IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF PENNSYLVANIA
`
`)
`)
`)
`) Civil Action No. 12-3824
`
`CONSOLIDATED
`
`))
`
`
`)
`)
`)
`)
`)
`)
`)
`
`__________________________________________
`
`MYLAN PHARMACEUTICALS, INC., et al.,
`
`Plaintiffs,
`
`v.
`
`WARNER CHILCOTT PUBLIC LIMITED
`COMPANY, et al.,
`
`Defendants.
`__________________________________________
`
`FEDERAL TRADE COMMISSION BRIEF AS AMICUS CURIAE
`
`RICHARD A. FEINSTEIN
`Director
`Bureau of Competition
`
`
`
`PETER J. LEVITAS
`Deputy Director
`Bureau of Competition
`
`DAVID C. SHONKA
`Acting General Counsel
`Federal Trade Commission
`
`MARKUS H. MEIER
`BRADLEY S. ALBERT
`HEATHER M. JOHNSON
`KARA LEE MONAHAN
`Attorneys for Amicus Curiae
`
`Federal Trade Commission
`600 Pennsylvania Avenue N.W.
`Washington, D.C. 20580
`Telephone: (202) 326-3759
`Facsimile: (202) 326-3384
`mmeier@ftc.gov
`
`Exhibit 1073
`ARGENTUM
`IPR2017-01053
`
`000001
`
`

`

`TABLE OF CONTENTS
`
`I. 
`II.
`III.
`IV.
`
`  Interest of the Federal Trade Commission .......................................................................... 2 
`Competition in the Pharmaceutical Industry ........................................................................ 4
`Pharmaceutical Product Redesigns Can Constitute Exclusionary Conduct ...................... 10
`Conclusion ......................................................................................................................... 14
`
`ii
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`000002
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`

`

`Cases 
`
`TABLE OF AUTHORITIES
`
`Abbott Labs v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006) ............................. 13
`
`Aspen Skiing Co. v. Aspen Highlands Corp., 472 U.S. 585 (1985) .............................................. 11
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ........................................................................... 2
`
`Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979) ............................... 11, 12
`
`Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) ............................................... 11
`
`C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1988) ................................................. 12
`
`Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, — U.S. —, 132 S. Ct. 1670 (2012) .................. 3
`
`eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).............................................................. 3
`
`LePage’s Inc., v. 3M, 324 F.3d 141 (3d Cir. 2003) ................................................................ 10, 11
`
`Mannington Mills, Inc. v. Congoleum Indus., Inc., 610 F.2d 1059 (3d Cir. 1979) ...................... 11
`
`SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir. 1978) ............................................. 11
`
`United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005) ............................................... 11
`
`United States v. Grinnell Corp., 384 U.S. 563 (1966) .................................................................. 10
`
`United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) .................................................. 2, 11, 12
`
`Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748 (1976) ............ 4
`
`Xerox Corp. v. Media Scis. Int'l, Inc., 511 F. Supp. 2d 372 (S.D.N.Y 2007) ............................... 12
`
`Statutes 
`
`15 U.S.C. § 46 ................................................................................................................................. 3
`
`15 U.S.C.§§ 41-58 .......................................................................................................................... 2
`
`21 U.S.C. § 355 ............................................................................................................................... 5
`
`H.R. Rep. No. 98-857, Pt. 1, p. 14-17 (1984) ................................................................................. 5
`
`The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417 ....... 3
`
`Other Authorities 
`
`
`
`iii
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`000003
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`

`

`Allison Masson & Robert L. Steiner, FTC, Generic Substitution and Prescription Drug
`Prices: Economic Effects of State Drug Product Selection Laws (September 1985) ........... 4, 10
`
`Department of Justice & Federal Trade Commission, Antitrust Guidelines for the Licensing
`of Intellectual Property (1995) ................................................................................................... 3
`
`Drug Product Selection, Staff Report to the FTC, Bureau of Consumer Protection
`(Jan. 1979)............................................................................................................................4, 6, 7
`
`FDA Center for Drug Evaluation and Research, Approved Drug Products with Therapeutic
`Equivalence Evaluations (32d ed.) ............................................................................................. 5
`
`FDA, Facts About Generic Drugs ................................................................................................... 7
`
`Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice and
`Remedies with Competition (2011) ............................................................................................. 3
`
`Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and
`Patent Law and Policy (2003) .................................................................................................... 3
`
`Fiona M. Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry in the US
`Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085 (2000) ................................................... 6
`
`FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (2011) .......... 4, 7, 8
`
`FTC, Emerging Health Care Issues: Follow-on Biologic Drug Competition (June 2009) ............ 4
`
`FTC, Pay-For-Delay: How Drug Company Pay-offs Cost Consumers Billions (2010) ............ 4, 7
`
`G. Michael Allen et al., Physician Awareness of Drugs Cost: A Systematic Review, 4 PLOS
`Med. 1486 (2007)........................................................................................................................ 6
`
`Generic Pharmaceutical Association, Generic Drug Savings in the U.S. (4th ed. 2012) ............... 7
`
`Hovenkamp et al, IP and Antitrust, 2d. Ed. (2010) § 15.3 ....................................................... 9, 12
`
`KaiserEDU.org, Prescription Drug Costs ...................................................................................... 4
`
`Marc-André Gagnon, Joel Lexchin, The Cost of Pushing Pills: A New Estimate of
`Pharmaceutical Promotion Expenditures in the United States, 5 PLoS Med 32 (Jan. 2008) .... 9
`
`Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing
`Dimension of Product Hopping, 62 Fla. L. Rev. 1009 (Sept. 2010) ...................................... 5, 8
`
`Overview of FTC Antitrust Actions in Pharmaceutical Services and Products (June 2012) ......... 2
`
`Report of the American Bar Association Section of Antitrust Law Special Committee to Study
`the Role of the Federal Trade Commission, 58 Antitrust L.J. 43 (1989) .................................... 3
`
`
`
`iv
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`The Use of Medicines in the United States: Review of 2010, IMS Institute for Healthcare
`Informatics (April 2011) ............................................................................................................. 8
`
`U.S. Department of Justice & Federal Trade Commission, Antitrust Enforcement and
`Intellectual Property Rights: Promoting Innovation and Competition (2007) ........................... 3
`
`William H. Shrank et al., The Consequences of Requesting “Dispense as Written,” 124 Am.
`J. Med. 309 (2011) ...................................................................................................................... 7
`
`
`
`v
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`000005
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`
`
`Competition from lower-priced generic drugs saves American consumers billions of
`
`dollars a year. These consumer savings, however, mean lower profits for brand drug companies.
`
`It is well-established that when generic entry occurs, the brand drug company suffers a rapid and
`
`steep decline in sales and profits. The threat of generic competition thus creates a powerful
`
`incentive for brand companies to protect their revenue streams. This incentive can prompt brand
`
`companies to create innovative new products that offer medical benefits to patients. But it may
`
`also drive brand companies to seek to obstruct generic drug competition by making modest
`
`product reformulations that offer patients little or no therapeutic advantages.
`
`Such tactics, often referred to as product-switching or product-hopping, can be an
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`effective way to game the regulatory structure that governs the approval and sale of generic
`
`drugs, thereby frustrating the efforts of federal and state policymakers to facilitate price
`
`competition in pharmaceutical markets. As discussed below, a brand company can interfere with
`
`the mechanism by which generic drugs compete by making modest non-therapeutic changes to
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`its product, and effectively prevent generic competition, not because the reformulated product is
`
`preferred by consumers, but simply because it is different.
`
`Plaintiffs allege that Warner Chilcott engaged in a pattern of product-switching,
`
`introducing three successive product reformulations that, according to their complaints, offered
`
`little or no apparent medical benefit to consumers. Each reformulation, plaintiffs allege, was
`
`designed to, and did, impede meaningful generic competition and preserve Warner Chilcott’s
`
`monopoly profits not on the merits of the reformulations, but by manipulating the pharmaceutical
`
`regulatory system. Warner Chilcott has moved to dismiss the complaints, asserting that the
`
`introduction of a new product is essentially per se legal. While courts are properly cautious
`
`when confronting antitrust challenges to new product introductions, “[j]udicial deference to
`
`
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`000006
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`product innovation. . . does not mean that a monopolist’s product design decisions are per se
`
`lawful.”1
`
`A key issue raised by Warner Chilcott’s motion to dismiss is whether plaintiffs have
`
`plausibly alleged exclusionary conduct sufficient to state a claim under Section 2 of the Sherman
`
`Act.2 Assessing the plausibility of these allegations requires an understanding of the history and
`
`context of the federal and state regulations affecting generic drug competition in the
`
`pharmaceutical industry.3 The Federal Trade Commission submits this brief as amicus curiae to
`
`assist the Court in this assessment. The Commission presents background and analysis on the
`
`role of generics in creating price competition in the pharmaceutical sector and the federal and
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`state laws that promote generic competition. In addition, the Commission addresses the
`
`appropriate antitrust framework to apply when assessing allegations that a brand drug
`
`reformulation unlawfully delayed or inhibited generic competition.
`
`I.
`
`
`
`Interest of the Federal Trade Commission
`
`The FTC is an independent agency charged by Congress with protecting the interests of
`
`consumers by enforcing competition and consumer protection laws.4 It exercises primary
`
`responsibility over federal antitrust enforcement in the pharmaceutical industry.5 The
`
`Commission has substantial experience considering and analyzing the balance between antitrust
`
`1 United States v. Microsoft, 253 F.3d 34, 65 (D.C. Cir. 2001) (en banc).
`2 For purposes of this brief, we accept the allegations in Mylan’s complaint as true, as is
`appropriate for a motion to dismiss. The FTC takes no position on the merits of Mylan’s
`allegations.
`3 See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 567 (2007) (considering the history and context
`of the highly regulated telecommunications industry in assessing the plausibility of a complaint).
`4 15 U.S.C.§§ 41-58.
`5 For a summary of the FTC’s antitrust actions in the pharmaceutical industry, see Overview of
`FTC Antitrust Actions in Pharmaceutical Services and Products (June 2012), available at
`http://www.ftc.gov/bc/healthcare/antitrust/rxupdate.pdf.
`
`
`
`2
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`000007
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`and intellectual property laws6 and the impact of the Hatch-Waxman Act on competition in the
`
`pharmaceutical industry.7
`
`In addition to its role as a law enforcement agency, the FTC has a congressionally-
`
`mandated role to conduct studies of industry-wide competition issues. To fulfill this role,
`
`Congress granted the agency broad authority to compel the production of data and information
`
`not directly related to any law enforcement investigation.8 As an American Bar Association
`
`report observed, this authority gives the agency a unique capacity to conduct “systematic,
`
`institutional stud[ies] of real-world industries and activities” that “modern academic research in
`
`industrial organization rarely undertakes.”9 Courts, including the Supreme Court, have relied on
`
`FTC studies when resolving legal and policy issues.10
`
`
`6 See, e.g., Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice
`and Remedies with Competition (2011) (http://www.ftc.gov/os/2011/03/110307patentreport.pdf);
`U.S. Department of Justice & Federal Trade Commission, Antitrust Enforcement and Intellectual
`Property Rights: Promoting Innovation and Competition (2007)(http://www.ftc.gov/reports/
`innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf); Federal Trade
`Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and
`Policy (2003) (www.ftc.gov/os/2003/10/innovationrpt.pdf); U.S. Department of Justice &
`Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property
`(1995) (www.usdoj.gov/atr/public/guidelines/0558.htm).
`7 The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417
`(codified at various sections of Titles 15, 21, and 35 of the U.S. Code).
`8 The FTC has authority “[t]o require, by general or special orders, persons, partnerships, and
`corporations, engaged in or whose business affects commerce . . . to file with the Commission in
`such form as the Commission may prescribe . . . reports or answers in writing to specific
`questions, furnishing to the Commission such information as it may require as to the
`organization, business, conduct, practices, management, and relation to other corporations,
`partnerships, and individuals.” 15 U.S.C. § 46(b).
`9 Report of the American Bar Association Section of Antitrust Law Special Committee to Study
`the Role of the Federal Trade Commission, 58 Antitrust L.J. 43, 103 (1989).
`10 See, e.g., Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, — U.S. —, 132 S. Ct. 1670, 1678
`(2012) (citing an FTC study on generic pharmaceuticals); eBay Inc. v. MercExchange, L.L.C.,
`547 U.S. 388, 396 (2006) (Kennedy, J. concurring) (citing an FTC study on the proper balance
`between competition and patent law); Va. State Bd. of Pharmacy v. Va. Citizens Consumer
`3
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`
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`000008
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`
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`The Commission has conducted a variety of empirical studies covering the
`
`pharmaceutical industry generally and generic substitution for brand drug prescriptions in
`
`particular.11 The FTC’s 1979 “Drug Product Selection” report examined the effect of legislative
`
`barriers to generic market entry at the state level, which imposed significant costs on consumers
`
`by unnecessarily restricting pharmaceutical price competition.12 In 1985, the FTC published a
`
`comprehensive report analyzing the impact of state legislative initiatives designed to expand
`
`generic competition and drive down overall prescription drug prices.13 These reports reflect the
`
`Commission’s long-standing interest in and study of generic drug competition and the legislative
`
`measures designed to encourage it.
`
`
`
`II.
`
`Competition in the Pharmaceutical Industry
`
`Today, generic drugs play a crucial role in containing rising prescription drug costs by
`
`offering consumers therapeutically identical alternatives to brand drugs at a significantly reduced
`
`cost. 14 This was not always the case, however. In the late 1970s, two legal barriers limited
`
`
`
`Council, Inc., 425 U.S. 748, 754 n.11, 765 n.20 (1976) (referring to an FTC study concerning
`drug price advertising restrictions).
`11 FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (2011), available
`at http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf (hereinafter AG Report); FTC,
`Pay-For-Delay: How Drug Company Pay-offs Cost Consumers Billions (2010), available at
`http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf (hereinafter Pay for Delay); FTC,
`Emerging Health Care Issues: Follow-on Biologic Drug Competition (June 2009), available at
`http://www.ftc.gov/os/2009/06/P083901biologicsreport.pdf.
`12 Drug Product Selection, Staff Report to the FTC, Bureau of Consumer Protection (Jan. 1979)
`(hereinafter Drug Product Selection).
`13 Allison Masson & Robert L. Steiner, FTC, Generic Substitution and Prescription Drug Prices:
`Economic Effects of State Drug Product Selection Laws at 8-13 (September 1985) (hereinafter
`Masson & Steiner).
`14 See e.g., KaiserEDU.org, Prescription Drug Costs, available at http://www.kaiseredu.org
`/Issue-Modules/Prescription-Drug-Costs/Background-Brief.aspx (explaining that “increases in
`prescription drug costs have outpaced other categories of health care spending” in the past two
`4
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`generic competition: (1) the costly and lengthy FDA approval process and (2) state anti-
`
`substitution laws that restricted generic sales.15 Congress remedied the first issue through the
`
`Hatch-Waxman Act; state legislatures remedied the second issue through drug substitution law
`
`reform.
`
`In 1984, Congress passed the Hatch-Waxman Act, which was designed to foster the entry
`
`of low-cost generic drugs without sacrificing the incentives for pharmaceutical companies to
`
`invest in developing new drugs.16 This Act provides for accelerated approval of generic drugs by
`
`the FDA through an Abbreviated New Drug Application (ANDA), upon a showing that the
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`generic drug is bioequivalent to its brand drug counterpart. 21 U.S.C. § 355(j). A generic drug
`
`is considered bioequivalent or “AB-rated” if it contains the same active pharmaceutical
`
`ingredient as the brand drug, is the same dosage and form, and exhibits a similar rate and extent
`
`of absorption as the brand product.17 Allowing generic manufacturers to rely on brands’ safety
`
`and efficacy studies significantly reduced generic drug development costs and expedited the
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`FDA approval process.18
`
`
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`decades and that prescription drug costs are “projected to exceed the growth rates for hospital
`care and other professional services in 2010 and through 2019”) (last visited Nov. 14, 2012).
`15 In the early 1980s, 150 drugs whose patent terms had expired did not face generic competition.
`Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing
`Dimension of Product Hopping, 62 Fla. L. Rev. 1009, 1013 (Sept. 2010).
`16 H.R. Rep. No. 98-857, Pt. 1, p. 14-17 (1984). The Act safeguards brand patent rights by
`affording a patent holder the opportunity to trigger a 30-month stay on FDA approval of a
`generic drug so that it may attempt to enforce its patents through litigation. 21 U.S.C. §
`355(j)(5)(B)(iii).
`17 FDA Center for Drug Evaluation and Research, Approved Drug Products with Therapeutic
`Equivalence Evaluations (32d ed.), http://www.fda.gov/drugs/developmentapprovalprocess
`/ucm079068.htm (last visited October 11, 2012).
`18 21 U.S.C. §§ 355 (j)(2)(A)(ii), (iii), (iv).
`
`
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`5
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`As to the second barrier, anti-substitution laws in effect in most states in the 1970s
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`prohibited pharmacists from substituting a generic version of a brand drug at the pharmacy
`
`counter. These laws reinforced an existing feature of prescription drug markets that already
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`significantly limited price competition: The physician – who selects the drug product but does
`
`not pay for it – has little incentive to consider price when deciding which drug to prescribe. In
`
`its Drug Product Selection Report, the FTC explained this basic problem:
`
`[T]he forces of competition do not work well in a market where the consumer
`who pays does not choose, and the physician who chooses does not pay. Patients
`have little influence in determining which products they will buy and what prices
`they must pay for prescriptions.19
`
`Given this feature, it is not surprising that studies have consistently shown that physicians
`
`are not well-informed about the price of existing products or the availability of cheaper
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`alternatives.20
`
`In 1979, the FTC and FDA published a model state drug substitution law to allow
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`pharmacy substitution among bioequivalent products. State legislatures responded with legal
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`reforms to promote access to generic drugs. Today, all states facilitate competition through laws
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`that allow a pharmacist to substitute an AB-rated generic drug when presented with a
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`prescription for its brand equivalent, unless a physician directs or the patient requests otherwise.
`
`These state substitution laws “foster price competition by allowing the only principals who have
`
`financial incentives to make price comparisons – the pharmacist and the patient – to select drug
`
`
`19 Drug Product Selection, supra note 12, at 2-3.
`20 Fiona M. Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry in the US
`Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085, 1086-87 (2000); see also, e.g., G. Michael
`Allen et al., Physician Awareness of Drugs Cost: A Systematic Review, 4 PLOS Med. 1486, 1486
`(2007) (reviewing studies over the last ten years and concluding the doctors overestimated prices
`of inexpensive products and underestimate the prices of expensive ones).
`
`
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`6
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`000011
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`
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`products on the basis of price.”21 Together, the Hatch-Waxman Act and the state substitution
`
`laws create a regulatory framework designed to reduce costs for consumers by lowering generic
`
`costs and increasing the role of price at the retail pharmacy counter. Whatever “free-riding”
`
`occurs (Defs. Br. Mot. Dismiss 23-24) is the intended result of the legislative framework of the
`
`Hatch-Waxman Act and the state substitution laws.
`
`The Hatch-Waxman Act and state substitution law reforms have been remarkably
`
`successful in facilitating generic competition and generating large savings for patients, health
`
`care plans, and federal and state governments. The first generic competitor’s product is typically
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`offered at a 20% to 30% discount to the brand product.22 Subsequent generic entry creates
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`greater price competition, with discounts of 85% or more off the price of the brand name drug.23
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`A recent study of 5.6 million prescriptions revealed that patients and their insurance plans
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`respectively paid an average of $17.90 and $26.67 for generic drugs and an average of $49.50
`
`and $158.25 for brand drugs where no generic existed. 24 In 2011 alone, the use of generic drugs
`
`generated $192 billion in total consumer savings.25
`
`While generic alternatives save consumers billions of dollars, these savings come at the
`
`expense of additional profits to brand companies. As a result of lower prices and ease of
`
`substitution, many consumers routinely switch from the brand drug to a bioequivalent generic
`
`
`21 Drug Product Selection, supra note 12, at 7.
`22 AG Report, supra note 11, at ii-iii.
`23 Pay for Delay, supra note 11, at 8 (“in a mature generic market, generic prices are, on average,
`85% lower than the pre-entry branded drug price”); see also FDA, Facts About Generic Drugs,
`http://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/Understa
`ndingGenericDrugs/ucm167991.htm (last visited Nov. 14, 2012).
`24 William H. Shrank et al., The Consequences of Requesting “Dispense as Written,” 124 Am. J.
`Med. 309, 311 (2011).
`25 Generic Pharmaceutical Association, Generic Drug Savings in the U.S. (4th ed. 2012) at 2.
`
`
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`7
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`000012
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`drug upon its introduction. Consequently, bioequivalent generic drugs typically capture over
`
`80% of a brand drug’s sales within six months of market entry.26 As just one example, the brand
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`osteoporosis drug Fosamax, which had over $1.5 billion in annual sales prior to generic entry,
`
`lost 84% of its retail market share just 30 days after generic entry.27
`
`The threat posed to existing brand drugs by generic competition can incentivize the brand
`
`company facing dramatic loss of sales to develop new and innovative drugs that benefit
`
`consumers. This threat can also incentivize the brand company to engage in a strategy known as
`
`“product switching,” or “product hopping” to impede generic substitution and thus meaningful
`
`generic competition. Product-hopping can work in the following way: first, the brand
`
`manufacturer makes minor non-therapeutic changes to the brand product, such as a dosage or
`
`form change. Next, prior to generic entry, it removes the original product from the marketplace,
`
`or accomplishes this indirectly, such as by recalling supply of the original product or raising the
`
`price of the original product by a meaningful amount above the reformulated one.28 Such
`
`conduct can push patients and physicians to abandon the original product. In this way, a brand
`
`manufacturer can convert existing market demand for the original product to its reformulated
`
`product – not because physicians and patients prefer it, but simply because the original product is
`
`no longer as available or is more costly.29 Once the original version of the brand product is less
`
`
`26 AG Report, supra note 11, Ch. 4, n. 6; see also The Use of Medicines in the United States:
`Review of 2010, IMS Institute for Healthcare Informatics, at 3 (April 2011), available at
`http://www.imshealth.com/imshealth/Global/Content/IMS%20Institute/Documents/IHII_UseOf
`Med_report%20.pdf.
`27 AG Report, supra note 11, Ch. 4, n.7.
`28 Carrier, supra note 15, at 1025-27, 1035.
`29 While it is true that physicians are typically uninformed about drug prices and do not price
`compare between products, they may be persuaded by the claim made by brand companies: that
`the reformulated product is equal to or better than the original version at a lower price to the
`consumer. See id.
`
`
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`8
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`available or more expensive, physicians will stop writing prescriptions for it. Because the
`
`prescription must contain, among other things, the same dosage and form as the generic for a
`
`pharmacist to substitute it for the brand, a product-switch will effectively eliminate substitution
`
`at the pharmacy counter and thus meaningful generic competition. As the author of the leading
`
`antitrust treatise put it: “Product-hopping seems clearly to be an effort to game the rather
`
`intricate FDA rules. . . . The patentee is making a product change with no technological benefit
`
`solely in order to delay competition.”30
`
`As a practical matter, if a generic cannot be substituted at the pharmacy counter, the
`
`economically meaningful market for the generic product disappears. Generic substitution is
`
`based, in part, on the premise that generic products will not be promoted like brand drugs. While
`
`the generic can attempt to market a non-substitutable generic product directly to prescribing
`
`physicians, such a costly undertaking undermines the ability of generic companies to offer the
`
`lower price benefits that the federal and state regulatory framework was intended to foster. 31
`
`Moreover, such marketing, even if effective in causing physicians to prescribe the particular
`
`company’s generic product, does not guarantee the sale of that product when the patient goes to
`
`the pharmacy. The pharmacy may stock a different company’s generic and unless the physician
`
`has ordered “dispense as written” the pharmacy can fill the prescription with the alternative
`
`generic. Indeed, a company that does not bear the cost of such marketing to physicians is likely
`
`
`30 Hovenkamp et al, IP and Antitrust, 2d. Ed. (2010) § 15.3 at 15-75.
`31 Indeed, the promotional budgets for brand pharmaceutical companies are large and can be
`double the research and development budgets. See e.g., Marc-André Gagnon, Joel Lexchin, The
`Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United
`States, 5 PLoS Med 32 (Jan. 2008).
`
`
`
`9
`
`000014
`
`

`

`
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`to offer a lower-priced generic product.32 Thus, by definition and design generic drugs are
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`lower-cost substitutes that do not compete with the promotional efforts of brand drug firms. If
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`the brand manufacturer reformulates its product before a generic receives FDA approval, the
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`generic’s only practical option is to go back to the drawing board and reformulate its own
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`product to be bioequivalent to the brand reformulation and thus substitutable at the pharmacy.
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`
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`III.
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`Pharmaceutical Product Redesigns Can Constitute Exclusionary Conduct
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`Plaintiffs allege, among other things, that Warner Chilcott maintained its monopoly in the
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`Doryx market by suppressing competition from lower-priced generic versions of the drug in
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`violation of Section 2 of the Sherman Act. A monopolization offense has two basic elements:
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`“(1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or
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`maintenance of that power as distinguished from growth or development as a consequence of a
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`superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384
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`U.S. 563, 570-71 (1966). A central issue raised by Warner Chilcott’s motion to dismiss is
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`whether plaintiffs have adequately alleged that Warner Chilcott maintained its monopoly power
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`through exclusionary conduct.33
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`Generally speaking, “[a] monopolist willfully acquires or maintains monopoly power
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`when it competes on some basis other than the merits.” LePage’s Inc., v. 3M, 324 F.3d 141, 147
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`(3d Cir. 2003). Specifically, exclusionary conduct involves “behavior that not only (1) tends to
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`impair the opportunities of rivals, but also (2) either does not further competition on the merits or
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`does so in an unnecessarily restrictive way.” Aspen Skiing Co. v. Aspen Highlands Corp., 472
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`32 Under the drug substitution laws, a pharmacy has the incentive to stock only the lowest priced
`generic drug to increase the pharmacy’s own margins. Masson & Steiner, supra note 13, at 7,
`35-39.
`33 The FTC does not address Warner Chilcott’s additional contention that plaintiffs have failed
`adequately to allege monopoly power.
`
`
`
`10
`
`000015
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`

`

`
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`U.S. 585, 605 n.32 (1985). Such conduct is condemned under Section 2 of the Sherman Act
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`when its anticompetitive effects outweigh its procompetitive benefits. See United States v.
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`Microsoft Corp., 253 F.3d 34, 58-59 (D.C. Cir 2001) (en banc). Traditional Section 2 analysis
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`therefore involves a balancing test that is inherently fact-intensive and depends on the specific
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`context of the conduct involved. LePage’s, 324 F.3d at 152. It also must be guided by the
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`“economic realities” of the industry at issue. United States v. Dentsply Int’l, Inc., 399 F.3d 181,
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`189 (3d Cir. 2005). Applying this fact-intensive analysis, the Third Circuit has found a broad
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`range of conduct to be unlawfully exclusionary.34
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`The basic premise of Warner Chilcott’s motion to dismiss is that product changes or
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`redesigns can never constitute exclusionary conduct. According to Warner Chilcott, “such
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`conduct is either competition-enhancing (if the new version represented an improvement) or at
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`worst competition-neutral because one version was replaced by another.” (Defs.’ Br. Mot.
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`Dismiss 21.) To be sure, product changes are often procompetitive. As the Second Circuit
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`explained in Berkey Photo, Inc. v. Eastman Kodak Co., “a monopolist is permitted, and indeed
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`encouraged . . . to compete aggressively on the merits, [and] any success that it may achieve
`
`th