United States: FTC Sues Patent Owner In Pharmaceutical Industry For Misusing Government Processes To Thwart Competition

On March 7, 2003, the Federal Trade Commission sued drug maker Bristol-Myers Squibb ("BMS") for improperly asserting intellectual property rights and using tainted patents to subvert the Food & Drug Administration processes for approving generic drugs in order to maintain monopolies in three separate pharmaceutical markets. The FTC brought this action just a few days after bringing a suit against Unocal for engaging in a patent ambush to obtain monopoly power in the market for reformulated gasoline.1 Along with its complaint against BMS, the FTC issued for public comment a proposed consent order, to which the FTC and BMS have agreed in principle, to settle the action.

The FTC charges that BMS took steps to prevent low-priced generic drugs from entering the market in competition with BMS’s anti-anxiety drug BuSpar and cancer drugs Taxol and Platinol. According to the FTC, BMS gamed the FDA system for approving generic drugs by improperly listing various patents in the FDA publication commonly known as the "Orange Book" and bringing baseless lawsuits against generic drug manufacturers. These actions automatically precluded generic drugs from entering the market for 30 months, regardless of whether the patent suit had any merit (under applicable FDA laws). The FTC alleges that BMS went to great lengths to obtain what in reality were spurious patent rights late in the generic drug approval process, at times literally on the eve of a generic drug’s entry into the market, to obtain additional periods of exclusivity under the FDA laws. The FTC’s Complaint asserts that BMS’s patents did not meet the statutory criteria for listing in the Orange Book and that the patents were either invalid or could not properly be asserted against generic versions of BMS’s drugs. In addition, BMS allegedly made contradictory statements to the FDA during the approval process for BMS’s drugs and to the PTO during patent prosecution. The FTC claims that BMS also engaged in other misconduct before the PTO in prosecuting its Taxol and Platinol patents.

In addition to the improper Orange Book listings and enforcement of tainted patents, the FTC also challenged a settlement agreement between BMS and a would-be generic competitor as an unlawful market allocation scheme. To settle BMS’s patent suit against the generic competitor, BMS agreed to pay the generic company more than $70 million over a four year period in exchange for the generic company’s agreement, among other things, not to market a generic version of BMS’s BuSpar until BMS’s BuSpar patent expires, regardless of whether the generic would infringe the patent. The settlement apparently came only after the generic company won summary judgment invalidating BMS’s patent. In settling the suit, the generic competitor agreed to acknowledge the patent’s validity, not to assist others in challenging the patent, and to keep the parties’ agreement confidential. The settlement therefore not only kept the particular generic company off the market, but propped up BMS’s seemingly invalid patent.

Acknowledging a potential obstacle to its suit, the FTC offers reasons in its Complaint why BMS’s conduct does not enjoy immunity under the Noerr-Pennington doctrine, a doctrine that generally confers antitrust immunity for conduct relating to petitioning the government for redress. The FTC argues that:

• with respect to the Orange Book listings, BMS’s conduct vis-à-vis the FDA does not qualify as the type of petitioning activity covered by Noerr-Pennington because the FDA’s role in maintaining the Orange Book is ministerial, with no substantive review of the patents listed and no discretion to reject proposed listings;
• BMS’s patent suits against generic competitors, which triggered the 30-month stays, were objectively baseless and thus "sham" litigation;
• BMS made false and misleading representations of material fact to the PTO and FDA; and
• BMS filed multiple patent suits relating to the markets for the three drugs, thereby lowering the threshold for the agency to show "sham."

To settle the FTC’s action, BMS agreed in a proposed consent order to various restrictions on listing patents in the Orange Book, enforcing its patents, and seeking to exclude generic drugs from the market. The proposed order would prohibit, among other things, BMS from engaging in the follow conduct:

• listing patents in the Orange Book if: (1) the patents do not satisfy the statutory criteria for listing, (2) BMS makes false or misleading representations to either the PTO or FDA in connection with the patents listed, or (3) BMS otherwise commits inequitable conduct in prosecuting the listed patents;
• triggering additional Hatch-Waxman 30-month stays to keep generic versions of BuSpar or Taxol off the market;
• triggering a 30-month stay to keep any generic off the market if BMS lists the patent in the Orange Book after a company requests the FDA to approve a generic drug based on the generic’s bioequivalence to BMS’s drug;
• enforcing BMS’s BuSpar and Taxol patents, except in limited circumstances;
• asserting a patent claim to keep certain generic competitors off the market if BMS knows that the patent is invalid, unenforceable, not infringed, tainted by fraud, or the patent claim is objectively baseless; or
• acquiring certain interests in patents, without prior notice to the FTC, if BMS intends to list the patent in the Orange Book.

The proposed order also precludes BMS from being a party to any patent settlement that in general requires:

• a generic drug maker to keep off the market any generic product that is the subject of an abbreviated new drug application ("ANDA") filed with the FDA, in exchange for the branded drug maker paying anything of value; or
• a generic drug maker to refrain from entering the market with non-infringing generic products or to refuse to relinquish to other generic drug companies its right to 180-days of market exclusivity for a generic product, to which it would be entitled for being the first company to seek approval from the FDA to market a generic version of a branded drug.

The public may submit comments to the FTC regarding the Proposed Order until April 7, 2003.

The FTC suit against BMS is noteworthy for several reasons.

First, the FTC’s enforcement action against BMS provides yet another signal that, notwithstanding the general antitrust exemption for petitioning the government, the FTC will take steps to prevent IP owners from abusing governmental processes to enhance the exclusionary powers derived from their IP rights and thereby obtaining monopoly power. The FTC adopted a similar enforcement approach in its suit against Unocal, filed only three days before the BMS action and discussed in our Antitrust Legal Alert of March 6, 2003. In this regard, the FTC seems quite willing to reign in and perhaps cut back on the antitrust exemption under the Noerr-Pennington doctrine. The FTC’s arguments for circumventing Noerr-Pennington in this case find some support in recent cases, most notably in a private antitrust suit against BMS in connection with its assertion of the BuSpar patents against generics. But the law in this area remains at a very formative stage. The FTC, through an amicus brief in the private suit against BMS, successfully sought to advance its position with respect to the limitations on Noerr-Pennington. And FTC Chairman Muris as well as other high-ranking FTC officials have expressed similar attitudes about the protection, or lack thereof, afforded by Noerr-Pennington.

Second, the BMS suit reaffirms that the FTC pays particularly close attention to matters in the pharmaceutical industry and foreshadows possible increased enforcement actions in this industry. The FTC over the last few years has brought several enforcement actions for allegedly anticompetitive acts in the industry, including questionable patent settlements, in which branded drug makers paid generic competitors to refrain from entering the market, and improperly listing patents in the FDA Orange Book. The FTC also recently undertook an extensive study to analyze the competition to branded drugs provided by generic drug entry. And in its report summarizing its findings and conclusions, released in Summer 2002, the FTC identified BMS’s conduct now at issue in the current action as competitively suspect. The FTC has indicated that it will bring additional suits against branded drug makers for forestalling competition from generic drugs.

Third, by its recent actions, the FTC has indicated that it plans to aggressively pursue actions involving intellectual property and the patent process. The FTC is prepared to act vigorously where extreme assertions of intellectual property rights may adversely impact the competition process.

© Kilpatrick Stockton LLP.