Antitrust - Federal District Court Refuses to Dismiss Antitrust Suit by Generic Manufacturers Alleging that Branded Drug Manufacturers Engaged in Planned Obsolescence: Abbott Laboratories v. Teva Pharmaceuticals USA, Inc., No. 02-1512, 2006 WL 1460077 (D. Del. May 26, 2006)
Alleged Antitrust Behavior
Abbott Laboratories and two codefendants in 1998 obtained FDA approval to sell a capsule form of TriCor, a fenofibrate drug used to lower cholesterol and treat high levels of triglycerides. Under the Hatch-Waxman Act, once a drug is approved by the FDA, other pharmaceutical companies can apply to produce generic versions of the drug. In filing its “abbreviated new drug application” to sell a generic substitute, a generic manufacturer makes a certification either that it intends to wait until any brand patent expires, or that any patents are either invalid or will not be infringed by the generic drug. If the generic manufacturer asserts that the branded drug’s patents are invalid or will not be infringed, the patent holder has 45 days to file a patent infringement lawsuit. If the patent holder files suit, the FDA is barred from approving the generic drug until either 30 months have passed or a court rules that the patent is invalid or not infringed.
One year after the FDA approved TriCor, one of Teva’s subsidiaries filed an abbreviated new drug application seeking approval of a generic version of TriCor. Teva asserted that its generic drug did not infringe any valid patent associated with TriCor. Abbott and the other brand companies filed a patent infringement lawsuit, triggering the automatic 30-month stay of the generic drug’s approval process. While the patent litigation was pending, the brand companies obtained FDA approval for a new formulation of TriCor in tablet form. The brand companies asserted to the FDA that the tablet form was bioequivalent to the capsule form but that it had the added benefit of increasing “good cholesterol” levels in patients. Once the FDA approved the tablet form, the brand companies stopped producing the capsule form, recalled all existing supplies, and changed the code for TriCor capsules in the National Drug Data File to “obsolete.” Changing the code to obsolete prevented pharmacies from filling prescriptions for TriCor with a generic capsule formulation.
The upshot of the “obsolete” coding was that, although Teva won the patent suit, it still could not sell the product as a generic substitute. With TriCor capsules coded as obsolete, pharmacies could no longer use the generic substitute. Teva instead started selling its product under a new brand name, but it had limited success selling the drug.
Teva and another generic manufacturer, Impax, then applied to the FDA for approval of a generic substitute for TriCor tablets. But the same process repeated itself. Once again the generic manufacturers alleged that their products did not infringe any valid patent associated with the TriCor tablets. Once again, the brand companies filed a patent infringement lawsuit, which (under the law as it then existed) triggered an additional 30-month waiting period. One again, the generic manufacturers won the patent litigation. But, they did not win before the brand companies had, once again, reformulated TriCor and coded the earlier tablets as “obsolete”. The new tablets differed from the old ones because they could be taken without food, but the two types of tablets were otherwise identical.
The generic manufacturers sued, alleging that the repeated reformulations of TriCor violated the antitrust laws. They alleged that the “innovations” were designed solely to thwart FDA approval of generic substitutes and to further the brand companies’ monopolistic position. The generic manufacturers alleged that the two patent suits were sham litigation intended only to trigger the 30-month waiting period for FDA approval. The brand companies responded that the reformulations of TriCor were legitimate improvements to their product and that their suits against the generic manufacturers were in good faith and protected by the First Amendment.
Antitrust Liability for Product “Innovations”
The brand companies argued that both of their changes to TriCor improved the drug and that any product change that produces an improvement, however minor, cannot violate the antitrust laws. In making this argument, the
brand companies relied on the Second Circuit’s decision in Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), which indicated that courts should generally not inquire into alleged anticompetitive
effects of new products because the success of those products on an open market demonstrates that consumers prefer the new products.
The Court in Abbott Laboratories, however, distinguished Berkey Photo. It reasoned that Berkey Photo’s logic was based upon the existence of an open market in which consumers were free
to choose among competing products. In the case of the market for prescription drugs, the Court reasoned, the FDA approval process and pharmacies’ required use of the National Drug Data File does not permit unfettered
consumer choice.
The Abbott Laboratories Court instead adopted the balancing test used by the court in United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001), to apply the “rule of reason.” Under that
approach, if the plaintiffs show anticompetitive harm from the changes to the drug, the court will weigh that harm against the benefits created by the changes. The court held that the generic manufacturers had shown anticompetitive
harm. A generic drug’s most cost-effective method of reaching consumers is lost when the corresponding branded drug is no longer on the market because pharmacies can no longer dispense the generic drug when presented
with a prescription for the branded drug. The Court held that Teva and Impax were not required to show that they were completely foreclosed from the market for fenofibrate drugs or that the defendants’ changes to TriCor
produced absolutely no improvements in the drug.
Antitrust Liability for Alleged “Sham” Litigation
The Court also refused to dismiss the generic companies’ claims that the brand companies’ patent lawsuits against them violated the antitrust laws. The Court noted that litigants are generally immune from antitrust
liability because the filing of a lawsuit is protected by the First Amendment. But the Supreme Court has said that “sham” litigation is not immune from antitrust liability. In order for litigation to be
considered a sham, a plaintiff must show both that the lawsuit is objectively baseless and that the filing of the lawsuit conceals an attempt to interfere directly with the business relationships of a competitor.
Teva and Impax argued that the brand companies knew their patents were unenforceable and, despite that knowledge, continued to pursue both patent lawsuits. The generic companies also claimed that the brand companies used the
litigation to interfere with the generic companies’ efforts to market their drugs because the filing of each lawsuit automatically triggered a 30-month waiting period for FDA approval. The Court held that these allegations
were sufficient to survive the motion to dismiss. Although the mere fact that the brand companies lost the patent suits did not render those suits sham litigation, the brand companies could not point to anything in the orders
dismissing those cases that established that they had an objective basis for filing suit.
Conclusion
Pharmaceutical companies invest millions of dollars and years of research into developing new drugs. Naturally, those manufacturers stand to lose if made to compete with generic manufacturers, who can produce very similar
products at much lower prices but do not incur all of the upfront research and development costs. It is little wonder then that branded drug manufacturers would want to keep generic drugs off the market and that generic manufacturers
would want to fight for the opportunity to break into the multi-billion dollar market for prescription drugs.
The brand companies in Abbott Laboratories tried to win the case by claiming they were engaging in two activities largely permitted by the antitrust laws: improving their product and engaging in litigation. The Court
noted its reluctance to interfere with a company’s efforts to improve existing products, but the special structure of the prescription drug market with all its barriers to entry created by the FDA approval process gave the
Court pause. The automatic 30-month stays in approval for a generic drug triggered by the filing of a patent lawsuit caused the court to question the brand companies’ motives for filing suit. (Subsequent legislation
now provides for only a single 30-month stay regardless of how many patent lawsuits are filed.)
The case is particularly interesting because it required that the Court question a truism. In most situations improving a product is building a better mousetrap. Here, the Court concluded that anti-competitive effect
of a small improvement might outweigh its advantage.