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Last fall, news about anthrax, Ciproflaxin, Bayer andpatents pervaded the media. At that time, given the documented cases ofanthrax, politicians and the media alike discussed the possibility of”busting” Bayer’s patents on Cipro so that the government and genericdrug companies could satisfy an alleged shortage of the anthrax-fighting drug.On Oct. 24, 2001, Bayer and the U.S. government reached a settlement wherebyBayer agreed to sell the U.S. government 100 million pills at a substantiallylower price, so the government did not pursue a move to override the patent.Nonetheless, the topic of patent-busting could arise again, so the potentialproblems of such an action merit discussion. Even before the outbreak of anthrax, Bayer’s patent on Ciprowas the subject of challenges by generic drug companies. Bayer owns thefollowing U.S. patents on Ciproflaxin: U.S. Patent No. 5,286,754 (the ’754patent, expiring Feb. 15, 2011) and U.S. Patent No. 4,670,444 (the ’444 patent,expiring Dec. 9, 2003). The ’444 patent covers Cipro’s active ingredient, andthe ’754 patent covers a pharmaceutical formulation of that ingredient. In atraditional drug patent-busting lawsuit, a generic drug company will file withthe Food and Drug Administration (FDA) an abbreviated new drug application(ANDA) on the drug, claiming that its generic version is basically the same asthe brand-name drug. Normally, if the generic version is the same, then the ANDAwill be approved and a generic equivalent will enter the market. But the FDAwill not permanently approve an ANDA unless the status of the brand-name drugpatent is known. Under complex statutory schemes involving the FDA and thepatent laws, the ANDA applicant must file at least one of four types ofcertifications (known as Paragraph I, II, III or IV certifications). A Paragraph IV certification indicates that the ANDAapplicant seeks immediate permanent approval because either the generic drugwill not infringe or the patent is invalid. Accordingly, many generic drugcompanies file ANDAs containing Paragraph IV certifications and attempt to bustthe brand-name drug patent. Under 35 U.S.C. � 271(e)(2), a brand-name drugcompany can sue a generic drug company that files an ANDA containing aParagraph IV certification. Accordingly, one way to bust the Cipro patentswould be to file ANDAs containing Paragraph IV certifications. If successful,the patent would be presumably invalid based on the prior art, and genericdrugs could enter the market. See, e.g., Shashank Upadhye,”Understanding Patent Infringement Under 35 U.S.C. 271(e),” 17 SantaClara Computer & High Tech. L.J. 1 (2000). Regarding the validity of the Cipro patents, though, in 1997Bayer settled a patent infringement case in which Barr Laboratories had allegedthat the Bayer patents were invalid over the prior art. Among other things,Bayer agreed to pay Barr approximately $50 million per year until 2003 when the’444 patent expires. The Federal Trade Commission (FTC) is investigating thatsettlement agreement to see if it violates the antitrust laws because Bayer ispaying Barr to keep its generic equivalent off the market in exchange for Barrnot pursuing invalidity challenges to Cipro. SeeMark Curriden,”Lawsuits Say Firms Inflated Anthrax Drug Price,” Dallas MorningNews, March 17, 2002, at 1H; In re Ciproflaxin Hydrochloride AntitrustLitigation, No. MDL-00-1383, 2001 WL 1150405 (E.D.N.Y. Oct. 1, 2001). Thus,Barr is essentially receiving millions per year for doing nothing. Upontermination of the suit, though, Bayer instituted a reexamination of the patentbased on the prior art that surfaced in the litigation. The U.S. Patent andTrademark Office (PTO) maintained its validity. � Along the same vein, Senate Bill S754, known as the Drug Competition Act of 2001 — sponsored by senators Patrick Leahy, D-Vt.,; Herb Kohl, D-Wis.,; and Charles Schumer, D-N.Y. — seeks to make these “secretdeals” between the patentee and the generic drug company public. This willavoid the precise antitrust injuries alleged in In re Ciproflaxin Hydrochloride Antitrust Litigation, and in Andrx Pharmaceuticals v. Biovail, 256 F.3d 799 (D.C. Cir. 2001). Subsequent to the Bayer-Barr settlement, other generic companies sued for invalidity — on grounds not submitted to the PTO during re-examination — and in early 2001, the Districtof New Jersey ruled in favor of Bayer and dismissed the invalidity actions. Bayerv. Schein, 129 F. Supp. 2d 705 (D.N.J. 2001). ATTEMPTS AT GENERIC VERSIONS Currently, several other generic manufacturers have steppedforward to attempt to market generic versions of Cipro. Novopharm filed its ANDAand received tentative approval to market its generic versions after expirationof the ’754 patent. Mylan filed its ANDA along with a Paragraph IVcertification against each patent. The FDA granted tentative approval pendingany underlying litigation. Bayer sued Mylan in New Jersey on the ’444 patentfor the Paragraph IV certification. Bayer A.G. and Bayer Corp. v. MylanPharmaceuticals and Mylan Laboratories, No. 99-4659 (D.N.J.). Ranbaxy filedits ANDA containing a Paragraph IV certification against the ’754 patent and aParagraph III certification against the ’444 patent. The FDA noted that Bayer did not sue Ranbaxy for theParagraph IV certification. Thus the ANDA was tentatively approved and wouldbecome permanent upon expiry of the ’444 patent. Geneva Pharmaceuticals filedits ANDA containing a Paragraph IV certification against the ’754 patent and aParagraph III certification against the ’444 patent. Since Bayer did not sueGeneva, the ANDA was tentatively approved and would become permanent when the’444 patent expired. In addition to having generic drug companies knock out thepatent in order to gain market entry, the federal government has the authorityto infringe, pursuant to 28 U.S.C. � 1498. See also Crater Corp. v. LucentTechnologies, 255 F.3d 1361, 1369 (Fed. Cir. 2001) (holding that Lucent didnot infringe because it was a government agent within the meaning of 28 U.S.C.� 1498). Under this section, the government need not negotiate a license ornegotiate the patent’s use. The government, or its agent, however, would havehad to pay some compensation to Bayer, but Bayer could not have enjoined thegovernment’s use. For example, the government invoked � 1498 in CarterWallace v. U.S., 496 F.2d 535 (Ct. Cl. 1974), to decide the government’sliability and compensation on the drug meprobamate. The Carter Wallace court,though, affirmed dismissal of the case on estoppel grounds, in that the patentwas adjudicated invalid in another proceeding. The government has used � 1498 a number of times and haspaid a royalty to valid patent holders. The royalty is based on an eminentdomain theory of recovery and is measured on what the patentee has lost ratherthan what the government has gained. Hughes Aircraft v. U.S., 86 F.3d1566, 1571-72 (Fed. Cir. 1996). In Brunswick v. U.S., 152 F.3d 946 (Fed.Cir. 1998) (decision without published opinion), the U.S. Court of Appeals forthe Federal Circuit affirmed the court of claims ruling that Brunswick was onlyentitled to a reasonable royalty even though that royalty was less than thelost profits to which Brunswick argued it was entitled. Also, if the governmentproves that the patentee engaged in patent misuse resulting in anti-competitivebehavior, then compulsory licensing as a remedy for antitrust law violationsinvolving patent misuse is permissible. Hartford Empire v. U.S., 323U.S. 386 (1945). Last fall, the federal government contracted with IVAX Corp.of Miami, Fla., to supply the government with more than 1.2 billion tablets ofdoxycycline, another antibiotic used to treat anthrax. While the genericversion of doxycycline normally sells for 45-50 cents per tablet, IVAX willsell it to the government for about 3 cents per tablet. Similarly, Johnson& Johnson offered to sell 100 million tablets of its antibiotic Levaquin tothe government if it can obtain further FDA approval to treat anthrax. BristolMyers Squibb offered for no cost its antibiotic Tequin to anyone who has aconfirmed case of anthrax. Eli Lilly & Co., Pfizer, Abbott Laboratories andPharmacia have made similar offers to supply antibiotics. Reuters,”IVAX, a Generic Drug Maker, to Supply an Anthrax Drug,” N.Y.Times, Oct. 27, 2001, at C4; Keith Bradsher, “Crisis Is a PainfulReminder For a Longtime Friend of the U.S.,” N.Y. Times, Oct. 29,2001, at B8. In addition, as noted above, Bayer agreed with thegovernment that it would supply 100 million tablets of Cipro to the governmentfor 95 cents each. Previously, the government had paid about $1.77 per tablet.After the first 100 million tablets, the next 100 million tablets would be soldat 85 cents and then 75 cents for the next 100 million tablet batch. ShankarVedantam, “Government Will Buy Cipro at Half-Price; Bayer Deal BlocksGeneric Purchases,” Washington Post, Oct. 25, 2001, at A23. In theevent that Cipro remained undersupplied, the government could have then usedits agents (either public or private entities) to manufacture Cipro on itsbehalf. COMPULSORY LICENSING ISSUES A current House bill, though, will permit generic companiesto force a compulsory license from brand-name companies. House Report HR 1708,entitled the “Affordable Prescription Drug Act,” sponsored by Rep.Sherrod Brown, D-Ohio. Under this bill, the brand-name company would be forcedto license a generic equivalent. The generic drug company would have to pay areasonable royalty to the brand-name company. A failure to comply would resultin civil penalties. Furthermore, the World Trade Organization’s Trade-RelatedIntellectual Property Rights (TRIPS) Agreement permits compulsory licensing intimes of national emergencies. Art. 31, TRIPS Agreement. The government mayimpose compulsory licenses on Bayer under this agreement. Notably though, thegovernment tends to impose compulsory licenses on companies via the FTC whenthat agency regulates drug company mergers. See, e.g., the FTC decisiondated Nov. 7, 1995, regarding the Pharmacia and Upjohn merger (FTC File No.951-0140, published at Vol. 60, No. 215 at 56153-56159 (Nov. 7, 1995)). The pitfall to ordering a compulsory license is that othercountries could use this domestic action as a basis for imposing compulsorylicenses on U.S. patentees abroad, especially in poor countries where AIDS/HIVis a problem. If the U.S. government had invoked Art. 31 of TRIPS to extort acompulsory license regarding Cipro in view of the 18 reported cases of anthrax,then it would have been likely that the poorer countries would have used Art.31 to extort compulsory licenses regarding HIV drug cocktails, given themillions of reported cases. The North America Free Trade Agreement, Art. 1709,� 10 permits the same compulsory-licensing scheme in the case of nationalemergencies. Looking at the international front, under Canadian law, thegovernment may impose a compulsory license on Bayer and permit other genericmanufacturers to make Cipro. Those manufacturers, though, must pay Bayeradequate remuneration that takes into account the economic value of theauthorization. Canadian Patent Act, � 19. In Canada, the compensation is set bythe government agency. But, rather than impose a compulsory license and buy ageneric version of Cipro from Toronto-based Apotex, as it originally announced,the Canadian government ultimately agreed to buy its Cipro from Bayer. SeeGeoff Dyer, Ken Warn and Bettina Wassener “Canada Climbs Down on AnthraxDrug,” Financial Times, Oct. 24, 2001. STATE INFRINGEMENT? While the above discussion involved dealings by the federalgovernment, flying below the radar screen of most commentators is whether astate government can infringe patents. If the state government has themachinery in place to mass-produce Cipro, could it infringe the Bayer patents?The short answer is yes. In the past, state governments were sued for patentinfringement. But in Atascadero State Hospital v. Scanlon, 473 U.S 234,238-40 (1985), a nonintellectual property law case, the U.S. Supreme Court heldthat the 11th Amendment precluded liability unless there was a clear andunmistakable abrogation of immunity by Congress. To cure unbounded stateinfringement, Congress passed several laws purporting to abrogate stateimmunity: 35 U.S.C. � 271(h) and 35 U.S.C. � 296(a). But, in Florida Prepaid Postsecondary Education ExpensesBoard v. College Savings Bank, 527 U.S. 627 1999), the Supreme Court heldthat although the statutes contained an unmistakable intent to abrogate statesovereign immunity, state government patent infringement was not such apernicious problem as to violate � 5 of the 14th Amendment’s due processclause, nor was there a documented absence of state remedies. If a state government ever decided to infringe, whatremedies would Bayer have? The state could not be sued in federal court fordamages absent a waiver of immunity — an event not likely to occur. If thestate cannot be sued for damages, the only other alternative in federal courtwould be for injunctive relief against the infringing state official — asopposed to enjoining the state as a sovereign. While the state official couldbe stopped from infringing, no money damages are awardable. If Bayer ever attempted to sue in state courts, then thestate court trial judge could dismiss the case since federal statutes providethe federal courts with exclusive jurisdiction. See28 U.S.C. 1338(pre-empting state forum in favor of federal forum). To avoid dismissal, Bayercould allege that damages were available under alternate state laws, such asthe taking of private property under a reverse eminent domain theory. Even early cases held that patents were a type of propertyprotectable under the due process clause. Brown v. Duchesne, 19 How.183, 197 (1857); Consolidated Fruit Jar v. Wright, 94 U.S. 92, 96(1877). But by alleging an alternative theory and the existence of alternativeremedies — such as Bayer’s participation and consent to a royalty agreement –Bayer may plead itself out of the due process clause violation because theclause is violated only when there are no adequate state remedies. Parrattv. Taylor, 451 U.S. 527, 539-531 (1981); Hudson v. Palmer, 468 U.S.517, 532-533 (1984). A state court suit, however, is still predicated on thelaw of the individual state to determine if it has waived sovereign immunity.If that state has not done so, Bayer would be left with no court to entertainits suit for damages. A potentially odd situation would be if the federalgovernment infringed and had to pay a royalty under � 1498, yet the stategovernment did not have to, given that there is no forum in which to sue thestate. As noted, however, it does not appear that the federalgovernment will step into the patent-busting fray. With no new cases of anthraxthis year, there no longer seems to be a national emergency. Further, otherantibiotics are available so sole-source issues do not exist. Discussion aboutpatent-busting has died down for the moment, but should there be anotheroutbreak of anthrax, patent-busting should be carefully considered, as it isfraught with its own problems. Shashank Upadhye is an associate and patent attorney atChicago’s Sonnenschein Nath and Rosenthal, www.sonnenschein.com. His practice includes brand-name andgeneric drug patent infringement, and he has authored many articles in thefield. He may be reached at [email protected].

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