Antitrust Scrutiny of
Pharmaceutical
“Product Hopping”
B Y M . S E A N R O Y A L L , A S H L E Y E . J O H N S O N , A N D J A S O N C . MCK E N N E YP
ATENT AND ANTITRUST LAWS ALIKEare meant to encourage innovation, and for good reason. The U.S. Patent and Trademark Office estimates that innovation has accounted for fully three-quarters of post-World War II economic expansion in the United States.1 Nonetheless, innovation in the form of new products and product enhancements has at times been attacked under the antitrust laws, and it appears we have reached such a moment in the pharmaceu-tical industry.
Branded and generic manufacturers compete on an annu-al basis for roughly $340 billion in U.S. sannu-ales and annu-almost $1 trillion globally.2As one would hope and expect, this battle is waged in part through branded drug company efforts to develop and release new, improved (and often patent-pro-tected) versions of existing medications. But not all stake-holders agree that this is an inherently good thing. Branded drug companies have increasingly been accused of violating the Sherman Act by using new drug formulations as a tactic to blunt competition from generic rivals.
Such claims have been framed in recent antitrust class action lawsuits and in private suits brought by generic com-petitors.3Likewise, the Federal Trade Commission, joining various antitrust commentators, has expressed concern that the practice of releasing new and improved versions of pre-existing drugs—“product hopping” or “product switch-ing”—can, in certain circumstances, harm competition by complicating or delaying generic entry.4
All such claims, to some extent, are predicated upon the regulatory framework governing Food and Drug Adminis -tration (FDA) approval of generic drugs in the United States,
a framework established by the Hatch-Waxman Act and related regulations, which define a process by which gener-ic drug companies may seek expedited approval to manu-facture and sell counterparts to previously approved brand-ed mbrand-edications.5Most product-hopping antitrust claims in effect assert that the branded manufacturer has gamed or manipulated the FDA’s regulatory scheme by opportunisti-cally shifting resources to a new FDA-approved drug for-mulation, while, at the same time, withdrawing support for the prior formulation that faces imminent or nascent com-petition from generics. The contention is that this type of “product shift” or “product hop” can have the effect of destroying demand for the generic and thus impeding an effective generic product launch. The branded manufactur-er’s move to a new drug formulation, the theory goes, serves to reset the product market, putting the generic essentially back to square one in its efforts to deliver FDA-approved equivalents to the marketplace.
A common contention in such cases is that the generic drug companies, which keep their costs low in part by not actively marketing their products, are largely at the mercy of their branded competitors, whose continued support for the branded version of the relevant drug is essentially a prereq-uisite for successful generic entry. Most theories of competi-tive harm in this area also depend to some extent on skepti-cism regarding the improved health benefits of new drug formulations—for instance, a change from a lower to a high-er dosage, from a capsule to a tablet, or from immediate release to extended release.
This naturally leads to a complicated, and one might say troubling, balancing of the social welfare benefits of marginally improved pharmaceuticals, on the one hand, versus un -changed but somewhat less expensive ones on the other. The risks entailed by antitrust scrutiny of product innovation are well known and largely intuitive,6but this has not deterred courts from entertaining Sherman Act challenges based in sig-nificant part on product-hopping allegations. Indeed, in one recent case Abbott Laboratories and its co-defendants, after losing a motion for summary judgment, paid $250 million in part to settle such claims,7and Warner Chilcott is presently defending a similar case in which the plaintiffs are seeking tre-ble damages potentially reaching into the billions.8
The very prospect of a branded drug maker being exposed to treble damages linked to the launch of an FDA-approved new product formulation would be enough to send chills down the spines of many pharmaceutical executives. But the present situation is worse still, considering that the courts have yet to reach any consensus regarding what standards should be applied in judging the merits of such claims.
In one of the original cases alleging anticompetitive inno-vation, the Second Circuit in Berkey Photo held that the suc-cessful introduction of a new or improved product, even where it arguably undermines competition, should not give rise to an antitrust cause of action absent some element of “coercion.”9 However, the court did not define precisely
M. Sean Royall is a par tner in Gibson Dunn & Crutcher LLP’s Dallas and Washington, DC offices and cochairs the firm’s Antitrust and Trade Regu -lation Practice Group. Mr. Royall has represented branded drug manufac-turers in a variety of competition disputes and presently represents Sanofi-Aventis and Allergan in such matters. Ashley E. Johnson and Jason C. McKenney are associates in the firm’s Dallas office and have worked with Mr. Royall on various matters representing branded drug manufacturers.
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what it meant by coercion, and confusion over this issue has persisted.10
Some years later, the D.C. Circuit in Microsoft held that product innovations challenged under the antitrust laws should be subjected to a form of rule-of-reason balancing, with the asserted procompetitive benefits of the product improvement being balanced against the alleged anticom-petitive effects.11These seemingly conflicting standards have never been fully reconciled, and the resulting confusion can be seen in the small handful of court decisions that have addressed pharmaceutical product-hopping claims.
No matter where one stands on the broader issue of prod-uct hopping, most would agree that the risks of over-deter-rence in this area could be serious, and that caution is war-ranted.12 The benefits of generic drug competition are naturally quite significant, but the benefits of new and improved pharmaceutical product formulations are likewise important to our society and economy. The prospect of anti -trust courts or agencies weighing these benefits against each other is, to the authors, an uncomfortable proposition. And such concerns are only heightened by the fact that, at pres-ent, there remains significant uncertainty in the law, a situa-tion we hope will be corrected by future legal rulings. The Regulatory Backdrop
The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act,13 attempts to strike a balance between two potentially coun-tervailing public interests—inducing innovation by branded drug companies, and fostering the development of lower-cost generic versions of “innovative” or “pioneer” branded drugs.14 Under FDA rules, a company seeking approval of a new pharmaceutical must file a New Drug Application (NDA), providing extensive data concerning the efficacy and safety of the product, which can be time-consuming and extremely expensive.15 Before Hatch-Waxman, an NDA was required for all new drugs, including generic versions of previously approved branded drugs. But Hatch-Waxman enabled gener-ic drug makers to obtain FDA approval through a more streamlined Abbreviated New Drug Application (ANDA) process that omits the need for clinical trials and other cost-ly work required by the standard NDA. Under the FDA’s ANDA process, generic drugs may be approved as long as they are shown to be “bioequivalent” to a previously approved branded drug.16
Once a generic drug company receives ANDA approval, it may commence marketing its product. Most generic drugs, however, are not marketed in a traditional sense. Generic drug manufacturers customarily do not advertise their prod-ucts or employ sizable direct sales teams. The standard gener-ic business model, rather than depending on sales and mar-keting efforts, relies heavily on requirements imposed by state “substitution” laws mandating that pharmacists dis-pense an available FDA-approved generic drug, unless oth-erwise directed by the prescribing physician.17Even without
sales and marketing support, lower priced generic drugs, once available, typically attract a significant share of sales away from their branded equivalents.18
Congress recognized that the enactment of a regime facilitating swifter entry for generic drugs could reduce the in -centives of branded drug makers to innovate, inasmuch as accelerated generic competition might prevent branded man-ufacturers from recouping their research, development, and marketing costs. To address this concern, the Hatch-Waxman Act, among other things, made it easier for branded manu-facturers to enforce patents against generic rivals. If the ANDA filer wishes to sell its generic product before the expi-ration of patents that the branded manufacturer has listed on the FDA’s “Orange Book,” the ANDA filer must provide a “Paragraph IV certification,” confirming that the ANDA product does not infringe or that the relevant patents are oth-erwise invalid.19If the branded manufacturer promptly ini-tiates infringement litigation, this then triggers an automat-ic 30-month stay of final FDA approval for the generautomat-ic drug.20Another feature of Hatch-Waxman is that the first ANDA filer, once it obtains final FDA approval, is general-ly entitled to 180 days of market exclusivity before any later ANDA filer with FDA approval is permitted to launch its generic product.21
By any measure, Hatch-Waxman has spawned an enor-mous amount of antitrust litigation and related agency enforcement activity. The most prevalent complaints to date have centered around claims that branded drug companies have improperly invoked Hatch-Waxman 30-month stays through “sham” patent litigation22and claims that branded and generic rivals have essentially “conspired” through “pay-for-delay” patent settlements to forestall the onset of generic competition, dividing the alleged gains between them—an issue recently addressed by the Supreme Court in FTC v.
Actavis.23The law applicable to such patent-related antitrust
claims has been developing for years, and the standards are now reasonably well settled. By contrast, product-hopping allegations—the latest antitrust outgrowth of Hatch-Waxman —are a relatively recent phenomenon, and the law remains very much in flux.
Current State of the Law on Product Hopping To the authors’ knowledge, there have only been three phar-maceutical product-hopping cases to date that have result-ed in substantive court decisions. The first two of these cases—one involving the cholesterol drug TriCor24and the other involving the heartburn medications Prilosec and Nexium25—dealt with mirror image facts and led to oppo-site conclusions, one denying a motion to dismiss and the other granting dismissal. From these two decisions alone, one might infer that the viability of product-hopping antitrust claims turns largely on the strength of the facts, including whether the branded manufacturer reinforced its switch to a new product formulation by withdrawing the prior formulation from the marketplace and thereby arguably
its of “novel” product-hopping allegations and signals a fairly significant degree of skepticism concerning whether a branded drug maker’s shift to a new product formulation should ever constitute an antitrust violation. As discussed below, these decisions taken as whole provide relatively little clarity and leave many questions unanswered.
Teva. Abbott Labsoratories v. Teva Pharmaceuticals USA appears to have been the first case to squarely frame an anti -trust claim predicated on allegations of pharmaceutical prod-uct hopping, and it resulted in a somewhat detailed decision denying a motion to dismiss filed by the defendants, the prin-cipal defendant being Abbott Laboratories. The plaintiffs asserted that Abbott twice changed its formulation for TriCor (from a capsule to a tablet and later to a new tablet with lower dosage strengths), obtained NDA approval for the prod-uct changes, and completed two successive switches to new product formulations in a manner strategically timed, in both instances, to thwart imminent generic competition for the “obsolete” versions of the drug.28In both instances, the plain-tiffs alleged that Abbott not only stopped selling the prior version of TriCor, but also took the further step of removing the prior formulation from the National Drug Data File (NDDF), a private database of FDA-approved drugs. This further step, plaintiffs alleged, literally prevented pharmacies from filling prescriptions for the superseded formulation or any generic equivalents, making generic substitution no longer possible.29
Abbott and its co-defendants, in their motion to dismiss, maintained that even the plaintiffs had acknowledged that the new formulations reflected improvements, however minor, over the prior formulations, and that any product change that introduces an improvement must be per se law-ful under the antitrust laws.30The defendants also argued that they had no duty to aid competitor. Hence the withdrawal of old TriCor formulations, even if highly disruptive to gener-ic rivals, cannot violate the Sherman Act.31
The court in Teva rejected these and other defense argu-ments and in so doing set forth what it deemed to be the appropriate standard for assessing claims of this nature. The starting point for the court’s analysis was the Second Cir cuit’s decision in Berkey Photo, Inc. v. Eastman Kodak Co.32As Teva explained, the outcome in Berkey Photo (which reversed a plaintiff’s jury verdict) turned on one major logical under-pinning—the observation that Kodak’s challenged new prod-uct offerings (the Pocket Instamatic camera and related film cartridges) had gained “acceptance in the market” purely as a consequence of “free choice” by consumers.33Notably, in the view of the Teva court, it was clear from the facts in
Berk ey Photo that Kodak, upon introducing its new products,
“did not remove any other films from the market”34; and even more notably, the Second Circuit in deciding Berkey Photo suggested it might have reached a different outcome had
Kodak “ceased producing film in the [old] size, thereby
com-pelling camera purchasers to buy [the new] camera.”35
Teva fully embraced this dichotomy between “free choice”
and “coercion,” and largely on this basis the court deter-mined that dismissal was inappropriate, given allegations that Abbott removed the prior drug formulations from the market and changed the NDDF codes. “[S]uch conduct,” the court stated, “results in consumer coercion” and “is poten-tially anticompetitive.”36
It appears that Teva, in line with Berkey Photo, would give “judicial deference” to pharmaceutical product shifts that do nothing to disrupt “free consumer choice,”37 and in this sense the decision may signal an antitrust safe harbor of some sort.38But the borders of any such safe harbor, which would turn on distinctions between coercion and free choice, are hardly well defined. Under Teva, would a branded drug com-pany have grounds for dismissal if the challenged formulation change was not accompanied by a change in NDDF codes? Would there at least be grounds for dismissal if the prior for-mulation of the product was not removed from the market? Could it be enough for a plaintiff to defeat dismissal if it alleged that the prior formulation, while still available, was no longer being actively marketed by the branded manufactur-er? Is there some other form of alleged “coercion,” besides withdrawing support for superseded product formulations that a plaintiff could argue interferes with “free choice” in this context? Teva provides no real answers to these questions, which is somewhat troubling, considering that it offers the most detailed judicial commentary to date on this subject.
Teva also plunged headlong down a path that the Second
Circuit in Berkey Photo was cautious to avoid—the path of balancing the merits of new product innovations against the arguable competitive obstacles such innovations may erect. As
Teva states, “[T]he Second Circuit refused to weigh the
ben-efits from Kodak’s introduction of a new camera model and film format against the alleged harm from the product intro-duction because that weighing had already occurred in the marketplace.”39 By contrast, the court in Teva concluded that an antitrust inquiry probing and comparing the “bene-fits” and “effects” of the defendants’ formulation changes would be appropriate, given plaintiffs’ assertion that con-sumers were deprived of an unfettered choice.40
The court in fact was very explicit in concluding that claims of this nature—at least claims that fall outside what-ever “free choice” safe harbor may exist—should ultimately
a p p e a r s t o h av e b e e n t h e f i r s t c a s e t o s q u a r e l y f r a m e a n a n t i t r u s t c l a i m p r e d i c a t e d o n a l l e g a t i o n s o f p h a r m a c e u t i c a l p r o d u c t h o p p i n g ,
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be decided based on the type of rule-of-reason balancing approach adopted by the D.C. Circuit’s decision in United
States v. Microsoft Corp.41 Hence, Teva (in what may well
constitute dicta) suggested that the plaintiff in a pharmaceu-tical product-hopping case should have an initial burden to “show anticompetitive harm from the formulation changes” and then “that harm” will “be weighed against any benefits presented by” the defendant.42
Teva, of course, was a motion to dismiss decision and did
not engage in any actual balancing. But to the extent Teva’s suggested approach was adopted by later cases, this too seems troubling. Are courts or juries truly in a position to sit in judg-ment on the merits, including potential therapeutic benefits, of one FDA-approved drug formulation versus another? And even to the extent courts have competence to delve into such questions, how, as a practical matter, does one balance the benefits of a new drug formulation against the arguable effects of reduced competition? As noted above, this could boil down to a choice between marginally improved phar-maceuticals and unchanged but somewhat less expensive ones, matters that arguably exceed the purview of traditional anti -trust principles.
Walgreen. Walgreen Co. v. AstraZeneca Pharmaceuti cals,43 decided two years after Teva, was also a ruling on a motion to dismiss. The case involved allegations that AstraZeneca shifted its resources and began aggressively promoting a newly approved prescription heartburn medication, Nexium, just as its longstanding heartburn drug, Prilosec, was near-ing the end of its patent protection and beginnnear-ing to face generic competition. The plaintiffs alleged that when Astra -Zeneca began promoting and “detailing” Nexium to doctors, it ceased promoting and detailing Prilosec, but it did not withdraw Prilosec from the market; rather, Prilosec remained available as a prescription capsule, and, in a modified form, as an over-the-counter drug.44 Nevertheless, the plaintiffs contended that AstraZeneca’s efforts to “switch” the market from Prilosec, which faced generic competition, to “a virtu-ally identical” and “no more effective” patent-protected drug, Nexium, constituted a Sherman Act violation.45
In granting AstraZeneca’s motion to dismiss, the court in
Walgreen relied heavily on the reasoning in Teva and its
emphasis on the “critical factor” of consumer choice.46 In the court’s view, this factor distinguished the two cases entire-ly. Whereas in Teva there were allegations that Abbott “sought to defeat competition from generic substitutes” by “deliber-ately limit[ing] . . . consumers’ choices,”47based on the facts as alleged in the complaint AstraZeneca had “added choices” by introducing a new drug to compete with its alternative drug, Prilosec, with generic substitutes to Prilosec, and with heartburn medications offered by other manufacturers.48Even if, as the plaintiffs claimed, patent-protected Nexium was in no way superior to Prilosec, Walgreen stressed that nothing about antitrust law “requires a product new on the market— with or without a patent—to be superior to existing prod-ucts.”49In the court’s words, “Those determinations are left
to the marketplace.”50And as for the impact of this product switch on the generic competition, the court stated, “The fact that a new product siphoned off some of the sales from the old product and, in turn, depressed sales of the generic sub-stitutes for the old product, does not create an antitrust cause of action.”51
Taken in combination, Teva and Walgreen suggest that the introduction of a new FDA-approved prescription drug formulation, and the contemporaneous shift in marketing support from a prior formulation to the new formulation, likely is not enough, taken alone, to support a monopoliza-tion complaint, even if the consequence of such a shift is that generic competitors achieve a smaller overall share of sales. To survive a motion to dismiss, there would need to be, in addi-tion, some basis for the plaintiff to credibly allege an actual reduction in consumer choice. In Walgreen, there were two reasons why this condition was not met. First, AstraZeneca did not remove Prilosec from the market; the drug continued to be sold, albeit primarily as an over-the-counter drug that was not heavily marketed. But secondly and importantly, there was no allegation that AstraZeneca’s actions eliminat-ed the consumer’s option to choose a generic alternative. Indeed, the court’s decision, citing to the complaint, suggests that generic manufacturers had collectively achieved a 30 percent share of sales.52
Teva and Walgreen therefore deal with somewhat polar
extremes. In the former case, the asserted facts suggest that the defendants effectively eliminated both the prior NDA for-mulation of TriCor and any generic equivalents. In the latter case, there was no dispute that both the prior formulation and its generic equivalents remained readily available for pur-chase. Yet there are a number of alternative fact scenarios one could envision. For instance, the branded manufacturer, after launching a new formulation, may choose to cease actively marketing the prior formulation but not immediately remove it from the market, and generic entrants in response might choose to discontinue their efforts to enter. How courts might view this and other potential scenarios is not at all clear based on the combined holdings in Teva and Walgreen.
Mylan. In another ongoing product-hopping antitrust suit, Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public
Limited Co., the district court recently denied a motion to
dismiss.53Interestingly the court’s order placed no reliance on either Teva or Walgreen, and seemed to signal views at odds with the approaches adopted by those prior decisions.
The asserted facts in Mylan fall somewhere between the fact patterns presented in Teva and Walgreen. The complaint alleges that Warner Chilcott and its co-defendants engaged in a conscious strategy to prevent or delay generic competition for the company’s branded Doryx medication by executing at least three distinct product switches—first from a capsule to a tablet, then from 75mg and 100mg tablets to a single 150mg dosage strength, and finally from a single-scored ver-sion of the 150mg tablet to a dual-scored verver-sion.54“[T]hese switches,” the complaint alleges, provided “little or no
ther-apeutic benefit to consumers,” but “devastated the market for the prior versions of Doryx,” which Warner Chilcott ceased promoting and eventually withdrew from the market, there-by “forc[ing] generic manufacturers such as Mylan to change their products in development” in an effort to align their generic offerings with the currently promoted version of the branded drug.55Unlike Teva, however, there is no allegation in Mylan that Warner Chilcott changed NDDF codes in a manner that might preclude generic substitution. In fact, the complaint appears to acknowledge that Mylan success-fully developed and at least initially launched several gener-ic formulations.56
In moving to dismiss, the defendants argued, among other things, that Mylan’s claims boiled down to a contention that branded drug companies have a duty to continue promoting outdated formulations to permit generic competitors to take advantage of automatic substitution laws. But, the defen-dants maintained, nothing in the antitrust laws suggests that such a duty either does or should exist.57On the contrary, the defendants argued, antitrust law suggests that this type of “free riding” is “‘the antithesis of competition.’”58
The defendants also used their motion to dismiss to make a pointed attack against Mylan and its generic business model. In the opening paragraphs of their motion, the defen-dants contend that Mylan is one of the world’s largest phar-maceutical companies, fully twice the size of Warner Chilcott, and that the company has ample resources to actively pro-mote its generic products without relying entirely on state substitution laws, if it so chose.59
Had the court in Mylan followed the approach of Teva and
Walgreen, it might have focused on Warner Chilcott’s alleged
decisions to phase out prior formulations and the extent to which this deprived consumers of choices. But there is no mention of such concepts in the Mylan dismissal order. The court instead summarized the defendants’ principal grounds for dismissal, and commented that “[d]efendants’ con-tentions, if correct, appear compelling.”60This included the defendants’ claims that “their product changes . . . did noth-ing to block generic firms from competnoth-ing” but “merely pre-cluded generic firms from taking advantage of automatic substitution laws”; the defendants’ contention that if “gener-ic firms cannot advertise their products to compete success-fully with Doryx” this may simply “reveal a problem with the generics’ business models” or with the relevant “regulatory regimes”; and the defendants’ overarching claim that Mylan’s product-hopping theory, which the court characterized as
tive conduct under the Sherman Act, I cannot definitively address that question without going beyond the pleadings.”62 This was, to say the least, a marked departure from Walgreen and Teva.
The Mylan court’s dismissal decision, while perhaps send-ing a promissend-ing sign to those who oppose antitrust scrutiny of product hopping, does little to clarify the law. Indeed, if anything, the dramatically different tone struck by the court’s decision in comparison to Teva and Walgreen underscores how far we are at present from anything approaching a judi-cial consensus.
The FTC’s Stance on Product Hopping
FTC interest in the product-hopping issue dates back to at least 2006. In that year, the FTC filed a preliminary injunc-tion moinjunc-tion in federal court seeking to bar Warner Chilcott from following through with an apparent plan to withdraw an existing tablet formulation of its birth control product Ovcon coinciding with the launch of a new chewable version of the same product.63The issue arose in connection with an already pending suit in which the FTC’s complaint alleged that Warner Chilcott and generic manufacturer Barr Pharma -ceuticals had entered an agreement that would serve to delay generic competition for Ovcon. And the final order by which the litigation was settled included additional terms that in essence required Warner Chilcott to continue supporting the non-chewable tablet form of Ovcon, including requirements that Warner Chilcott not change the relevant NDDF codes or, for a period of three months, destroy inventory or buy back product already distributed to customers.64
The product-hopping issue has also surfaced at times in statements by various FTC commissioners. In 2007, then-FTC Chairman Deborah Platt Majoras, in a carefully word-ed statement, flaggword-ed the issue as one the Commission was “following.”65 A year later, then-FTC Commissioner and former FTC Chairman Jon Leibowitz signaled a potentially greater degree of FTC concern, mentioning product hopping as one example of “strategies used in connection with launch-ing a new [pharmaceutical] product” that “seem to serve no purpose other than to undermine the ability of a generic to compete.”66 Leibowitz also suggested, consistent with the general subject of his remarks, that this could be an area where it might “make sense to apply” the FTC’s expanded Section 5 enforcement authority.67
Most recently, in late 2012 the agency took the unusual step of filing a fairly lengthy amicus brief in connection with the district court’s consideration of Warner Chilcott’s motion to dismiss in the Mylan case.68The stated purposes of the brief were to present “background and analysis” on the nature and importance of generic competition and to address “the appropriate antitrust framework” for evaluating claims that “a brand drug reformulation unlawfully delayed or
inhibit-s e n d i n g a p r o m i inhibit-s i n g inhibit-s i g n t o t h o inhibit-s e w h o o p p o inhibit-s e a n t i t r u s t s c r u t i ny o f p r o d u c t h o p p i n g , d o e s l i t t l e t o c l a r i f y t h e l aw.
ally Through 2014; Maintains Expectations of 4–6% Growth in 2010,
IMSHEALTH.COM(Apr. 20, 2010), http://www.imshealth.com/portal/site/ ims/menuitem.d248e29c86589c9c30e81c033208c22a/?vgnextoid=4b8 c410b6c718210VgnVCM100000ed152ca2RCRD.
3See Walgreen Co. v. AstraZeneca Pharm. L.P., 534 F. Supp. 2d 146, 150
(D.D.C. 2008) (class action complaint); Abbott Labs. v. Teva Pharm. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006) (generic competitor action, con-solidated with other class action complaints); Complaint, Mylan Pharm., Inc. v. Warner Chilcott Pub. Co., No. 12-3824 (E.D. Pa. July 6, 2012) (same) [hereinafter Mylan Complaint].
4See, e.g., Brief for FTC as Amicus Curiae at 1, Mylan Pharm., Inc. v. Warner
Chilcott Pub. Co., No. 12-3824 (E.D. Pa. Nov. 21, 2012) [hereinafter FTC
Mylan Amicus Curiae Brief], available at http://www.ftc.gov/os/2012/11/
121127doryxamicusbrief.pdf. Some commentators have underscored the appropriateness of antitrust intervention in this area, while others have expressed concern about the dangers of overzealous antitrust enforcement. Compare, e.g., Michael Carrier, Provigil: A Case Study of Anticom
-petitive Behavior, 3 HAST. SCI. & TECH. L.J. 441 (2011) (viewing product hopping strategies as an anticompetitive tool to thwart generic competition); Stacey L. Dogan & Mark A. Lemley, Antitrust Law and Regulatory Gaming, 87 TEX. L. REV. 685, 687–88, 708–17 (2009) (describing product hopping as “a paradigmatic case of a regulatory game,” in which a party “abuses a neutral or procompetitive regulatory structure . . . to accomplish exclu-sionary results”) with, e.g., Alan Devlin & Michael Jacobs, Anticompetitive
Innovation and the Quality of Invention, 27 BERKELEYTECH. L.J. 1, 23–24 (2012) (viewing product hopping as a regulatory problem not well suited to scrutiny through private antitrust litigation); Daniel A. Crane, Provigil: A
Commentary, 3 HASTINGSSCI. & TECH. L.J. 453, 456 (2011) (responding to Carrier case study and viewing judicial scrutiny of product hopping as “dis-turbing”).
5This article does not address the product-hopping issue from the
perspec-tive of European competition law. However, the issue has arisen in Europe as well. See, e.g., John W. Treece, The Treatment of Pharmaceutical Life Cycle
Management Strategies in the European Commission’s Pharmaceutical Sector Inquiry Final Report: An American Perspective, 2 BLOOMBERGL. REP. 8 (Aug. 2009) (criticizing European Commission study finding product hop-ping anticompetitive).
6See, e.g., PHILLIPAREEDA ET AL., FUNDAMENTALS OFANTITRUSTLAW¶ 776
(not-ing that such claims “must always be treated circumspectly by the courts, because the issues will always be highly technical and because undue interference will chill innovation”); Gregory J. Werden, Identifying Exclu
-sionary Conduct Under Section 2: The “No Economic Sense” Test, 73
ANTITRUSTL.J. 413, 414–15 (2006) (stating that Section 2 jurisprudence should provide a “prudential safe harbor[]” for “introducing a new product . . . because significant consumer benefits from such conduct are so over-whelmingly likely. Any social gains from remedies in exceptional cases would be swamped by the chilling effect resulting from forcing businesses to defend such conduct and from false positive findings that such conduct was exclusionary”).
7See Direct Purchaser Class’s Motion for an Award of Attorneys’ Fees,
Reimbursement of Expenses and Incentive Awards to the Class Represen -tatives at 2, In re TriCor Direct Purchaser Antitrust Litig., No. 05-340 (D. Del. Mar. 9, 2009) (In addition to product-hopping allegations, the suit included, among other things, allegations of sham patent litigation and Walker Process claims, which likewise were not dismissed.).
8See Mylan Complaint, supra note 3.
9Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 287 (2d Cir. 1979)
(“If a monopolist’s products gain acceptance in the market . . . it is of no importance that a judge or jury may later regard them as inferior, so long as that success was not based on any form of coercion.”).
10Devlin & Jacobs, supra note 4, at 20–21.
11United States v. Microsoft Corp., 253 F.3d 34, 67 (D.C. Cir. 2001) (en
banc); see also id. at 75 (“In order to violate the antitrust laws, the incom-patible product must have an anticompetitive effect that outweighs any pro-competitive justification for the design.”).
12See, e.g., HERBERTHOVENKAMP ET AL., IP ANDANTITRUST§ 12.1 (2d ed. 2009)
(“[T]he error costs of punishing technological change are rather high, and A R T I C L E S
ed generic competition.”69 But the brief went further. For instance, quoting the views of a prominent antitrust com-mentator, the Commission stated, “‘Product-hopping seems clearly to be an effort to game the rather intricate FDA rules . . . . The patentee is making a product change with no tech-nological benefit solely in order to delay competition.’”70
The FTC brief also took a stand on the merits, at least insofar as it voiced the opinion that Mylan’s complaint “stat-ed a plausible claim.”71As for the appropriate legal standard, the FTC hewed closely to the framework adopted by the district court’s decision in Teva, which it cited liberally, and argued somewhat forcefully that an approach that might deem product reformulations “per se lawful” would “entitle brand pharmaceutical companies . . . to manipulate the FDA regulatory process and undermine state and federal laws that encourage generic competition.”72
Interestingly, the court’s dismissal order in Mylan did not so much as mention the FTC’s amicus submission, nor did it appear to adopt any of the FTC’s views. On the contrary, the decision, if anything, points in the direction of per se legality, a position the FTC pointedly attacked. While the brief therefore may have had little effect on the outcome of that dispute, it does presumably communicate a great deal about internal FTC views on the product-hopping issue. Conclusion
The Hatch-Waxman Act was designed to strike a delicate balance between the interests of generic and branded drug manufacturers, duly recognizing both the value of pharma-ceutical innovation and the benefits of low-cost generic com-petition. In the years since Hatch-Waxman was implement-ed, there has been a steady stream of antitrust disputes, many of them patent-related, tied in some way to the FDA’s gener-ic drug approval process, and this trend shows no signs of abating.
For the most part, it does not appear that such patent-related antitrust claims pose any direct threat to the integri-ty of the Hatch-Waxman regulatory scheme or its underlying policy objectives. In this sense, product-hopping claims, the latest antitrust outgrowth of Hatch-Waxman, may be differ-ent. At the very minimum, courts and enforcement agencies would be well advised to approach these issues cautiously, with the aim of avoiding standards or outcomes that could serve to penalize or chill pharmaceutical innovation, even innovations that some may regard as modest. If in the inter-est of protecting generic competition the courts were to apply too heavy a hand in this area, the delicate balance struck by Hatch-Waxman could well be disturbed.䡵
1See ARTIRAI ET AL., U.S. DEP’T OFCOMMERCE, PATENTREFORM: UNLEASHING
INNOVATION, PROMOTINGECONOMICGROWTH& PRODUCINGHIGH-PAYINGJOBS2 (2010), available at http://www.commerce.gov/sites/default/files/docu ments/migrated/Patent_Reform-paper.pdf.
-an undue exp-ansion of § 2 liability”); Spectrum Sports, Inc. v. McQuill-an, 506 U.S. 447, 448 (1993) (“The [Sherman Act] directs itself only against conduct that unfairly tends to destroy competition, and, thus, courts have been careful to avoid constructions of § 2 which might chill competition rather than foster it.”).
13Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended in scattered
sec-tions of 15, 21, 28 & 35 U.S.C.).
14See Drug Price Competition and Patent Term Restoration Act of 1984
(HatchWaxman Amendments): Hearing Before the S. Comm. on the Judi
-ciary, 108th Cong. (statement of Daniel E. Troy, FDA Chief Counsel) (noting
that the Act was “intended to balance [these] two important public policy goals”), available at http://www.fda.gov/newsevents/testimony/ucm1150 33.htm.
15Devlin & Jacobs, supra note 4, at 49.
16To be deemed “bioequivalent,” the proposed generic product contained in
the ANDA must include the same active ingredient(s), dosage form, route of administration, and strength as the existing branded product. See, e.g., 21 C.F.R. § 320.1 et seq. (2013) (FDA bioavailability and bioequivalence requirements); see also Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348, 1358 (Fed. Cir. 2003) (discussing ANDA process).
17FTC Mylan Amicus Curiae Brief, supra note 4, at 6 (discussing state
gener-ic substitution laws adopted over the course of the last decades).
18FTC, PAY-FO R-DE L AY: HOW DR U G CO M PA N Y PAY-OF F S CO S T CO N S U M E R S
BILLIONS8 (2010), available at http://www.ftc.gov/os/2010/01/100112 payfordelayrpt.pdf (noting that generic market penetration one year after launch averages 90%, with on average 85% lower prices than the pre-entry branded drug price).
1921 U.S.C. § 355(j)(2)(A)(vii).
20See 21 U.S.C. § 355(j)(5)(B)(iii). In addition to a Paragraph IV certification,
the ANDA applicant may certify that no pertinent patent information has been listed in the FDA’s “Orange Book” (a Paragraph I certification), that a listed patent has expired (Paragraph II certification), or that the ANDA appli-cant will not seek approval until a listed patent has expired (Paragraph III certification). Id.
21FTC v. Actavis, Inc., 133 S. Ct. 2223, 2235 (2013) (discussing
Hatch-Waxman marketing exclusivity provisions).
22See, e.g., M. Sean Royall & Joshua Lipton, The Complexities of Litigating
Generic Drug Exclusion Claims in the Antitrust Class Action Context, ANTI
-TRUST, Spring 2010, at 22.
23See Actavis, 133 S. Ct. at 2235.
24Abbott Labs. v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006)
(denying defendant’s motion to dismiss).
25Walgreen Co. v. AstraZeneca Pharm. L.P., 534 F. Supp. 2d 146 (D.D.C.
2008) (granting defendant’s motion to dismiss).
26Mylan Pharm., Inc. v. Warner Chilcott Pub. Co., No. 12-3824 (E.D. Pa. July
6, 2012).
27Order on Motion to Dismiss at 3, Mylan Pharm., Inc. v. Warner Chilcott Pub.
Co., No. 12-3824 (E.D. Pa. Jun. 12, 2013), [hereinafter Mylan Order on Motion to Dismiss] (denying motion).
28432. F. Supp. 2d at 416–17. 29Id. at 416.
30Id. at 420. 31Id.
32603 F.2d 263 (2d Cir. 1979).
33432 F. Supp. 2d at 421 (quoting Berkey Photo, 603 F.2d at 287). 34Id.
35Id. (quoting Berkey Photo, 603 F.2d at 287 n.39) (emphasis added). 36Id. at 424 (citing Berkey Photo, 603 F.2d at 287 n.39).
37Id. at 421.
39Id. (citing Berkey Photo, 603 F.2d at 286–87). See Berkey Photo, 603 F.2d
at 287 (“If a monopolist’s products gain acceptance in the market, . . . it is of no importance that a judge or jury may later regard them as inferior, so long as that success was not based on any form of coercion.”).
40432 F. Supp. 2d at 422.
41253 F.3d 34 (D.C. Cir. 2001) (en banc). 42432 F. Supp. 2d at 422.
43Walgreen Co. v. AstraZeneca Pharm. L.P., 534 F. Supp. 2d 146 (D.D.C.
2008). 44Id. at 148. 45Id. at 149–50. 46Id. at 151. 47Id. 48Id. 49Id. 50Id. 51Id. at 152. 52Id. at 149.
53Mylan Order on Motion to Dismiss, supra note 27. 54Mylan Complaint, supra note 3, ¶¶ 2–5. 55Id. ¶¶ 2, 9.
56Id. ¶ 32.
57Memorandum of Law in Support of Defendant Warner Chilcott’s Motion to
Dismiss at 16–19, Mylan Pharm., Inc. v. Warner Chilcott Pub. Ltd. Co., No. 12-3824 (E.D. Pa. Oct. 1, 2012).
58Id. at 24 (quoting Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d
370, 376–79 (7th Cir. 1986) (Posner, J.)).
59Id. at 1, 4.
60Mylan Order on Motion to Dismiss, supra note 27, at 3 (emphasis added). 61Id. at 2–3.
62Id. at 4.
63Motion for Preliminary Injunction, FTC v. Warner Chilcott Holdings Co. III, No.
1:05-cv-02179-CKK (D.D.C. Sept. 25, 2006), ECF No. 70 (filed under seal).
See also J. Thomas Rosch, FTC Comm’r, Remarks Before the World Generic
Medicine Congress: The Antitrust/Intellectual Property Interface: Thoughts on How to Best Wade Through the Thicket in the Pharmaceutical Context (Nov. 17, 2010), available at http://www.ftc.gov/speeches/rosch/101117 roschworldspeech.pdf.
64Final Order and Stipulated Permanent Injunction at 8, FTC v. Warner Chilcott
Holdings Co. III, No. 1:05-cv-02179-CKK (D.D.C. Oct. 23, 2006).
65Deborah Platt Majoras, FTC Chairman, Keynote Address at the ABA Section
of Antitrust Law 7th Annual Fall Forum: Maintaining Our Focus at the FTC: Recent Developments and Future Challenges in Protecting Consumers and Competition 6 (Nov. 15, 2007), available at http://www.ftc.gov/speeches/ majoras/071115fall.pdf.
66Jon Leibowitz, FTC Comm’r, Remarks at Section 5 Workshop, “Tales from the
Crypt” Episodes ’08 and ’09: The Return of Section 5, at 5 (Oct. 17, 2008),
available at http://www.ftc.gov/speeches/leibowitz/081017section5.pdf.
67Id.; see also Rosch, supra note 63, at 14–16. 68FTC Mylan Amicus Curiae Brief, supra note 4. 69Id. at 2.
70Id. at 9 (quoting HERBERT HOVENKAMP ET AL., IP AND ANTITRUST, § 15.3
(15–75) (2d ed. 2010)).
71Id. at 14. 72Id. at 13–14.
