Lieff Cabraser Heimann & Bernstein, LLP

California Supreme Court to Review Challenge to "Pay-for-Delay" Agreements That Inflate Prescription Drug Prices by Billions Annually

The California Supreme Court today agreed to review whether California's antitrust laws were violated by a nearly $400 million payoff by Bayer Corporation to several generic drug manufacturers for the explicit purpose of preventing the introduction into the market of generic versions of Bayer's antibiotic Cipro.

"With prescription drug prices continuing their unchecked rise, drug companies owning prescription drug patents must not be permitted to suppress competition by buying off their would-be rivals," stated Lieff Cabraser attorney Joseph R. Saveri, counsel for a certified class of California consumers, union health and welfare funds, and others who overpaid for Cipro. "We are grateful that the California Supreme Court will review this case and look forward to arguing that these collusive agreements violate California's antitrust laws."

From 1997 to 2004, Bayer signed exclusionary reverse payment agreements with Barr Laboratories under which Barr agreed not to sell a generic version of Cipro. The agreements allowed Bayer to foreclose competition by sharing its monopoly profits from Cipro with potential competitors. Bayer paid $398.1 million to Barr and other potential competitors who make generic drugs, preserving branded Cipro as the only choice for consumers and thereby maintaining, and even increasing, its cost. Bayer's agreement with generic drug manufacturers to keep generic Cipro off the market was the largest "pay-for-delay deal" of all time. Bayer and the generic companies contend that California's antitrust law does not prohibit such agreements.

In an interview with the legal newspaper The Recorder, Saveri noted, "What's interesting about this case is there may be a difference of opinion about what the right standard is to be applied in cases like this, but virtually everyone who has looked at this — except the big drug companies — agree the standard the court below applied is incorrect."

The United States Department of Justice, the Federal Trade Commission, California Attorney General Kamala Harris, and numerous other Attorneys General, as well as academics and commentators throughout the country agree that that these types of deals are anticompetitive and should not be permitted.  In particular, California Attorney General Kamala Harris and the American Antitrust Institute submitted letters strongly supporting review of this case, which presents issues of first impression in California.

The four Justices whose names appear on today's order are Justices Kathryn M. Werdegar, Ming W. Chin, Carol A. Corrigan, and Goodwin Liu.

In addition to Lieff Cabraser's Joseph Saveri, Dan Drachler of the Seattle, Washington, law firm Zwerling, Schachter & Zwerling, LLP, and Ralph Kalfayan of Krause, Kalfayan, Benink & Slavens, LLP, located in San Diego, California, serve as counsel for plaintiffs and appellants.