The U.S. Federal Trade Commission (FTC) and Phoebe Putney Health System settled the FTC’s complaint that the health system’s merger with Palmyra Park Hospital violated the antitrust laws. Unique state statutes and regulations effectively prevented the FTC from obtaining its usual remedy for unlawful mergers or acquisitions, a divestiture. Instead, the FTC is requiring Phoebe Putney to provide prior notice of certain future acquisitions and prohibiting it from objecting to state applications by competitors to enter or expand in the marketplace.
The Federal Trade Commission’s (FTC) battle against “reverse-payment” settlements continues. In an amicus brief recently submitted in the case of In re Effexor XR Antitrust Litigation, the FTC advanced a broad interpretation of the Supreme Court’s decision in FTC v. Actavis that looks beyond the labels applied to agreements between brand pharmaceutical manufacturers and the specific type of consideration provided to induce delayed generic entry. The FTC also outlines a two-step inquiry it contends is the appropriate manner of analyzing the potential antitrust concerns raised by such agreements.
The FTC has long targeted “reverse payment” settlements. A reverse payment settlement restricts the generic pharmaceutical from entering the market until a future date (even if that date is before the patent at issue expires) and includes a transfer of value from the brand to the generic firm, typically in the form of payments arising from an ancillary agreement for services or products provided by the generic. The Supreme Court’s decision in Actavis, while rejecting the FTC’s view that “reverse payment” agreements were per se illegal, nevertheless held that such agreements were not immune from antitrust scrutiny. The Court held that such agreements “can sometimes violate the antitrust laws,” and that the rule of reason is the legal standard that courts must apply when determining whether such a particular agreement violates the antitrust laws.
In the Effexor XR case, plaintiffs have challenged a patent settlement agreement between pharmaceutical manufacturers Wyeth and Teva Pharmaceuticals. They claim that Teva agreed to delay introduction of its generic version of Wyeth’s drug Effexor XR, and that Wyeth agreed not to market an authorized generic version of Effexor XR for a period of time. There was no cash payment between the defendants and for this reason they have argued that Actavis is not applicable.
The FTC’s brief rejects the view that Actavis is limited to cash payments only. It contends that the defendants’ interpretation puts form over substance and would allow a ready means for manufacturers to circumvent the Actavis ruling. The FTC argues that Actavis instead reflects an approach focused on a two-part inquiry. Courts, the FTC says, must first examine whether the alleged payment (whatever form it takes) was something that the generic challenger could have obtained had it won the underlying patent infringement litigation. If not, then the courts must inquire whether the payment is a vehicle for the parties to share monopoly profits by avoiding competition.
Taking this “generic” approach to Actavis, the FTC contends that the absence of a cash payment is not determinative and that Wyeth’s commitment not to market an authorized generic version of Effexor XR “presents the same antitrust concern as the reverse payments the Supreme Court considered in Actavis.” It remains to be seen how the district court will rule, but the FTC’s amicus brief signals that the Commission will continue to scrutinize settlement agreements and will resist attempts to limit the application of Actavis narrowly to its facts.
Judge Cote also proposed a remedy which includes a two year prohibition on any contracts which would restrict Apple’s ability to discount e-books. Apple would then be required to negotiate with publishers on a staggered timeline. Judge Cote also stated that she would prefer Apple to instate a “vigorous” in-house antitrust compliance program, rather than follow the Justice Department’s proposal to hire a full-time internal compliance officer alongside court monitoring for 10 years. “I don’t want to do more than is necessary here,” said Judge Cote, recognizing the risk of disrupting innovation.
Judge Cote remained concerned about the “continuing danger of collusion,” especially given publishers’ recent protests of the Justice Department’s proposed remedies. Publishers claimed a proposed ban on Apple’s agency agreements would also punish them, even though they had already settled with the U.S. government on the condition that they could continue to use the agency model.
The case continues to move forward to a trial for damages while Apple intends to appeal the July ruling on liability.
On July 30, 2013, Suzanne Munck, Chief Counsel for Intellectual Property at the Federal Trade Commission (FTC), testified before the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights, on the impact of patent hold-up on competition, and standard-essential patents (SEPs). The hearing covered standard-essential patent disputes and antitrust law.
Ms. Munck’s testimony focused on SEPs that a patent holder has committed to license on reasonable and non-discriminatory (RAND) terms. The hold-up, in this context, is the potential that a SEP holder violates its RAND commitment, and then uses the leverage acquired from the standard setting process to negotiate higher royalties or other favorable terms after the standard’s adoption than it could have beforehand. She explained that patent hold-up is harmful because it can deter innovation, discourage the adoption of standards, reduce the value of standard setting and pass on excess costs to consumers.
To mitigate the threat of patent hold-up she testified that the FTC has “advocated for remedies in district courts and at the International Trade Commission (ITC),” submitted statements to the Federal Circuit and the ITC expressing its concerns, and pursued enforcement actions related to standard setting activity. Specifically related to enforcement, she commented on the FTC’s ability to use its Section 5 authority when someone claims infringement for intellectual property that is unenforceable or expired, or when someone threatens to sue without any intent to sue.
Ms. Munck concluded with the following remarks: “[T]he Commission believes that competition and intellectual property laws work together to promote innovation. Voluntary consensus-based standard setting facilitates this purpose; however, including patented technology in a standard creates the potential for patent-hold up. The Commission will continue to advocate before the federal courts and the ITC for policies that mitigate the potential for patent hold-up, and will bring enforcement actions where appropriate.”
Plaintiffs in a putative class action against Pfizer, Inc. and Takeda Pharmaceutical Co., related to acid reflux drug Protonix, will no longer give the two companies any heartburn. The plaintiffs stipulated to dismissal from New Jersey federal district court after a settlement in related proceedings that held the patent-in-suit valid and enforceable. Fawcett v. Altana Pharma AG, No. 2:07-cv-06133-JLL-CCC.
The plaintiffs had premised their claims on Takeda’s patent—licensed to Pfizer—being invalid and obtained by fraud on the patent office. The court put the suit on hold while Takeda and Pfizer litigated the validity of the patent in an infringement action against generic drug-makers Teva Pharmaceutical Industries Ltd. and Sun Pharmaceutical Industries Ltd. In 2010, a judge found that patent to be valid, and last month the parties reached a settlement in the damages litigation with Teva and Sun agreeing to pay Pfizer and Takeda $2.15 billion.
The settlement prompted the New Jersey court to ask why it should not dismiss as moot the putative class action. The parties replied that they were preparing to stipulate to dismissal, which the court granted on July 14, 2013.
The U.S. International Trade Commission has issued an exclusion order barring importation of certain older model Apple products for infringing a Samsung patent. The case is significant because the infringed patent was standard essential and encumbered by a commitment to license on fair, reasonable and non-discriminatory terms. Patent holders and potential defendants should carefully monitor further developments regarding the availability of injunctive relief for infringement of standard essential patents.
The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles. While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.
Last week in Microsoft v. Motorola, the U.S. District Court Western District of Washington became the first U.S. court to set fair, reasonable, and non-discriminatory (FRAND or RAND) royalty rates and range for standard-essential patents (SEPs). See Findings of Fact and Conclusions of Law, Microsoft v. Motorola, 2:10-cv-01823-JLR (W.D. Wash. Apr. 25, 2013). The suit stems from Microsoft’s allegation that Motorola’s offers to license certain Wi-Fi and video compression SEPs was too high and therefore violated Motorola’s contractual RAND commitments. This issue is arising with greater frequency in antitrust/IP matters when patent licensing is involved with licensors who are standards setting organizations as well.
Microsoft v. Motorola is important because it is the first thoroughly reasoned decision by a U.S. federal district court that developed a framework for courts to assess FRAND terms for SEPs. In setting forth the basic principles at issue, the court stated that “a RAND commitment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the standard.” Id. at 25-26. So, the court focused its analysis on its conclusion that “the parties in a hypothetical negotiation would set RAND royalty rates by looking at the importance of the SEPs to the standard and the importance of the standard and the SEPs to the products at issue.” Id. at 7. The court’s analysis employed a modified-version of the Georgia-Pacific factors, which courts use to calculate “reasonable royalty” damages in patent infringement actions. Of note, the court modified the first Georgia-Pacific factor (the royalties received by the patentee for the patent(s) at issue) to include consideration only of certain types of royalties, i.e., those “comparable to RAND licensing circumstances,” including both “license agreements where the parties clearly understood the RAND obligation, and … patent pools.” Id. at 35-36 (emphasis added). Another of the court’s noteworthy modifications to the Georgia-Pacific factors is that the fourth factor (the licensor’s policy and marketing program to maintain its patent monopoly via selective licensing), “is inapplicable in the RAND context because the licensor has made a commitment to license on RAND terms and may no longer maintain a patent monopoly by not licensing to others.” Id. at 36. Finally, as relates to the final factor (a hypothetical negotiation), the court concluded that “reasonable parties in search of a reasonable royalty rate under the RAND commitment would consider the fact that, to induce the creation of valuable standards, the RAND commitment must guarantee that holders of valuable intellectual property will receive reasonable royalties on that property.” Id. at 40.
Concluding that several of Motorola’s patents provided only minimal contribution to the standards and played only minor importance in the overall functionality of some of Microsoft’s products, and that the characteristics of a similar patent pool (of which Microsoft and Google, Motorola’s parent, are members) “closely align with all of the purposes of [...]
In remarks made this week at the International Competition Network annual conference, Federal Trade Commission (FTC) Chairwoman Edith Ramirez stated that health care will continue to be a top priority for the FTC. Referring to health care and hospital mergers in particular, she said that the Commission will "guard[] against what we consider to be consolidation that may end up having adverse consequences for consumers." The Chairwoman’s comments indicate that the recent leadership change at the FTC from former Chairman Jon Leibowitz to Chairwoman Ramirez has not altered the Commission’s priorities.
Recent months have seen a flurry of FTC activity in the courts related to health care. For example, two FTC cases came before the U.S. Supreme Court this term — the FTC’s challenge to Phoebe Putney’s acquisition of Palmyra Park Hospital in Georgia and the FTC’s challenge to "pay-for-delay" patent infringement litigation settlements between branded and generic pharmaceutical manufacturers.
In February, the Supreme Court ruled that the state action doctrine did not immunize Phoebe Putney’s hospital transaction from federal antitrust scrutiny, and the FTC has subsequently filed renewed motions in federal district court to stop further integration of the two hospitals even as it prepares for a full administrative hearing on the merits that will begin in August.
A decision on the "pay-for-delay" case is expected in June. The Supreme Court’s ruling may have a large impact on further FTC efforts against what it perceives as anticompetitive efforts to delay generic drug entry.
Health care clients considering acquisitions are advised to consult antitrust counsel early in the transaction process. Given the FTC and DOJ’s close scrutiny of health care transactions, early advocacy before the antitrust agencies is often critical to a deal closing on schedule.
The patent wars between large technology companies continue unabated. The Court of Justice of the European Union (CJEU) is set to provide guidance on the antitrust rules when holders of standard essential patents seek injunctive relief.
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