by Jeffrey Brennan, Ashley Fischer, David Marx and Carrie Amezcua
In oral argument in FTC v. Phoebe Putney Health System, Supreme Court Justices focused on whether the state legislature clearly articulated a state policy to displace competition with regulation, in a case challenging the application of the state action doctrine to a hospital merger to monopoly.
To read the full article, click here.
by David Henry, Wilko van Weert and Philipp Werner
Chief Economists from the US Federal Trade Commission, the US Department of Justice and the EU Directorate General for Competition, have agreed on a set of four, non-binding suggestions that should—if followed by standard-setting organizations – increase the level of protection afforded to consumers and promote innovation.
To read the full article, click here.
The Federal Trade Commission (FTC) filed an amicus brief on October 9 in U.S. District Court (D.N.J.). In it, the FTC spells out its arguments why, as part of a pharmaceutical patent litigation settlement agreement, a branded company’s promise not to launch an authorized generic (AG) version of its product during the generic firm’s 180-day marketing exclusivity period is a "pay-for-delay" agreement in violation of the antitrust laws, if the agreement also contains the generic’s promise to defer its entry. The FTC argues that so-called "no-AG" agreements fail under the antitrust analysis recently articulated by the Third Circuit in the K-Dur decision, which is the subject of pending petitions for certiorari in the U.S. Supreme Court.
The complaint in the underlying case, Louisiana Wholesale Drug Co., Inc. v. GlaxoSmithKline (GSK) and Teva Pharmaceuticals, can be found here. The GSK drug at issue is Lamictal, which is used in the treatment of epilepsy, bipolar disorder and other medical conditions. The FTC does not take a position on the ultimate merits of plaintiff’s allegations against GSK and Teva.
Under the Hatch-Waxman law, the first filer of an Abbreviated New Drug Application (ANDA) – i.e., an application to launch a generic version of a branded product – qualifies in certain circumstances for 180-day generic exclusivity. This means that the FDA cannot grant final approval to any other ANDAs for the same drug during that period. Generic exclusivity is an incentive contained in Hatch-Waxman to spur generic companies to file qualified ANDAs as quickly as possible, to expedite competition to the brand from generics that do not infringe the brand’s patents. Hatch-Waxman does not prohibit the branded company from launching a generic version of its own product – i.e., an AG – during that period.
The launch of an AG creates substantial competition to the generic product and typically cuts deeply into the generic product’s revenues. The FTC contends that a branded company’s promise not to launch an AG is tantamount to a "payment" to the generic firm, because the absence of AG competition results in substantially greater revenues for the generic product during its 180-day exclusivity period. Under the FTC’s pay-for-delay theory of patent litigation settlement agreements (which the Third Circuit adopted, albeit not in a no-AG case, in K-Dur), a branded company’s no-AG promise coupled with the generic company’s promise to defer its entry is anticompetitive. The FTC argues that, absent the no-AG promise, the generic firm would either (i) settle for sooner entry to obtain those revenues, (ii) launch at risk to obtain those revenues, or (iii) continue to litigate — all of which are probabilistically better results for consumers than the agreement.
According to the FTC:
Indeed, the economic realities of no-AG commitments require that such promises be analyzed like other forms of compensation paid to generics. Practically, a no-AG commitment has the same capacity to purchase delay as a monetary payment. When a brand competes through an AG, it siphons substantial revenues from the first-filer [...]
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by Stephen Wu
During an American Bar Association (ABA) program on antitrust and health care issues on October 1, 2012, U.S. Federal Trade Commission (FTC) Deputy Director for Health Care and Antitrust, Leemore Dafny, said that the FTC will focus on how patients purportedly react to price increases, as measured by "diversion ratios," when deciding which hospital mergers to investigate further for potential anticompetitive effects.
Dafny stated that the FTC will focus on diversion ratios rather than geographic markets because relying on geographic market overlaps in hospital mergers may do a poor job of identifying the true source of potential competition problems. Instead, the FTC has and will continue to evaluate hospital mergers to look at whether patients would be willing and able to substitute one hospital for the other if one hospital decided to raise prices for services, using the diversion ratio or the proportion of patients who would switch between them in response to a change in prices. Importantly, the diversion ratio does not rely on any one particular geographic market definition to give the FTC what it believes to be an accurate idea of how a hospital merger might affect competition.
To the extent the FTC considers geography, its staff begins by examining the primary service area of the hospitals – the area from which the hospitals draw about 75 percent of their patients – when conducting a preliminary evaluation of a merger to determine whether overlaps exist. According to Dafny, the more significant the overlaps, the higher the likelihood of a potential competition problem.
by Jon B. Dubrow and Carla A. R. Hine
Today the Federal Trade Commission (FTC) announced proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules that will impact the types of transactions for which pharmaceutical companies will be required to file HSR notifications with the Department of Justice and FTC. The proposed rulemaking is meant to clarify when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable acquisition of assets under the HSR Act.
Previously — although never actually codified — the FTC would determine whether the transfer of rights to a patent (usually in the form of a license) was a reportable event under the HSR Act by focusing on whether the licensor transferred the exclusive rights to "make, use and sell" under a patent. The emphasis on the transfer of the exclusive right to manufacture would result in scenarios where parties would not be required to report the transfer of patent rights because although the licensor transferred the rights to commercialize the product, it retained the right to manufacture the product.
In an effort to place substance over form, the proposed rulemaking instead suggests an "all commercially significant rights" test, where a transfer of "the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area)" would constitute a potentially reportable acquisition of assets if the size-of-transaction and size-of-person (if applicable) thresholds are met, and no exemption is applicable. The proposed rules further explain that all commercially significant rights are transferred even if the patent holder retains limited manufacturing rights to provide the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent. Please note that this rule would only apply to patents within the pharmaceutical industry (as this is the industry in which these scenarios most often occur).
The text of the proposed rulemaking can be found here. The FTC is accepting comments until October 25, 2012.
UPDATE: The U.S. Federal Trade Commission’s new proposed Hart-Scott-Rodino Act rules will apply only to transfers of pharmaceutical patent rights and are expected to increase the number of filings. Click here to read the full article, "FTC’s Proposed Rules Would Generate More HSR Filings for Transfers of Pharmaceutical Patent Rights."
by Stefan M. Meisner and Daniel Powers
Recent testimony from the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission (FTC) before the Senate Judiciary Committee focused on issues relating to standard-setting activities and competition policy. Antitrust Division Acting Assistant Attorney General Joseph Wayland and FTC Commissioner Edith Ramirez discussed the issue of injunctive relief to enforce standard-essential patents and emphasized the importance of pending actions before the International Trade Commission.
To read the full article, click here.
by Stephen Wu
On June 12, 2012, the Federal Trade Commission (FTC) announced the appointment of Leemore Dafny to assume the newly created position of Deputy Director for Health Care and Antitrust, effective August 1, 2012.
Dafny is an Associate Professor of Management and Strategy at the Kellogg School of Management of Northwestern University, where she has served on the faculty since 2002. She is a microeconomist whose research focuses on competition in health care markets.
Her appointment to a newly created position signals the FTC’s continuing focus on the U.S. health care industry for antitrust scrutiny and, if anything, an effort to increase its expertise/jurisdiction over health care in relation to the U.S. Department of Justice. According to economists with whom McDermott regularly works, clients should not expect a change in the FTC’s enforcement posture as a result of her appointment, but Dafny should bring a broader perspective given her work with health insurance markets, experience the FTC is currently lacking.
The FTC’s press release announcing Dafny’s appointment can be found here.
by Jon Dubrow and Cerissa Cafasso
Public utilities could face different levels of scrutiny in merger reviews before the U.S. Federal Energy Regulatory Commission, and the Department of Justice and the Federal Trade Commission (the Antitrust Agencies).
To view the full article, please click here.
In December 2011, the United States Department of Justice (DOJ) announced that a public company chief executive officer (CEO) will pay a $500,000 civil penalty to settle charges that he violated Hart-Scott-Rodino Act (H-S-R Act) premerger reporting and waiting period requirements. The DOJ, acting at the request of the Federal Trade Commission, charged the executive for failing to satisfy the H-S-R Act’s requirements before acquiring common stock under the company’s stock-based compensation program. The CEO allegedly exceeded the H-S-R Act filing threshold ($59.8 million when the alleged violation occurred) upon the vesting of outstanding restricted stock units awards and the reinvestment of dividends and short term interest through his 401(k) account.
Violations of the H-S-R Act’s reporting and waiting period requirements are subject to fines of up to $16,000 per day. The DOJ’s recent enforcement action illustrates the potentially costly consequences of a failure to consider H-S-R Act compliance in connection with investment planning for corporate executives (and other individuals) who will hold or acquire stock valued in excess of the H-S-R Act’s notification threshold (currently $66 million and moving to $68.2 million effective February 27, 2012), and that violations may occur under somewhat obscure circumstances. In this connection, it is also important to remember that the relevant valuation is determined by reference to the total value of the voting securities that will held following any given acquisition of shares. Thus, for example, if an executive already holds shares valued at $65,999,999, a reporting obligation could be triggered by acquiring just one additional share. Likewise, if the executive’s existing holding has already crossed the $66 million valuation threshold through appreciation, any further acquisitions could trigger a reporting obligation.
by Jeffrey W. Brennan, Ashley McKinney Fischer, David Marx, Jr. and Hillary A. Webber
On October 20, 2011, the Federal Trade Commission and Department of Justice issued a final policy statement on accountable care organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP). Significantly, the Agencies eliminated mandatory antitrust review of certain ACOs seeking to participate in the MSSP, but declined to adopt other stakeholder recommendations.
To read the full article, please visit: https://www.mwe.com/info/news/ots1111c.htm.
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