Featured Expert Column: Antitrust & Competition Policy — Federal Trade Commission

06633 - Royall, M. Sean ( Dallas )By M. Sean Royall, a Partner with Gibson, Dunn & Crutcher LLP, with Richard H. Cunningham, Of Counsel in the firm’s Denver, CO office, and Andrew B. Blumberg, an Associate Attorney in the firm’s Dallas, TX office.

On February 7th, 2017, the Federal Trade Commission (FTC) filed a complaint alleging that Shire ViroPharma Inc. (Shire) violated the antitrust laws by filing sham citizen petitions in an effort to forestall generic competition for its branded prescription drug, Vancocin.  The case is another stepping stone in the agency’s steadily expanding efforts to police what it views as potential antitrust abuses in the pharmaceutical sector.

Shire Petitioned the Food and Drug Administration (FDA) after a Change in Policy

FDA first approved Vancocin capsules—a drug indicated for treating C. difficile-associated diarrhea—in 1986.  In 2006, FDA disclosed its intention to change its policy and start permitting in vitro testing to demonstrate the bioequivalence of generic drugs, rather than insisting upon in vivo testing as it had in the past.  No generic forms of Vancocin had been approved under FDA’s in vivo standard.

Shire opposed this change.  From 2006 to 2012, the company filed 24 citizen petition filings and 18 public comments with FDA in response to applications from generic drug manufacturers seeking approval for generic Vancocin under this new standard.  (Shire also filed 3 lawsuits and a supplemental new drug application with FDA relating to Vancocin during this time period.)  In April 2012, FDA rejected Shire’s citizen petitions, denied its procedural challenges, and approved the applications for generic Vancocin capsules.

FTC Contends Shire’s FDA Filings Inappropriately Delayed Generic Entry

In a complaint filed in the United States District Court for the District of Delaware, FTC accuses Shire of maintaining an unjust monopoly over the market for Vancocin by repeatedly filing spurious claims with FDA with the purpose and effect of delaying generic entry.  The agency characterizes Shire’s petitions and other filings as “repetitive, serial, and meritless” and “lack[ing] any supporting clinical data,” and states that they represented the most filings ever made to FDA by a single company concerning a drug product.  FTC cites FDA’s conclusion that Shire’s campaign was an improper use of the citizen petition process and the timing of the company’s filings as evidence suggesting that Shire’s conduct was improper.

Noerr-Pennington Immunity

 In response to FTC’s complaint, Shire filed a motion to dismiss arguing that its citizen petitions are protected by the Noerr-Pennington doctrine, which is grounded in the First Amendment.  Noerr-Pennington immunity exempts a party from liability for petitioning activities, including bringing a lawsuit against a competitor, unless such activities are shown to be a “sham.”  Generally, this means that the party challenging the petitioning activities in question must show that these activities are:

(1) objectively baseless, such that no reasonable litigant could realistically expect success on the merits; and

(2) subjectively motivated by an intention to interfere directly with a competitor’s business, rather than a genuine interest in the outcome.

Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61 (1993) (“PRE”).

The Supreme Court has also stated that to pierce Noerr-Pennington immunity in cases where there is a pattern of serial filings, the party challenging immunity must prove that the opposing party filed a series of petitions “without probable cause, and regardless of the merits” such that the “administrative and judicial processes [were] abused.”  Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 512-13 (1972).

In its motion to dismiss, Shire argues that its citizen-petition filings were constituent parts of one single petition, which merely “advocated that FDA maintain the same standard for evaluating bioequivalence that [it] had previously employed for a decade.”  Shire also notes that FDA had evaluated the company’s filings for more than six years, modified its policy position, invited public comment, and convened two advisory committees to evaluate the issues Shire raised.

The company argues that any delay in approval stemmed from FDA taking all due time to consider “the complex scientific issues surrounding the bioequivalence standard.”  For these reasons, Shire maintains that its petitioning activity was not “objectively baseless,” and thus is constitutionally-protected and immunized under the Noerr-Pennington doctrine.

FTC counters that the issue of Noerr-Pennington immunity is not ripe for disposition at the pleading stage, and that because FDA must respond to each citizen petition individually, Shire’s 24 petitions constitute separate filings.  The agency also argues that in light of the number of Shire’s petitions, the “more flexible” standard for serial filings should apply, and that even if the two-pronged PRE standard applies, FTC’s allegations concerning Shire’s lack of clinical data and the comprehensive rejection of the company’s petitions suffice to show objective baselessness at this stage of the case.

A decision on Shire’s motion to dismiss has been pending with the court since June 26, 2017 when Shire filed its reply brief.  Shire has requested oral argument on the motion, but, to date, the court has not scheduled or held a hearing.

FTC’s First Enforcement Action of this Kind

FTC v. Shire ViroPharma represents the first instance where FTC has pursued antitrust allegations against a drug manufacturer based solely on submissions petitioning FDA.  But, the action follows a series of signs that FTC likely would target enforcement resources towards such conduct.

  • In 2000, FTC issued a comment to FDA concerning a proposed change to FDA’s policies on citizen petitions. The comment offered “suggestions to discourage abuse of FDA’s regulatory processes” including requiring disclosure of a list of any related petitions, bolstering certification requirements, and creating a mechanism to refer cases to FTC.
  • In 2006, FTC released a Staff Report titled “Enforcement Perspectives on the Noerr-Pennington Doctrine” that extensively discussed the sham litigation exception to Noerr-Pennington  It includes a section on “repetitive petitioning” which advocates for the sham exception to apply “when a party invokes administrative processes, judicial processes, or a combination thereof, to hinder marketplace rivals.”

Another Leg of FTC’s Pharmaceutical Enforcement Stool

When the Commission initially filed the Shire case, acting FTC Chairman Maureen K. Ohlhausen released a statement, emphasizing that “When we have reason to believe that a branded drug company misuses government processes to unlawfully maintain a monopoly by delaying generic entry, FTC will act to protect competition.”  She commented further on the case twice in recent weeks, citing it as an example of how “the abuse of government processes by private actors can also undermine competition.”

We view Chairman Ohlhausen’s sweeping comments as signaling that the Shire case is not a one-off action, but rather a careful expansion of FTC’s broader effort to regulate the line between permitted versus potentially anticompetitive conduct in the pharmaceutical sector.

Viewed at a high level, the agency’s pattern of enforcement in recent years likewise corroborates that the agency is deploying its enforcement resources to cover a broader range of theories concerning the potential for branded drug companies to affect the timing and likelihood of generic entry.  For nearly twenty years, the Commission has been litigating various permutations of “pay-for-delay” cases.  In 2002, the agency filed an amicus brief in In re Buspirone Antitrust Litigation, arguing that listing patents in the Orange Book (an FDA compendium of approved drugs and therapeutic equivalence evaluations) may, in certain circumstances, violate the antitrust laws.

In FTC v. AbbVie, an action FTC filed in 2014, the agency alleged that patent infringement suits constituted “sham litigation” that violated the antitrust laws by delaying generic entry for the testosterone replacement drug AndroGel.  Notably, FTC very recently obtained summary judgment on the issue of whether the defendant’s infringement suits were “objectively baseless.”  FTC has also addressed so-called “product hopping” conduct by filing an amicus brief with the Third Circuit in 2016 in Mylan v. Warner Chilcott, arguing that the “unique characteristics of the pharmaceutical markets,” including the nature of competition between branded pharmaceutical products and their generic counterparts, warrants exacting judicial evaluation of such conduct.

Thus, Shire represents the latest development in the agency’s well-established program for enforcing the antitrust laws where it feels generic drug competition is being blocked or delayed.  Shire is notable, however, for at least two reasons.  First, it signals that FTC is increasingly willing to wade into the merits of scientific studies, arguments, and data submitted to FDA to assess whether conduct may be anticompetitive.  Second, it shows that FTC is willing to take on the burden of meeting the very stringent requirements of the “sham” exception to Noerr-Pennington immunity.