Cross-posted at Forbes.com’s “On the Docket” blog
Patent litigation has become a necessary, and expensive, precursor to the release of new generic drugs. Rather than incur millions in litigation costs, branded and generic companies often prefer to settle. Occasionally, the settlement terms include a payment from the generic to the branded company, along with an agreement that the generic drug won’t immediately enter the market.
The Federal Trade Commission (FTC) finds such agreements inherently anti-competitive, and has repeatedly, and so far unsuccessfully, filed court challenges to stop them. Courts have uniformly found that if the settlements do not extend the branded drug’s patent term, they are lawful. Finding no success in court, FTC has pressed Congress to impose a blanket ban, and bills to prohibit these settlements are pending in the House and Senate. Commissioners have testified in Congress promoting a ban, and have regularly written and spoken in public against patent settlements.
If an ongoing FTC investigation, and the troubling circumstances allegedly arising from it, is any indication, the Commission may be willing to go quite a bit further than filing suit or jaw-boning Congress to get its way on patent settlements. The investigation’s target, generic maker Watson Pharmaceuticals, alleges in its court brief that FTC: obtained confidential information from FDA about Watson and shared it with a competitor; obtained information from Watson and communicated it to the competitor; sought to pressure Watson to license or sell to the competitor its exclusive right to market a generic; and pursued enforcement of a subpoena against Watson’s CEO as a means of encouraging Watson to make that deal. These allegations, and the enforcement of the subpoena, are still pending before a federal trial judge in D.C.
FTC claims to be investigating whether Watson entered into a settlement agreement with branded drug maker Cephalon. Watson’s filing of an Abbreviated New Drug Application (ANDA) on the same day that Cephalon “listed” with FDA a new patent for its sleep disorder medicine, Provigil, seemingly triggered FTC’s interest. If Watson was the first to file an ANDA for a generic Provigil, the federal Hatch-Waxman law accords Watson certain exclusivity rights.
FTC issued an administrative subpoena to depose Watson’s CEO, Paul Bisaro, in May 2009 and then filed a petition in a D.C. federal court to enforce the subpoena this past April. Watson’s opposition filing to the subpoena recounts a conversation that a senior FTC competition official had with Watson’s outside attorney. In that call, the official noted he had contacted FDA (allowing one to infer that he learned of Watson’s exclusivity rights to copy Provigil). The FTC official told Watson’s attorney that “it might be in Watson’s financial interest to relinquish the exclusivity associated with its supplemental ANDA to clear the way for generic competition.” The FTC official called Watson’s counsel several more times, at one point discussing “whether Watson would be interested in receiving a call from another company” that wanted to make and market generic Provigil.
One week later, generic drug company Apotex contacted Watson seeking a deal for the exclusive generic Provigil rights. While Watson weighed its options, the FTC official contacted Watson’s lawyer again, indicating, as the private counsel’s formal Declaration reflects, “that Watson’s failure to waive its rights in the near term would likely cause the FTC ‘Front Office’ to initiate an investigation.”
Two months later, FTC issued a Civil Investigative Demand to Watson and subpoenaed its general counsel. In June 2009, the general counsel testified that Watson had not entered into an agreement with Cephalon. Into July 2009, Apotex continued to press Watson for a deal, indicating at one point through an email that Apotex had previously been in touch with FTC about generic Provigil. Watson’s brief alleges that after it became clear to FTC that Watson would not waive its exclusive rights, the Commission subpoenaed its CEO. Watson opposed, and the proceedings dragged on into this year, when FTC filed its court action to enforce the subpoena.
While FTC and Watson (as reflected in their briefs) certainly have a different perspective on the circumstances and the law, Watson does point out in its reply to FTC’s reply memorandum that FTC didn’t refute numerous allegations Watson made in its initial brief. FTC dismissed as “collateral” such matters as the Commission’s potentially unlawful sharing of FDA-provided information with competitor Apotex, even though Watson argued “these events were central to the FTC’s attempts to coerce Watson.” In order to solidify its argument that FTC is, in the words of the U.S. Supreme Court, pursuing subpoena enforcement for an “improper purpose,” Watson seeks a court order compelling discovery from the Commission.
The allegations Watson makes about FTC’s conduct, and the actions of its senior staffer, certainly merit further investigation, not only by Watson, but perhaps by those with oversight responsibilities in the legislative and executive branches. It’s one thing for the Commission to pursue its view of antitrust law in court or offer its opinions to Congress; it’s an entirely different matter if FTC uses its substantial authority to dictate a market outcome which may not even be in the interests of the consumers the Commission is empowered to protect.