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.
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COURT DECISIONS CITING TWOMBLY, FEDERAL JUDGE TOSSES OUT DRUGSTORES’ ANTITRUST SUIT AGAINST ASTRAZENECA
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. Background
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 Prilosec.” 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. Analysis
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 (2007)). 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 action.’” PAXIL ANTITRUST SUIT AGAINST GLAXOSMITHKLINE REMANDED BACK TO STATE COURT 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 law. 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. U.S. ENFORCEMENT AGENCIES
FTC FILED A COMPLAINT AGAINST CEPHALON FOR UNLAWFULLY BLOCKING GENERIC VERSIONS OF PROVIGIL
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. EUROPEAN UNION EUROPEAN COMMISSION IMPOSED RECORD €899 MILLION FINE ON MICROSOFT 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 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/318&format=HTML&ag ed=0&language=EN&guiLanguage=en. INTERNATIONAL DEVELOPMENTS INDIA FACES INTERNATIONAL SCRUTINY OVER PATENT LAWS FAVORING INDIAN DRUG COMPANIES 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- 1.cms CHINA ANNOUNCES MEASURES TO IMPROVE EFFICIENCY OF PATENT TRIALS WITH TECHNICAL EXPERTS
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 http://www.chinadaily.com.cn/china/2008-02/20/content_6467923.htm
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