Sixth Annual Health Care Antitrust Forum, Northwestern University School of Law
I want to thank the Healthcare Antitrust Forum for the invitation to talk about some recent developments in healthcare antitrust at the FTC.(1) An agency representative's usual response to such an invitation is a survey of cases across a spectrum, but I will not do that today. Instead, I would like to focus in some depth on the antitrust issues involved in the settlement of pharmaceutical patent disputes.
Five months ago, the Commission announced a settlement agreement with two drug makers, Abbott Laboratories and Geneva Pharmaceuticals, Inc. resolving charges that the companies had entered into an anticompetitive agreement, which had the potential effect of delaying the entry of generic alternatives to Abbott's brand-name hypertension and prostate drug, Hytrin.(2) At the same time the Abbott/Geneva matter was settled, the Commission filed an administrative complaint challenging an agreement that raised similar issues between Hoechst Marion Roussel (now Aventis), the maker of Cardizem CD, a widely prescribed drug for treatment of hypertension and angina, and Andrx Corporation, the maker of a generic version of the product.(3) This case is still pending. Moreover, just last month the Commission announced a proposal to conduct a focused study of generic drug competition, and has requested public comment on the process it would use to collect relevant information from manufacturers nationwide.(4) The proposed study will examine whether brand-name and generic drug manufacturers have entered into agreements, or have used other strategies that could have an impact on competition from generic versions of patent-protected drugs.
As the following remarks will make clear, I think the issues in these patent settlements are difficult and individual facts are important. These settlements, like any patent settlement, require a resolution of two conflicting policies. On the one hand, there is a policy in favor of resolving disputes in order to conserve public and private resources and, in some cases, to facilitate entry. On the other hand, there is always a risk of a collusive agreement to share monopoly profits from an invalid patent. In the pharmaceutical area, these issues are played off against a special regulatory framework.
These comments on the Abbott/Geneva settlement do not suggest that I have made up my mind about the issues in Hoechst/Andrx, or in other settlement agreements that may be uncovered if the study goes forward.(5) I also speak only for myself, and no other Commissioner.
2. Regulatory Setting
The Hatch-Waxman Act
In order to understand the context of the conduct at issue in the Abbott/Geneva matter, it is necessary to delve into the unique regulatory framework that governs the approval process of pharmaceuticals. Under the Federal Food, Drug, and Cosmetic Act ("FDCA"),(6) any applicant seeking to market a new drug must first obtain FDA approval by filing a new drug application ("NDA").(7) NDA applicants must provide, among other things, "full reports of the investigations" that demonstrate a drug product to be safe and effective for its intended use. In 1984, Congress adopted the Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act. The Hatch-Waxman Act contains several important features intended to streamline the development and approval of generic drugs in order to "make available more low cost generic drugs," while at the same time protecting the interests of the patent-holding pioneer branded drug manufacturer.(8)
The Hatch-Waxman Act created the abbreviated new drug application, or "ANDA." Before passage of the Hatch-Waxman Act, manufacturers of generic drugs were required to duplicate the time-consuming and expensive safety and effectiveness studies already performed on the pioneer drugs. Under the ANDA process, an applicant can sidestep this lengthy process and rely on the safety and efficacy tests conducted by the pioneer drug manufacturer, so long as it can demonstrate that its generic drug is the same as and is bioequivalent to the approved drug product (also known as the reference listed drug).(9)
In addition to demonstrating bioequivalence, the ANDA applicant must provide a certification with respect to each patent listed in the so-called Orange Book,(10) which claims the reference drug or a method of using it. The certification must make one of four statements: (I) no patent information on the drug product that is the subject of the ANDA has been submitted to the FDA; (II) there was a patent which has expired; (III) such patent will expire on a particular date; or (IV) such patent is invalid or will not be infringed by the manufacture, use or sale of the drug product for which the ANDA is submitted. The last certification is known as a "Paragraph IV" certification.(11)
ANDA filers certifying under Paragraph IV must provide notice to each owner of the patent and the NDA holder for the listed drug, along with a detailed statement of the factual and legal basis for the ANDA applicant's opinion that the patent is not valid or will not be infringed by marketing of the generic product. A pioneer drug owner who receives notice of a Paragraph IV certification has 45 days to initiate a patent infringement suit against the applicant. If no action is initiated within 45 days, the FDA review and approval process may proceed according to the FDA's expedited schedule. If a patent infringement suit is filed within the 45 days, FDA approval of the ANDA is automatically stayed until the earliest of the date the patents expire, a final determination of non-infringement is entered in the patent infringement litigation, or the expiration of the 30-months from the patentee's receipt of notice of the Paragraph IV certification.(12) (A pioneer drug owner may still sue for infringement after the 45 day period, but will not receive the 30-month stay.) The 30-month period is intended to allow time for judicial resolution of the merits of the patent. The statute contemplates that the 30-month stay may be extended or shortened by the court depending on the circumstances of the case.
The Hatch-Waxman procedure provides an additional incentive for generic manufacturers to file a Paragraph IV certification and to challenge patents that may be invalid or not infringed by the ANDA product. Under the provision, the first applicant submitting an ANDA which contains a Paragraph IV certification ("first applicant") is protected from competition from subsequent generic versions of the same drug for a period of 180 days from the earlier of (i) the date of a court decision holding the patent invalid or not infringed or (ii) the date the generic manufacturer begins marketing the drug.(13) This provision is commonly known as the "180-day exclusivity" provision.
The statute thus gives something to both sides. The owner of the pioneer patent gets what is in effect an automatic preliminary injunction, which may last as long as 30 months, and the would-be generic competitor gets an expedited FDA approval process and a six-month head start on additional generic marketers.
In many ways, the statute seems to have worked. A 1998 Congressional Budget Office (CBO) study found that savings to consumers from purchasing generic drugs in place of their more expensive branded counterparts amounted to between $8 and $10 billion from retail pharmacy sales alone in 1994.(14) Since the passage of the Hatch-Waxman Act, the generic drug share of U.S. prescription sales has grown from 19 percent in 1983 to over 40 percent in 1995.(15) There has also been an increase in the percentage of branded drugs that have a generic competitor on the market - nearly 100 percent of the top-selling drugs with expired patents have generic versions, compared to only 36 percent in 1983,(16) and generic share of prescription drug volume has increased by almost 150 percent since 1984.(17)
At the same time, the automatic stay provisions in Hatch-Waxman seem to have stimulated, or at least preserved, the incentives for pharmaceutical innovation. In recent years there has been a dramatic increase in innovation and the U.S. industry unquestionably leads the world.(18)
Balancing Conflicting Goals
The Hatch-Waxman Act, like most other laws, may also create perverse incentives and encourage behavior that can undercut its primary objectives. I will address these potential difficulties in a moment. But first, I would like to note that it is refreshing -- at least, to me -- to see a statute that so openly attempts to reconcile these two seemingly conflicting objectives: i.e., promotion of generic competition and preservation of incentives to innovate. Let me digress from the principal theme of this talk for a moment to put the patent settlement issue in a larger context.
The real world is a complicated place, and people have to balance conflicting goals all the time. Individuals and families have to resolve tradeoffs in budgeting matters -- for example, the balance between present consumption and future security. Business enterprises face similar conflicts -- for example, when evaluating the costs and benefits of capital investments. And the need to strike a balance between potentially inconsistent objectives lies at the heart of our legal system -- particularly, the patent and antitrust laws, with which we are here most concerned.
Much has been said about the supposed conflicts between the patent and antitrust regimes but, if you think about it, they rest on similar intellectual foundations.(19) Both regimes recognize that present effects and future effects sometimes have to be weighed in the balance. The patent system grants investors a twenty-year monopoly and tolerates immediate consumer harm, based on the expectation that this incentive will stimulate innovation both in the industries involved and throughout the entire economy, for ultimate long-term benefit of consumers. Conversely, some antitrust cases (involving claims of predation) are premised on the theory that present consumer benefits, or at least the absence of present harm, may be outweighed by the potential for future exploitation by an entrenched monopoly.
If you add to these balancing elements the potential advantages and disadvantages of settling patent disputes, the issues become even more complex. Settlements can conserve public and private resources and eliminate uncertainty; they can also, depending on how they are structured, facilitate new entry. On the other hand, as discussed below, settlements can allow the holder of a possibly invalid patent to avoid the full rigors of competition by sharing monopoly profits with potential challengers.(20)
It is against this complex background of conflicting objectives, that we now move to a discussion of the Abbott/Geneva case.
3. The Abbott/Geneva Consent
The following "facts" are extracted from the complaint or the Analysis to Aid Public Comment.(21) Some of them might well have been challenged in court had the case been litigated but, since it was settled, they are the predicate for the Commission's order. Abbott Laboratories markets and sells the prescription drug Hytrin, the brand name for terazosin HCL. Hytrin is used to treat hypertension and benign prostatic hyperplasia ("BPH" or enlarged prostate). Both hypertension and BPH are chronic ailments affecting millions of Americans each year, many of them senior citizens.
In January 1993, Geneva Pharmaceuticals, Inc., an indirect wholly-owned subsidiary of Novartis Corp. and one of the leading generic drug manufacturers in the United States, filed an ANDA with the FDA for a generic version of terazosin HCL in tablet form. In December 1995, Geneva filed a similar ANDA for a generic version of terazosin in capsules. Geneva filed a Paragraph IV certification with the FDA for both ANDAs, which meant that Abbott had 45 days to initiate a patent infringement suit against Geneva and thereby invoke the Hatch-Waxman Act's 30-month stay of final FDA approval for the ANDAs.
On June 4, 1996, Abbott sued Geneva, claiming patent infringement by Geneva's generic terazosin HCL tablet product. Abbott mistakenly did not file suit against Geneva's capsule terazosin HCL product, even though it raised the same potential infringement issues as the tablet product.
Abbott's lawsuit triggered the Hatch-Waxman Act 30-month stay of final FDA approval of Geneva's generic tablet ANDA, i.e., until December 1998. However, the FDA's review and approval process regarding Geneva's generic capsule product continued, because Abbott had failed to file a lawsuit within the 45 day window allowed in the Hatch-Waxman Act.
Geneva was confident that it would win its patent infringement dispute with Abbott, and planned to bring its generic capsule product to market as soon as possible after FDA approval. Geneva would then enjoy the Hatch-Waxman Act 180-day exclusivity period as the first ANDA filer for generic Hytrin capsules.
On the day that Geneva was granted FDA approval to market generic terazosin HCL capsules, Geneva contacted Abbott and announced that it would launch its generic capsules unless it was paid by Abbott not to enter.(22) Two days later, on April 1, 1998, Abbott and Geneva entered into an agreement pursuant to which Geneva agreed not to enter the market with any generic terazosin HCL capsule or tablet product until the earlier of: (1) the final resolution of the patent infringement litigation involving Geneva's terazosin HCL tablets product, including review through the Supreme Court; or (2) entry of another generic terazosin HCL product.
Abbott agreed to pay Geneva $4.5 million per month until there was a district court judgment in the parties' patent infringement suit, and thereafter (assuming Geneva won before the district court), Abbott agreed to pay the $4.5 million monthly payments into an escrow fund until the final resolution of the litigation. Abbott would get the escrow funds back if the district court judgment was reversed, but the payments prior to judgment were irrevocable.
The $4.5 million in monthly payments were well over the estimated $1 to $1.5 million profits that Abbott believed that Geneva would forego by staying off the market. Abbott was willing to pay Geneva a "premium" to refrain from competing because of the substantial impact that launch of a generic version of Hytrin would have on Abbott's overall financial outlook. Abbott had forecasted that entry of a generic terazosin HCL on April 1, 1998 would eliminate over $185 million in Hytrin sales in just six months.
At Abbott's insistence, Geneva also agreed not to transfer, assign, or relinquish its 180-day exclusivity right. Since Geneva's agreement not to launch its product meant that the 180-day exclusivity period would not expire, the effect of this provision in the agreement was to ensure that no other company's generic terazosin HCL product could obtain FDA approval and enter the market during the term of the agreement.
The district court upheld Geneva's position that Abbott's patent was invalid, and the court of appeals affirmed in July of 1999. Geneva's agreement not to enter would not have terminated on its own terms, however, until disposition of the litigation by the Supreme Court. After Abbott and Geneva became aware of the Commission's investigation they did terminate their agreement in August of 1999. Geneva finally brought its generic terazosin HCL capsule product to market on August 13, 1999.
Theory of the Commission's Action
The Commission's complaint charges that the agreement prevented competition that Abbott's Hytrin product would otherwise have faced from generic products of Geneva and other potential generic competitors. As explained in the Analysis To Aid Public Comment, generic drugs can have a swift marketplace impact because pharmacists are permitted, and in some instances required, to substitute lower-priced generic drugs for their branded counterparts, unless the prescribing physician directs otherwise. Certain third-party payors of prescription drugs (e.g., state Medicaid programs and many private health plans) encourage or insist on the use of generic drugs wherever possible. Abbott had forecast that generic terazosin HCL would capture roughly 70 percent of Hytrin sales within the first six months following its launch.
The Commission viewed the challenged conduct as an agreement not to compete between potential horizontal competitors. Geneva was viewed as a potential competitor because it had certified to the FDA that its entry with generic HCL would not infringe a valid patent, and was confident that it ultimately would prevail in its patent infringement dispute with Abbott. In fact, in early 1998, Geneva was making preparations to launch its generic terazosin HCL capsules as soon as possible. (Remember that Abbott had mistakenly not filed suit against the capsule product, so there was no automatic stay.)
The agreement also created a potential bottleneck that could delay entry by other potential generic competitors. Under the then-prevailing interpretation of the statute, this meant that no other ANDA filer could obtain FDA approval until Geneva's 180-day exclusivity period expired.(23) There were other companies developing generic terazosin HCL products, and at least one other generic manufacturer had satisfied the FDA's requirements for approval by February 1999, but was barred from entering the market because of Geneva's failure to launch its product.
Analysis of the Commission's Theory
The Commission's case, as outlined in the complaint and Analysis seems straightforward. But, had the case gone to trial, it would have been necessary to contrast the world that the parties created by the challenged agreement and the "but for" world that would have existed in the absence of the agreement. Here, matters become more complex. (For the purpose of this analysis, we may assume hypothetically that the proven facts are not necessarily the same as those stated above.)
An initial question is whether the legality of the contract should be judged by the facts as they appeared at the time the contract was made or in the light of hindsight, considering subsequent events. In this case, for example, generic entry was not delayed as long as it might have been because the agreement in question was terminated(24) when the Commission began its investigation. The law is clear - at least for injunctive actions, as opposed to actions for damages - that legality should be tested by the facts as they appeared when the contract was made.(25) But this issue can obviously affect an equity court's choice of remedies and, if a troublesome contract were terminated before a Commission investigation, it could have an impact on prosecutorial discretion.
The most difficult issue, for me, arises from the fact that a potentially anticompetitive incentive will be present in the vast majority of these patent settlement cases, and it is not at all easy to distinguish between the situations that are pernicious and those that are not- particularly, when the uncertain outcome of patent litigation is factored in. As stated in the factual background of the Abbott/Geneva case, Geneva's generic entry would have a negative impact on Abbott's expected profits considerably in excess of any positive impact that entry would have on Geneva's expected profits. This imbalance is likely to exist for many other drugs, as well. Generic entry will cause prices to drop sharply, and the resulting reduction in the monopoly profits of the pioneer manufacturer will far exceed the anticipated profits of the generic manufacturer in a more competitive market (with at least two suppliers). The profit imbalance also creates a significant incentive for a generic manufacturer to delay entry until a patent infringement suit is resolved because potential damages for infringement (measured by the pioneer's lost profits) will exceed profits for the entrant.(26) The fact that the entrant may not be able to pay these damages is a further complicating factor which can induce a pioneer manufacturer to settle, even if it is confident about its litigation prospects. This combination of factors creates an incentive for both parties to cooperate and share monopoly profits, but hostility to this incentive, carried to its logical extreme, would cast a cloud over all patent settlements.
To complicate matters further, the sharing of monopoly profits will be harmful to consumers in some situations and benign, or even helpful, in others. If the patent is valid, the pioneer manufacturer is entitled to its monopoly profit, and a settlement that merely transfers a portion of that profit to a potential generic manufacturer causes no harm. In fact, the sharing may be helpful if the revenue stream enables the generic manufacturer to become a more potent competitor when the patent expires. If the patent is invalid, however, the settlement can obviously cause consumer harm because it buys off a likely challenger and perpetuates a stream of improper monopoly profits.
The trouble with this distinction is that the Commission is extremely ill equipped to determine on its own whether patents are valid or not. Theoretically, it could decide the issue on the basis of the parties' own evaluations, as disclosed in internal documents or testimony.(27) In extreme cases, this might work - i.e., internal evidence might disclose that the pioneer manufacturer was just fighting a delaying action or that the potential generic competitor was just looking for a nuisance payoff. But, internal evidence is much more likely to be equivocal, and it is subject to manipulation anyway. Companies with sophisticated counsel can generate documents that are helpful either in patent litigation or in defense of a settlement.
Although it is not articulated in the Analysis, I believe that the Abbott/Geneva settlement ultimately is based on a standard that resembles the "less restrictive alternative" test, but with a very significant difference. The Commission focused on settlement terms -- like the so-called "reverse payments" from Abbott to Geneva and the ban on Geneva's waiver of 180-day exclusivity -- that went well beyond the provisions that would normally be contained in a stipulated temporary injunction.(28) In traditional antitrust analysis, however, the argument that an agreement went too far only comes into play if a particular transaction has already been demonstrated to have the potential both for anti-competitive harm and for pro-competitive efficiencies. The issue then is whether the parties could have achieved all, or most of the efficiencies by less restrictive means.(29)
In the drug settlement context, however, an assessment of potential competitive harms and benefits would really require a judgment on patent validity and, as indicated, that is an issue that the Commission cannot really decide. So, the Commission considered the less restrictive alternative issue up front, rather than at the end.
Assume hypothetically that there is a genuine issue of patent validity in a case like Abbott/Geneva and that the parties want to avoid the expense and risks of litigation. A less restrictive way to resolve the controversy might be to grant a license that would permit the generic manufacturer to market its product sometime before the expiration of the Hatch-Waxman stay.(30) This is not really an entirely adequate test by itself, however, because the pro-competitive benefits may be illusory. If the royalty rate is high, generic entry will not cause prices to fall dramatically and the holder of a perhaps invalid patent will continue to earn both supra-competitive profits and a royalty. As mentioned above, a risk averse generic manufacturer may decide that a bird in hand is better than two on the wing, even if the case for invalidity is sound. A settlement that accelerates generic entry will surely be viewed with less suspicion than a settlement that defers it, but I doubt that the Commission should declare a safe harbor.
There are comparable objections to declarations of per se illegality. Consider the reverse payments that flow from the patent holder to the potential generic challenger rather than the other way around. A settlement that includes these reverse payments may on its face look a lot more like a cynical bargain to share the spoils from a patent that both sides agree is invalid. However, there may be extenuating circumstances. Suppose both parties agree on a licensing solution, but the generic manufacturer is not yet ready to come to market and needs interim funds to get ready. Later entry coupled with some interim reverse payments and a lower royalty rate, may actually lead ultimately to stronger generic competition for the benefit of consumers. Presumptive strong suspicion of reverse payments may be justified, but at this stage I would hesitate to make the presumption conclusive.
An additional issue in the Abbott/Geneva case was the settlement provision that prohibited Geneva from waiving the 180-day exclusivity rights that it is granted under the Hatch-Waxman Act. The settlement agreement, coupled with the statutory scheme that recognizes Geneva's priority, thus had the effect of not only delaying Geneva's entry but also delaying entry by any other generic manufacturer. The anti-competitive potential is obvious. Again, however, it is possible to imagine situations where a waiver provision is justified on balance. The pioneer manufacturer may be more willing to negotiate a reasonable license with one generic manufacturer if it does not immediately have to deal with a number of others, and the waiver prohibition may actually accelerate entry by the first generic, although it delays entry by the others. So, again, I am not willing to make a presumption absolute.
Finally, an additional restraint prohibited by the order in Abbott/Geneva could be the most problematic of all. The order bars, without qualification, any agreement by the generic manufacturer that would prevent entry with a non-infringing version of the patented product.(31) Any attempt to extend the reach of a lawful patent monopoly beyond the boundary of the patent is subject to attack under traditional antitrust principles(32) and, in my view, presents issues that are less interesting. Any such broadly drafted provision would be ill-advised standing alone,(33) and could well have an impact on the way the Commission views other provisions that are less obviously troublesome.
4. Practical Implications for Counselors
As the previous discussion indicates, the issues raised by pharmaceutical patent settlements are complex, fact intensive and not susceptible to hard-and-fast rules, at least at this stage. The most critical issue - namely, the question of patent validity - will vary from case to case and is not something that the Commission can comfortably evaluate in any event. Facts developed in the pending administrative case, involving Hoechst and Andrx, and in the proposed industry-wide study of the settlements may provide the opportunity for further elaboration of agency views. In the meantime, however, what practical advice can counselors give to their clients?
One place to start would be an examination of the consent order that was entered in Abbott/Geneva. Significant features of the order are the following:
(1) Outright prohibition of agreements that (a) restrict the generic company's ability to waive its Hatch-Waxman 180-day exclusivity rights, and (b) restrict its ability to enter the market with a non-infringing product.(34) This unconditional ban obviously signals that the Commission views these two provisions as the most problematical. A ban in the context of an order, however, does not mean that the Commission regards the practice as per se illegal in a different factual context. I personally believe a restriction on non-infringing products would be extraordinarily hard to justify in any context. As said already, I am less certain that a restriction applicable to 180-day exclusivity waivers is always pernicious, but it does require careful thought.(35)
(2) Interim settlement of patent litigation that involves payments to a generic company to delay entry are not banned outright, but must be approved by the court with an opportunity for the Commission to express its views.(36) The parties also must give the Commission notice of similar agreements in a non-litigation context.(37) For counseling purposes, a provision with reverse payments should raise a flag but does not signal that barriers are down. I personally think this is the right message at this time. The line between reverse payments and other benefits flowing to the generic manufacturer, like an earlier license or a reduced license fee, is too fuzzy for ironclad distinctions.
The requirement for court approval in this order raises the question of how much comfort other parties can derive from possible judicial approval of pharmaceutical patent settlements. Obviously, these parties would derive maximum comfort from a court-approved settlement that made specific findings in matters of potential competitive concern.(38) On the other hand, some courts might be reluctant to give what would in effect be an advisory opinion on matters about which the parties appear to be in agreement, and the parties may understandably be reluctant to suggest procedures that would invite comments from the Commission(39) or other interested generic manufacturers. This is yet another issue on which I believe we are still feeling our way.
I have said very little up to now about the issue of intent, which is always important for counselors to explore. Mixed motives must be assumed in most cases. A genuine desire to reduce litigation risks (a benign objective) is likely to be mixed with the desire to perpetuate, or perhaps share in, monopoly returns (a less benign objective). Counselors also encounter mixed motives in other contexts; aggressive pricing, for example, may be prompted by an intent to respond to competitors who are themselves aggressive as well as by an intent to foreclose competition altogether. The resulting ambiguities on the evidence of intent have led courts to rely on more objective cost-based presumptions. Similar ambiguities here may justify reliance on the more objective indicia specifically mentioned in the Abbott/Geneva order - even though, like cost-based tests, they are imperfect.
It is, however, always desirable for counselors to inquire about basic business objectives up front, not only to identify potential problems but also to aid in consideration of possibly less troublesome routes to the same objective. Counselors would be well advised to note the provisions that were regarded as problems in Abbott/Geneva, to recognize that they are likely to raise questions in other settlements and to explore alternatives. Good lawyers have been doing the same thing for a long time in analogous situations - for example, by counseling that a long term supply agreement may be less risky than a joint venture, while providing all or most of the benefits. Legal risks are like costs that can offset the perceived benefits of a transaction, and clients should be encouraged to think about them in this way.
The legal risks associated with anticompetitive patent settlements can be very high. In Abbott/Geneva, the Commission issued a unanimous statement warning that in future cases it might seek additional remedies, including disgorgement of profits.(40) I am both unwilling and unable to predict the circumstances that would trigger any such draconian remedy. However, you should know that the Commission views the antitrust issues as very serious.
In pharmaceutical patent settlement cases, the harm can be immense and immediate. For this reason, potential violations are likely to be pursued far more widely and aggressively than they have been up to now. At the Commission, we are barely embarked on the process, but it will go forward. We welcome your views, as we go along.
1. I wish to acknowledge the assistance of attorney advisor Holly Vedova in the preparation of this speech. I take sole responsibility, however, for the opinions expressed.
2. Abbott Labs. and Geneva Pharms., Inc., Docket No. C-3945 (2000).
3. Hoechst Marion Roussel, Inc., Docket No. 9293 (administrative complaint filed Mar. 16, 2000).
4. See 65 Fed. Reg. 61334 (Oct. 17, 2000).
5. The Commission also recently confirmed that it is investigating an agreement between Bristol-Myers-Squibb, Co. and American Bioscience, Inc., regarding the cancer drug Taxol. See FTC Press Release entitled, FTC to Study Generic Drug Competition, dated October 11, 2000, available at: </opa/2000/10/genericdrug.htm> As this matter is currently under investigation, I will also not discuss it any further.
6. 21 U.S.C. §§ 301 et seq. (1999).
7. 21 U.S.C. §355(a) (1999).
8. H.R. Rep. No. 98-857 (I), 98th Cong., 2d Sess. at 14-15 (1984), reprinted in 1984 U.S.C.C.A.N. 2647-48.
9. 21 U.S.C. §355(j) (1999).
10. The FDA's Orange Book (officially entitled "Approved Drug Products with Therapeutic Equivalence Evaluations") lists all approved drugs and related patents for each drug. 21 U.S.C. §355(j)(7)(A)(iii) (1999). The FDA obtains this information from NDA applicants, which must include information on any patent covering the drug, any method of using the drug for treatment of disease, or any method of delivery of the drug, for which a claim of patent infringement could reasonably be asserted against an unauthorized party. 21 U.S.C. §355(b)(1) (1999).
11. 21 U.S.C. §355(j)(2)(A)(vii)(IV) (1999).
12. 21 U.S.C. §355(j)(5)(B)(iii) (1999).
13. 21 U.S.C. §355(j)(5)(B)(iv) (1999).
14. Congressional Budget Office, How Increased Competition From Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry, ch. III, at 1, 20 (July 1998). See also David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 Food and Drug L.J. 325 (Fall 2000).
15. Congressional Budget Office, supra note 14 at Ch. III,1.
16. Id. at 5.
17. Id. at 27.
18. Almost half of all new medicines in the world are discovered by U.S. companies. See Pharmaceutical Research and Manufacturers of America, Fact Sheet, December 1999, available at: <http://www.phrma.org/publications/backgrounders/world/12_global.phtml>.
19. For a more detailed discussion of this topic, see Thomas B. Leary, Commissioner, Federal Trade Commission, Antitrust Law as a Balancing Act, Prepared Remarks Before Tenth Annual Seattle Computer Law Conference (Dec. 17, 1999), available at: </speeches/leary/leary991217.htm>.
20. The FDA has expressed concern about private agreements arising in the context of the Hatch-Waxman Act, and has observed that the incentives for companies to enter into such arrangements are becoming greater, as the returns to the brand name company from extending its monopoly increasingly exceed the potential economic gains to the generic applicant from its 180-day market exclusivity. See FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed. Reg. 42873, 42882-83 (to be codified at 21 C.F.R. pt 314.107)(proposed Aug. 6, 1999).
21. The Analysis to Aid Public Comment, issued simultaneously with the complaint and the agreed-on settlement terms, is designed to elaborate on the Commission's underlying theories.
22. Abbott could, of course, still pursue a patent infringement claim against the generic capsules, but it would not get an automatic stay.
23. 21 U.S.C. §355(j)(5)(B)(iv)(II) (1999). The FDA has proposed a new rule that would allow subsequent ANDA filers to trigger the 180-day exclusivity period in certain circumstances. See FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed. Reg. 42873 (to be codified at 21 C.F.R. pt. 314.107)(proposed Aug. 6, 1999).
24. Note that termination occurred only one month after the court of appeals had affirmed a finding of patent invalidity. In litigation, the parties might have claimed that the parties would likely have terminated the agreement after this appellate decision anyhow, and thus the delay would have been minimal in the "but for" world.
25. See e.g., John D. Calamari and Joseph M. Perillo, Contracts, Third Edition, §9-31 (1987)(general rule of contract interpretation is that courts will consider the intentions of the parties at the time they made their agreement).
26. Note also that entry by the generic manufacturer will start the running of its 180-day period of exclusivity, 21 U.S.C.§355(j)(5)(B)(iv) (1999). This can supply an additional motive for the generic manufacturer to delay entry until the infringement suit is resolved.
27. Note that initiation of an infringement suit with knowledge that the patent is invalid, may be attacked as an antitrust violation by itself, regardless of the settlement terms. See, e.g., Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282 (9th Cir. 1984), cert. denied, 469 U.S. 1190 (1985).
28. See Sheila F. Anthony, Commissioner, Federal Trade Commission, Riddles and Lessons from the Prescription Drug Wars: Antitrust Implications of Certain Types of Agreements Involving Intellectual Property, Remarks Before the ABA "Antitrust and Intellectual Property: The Crossroads" Program, San Franscisco, CA (June 1, 2000), available at: </speeches/anthony/sfip000601.htm>. Payments in settlement would normally be expected to flow from the alleged infringer to the patent holder; in Abbott/Geneva, the patent holder paid the alleged infringer. Moreover, the ban on Geneva's waiver expands on the temporary restraints provided by the statute.
29. Cf. United States Department of Justice and Federal Trade Commission, Guidelines for Collaborations Among Competitors, §3.36 (April 7, 2000), reprinted in 4 Trade Reg. Rep. (CCH) ¶13,160.
30. In the actual Abbott/Geneva case, there was no stay applicable to the generic capsule product, which Abbott had inadvertently failed to challenge in a timely manner. However, this highly idiosyncratic fact should not be outcome-determinative by itself. Abbott might still get a preliminary injunction from a court and even if it did not Geneva might decide to avoid risk by settling for a license rather than entering before patent validity had been decided.
31. Abbott Labs. and Geneva Pharms., Docket No. C-3945, Consent Order at ¶ 2 (2000).
32. Cf. Brulotte v. Thys Co., 379 U.S. 29, 33 (1964) (it is patent misuse to "enlarge the monopoly of the patent" by collecting post expiration royalties).
33. I do not believe a provision of this kind can be justified as an ancillary restraint, merely because it is part of a larger agreement. Cf.NCAA v. Board of Regents, 468 U.S. 85 (1984).
34. Abbott Labs. and Geneva Pharms., Inc., Docket No. C-3945, Consent Order at ¶ 2 (2000).
35. There have been suggestions for modification of the Hatch-Waxman 180-day exclusivity rights in order to reduce the first generic's ability to forestall entry by others. The FDA has proposed to amend its rules by placing a time limit (180 days) on when the first-filed ANDA applicant must trigger its rights to obtain the 180-day marketing exclusivity period and by clarifying which applicants are eligible for the 180-day marketing exclusivity. See, e.g., FDA Proposed Rule Regarding 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, 64 Fed. Reg. 42873 (to be codified at 21 C.F.R. pt. 314.107)(proposed Aug. 6, 1999). I express no opinion on these proposals but, if adopted, they obviously could have an impact on the antitrust analysis of a settlement agreement because they would change the "but for" world. They also could change the incentives of parties to enter into settlement agreements.
36. Abbott Labs. and Geneva Pharms., Inc., Docket No. C-3945, Consent Order at ¶ 3 (2000).
37. Id. at ¶ 4.
38. Cf. the doctrine of collateral estoppel, or issue preclusion, which bars the relitigation of issues actually adjudicated and essential to the judgment in a prior suit between the same parties. See Edward I. Niles, Federal Civil Procedure, §2.152 (1984).
39. See Comment of the Staff of the Bureau of Competition and of Policy Planning of the Federal Trade Commission, In the Matter of 180-Day Generic Drug Exclusivity for Abbreviated New Drug Applications, FDA Docket No. 85N-0214 (Nov. 4, 1999), available at: </be/v990016.htm>. An alternative risk in some circumstances would be government involvement as amicus curiae. See brief of Federal Trade Commission as amicus curiae in American Bioscience, Inc. v. Bristol-Myers Squibb Co., et al., Case No. CV-00-08577 U.S. Dist. Ct., Central Dist., Ca., W. Div., Sept. 1, 2000.
40. Abbott Labs. and Geneva Pharms., Docket No. C-3945 (2000)(Statement of Chairman Robert Pitofsky and Commissioners Sheila F. Anthony, Mozelle W. Thompson, Orson Swindle and Thomas B. Leary).