Aba antitrust section - intellectual property committee e-bulletin - issue 26

ABA Antitrust Section
Intellectual Property Committee E-Bulletin
March 13, 2008
The Intellectual Property Committee is pleased to present the latest issue of our monthly E-Bulletin providing updates and information on intellectual property antitrust developments and policy, with this issue principally covering developments from February 2008. Please send any comments, suggestions, and items to be noted in the next issue by e-mail to Lauren Albert (LSA@avhlaw.com) or Oded Pincas (Oded.Pincas@aa.gov.il). Following distribution to the AT-IP Listserv, these E-Bulletins are posted to the AT-IP Committee Website as section member content at http://www.abanet.org/antitrust/at-committees/at-ip/ebulletins.shtml. Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10022 Phone: 212-756-2294 E-mail: David.Keinan@srz.com COURT DECISIONS


Walgreen Co. v. AstraZeneca Pharms., No.06-2084 (RWR), 2008 WL 485117, (D.D.C.
Feb. 25, 2008)

On February 25, 2008, Judge Richard W. Roberts of the U.S. District Court for the
District of Columbia granted AstraZeneca’s motions to dismiss complaints brought by
several drugstores in December 2006, holding that plaintiffs failed to plead facts that
support a reasonable inference that they suffered antitrust injury or that AstraZeneca
engaged in exclusionary conduct in violation of §2 of the Sherman Act.

Pharmaceutical giant AstraZeneca is an international company that develops,
manufactures, and markets pharmaceuticals to treat various disorders. One of its products
is Prilosec, “a brand-name prescription drug used to treat heartburn and related
conditions.” AstraZeneca first obtained a patent for Prilosec in 1981 and began
marketing it in September 1989 after securing approval from the Food and Drug
Administration (“FDA”). The Prilosec patent expired in October 2001. Although a
generic equivalent of Prilosec subsequently entered the market in December 2002,
AstraZeneca continued manufacturing and marketing its prescription version and in 2003,
“the FDA approved an OTC version of prescription Prilosec,” granting AstraZeneca
exclusivity in that market through June 2006.
AstraZeneca also owns a patent for Nexium, which it manufactures and markets and, like
Prilosec, is used to treat heartburn and other related conditions. In February 2001, eight
months before the Prilosec patent expired, the FDA approved Nexium for sale. After
introducing Nexium into the market, “AstraZeneca very aggressively promoted and
‘detailed’ Nexium to doctors, and at the same time ceased promoting and detailing
In late 2006, drugstores Walgreen Co., Eckerd Corp., Maxi Drug Inc., Kroger Co., New
Albertson’s Inc., Safeway Inc., Hy-Vee Inc., and American Sales Co. Inc. (collectively
“plaintiffs”) filed suit against AstraZeneca, alleging that it “switch[ed] the market from
Prilosec, which now [had] generic competition, to a virtually identical drug, Nexium,
which [did] not [have generic competition].” Specifically, the plaintiffs contended that
the alleged switching constituted exclusionary conduct prohibited by §2, arguing that: (1)
in order to effectuate the market switch, AstraZeneca used distortion and misdirection in
marketing, promoting and detailing Nexium while ceasing promotion and detailing of
Prilosec; and (2) AstraZeneca’s introduction of OTC Prilosec and acquiring a grant of
exclusivity for three years from the FDA constituted prohibitive exclusionary conduct.

The court set out to determine “whether plaintiffs’ assertions that AstraZeneca engaged in
exclusionary conduct are supported by factual allegations [.] that yield a reasonable
inference that AstraZeneca’s conduct was of the type that is prohibited by §2 as
exclusionary, or whether plaintiffs’ assertions of exclusionary conduct amount to no more
than ‘labels and conclusions, and a formulaic recitation’ of this essential element of a
Section 2 Sherman Act claim.” (citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1965
In its discussion, the Court distinguished United States v. Microsoft Corp., 346 U.S. App.
D.C. 330 (D.C. Cir. 2002) and Abbott Labs v. Teva Pharms. USA, Inc., 432 F. Supp. 2d
408 (D. Del. 2006) from AstraZeneca. In rejecting the plaintiffs’ analogy, the Court
emphasized that in both cases, “the defendants’ offending conduct had to do with
eliminating choices available to the consumer,” whereas in the instant matter, there was
“no allegation that AstraZeneca eliminated any consumer choices.” Id. In fact, the
opposite was true: “AstraZeneca added choices” when it introduced a new drug that
would compete with existing drugs (including its own) and with generic substitutes for
Prilosec. (emphasis added).
The Court also rejected plaintiffs’ argument that AstraZeneca’s conduct was exclusionary
because “Nexium is protected by a patent and not superior to Prilosec.” The Court
explained that the plaintiffs: (1) were unable to show that enjoying benefits of patent
protection constitutes exclusionary conduct under §2 and (2) failed to identify “any
antitrust law that requires a product new on the market [.] to be superior to existing
products,” concluding that such determinations are left to the marketplace.
The Court discarded plaintiffs’ argument that when AstraZeneca decided to flex its
considerable muscle to push Nexium rather than Prilosec, “it used distortion in its efforts
to persuade doctors and other medical professionals that Nexium offered advantages to
Prilosec and in its advertising directed to lay persons.” The Court observed that plaintiffs
had failed to identify antitrust law prohibiting market switching “through sales persuasion
short of false representations or fraud” or any court decisions identifying such conduct as
exclusionary within the context of §2. Moreover, the Court explained “[a]dvertising that
emphasizes a producer’s strengths and minimizes its weaknesses does not, at least unless
it amounts to deception, constitute anticompetitive conduct violative of §2.”
Finally, the Court stressed that plaintiffs were free to compete with Prilosec as they
would have if Nexium had not entered the market. Moreover, Nexium was still available
to consumers in both prescription or over-the-counter alternatives. Ultimately, the Court
held that “[t]he fact that a new product siphoned off some of the sales from the old
product and, in turn, depressed sales of the generic substitutes for the old product, does
not create an antitrust cause of action.” Without additional facts, the Court concluded,
“plaintiffs’ allegations of antitrust injury and exclusionary conduct constitute no ‘more
than labels and conclusions, and a formulaic recitation of the elements of a cause of

Blue Cross Blue Shield of Minnesota. v. GlaxoSmithKline plc,
2008 WL 304888 (D. Minn. Jan. 31, 2008)

The District Court of Minnesota sent a case against GlaxoSmithKline and related
companies (together “GSK”) concerning the antidepressant drug Paxil back to state court
in an order dated January 31, 2008. In so doing, the Court held that the plaintiffs’ state
law allegations based on a patent allegedly obtained by fraud and allegedly harming
competition did not arise from or necessarily involve a significant question of federal
The plaintiffs, third-party-payor health care plans, first brought federal antitrust claims
against GSK in federal court in 2005, alleging that GSK illegally obtained and
maintained a monopoly for Paxil by committing fraud on the patent office through patent
extensions and bringing sham patent litigation to prevent or delay entry of competing
generic drugs. The Court granted GSK’s motion to dismiss for lack of subject matter
jurisdiction, because as third-party-payors, plaintiffs lacked the direct antitrust injury
required for standing. The Court dismissed the remaining state law claims, finding that
they did not necessarily address substantial questions of patent law.
Plaintiffs then re-filed in state court without the federal claims. GSK filed another
motion to dismiss, this time arguing that the state law claims were preempted by patent
law. The state court denied the motion, and permitted plaintiffs to amend to add
specificity to their fraud claims. GSK then removed the case as amended back to federal
court based on its preemption argument.
The federal court remanded after applying the “well-pleaded complaint” rule, finding that
none of the claims arose under the patent law or necessarily involved a substantial
disputed question of federal law. Noting that state law claims of false, deceptive and
misleading marketing and advertising were not completely preempted by any federal law,
GSK’s preemption argument was merely a defense and not a necessary part of an element
of the claims. Reading the face of the complaint, therefore, federal claims were not
necessarily involved.
The court granted plaintiffs’ request for fees and costs in bringing the motion to remand
because GSK had no objectively reasonable basis for removal. The issue of whether the
claims had arisen under federal law had already been addressed by the previous federal
district court, and the state court had already ruled on the sufficiency of plaintiffs’
deceptive marketing and advertising claims.


The FTC filed a complaint in the U.S. District Court for the District of Columbia against
Cephalon, Inc., a brand-name pharmaceutical company, for violating Section 5(a) of the
FTC Act by preventing competition to its drug Provigil, used for the treatment of
excessive sleepiness in patients with sleep apnea, narcolepsy, or other sleep diseases.
According to the complaint, four companies (Teva Pharmaceuticals USA, Inc., Ranbaxy
Pharmaceuticals, Inc., Mylan Pharmaceuticals Inc. and Barr Laboratories, Inc.) submitted
applications with the FDA to market their generic versions of Provigil. Each company
either circumvented, or challenged the validity of, the only remaining patent covering
Povigil. Cephalon subsequently commenced Hatch-Waxman patent litigation against
each of the companies. By late 2005, Cephalon entered into agreements, according to
which it settled the patent litigation and paid the companies more than $200 million to
refrain from selling generic versions of Provigil until 2012. As a result, the companies
abandoned their patent challenge procedures.
In its complaint, the FTC alleges that because no other generic company could compete
with Provigil unless and until all four companies either abandoned their marketing
exclusivity or 180 days after the entrance of one of them into the market, Cephalon could
create a significant barrier to entry. The FTC states that this anticompetitive scheme
denies patients' access to lower-cost, generic versions of Provigil and forces consumers
and other purchasers to pay hundreds of millions of dollars a year more for Provigil. This
conduct was, and continues to be, according to the FTC unlawful under Section 5(a) of
the FTC Act.
The FTC is seeking a permanent injunction against Cephalon that would permit generic
Provigil entry before 2012 and a final court judgment against Cephalon declaring that its
course of conduct violates Section 5(a)of the FTC Act and barring Cephalon from
engaging in similar or related conduct in the future.
See Federal Trade Commission v. Cephalon, Inc., Complaint for injunctive Relief,
available at http://www.ftc.gov/os/caselist/0610182/080213complaint.pdf.

On February 27, 2008, the European Commission ordered Microsoft to pay a € 899
million penalty — the highest ever to be imposed on a single company — for failure to
abide by the obligations of the Commission's March 2004 Decision, which was upheld by
the Court of First Instance in September 2007, finding that Microsoft abused its dominant
position in the market for PC operating systems and ordering Microsoft, among other
things, to disclose to developers of work group servers interface documentation that
enables developers to achieve full interoperability at a reasonable price with Microsoft's
operating system Windows.
Following the Commission's decision, Microsoft demanded a royalty rate of 2.98% for its
"information licenses" which provided access to Microsoft's interoperability information.
In March 1, 2007, the Commission issued a Statement of Objections expressing the
Commission's concerns that the price charged by Microsoft to developers was
unreasonable. In response, Microsoft reduced its royalty rate for the information licenses
to 0.5%. Beginning October 22, 2007, Microsoft further lowered the price of the
information license to a flat fee of €10,000. The new Commission decision determines
that the royalties charged by Microsoft for its information license, prior to October 22,
2007, were unreasonable.
See Press Release, EU Commission, Commission Imposes €899 Million Penalty on
Microsoft for Non-Compliance with March 2004 Decision (Feb. 27, 2008), available at

India’s attempt to assist its struggling drug companies may raise international concerns
over India’s patent laws. Indian drug companies have faced a number of challenges in
recent years. During this time, anticipated benefits from Indian companies out-licensing
some molecules at clinical and pre-clinical stages of development have not realized
anticipated results because most of these drugs have failed to pass through later stages of
clinical development, resulting in abandonment of the molecules by the foreign
companies. In order to its domestic drug companies, the Indian government has been
trying to support private drug development through a number of initiatives. These
initiatives include promoting increased partnerships between private companies and
publicly funded institutions, as well as tax incentives (weighted deductions) for research
and development spending.
One of the more controversial forms of support from the Indian government is a policy
that allows drugs resulting from indigenous research and development to be spared price
control for the first five years in the market. A complication has emerged with this
incentive because the Indian government is also seeking to introduce a system regarding
the prices of patented drugs whereby the government would ensure that prices of these
drugs would be sold at the lowest price for the patented drug anywhere in the world. This
system would be at odds with the policy of giving a five-year exemption from price
controls. Additionally, issues have been raised as to whether there should be special
intellectual property privileges for Indian companies and whether such treatment is
compatible with the World Trade Organization’s TRIPS agreement. Western
Governments are already critical of India’s patent law and there is concern that further
differential treatment for Indian companies could undermine whatever support base exists
for India’s current policies.
India May Lose Global Support for Patent Laws, The Economic Times, Mar. 11, 2008,
available at http://economictimes.indiatimes.com/articleshow/msid-2853897,prtpage-

As part of an effort to improve the efficiency of the country’s increasing docket of
intellectual property rights cases, China’s Supreme People’s Court announced that
foreign experts will be allowed to participate in patent rights trials involving foreign
parties. According to China’s State Intellectual Property Office, the number of patent
applications has risen significantly in recent years, with the number of domestic patent
applications rising nearly 35 percent and foreign applications rising almost 14 percent.
At the same time, lawsuits involving patent rights in China have become increasingly
complicated with ever more significant economic consequences. The most recent of a
series of measures to enhance the efficiency of these cases involves the increased use of
experts with specialized technical backgrounds. Interested parties will be encouraged to
bring people with technical backgrounds to speak on issues concerning the case, and local
courts will be able to set up an expert consultation system. Experts may also be
permitted to serve on people’s juries. A Supreme People’s Court representative
explained, however, that the expert’s opinions should only be considered a reference for
the judges and not actual evidence. In addition to these reforms, China is also
considering a number of amendments to its patent laws.
New Approach to Patent Trials, China Daily, Feb. 20, 2008, available at

Source: http://www.btlaw.com/Files/Antitrust%20IP%20E-Bulletin%20March%202008%20Issue%2026_1.pdf

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