Watson Pharmaceuticas and its CEO, the targets of some seemingly heavy-handed investigation tactics by Federal Trade Commission (FTC) officials this year, suffered another setback last week to their forceful efforts to oppose the Commission.  In a case which The Legal Pulse has reported on over the past several months, the CEO of generic drug maker Watson Pharmaceutical has opposed a subpoena for his deposition in a FTC investigation into whether Watson had signed what the Commission believes is an anticompetitive deal with the maker of the branded drug Provigil.  The investigation is part of FTC’s ongoing crusade against settlements of drug patent litigation where the branded drug maker provides payment to the generic producer to keep its drug off the market for a period of time (although such settlements bring the generic drug to market more quickly that it would had the litigation gone forward).

Despite expressing disdain for FTC’s “questionable” conduct surrounding the pursuit of a subpoena, Magistrate Judge Alan Kay recommended to Judge Colleen Kollar-Kotelly that the subpoena be enforced and Watson CEO Paul Bisaro be compelled to testify.  On December 2, Judge Kollar-Kotelly accepted Judge Kay’s recommendation with an opinion that is remarkably deferential to FTC.

Bisaro had argued that FTC issued the subpoena for the improper purpose of pressuring Bisaro and Watson to accept a business deal whereby Watson would sell its exclusive rights to market generic Provigil to a Canadian company, Apotex.  Bisaro bolstered his argument by detailing conversations between FTC and FDA regarding which companies had filed for generic approval, and discussions between FTC and Apotex.  He also countered FTC’s claim that the subpoena was simply part of its ongoing investigation of business dealings between Provigil maker Cephalon and Watson by noting that FTC had said nothing about that investigation until after Watson had refused to make a deal with Apotex and FTC officials had rattled the Commission’s sabre at Watson’s outside lawyer, raising the prospect of a reopened investigation if Watson retained its rights.

Judge Kollar-Kotelly bought into the FTC’s implausible explanation that it had contacted Apotex’s Vice President (“a published expert in the field of generic drug patents and FDA law”) seeking his counsel to “help the investigatory staff understand the regulatory significance” of the situation with generic Provigil.  The judge also found nothing at all wrong with FTC’s presumptuous belief that it knew what was best for Watson and the generic drug marketplace: Watson should abandon its exclusive rights.  She wrote, without questioning whether such judgments can or should be made by the agency, “The FTC believed at this time that relinquishment could be a more profitable option for Watson than waiting to launch its generic modafinil product.”  The opinion proceeds along this highly deferential path, refuting Mr. Bisaro’s arguments that FTC was abusing its subpoena authority and applying a “presumption of . . . . good faith” when Bisaro’s points might pose a problem for the Commission’s narrative that it was simply continuing an ongoing investigation into Watson’s past business dealings.

Judge Kollar-Kotelly made no reference to Judge Kay’s past statements that FTC used its “investigative power to pressure a company to waive its statutory rights,” managing only a grudging statement that “at best, a FTC official made an improper comment.”  While acknowledging that it was possible that Bisaro felt “pressure from the FTC” when the agency official called Watson’s private counsel, the judge wrote,

Even if the Court could conclude that [FTC’s] Mr. Meier had an improper purpose in making his comments on the telephone to Watson’s counsel, that alone would not establish an abuse of process with respect to the subpoena, which was issued several months later.

If the subpoena had been issued immediately or soon after the FTC official’s “improper comment,” would that have been enough to establish an “improper purpose?”  It’s unlikely, since Judge Kollar-Kotelly follows up her legally questionable statement by repeating Judge Kay’s interpretation of the “improper purpose” standard – as long as FTC had one proper purpose for the subpoena (in this case the allegedly ongoing investigation of a supposed anti-competitive patent suit settlement), all other improper purposes are irrelevant.

District of Columbia-based judges applying a body of case-law created to consistently give federal agencies a robust benefit of the doubt cannot effectively restrain federal official’s abuse of their vast authority and discretion.  Rulings such as Judge Kollar-Kotelly’s send a rather clear signal to federal regulators and prosecutors: do what you need to do to advance your agendas aimed at restricting economic conduct.  We’ve got your back.

We hope that Watson and Mr. Bisaro take their case up on appeal, but we doubt that appellate judges will take a less deferential approach than Judge Kollar-Kotelly.  Perhaps inspection authorities within FTC or overseers of the Commission’s actions in Congress will, as we previously suggested, look deeper into the Commission’s behavior in Bisaro v. FTC.  Without further scrutiny, the Commission will feel further emboldened to push the envelope with even more aggressive tactics, to the detriment of businesses’ civil liberties.