FTC Announces Efforts to Police Pharmaceutical Companies' Patent Behavior

By Kevin E. Noonan --

A decade ago the Federal Trade Commission engaged in a crusade against reverse settlement payment agreements in ANDA litigation (which they termed, Madison Avenue-like, "pay for delay" settlements), arguing that such agreements were per se antitrust violations, despite almost universal rejection of their position by most Courts of Appeal prior to the Supreme Court's decision in Actavis v FTC.  While failing to convince the Court to give its imprimatur to a complete ban, the Commission did persuade the Justices that because such agreements could raise antitrust concerns they should be reviewed under the rule of reason (a more fulsome account of these cases can be found in earlier Patent Docs posts and in Antitrust Issues in Intellectual Property Law, The Intellectual Property Law Association of Chicago Antitrust Committee, Lyerla, B., ed., American Bar Association Publishing Co., 2016).

The FTC's latest foray into policing pharmaceutical companies and their patent behavior was set forth in a policy statement promulgated earlier this month, entitled "Statement Concerning Brand Drug Manufacturers' Improper Listing of Patents in the Orange Book," in a classic example of begging the question and one viewed through the Commission's prism of purported patent malfeasance by branded drug companies.

As it did with the reverse settlement issue, the Commission's attitude seems to be that something might be happening and then to proceed as if it is.  This is evident from the first sentence, where the statement asserts that "[b]rand drug manufacturers may be harming generic competition through the improper listing of patents in the Food and Drug Administration's ("FDA") Approved Drug Products with Therapeutic Equivalence Evaluations, known as the 'Orange Book'" (emphasis added).  The statement then extols the benefits of generic competition (which is fine as far as it goes, but of course there needs to be something to copy in the first place for generic copiers to have anything to copy that can be sold at lower prices due to the benefits of their copying).  There is a generic allegation in the midst of this rhetoric -- the statement asserts that "certain manufacturers have submitted patents for listing in the Orange Book that claim neither the reference listed drug nor a method of using it" (and if so of course the Commission is empowered to and intends to pursue such manufacturers who are indeed "abus[ing] the regulatory processes set up by Congress to promote generic drug competition" under the power to investigate unfair trade practices under 15 U.S.C. §§ 45(a), (n)).

The justification for the Commission's concerns stems apparently from the results of a 2002 study (FED. TRADE COMM'N., GENERIC DRUG ENTRY PRIOR TO PATENT EXPIRATION: AN FTC STUDY 39-52 (2022), that purportedly involved improper listing, further citing an enforcement action in that year against Biovail (In re Biovail Corp., FTC Dkt. No. C-4060 (Oct. 2, 2002)).  Also cited are a total of four instances where the Commission filed amicus briefs in cases where there may have been improper listing, such as patents for a system to implement a REMS.  The consequence of such a listing, the statement asserts, is to invoke the 30-month stay in approval attendant upon the NDA holder (or her licensee) filing suit against an ANDA applicant, because "even small delays in generic competition can generate substantial additional profits for brand companies at the expense of patients."  Patients would be harmed because they would be "deprived of the ability to choose between competing products and may be forced to pay inflated prices."  Of course the 30-month stay while statutory is not mandatory; should the infringement action be dismissed (for example, on motion that the patent asserted were improperly listed in the Orange Book), the FDA would be able to expeditiously approve the ANDA and the generic company enter the marketplace (with its own 180-day exclusivity if a first filer; under these circumstances the extent to which patients would pay deflated prices would be itself delayed).

Having established at least to its own satisfaction the basis for the Commission's attention to this issue, the statement then announced the FTC's intention to "enforce the law against those companies and individuals who continue to improperly list patents in the Orange Book" using "its full legal authority to protect patient and payors . . . from business practices that tend to negatively affect competitive conditions."  This threatened exercise of the Commission's legal authority finds its basis in "the FTC's historical use of Section 5" based on improperly listing a patent in the Orange Book being an unfair method of competition.  The statement goes on to speculate that improperly listing a patent in the Orange Book "may . . . constitute illegal monopolization," perhaps evincing a recognition that agency overreach was not greeted warmly by the Supreme Court in Actavis with regard to the FTC's position that reverse settlement agreements were a per se antitrust violation.  Treading cautiously, the statement further warns that "improperly listing patents in the Orange Book may also be worthy of enforcement scrutiny from government and private enforcers under a monopolization theory" and calls out the possibility (or likelihood) that it "may also scrutinize a firm's history of improperly listing patents during merger review" (emphasis added).  Finally, the statement suggests that "individuals" (presumably corporate officers) who "submit or cause the submission" of patents improperly to the Orange Book may be held liable individually, and that a finding of a false certification under 21 C.F.R. § 314.53(c)(2)(ii)(R) could be sent to the Department of Justice for investigation of criminal liability.  Should all else fail, the Commission also states that it "may" dispute individual Orange Book listings through the FDA process set forth in 21 C.F.R. § 314.53(f)(1) that permits "any interested person" to request patent information in the Orange Book be corrected.

Mostly in footnotes, the statement identifies no more than 10 cases in support of the statement (and one of those, Fed. Trade Comm'n v. Shkreli, 581 F. Supp. 3d 579, 637 (S.D.N.Y. 2022), involved the infamous "Pharma Bro" whose shenanigans can hardly be held up as a standard under which ethical branded drug companies conduct their businesses).  In view of the powers the Commission can wield, the assertions, allegations, and promises of future activities set forth in the statement cannot be ignored, but it also cannot help but raise the question of whether this tempest should not have remained in the teapot from whence it sprung, at least without further evidence that improper listing occurs frequently enough to significantly impact drug prices paid by the patients and payors the FTC is attempting to serve and protect from (in the Commission's view, apparently) predatory branded drug companies.

Comments

[Bosco]

Thank you for this post. In view of this and many other public comments blaming pharma companies for high drug prices, I was surprised to recently learn more about how PBMs (Pharmacy Benefit Managers) can distort pricing on biologicals. The article linked below focuses on Humira biosimilars, noting that prices may not come down much even when so many biosimilars are poised to enter the market. I still don't quite understand exactly how or why this pricing scheme originated, but it seems to be another feature of US health care that really works against patients getting reasonably priced treatments. It would be great to see more scrutiny of issues like this versus just demonizing the drug companies that invest in bringing medicines to market.

https://healthadvancesblog.com/2023/02/22/the-humira-biosimilars-have-arrived-will-they-make-a-difference/