Introduction

The case of Federal Trade Commission (FTC) v. AbbVie Inc., Abbott Laboratories, Unimed Pharmaceuticals LLC, Besins Healthcare, Inc., and Teva Pharmaceuticals USA, Inc. is a landmark decision by the United States Court of Appeals for the Third Circuit, dated September 30, 2020. This case centers around the pharmaceutical product AndroGel, a widely prescribed testosterone replacement therapy (TRT) that generated substantial revenues for its patent holders. The FTC alleged that the defendants engaged in anticompetitive practices, including filing sham patent infringement lawsuits and entering into reverse-payment agreements, to monopolize the market for AndroGel and delay the entry of generic competitors.

Summary of the Judgment

Initially, the United States District Court for the Eastern District of Pennsylvania dismissed parts of the FTC's complaint, specifically those relying on reverse-payment theories, while finding the defendants liable for monopolization based on sham litigation against generic manufacturers Teva Pharmaceuticals USA, Inc. (Teva) and Perrigo Company. The District Court ordered the defendants to disgorge $448 million in ill-gotten profits but denied the FTC's request for injunctive relief.

Upon appeal, the Third Circuit held that the District Court erred in dismissing the FTC's claims based on reverse-payment theories and in concluding that the litigation against Teva was a sham. However, the court affirmed the determination that the litigation against Perrigo was a sham and that the defendants possessed monopoly power in the relevant market. Additionally, the court found that ordering disgorgement was improper under Section 13(b) of the FTC Act and upheld the denial of injunctive relief. Consequently, the judgment was partially reversed and remanded for further proceedings consistent with the appellate opinion.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents that shaped the court’s reasoning:

• Actavis, Inc. v. FTC (2013): A Supreme Court case that held reverse-payment agreements (pay-for-delay) can sometimes unreasonably diminish competition and violate antitrust laws.
• Noerr-Pennington Doctrine: Protects entities from antitrust liability when they petition the government, including through litigation, unless the suing is a mere sham to disrupt competition.
• Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. (2002): Defined prosecution history estoppel and established guidelines for when defendants are precluded from claiming equivalents under the doctrine of equivalents.
• King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. (2015): Applied Actavis principles to reaffirm that reverse payments can violate antitrust laws when they are large and unjustified.
• United States v. Lane Labs-USA Inc.: Clarified that Section 13(b) of the FTC Act does not implicitly empower courts to order disgorgement.

Legal Reasoning

The court's legal reasoning can be distilled into several critical components:

• Reverse-Payment Theory: The Third Circuit emphasized the Supreme Court’s stance in Actavis, noting that reverse payments can be anticompetitive when they unjustifiably delay generic market entry. The court found that the District Court improperly dismissed the FTC’s claims based on this theory, as the allegations presented were sufficient to warrant further examination.
• Sham Litigation: The court reinforced the two-pronged test for sham litigation under the Noerr-Pennington doctrine: objective baselessness and subjective intent to disrupt competition. It held that AbbVie and Besins’ lawsuits against Teva were objectively baseless and motivated by an intent to monopolize, thus qualifying as sham litigation.
• Monopoly Power and Relevant Market: The court affirmed that AbbVie and Besins held monopoly power in the market for transdermal testosterone replacement therapies (TTRTs), characterized by high market share and significant barriers to entry, underpinning the FTC’s monopolization claims.
• Remedies Under Section 13(b): The appellate court clarified that Section 13(b) of the FTC Act does not authorize disgorgement of profits. Remedies under this section are limited to injunctions and other equitable relief, not financial penalties or restitution.

Impact

This judgment has profound implications for the pharmaceutical industry and antitrust enforcement:

• Increased Scrutiny on Reverse-Payment Agreements: Pharmaceutical companies may face heightened scrutiny and potential liability when engaging in reverse-payment agreements designed to delay generic competition.
• Clarification of Noerr-Pennington Exception: The decision reinforces the exceptions to political speech protections, holding that sham litigation intended to disrupt competition falls outside the immunity provided by the Noerr-Pennington doctrine.
• Limitations on Remedies: By affirming that disgorgement is not an authorized remedy under Section 13(b), the judgment restricts the types of relief the FTC can seek, focusing instead on injunctive measures to prevent future anticompetitive conduct.
• Guidance for Future Antitrust Litigation: Companies in the pharmaceutical sector must reassess their litigation and settlement strategies to ensure compliance with antitrust laws, avoiding practices that could be construed as anticompetitive.

Complex Concepts Simplified

Reverse-Payment Agreements (Pay-for-Delay)

A reverse-payment agreement occurs when a brand-name pharmaceutical company pays a generic manufacturer to delay entering the market with a cheaper generic version of a drug. This practice can prevent competition, keeping drug prices artificially high.

Sham Litigation

Sham litigation refers to lawsuits filed not with the honest intent to seek redress, but rather to harm a competitor’s business. In this case, AbbVie and Besins allegedly used litigation as a tool to block and delay generic competitors.

Noerr-Pennington Doctrine

This legal doctrine protects entities from being sued for antitrust violations when they file lawsuits or petitions, as it is considered their right to seek redress. However, if the litigation is a sham intended to disrupt competition, the protection does not apply.

Prosecution History Estoppel

This principle prevents a patent holder from later claiming that a generic product infringes a patent if the patent holder had previously narrowed the patent claims to overcome prior art. It limits the scope of what is considered equivalent to the patented invention.

Conclusion

The Third Circuit's decision in FTC v. AbbVie Inc. et al. marks a significant reinforcement of antitrust principles within the pharmaceutical industry. By upholding claims of monopolization through sham litigation and reinstating reverse-payment theories, the court sends a clear message that strategies aimed at unlawfully delaying generic competition will be scrutinized and potentially penalized. Moreover, the clarification that disgorgement is not an authorized remedy under Section 13(b) limits the FTC's toolkit to primarily injunctive relief, focusing efforts on preventing future anticompetitive conduct rather than reclaiming past profits.

Pharmaceutical companies must navigate these legal boundaries carefully, ensuring that their litigation and settlement practices do not infringe upon antitrust laws. This judgment not only fortifies consumer protections against monopolistic practices but also promotes a more competitive and fair marketplace, ultimately benefiting consumers through access to more affordable generic medications.