers, and other indirect purchasers did not pass
all of those savings along to consumers. (See 5 AA 999.) Plaintiffs cannot premise their claims
against the Generic Defendants on the decision by resellers to keep some or most of the savings
to themselves.
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February 14, 2014
Joann Rezzo
EDLESON & REZZO
402 West Broadway, Suite 2700
San Diego, CA 92101
(619) 230-0836
Kathryn E. Karcher
KARCHER HARMES PS
401 B Street, Suite 2450
San Diego, CA 92101
(619) 565-4755
Counselfor Defendants Barr
Laboratories, Inc., Hoechst Marion
Roussel, Inc., The Rugby Group, Inc.,
and Watson Pharmaceuticals, Inc.
Jay P. Lefkowitz, P.C.*
Karen N. Walker, P.C.*
Edwin John U*
Gregory L. Skidmore*
KIRKLAND & ELLIS LLP
655 Fifteenth Street, N.W.
Washington, DC 20005
(202) 879-5000
Counselfor Defendant Barr
Laboratories, Inc.
David E. Everson*
Heather S. Woodson*
Victoria Smith*
STINSON LEONARD STREET LLP
1201 Walnut Street, Suite 2900
Kansas City, MO 64106
(816) 842-8600
Counselfor Defendants Hoechst
Marion Roussel, Inc., The Rugby
Group, Inc., and Watson
Pharmaceuticals, Inc.
* Admitted pro hac vice
KIRKLAND & ELLIS LLP
Page 12
February 14, 2014
CERTIFICATE OF WORD COUNT
Pursuant to the California Rules of Court and the modified word limit in this court’s
December 11, 2013 Order, the undersigned certifies that the foregoing supplemental letter brief
contains 4,501 words, exclusive of tables, certificates, and attachments, as counted by the Word
Count feature of Microsoft Word.
dan Q (Phew[pre
* fay P. Lefkowitz, P.C!
KIRKLAND & ELLIS LLP
Page 13
February 14, 2014
DECLARATION OF SERVICE
Case Name: In re Cipro Cases I & H
Case No.: 5198616
I am over the age of eighteen years and nota party to this action. My business addressis
555 California Street, San Francisco, CA 94104. On February 14, 2014, I served the attached
Supplemental Reply Letter Brief of the Generic Defendants by placing it in a sealed envelope
with postage fully prepaid, in the United States mail at Kirkland & Ellis LLP, 555 California
Street, San Francisco, CA 94104 addressed as set forth below. I am familiar with Kirkland &
Ellis’ practice for collecting and processing correspondence for mailing. On the same day that
the correspondenceis placed for collection and mailing, it is deposited in the ordinary course of
business with the United States Postal Service.
I declare under penalty of perjury under the laws of the United States that the above is
true and correct. Dated February 14, 2014.
(Vrverye(uroanend
Jenaya Gueryero— -
KIRKLAND & ELLIS LLP
Page 14
February 14, 2014
SERVICE LIST
Attorney Party
Dan Drachler
ZWERLING, SCHACHTER & ZWERLING
1904 Third Avenue, Suite 1030
Seattle, WA 98101
Ralph B. Kalfayan
KRAUSE, KALFAYAN, BENINK
& SLAVENS, LLP
550 W. C Street, Suite 530
San Diego, CA 92101
Joseph Richard Saveri
LIEFF CABRASER HEIMANN &
BERNSTEIN LLP
275 Battery St., 29 FL
San Francisco, CA 94111
Counsel for Plaintiff/Appellant:
Karyn McGaughey, Barbara Hymes Cohen,
Deborah Patane, Donna Moore, IUOE
Stationary Engineers Local 39 Health &
Welfare Plan, Sheet Metal Workers Health
Plan of Southern California
By U.S. Mail
Peter B. Bensinger
BARTLIT BECK HERMAN PALENCHAR
& SCOTT LLP
54 W. HubbardStreet
Suite 300
Chicago,I] 60654
Kevin D. McDonald
JONES DAY
51 Louisiana Avenue, N.W.
Washington, DC 20001
Christopher J. Healey
Charles Bird
Todd Kinnear
MCKENNA LONG & ALDRIDGE LLP
600 West Broadway
Suite 2600
San Diego, CA 92101
Counsel for Defendant/Respondent Bayer
Corporation:
By U.S. Mail
KIRKLAND & ELLIS LLP
Page 15
February 14, 2014
Administrative Office OfThe Courts
Attn: Carlotta Tillman
455 Golden Gate Avenue
6th Floor
San Francisco, CA 94102
By U.S. Mail
Office Of The District Attorney
Appellate Division
330 West Broadway
San Diego, CA 92101
By U.S. Mail
Office of the Attorney General
110 West “A” Street, Suite 1100
San Diego, CA 92101
By U.S. Mail
Superior Court of California
Clerk of San Diego County Superior Court
330 West Broadway
San Diego, CA _92101
By U.S. Mail
California Court of AppealFourth Appellate District, Div. OneSymphony Towers750 B Street, Suite 300San Diego, CA 92101 By U.S. Mail
