In an earlier post [see previous post] we discussed the Supreme Court’s ruling that reverse payments between brand and generic pharmaceutical companies could violate anti-trust laws.  On July 11, 2013, in the wake of that ruling, Bayer agreed to pay $74 million to settle a California consumer class action suit involving reverse payments.  The case was on appeal to the California Supreme Court and involved reverse payments made to Barr Pharmaceuticals, Inc., and two other generic companies totaling $398 million.  In exchange for the payments, the generic companies had agreed not to challenge Bayer’s patent covering Cipro, one of its best selling products.

In addition to the initial $74 million settlement, if the plaintiffs accumulate at least $227 million in settlements from the generic companies by the end of the year, Bayer will have to pay the plaintiffs an additional $8 million.  The terms of the settlement require Bayer to cooperate with the plaintiffs’ ongoing case against the generic companies by making some business records and employees available.  Additionally, any settlement agreements with the generic companies will prohibit the generic companies from seeking indemnification from Bayer for their own settlement costs.

Court filings indicate that the parties agreed to the basic outline of the settlement in May when the uncertainty of both the U.S. and California Supreme Court cases loomed over them.  The plaintiffs’ attorney said negotiations picked-up after oral arguments before the U.S. Supreme Court gave some indication that it would allow reverse payment suits to continue.

The $74 million settlement is not an insubstantial amount for Bayer, and likely represents a sum roughly twice the cost of litigating the case to completion.  It is, however, likely significantly less than the plaintiffs’ damages would have been, had they prevailed.

The settlement indicates that, in light of the Supreme Court’s decision to allow anti-trust suits against reverse payment agreements, Bayer decided the risk of losing, even under rule-of-reason analysis, far exceeded the cost of litigation.  It will be interesting to see if other pharmaceutical companies reach a similar conclusion in other reverse payment cases.