July 31, 2012

Third Circuit Agrees With FTC In Applying Stricter Reverse-Payment Settlement Test

The U.S. Court of Appeals for the Third Circuit has reversed summary judgment in In re K-Dur Antitrust Litigation, and resurrected claims against defendant drug manufacturers that entered into so-called “reverse-payment” or “pay-for-delay” patent litigation settlements that allegedly delayed the sale of generic drugs.

The Third Circuit held that settlement agreements in which patent holders make payments to settle patent infringement litigation against generic manufacturers may be unreasonable restraints on trade and unenforceable under federal antitrust laws.  The Third Circuit remanded the case to the district court “to apply a quick look rule of reason analysis based on the economic realities of reverse payment settlements rather than the labels applied by the settling parties.”  This is essentially the approach urged by the Federal Trade Commission (“FTC”) in its amicus brief.

The Third Circuit test will apply a stricter level of scrutiny to such settlements than the approach used by the Second, Eleventh, and Federal Circuits, which have adopted a “scope-of-the-patent” test.  Under the scope-of-the-patent test, reverse payment settlements do not violate the antitrust laws if (1) the exclusion does not exceed the patent’s scope, (2) the patent holder’s claim of infringement was not objectively baseless, and (3) the patent was not procured by fraud on the patent and trademark office.

The plaintiffs are purchasers of K-Dur 20, a sustained-release potassium chloride tablet, and include plaintiffs CVS Pharmacy, Inc., Rite Aid Corporation, and Louisiana Wholesale Drug Company, Inc.  Plaintiffs assert claims on behalf of a class of wholesalers and retailers that purchased the drug directly from defendants.

The plaintiffs are challenging settlements between Schering-Plough Corporation, the patent holder and manufacturer of K-Dur 20, and Upsher Smith Laboratories and ESI Lederle (“ESI”), which sought to market generic versions of the drug.  Per the settlements, Upsher Smith and ESI agreed not to market their generic versions until September 1, 2001, which was some years prior to the expiration of Schering-Plough’s patents.  Schering-Plough also agreed to pay Upsher Smith $60 million in royalty payments for licenses to make cholesterol drug products, and agreed to pay ESI $5 million up-front plus varying amounts depending on FDA approval of ESI’s generic.  Plaintiffs argue that the settlements were shams and that the $60 million in royalties was actually compensation for Upsher Smith’s agreement to delay entry of the generic alternative.

The Third Circuit opinion relies heavily on the goals of the 1984 Hatch-Waxman Act. That legislation was designed to facilitate generic entry and encourage generic manufacturers to challenge pharmaceutical patents. 

The FTC has long believed that reverse-payment settlements are anticompetitive because they may delay generic competition.  According to a 2010 study by the FTC, “‘Pay-for-delay’ agreements are ‘win-win’ for the companies” at the expense of consumers, who are denied the option of lower-priced generics.  The FTC report concluded that as a result of such agreements, “brand-name pharmaceutical prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits.”

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Categories: Antitrust and Intellectual Property Law, Antitrust Litigation

    July 23, 2012

    Europeans Eying Whether It’s Déjà Vu All Over Again In New Microsoft Browser Probe

    The European Commission has opened an investigation to determine whether Microsoft failed to comply with its 2009 commitment to the Commission to encourage Internet browser competition by providing Windows users in Europe with a screen showing the 12 most popular browsers.

    In December 2009, the Commission’s competition office found that Microsoft’s practice of offering only its browser, Internet Explorer, to Windows users was anticompetitive.  The Commission made legally binding Microsoft’s commitments, including the browser-choice screen, to address the antitrust concerns.

    According to the Commission, however, it appears that Microsoft has not fulfilled this commitment.  “Since the launch of Windows 7, in February 2011, the choice screen has no longer been displayed,” said Joaquin Almunia, Commissioner for Competition, at a press conference .  “As a result about 28 million users may not have seen the choice screen at all.”

    This new investigation is the latest in an extended series of antitrust enforcement actions taken by the Commission to rein in what it perceives to be Microsoft’s continuing market power in personal computer operating systems.

    In 2004, the Commission found that Microsoft’s tying of Windows Media Player to the Windows operating system was an abuse of a dominant position, and ordered the company to share interoperability information.  In addition to fining Microsoft 497 million euros in 2004, the Commission slapped Microsoft with penalties – for non-compliance with the 2004 decision – of 280.5 million euros in 2006 and 899 million euros in 2008.  In 2012 the European General Court upheld the 2008 finding of non-compliance, but reduced the penalty to 860 million euros.

    If the investigation finds Microsoft guilty of failing to fulfill its 2009 commitment, the Commission can impose an antitrust fine of 10 percent of the company’s annual turnover, according to Almunia.

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    Categories: Antitrust Enforcement, International Competition Issues

      July 11, 2012

      Penguin’s Motion To Compel Arbitration Doesn’t Fly In eBooks Case

      A federal judge in the Southern District of New York has shot down a motion to compel arbitration filed by Penguin Group (USA), Inc. in the widely-followed case of In re: Electronic Books Antitrust Litigation.

      Plaintiffs allege that Penguin and other book publishers violated the antitrust laws by conspiring to fix and raise prices for eBooks.  Penguin moved the court to stay the proceedings and compel arbitration for those plaintiffs who purchased their eBooks through Amazon and Barnes & Noble.  Penguin claimed that these plaintiffs were bound by arbitration agreements and the class action waivers contained in those agreements.  Judge Denise Cote denied Penguin’s motion, following the reasoning of the Second Circuit in In re American Express Merchants’ Litigation (“In re Amex”), 667 F.3d 204 (2d Cir. 2012).

      The decision is not unexpected.  As reported in a prior Antitrust Today post, class action waivers in arbitration agreements are vulnerable under the reasoning of In re Amex.  In that case, the Second Circuit found an arbitration clause that contained a class action waiver unenforceable because the high cost of individual actions effectively precluded the plaintiffs from enforcing their statutory rights under the antitrust laws.  The Second Circuit has since denied a request for a rehearing en banc.  Given the widespread use of mandatory arbitration provisions with class action waivers, particularly in consumer contracts, many commentators believe this decision could have profound implications.

      Judge Cote cited In re Amex numerous times, including the Second Circuit’s statement that “plaintiffs may successfully invalidate an arbitration agreement that contains a class action waiver on the grounds that the agreement would prevent them from ‘effectively vindicating’ their federal statutory rights.”

      The district court found that the plaintiffs’ affidavits successfully established that “it would be economically irrational for any plaintiff to pursue his or her claims through an individual arbitration.”  The court also stated that “given the complexities of proving this particular antitrust violation, plaintiffs can expect at most a median recovery of $540 in treble damages, and face several hundred thousand dollars to millions of dollars in expert expenses alone.”

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      Categories: Antitrust and Price Fixing, Antitrust Litigation

        July 9, 2012

        Supremes To Return To Health Care Market

        As the United States continues to process the Supreme Court’s opinion on the constitutionality of the Affordable Care Act, the Court has accepted another important case in the health care industry. 

        The Supreme Court has granted the FTC’s petition challenging a hospital merger in Federal Trade Commission v. Phoebe Putney Health System, Inc.  Antitrust practitioners are closely following the case because the decision could provide valuable guidance on the boundaries of state action immunity in antitrust cases.  

        As described in a previous Antitrust Today post, the FTC brought a federal action in April 2011 to preliminarily enjoin this hospital merger in Georgia.  The terms of the merger are somewhat complicated: Phoebe Putney Health System, Inc. (“PPHS”) announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), use its general corporate powers to acquire Palmyra Park Hospital, Inc. (“Palmyra”) and lease Palmyra’s assets to PPHS or one of its subsidiaries.  

        The FTC claims that the acquisition is practically a “merger to monopoly” that threatens harm to competition.  Defendants argue that the statutory authorization and the involvement of the Hospital Authority triggered the state-action doctrine, which immunized the plan from antitrust scrutiny.  The FTC counters by arguing that the Hospital Authority is merely a strawman that was included solely for the purpose of immunizing the transaction from antitrust scrutiny.  The U.S. District Court for the Middle District of Georgia and the Eleventh Circuit Court of Appeals sided with the defendants.  Now the FTC gets to take its case to the Supreme Court. 

        The Supreme Court will consider two specific questions raised by the FTC: (1) “Whether the Georgia legislature, by vesting the [Hospital Authority] with general corporate powers to acquire and lease out hospitals and other property, has ‘clearly articulated and affirmatively expressed’ a ‘state policy to displace competition’ in the market for hospital services,” and (2) “Whether such a state policy, even if clearly articulated, would be sufficient to validate the anticompetitive conduct in this case, given that the [Hospital Authority] neither actively participated in negotiating the terms of the hospital sale nor has any practical means of overseeing the hospital’s operation.” click here for more »

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        Categories: Antitrust Enforcement, Antitrust Law and Monopolies, Antitrust Litigation


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