Dismissal of Antitrust Claims Against Printer Maker Upheld

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Cincinnati has upheld dismissal of antitrust claims against Lexmark International, Inc., a major producer of laser printers and toner cartridges for its printers. Static Control Components, Inc., a company that made components for toner cartridges, lacked standing to pursue those claims. However, the appellate court ruled that Lanham Act false advertising and claims under the North Carolina Unfair Deceptive Trade Practices Act should not have been dismissed on standing grounds.

Lexmark developed toner cartridges containing microchips that communicate with printers to ensure that Lexmark printers only work with its cartridges. In addition, Lexmark acquired and repaired its used toner cartridges for resale. Static Control replicated the cartridge microchips and sold the microchips to remanufacturers. Remanufacturers refilled Lexmark cartridges and sold them to Lexmark printer owners at a lower cost.

Lexmark offered its larger customers a “Prebate” program in which it sold new toner cartridges at an upfront discount if the customer agreed to a single-use license and to return cartridges to Lexmark rather than a remanufacturer. The price of Lexmark's toner cartridges allegedly increased following the implementation of the program because of reduced competition from remanufacturers.

Standing to Assert Antitrust Claims

Static Control lacked standing to assert antitrust claims based on the “Prebate” program. The program targeted only the market for remanufactured cartridges, the court explained. Static Control was neither a competitor nor a consumer in the market for replacement toner cartridges. The implementation of the Prebate program decreased the number of remanufactured cartridges for Lexmark printers, which in turn decreased Static Control's sales; however, the intended targets of the Prebate program were the end users and the remanufacturers, not Static Control.

Moreover, Static Control’s alleged injury was not inextricably intertwined with the injuries in the market for replacement toner cartridges. The court also noted that the number of potentially more direct victims counseled against a finding of standing.

Antitrust Injury

Static Control also failed to plausibly allege any antitrust injury stemming from Lexmark’s decision to use the “lock-out” microchips in its cartridges and Lexmark’s exclusive distribution agreement with its own microchip supplier. Static Control failed to allege how the existence of a microchip requirement alone caused it any injury. It was possible that, without the microchips, Static Control would have been able to sell more component parts for remanufactured cartridges, but Static Control did not make this allegation. Moreover, Static Control did not allege how the removal of one of its direct competitors from the components and microchips market following an exclusive distributorship agreement with a single customer caused any damage to the seller' position within those markets or profits. The firm did not allege that Lexmark was a former customer or that absent the exclusive agreement the printer marker would have purchased from it.

There was no cognizable antitrust injury resulting from Lexmark’s continuous redesigns of its microchips, the court also ruled. Static Control contended that Lexmark engaged in the redesigns “to exclude competitors from the relevant markets, restrict output, and increase end-user prices.”

If Lexmark were able to maintain a monopoly on remanufactured toner cartridges by making cartridge parts wholly unavailable, then Static Control might have standing to pursue an antitrust violation. However, the firm did not sufficiently allege such behavior, the court noted. Static Control did not allege how the redesign decreased competition in the markets in which it competed, the market for microchips or parts.

Noerr-Pennington Immunity

Lexmark was immune under the Noerr-Pennington doctrine from an antitrust claim based on Lexmark's filing of an unsuccessful copyright action. Static Control did not offer any allegations upon which one could plausibly conclude that the copyright action was “objectively meritless.” Although a federal appellate court ultimately concluded that Lexmark did not have a valid copyright claim, this was not determinative of whether the suit was reasonable, according to the court.

False Advertising, State Law Claims

Static Control did, however, have standing to pursue a Lanham Act false advertising claim, even though it was not a competitor of Lexmark. The court refused to impose a standing requirement, found in other federal circuits, that a Lanham Act false advertising plaintiff be a competitor of the defendant. Static Control alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that these interests were harmed by Lexmark's statements to the remanufacturers that it infringed Lexmark's intellectual property.

Dismissal of the federal antitrust claims for lack of standing did not require dismissal of North Carolina Unfair Deceptive Trade Practices Act claims, the appellate court ruled. Generally, federal case law was persuasive and instructive in construing North Carolina’s own antitrust statutes. However, North Carolina would be more flexible in its standing analysis, in the court’s view. North Carolina would not apply the factors enunciated in U.S. Supreme Court’s 1983 decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 1983-1 Trade Cases ¶65,226, to deny Static Control’s standing to pursue state law unfair competition claims.

The decision is Static Control Components, Inc. v. Lexmark International, Inc., CCH Trade Regulation Reporter ¶78,027.

Tobacco Firms in Master Settlement Agreement Were Immune from Competitor’s Antitrust Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Cincinnati has rejected antitrust claims arising out of the 1998 Master Settlement Agreement (MSA)—the multi-billion dollar national tobacco settlement—on Noerr-Pennington and state action immunity grounds. Dismissal of the antitrust claims (2009-1 Trade Cases ¶76,462) was affirmed.

This latest challenge to the implementation of the MSA was brought by a tobacco company that entered the market in 2000, two years after the MSA’s execution. The company originally operated without joining the MSA. In 2004, it joined the MSA by negotiating its agreement with the state attorneys general. Dissatisfied with the agreement, the company attempted to renegotiate its position under the MSA.

In its suit, the company alleged that tobacco manufacturers engaged in a boycott that caused the attorneys general to reject the complaining company’s renegotiation efforts.

Noerr-Pennington Doctrine

The Noerr-Pennington doctrine protects private actors from liability arising from the antitrust injuries caused by their petitioning for government action. Noerr-Pennington immunity applied in this case, according to the court, because the state governments’ actions were the actual cause of the alleged antitrust violations, regardless of the explicit or implicit encouragement of the defending manufacturers.

Moreover, the defending manufacturers did not lose their immunity under the doctrine’s “sham exception.” The sham exception to the Noerr-Pennington doctrine prevented the application of immunity where a defendant’s act of “petitioning” was a mere sham. However, the defending manufacturers petitioned for a specific outcome from the government and succeeded. This was the precise situation that fell outside of the sham exception, the court explained.

State Action Doctrine

Alternatively, the defending cigarette manufacturers were shielded under the state action doctrine from the antitrust claims, the court ruled. The state attorneys general had acted in their sovereign capacities, and not their market participant capacities, in enacting and enforcing the MSA and in deciding to forgo renegotiating with the complaining company.

Although the complaining company did not raise its antitrust claims against the state attorneys general, they were protected by state-action immunity. Thus, the immunity extended to the private entities—the defending manufacturers—involved in the same course of dealing.

The decision is VIBO Corporation, Inc. v. Conway, 2012-1 Trade Cases ¶77,796.

Drug Manufacturer's Alleged Patent Scheme May Have Violated Sherman Act

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The manufacturer of a branded constipation drug could have violated federal antitrust law by allegedly improperly listing an invalid patent on the drug in the U.S. Food and Drug Administration (FDA) Orange Book and then filing infringement litigation against companies seeking to market generic versions, the federal district court in Wilmington, Delaware, has ruled.

An argument that the alleged conduct was protected under the Noerr-Pennington doctrine was rejected. The manufacturer’s motion for dismissal of the suit was denied.

The putative class of direct purchasers sufficiently alleged that the manufacturer's overall scheme to forestall competition and illegally maintain its monopoly power with respect to the drug constituted a violation of Sec. 2 of the Sherman Act, the court determined.

The purchasers alleged that during and prior to the proposed class period, the manufacturer held a 100 percent share of the market for the drug. The scheme further consisted of the manufacturer obtaining a non-exclusive license to the patent, which it considered invalid, and its outright purchase of that patent only after having listed it in the Orange Book despite its presumed invalidity.

Antitrust Injury

The asserted conduct caused antitrust injury to purchasers, the court held. As a result of the alleged scheme, the approval process for a generic competitor was delayed by the FDA. This purportedly caused the putative class of purchasers to pay more than they otherwise would have paid for the drug during the exclusionary period.

The emergence of generics typically resulted in price competition that enabled drug purchasers both to buy generic versions of a drug at a substantially lower price and to buy the branded version at a reduced price, the court explained.

The plaintiffs' allegations were of the type that generally passed muster in the context of causation. The complaint sufficiently conveyed a causal nexus between the alleged injury and the manufacturer's purportedly monopolistic behavior, the court added.

Noerr-Pennington Immunity

The drug purchasers' claims were not barred under the doctrine of Noerr-Pennington immunity, which shields from antitrust liability individuals' efforts to petition the government for redress. The infringement litigation could have been objectively baseless, thereby falling outside the protection of the doctrine.

The purchasers demonstrated by clear and convincing evidence the lack of any objectively reasonable argument that the patent was valid. Thus, the manufacturer knew or should have known that it was invalid when pursuing the infringement suit, in the court's view.

The decision is Rochester Drug Co-Operative, Inc. v. Braintree Laboratories, 2010-1 Trade Cases ¶77,140.

Sham Drug Patent Litigation, Not Reverse Payments, Could Have Violated Antitrust Law

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The manufacturer of a branded drug used to treat male hypogonadisma and three generic drug manufacturers could have conspired to restrain trade in violation of federal antitrust law by entering into settlements of sham patent infringement litigation under which the generic drug makers kept their versions off the market in exchange for a portion of the branded manufacturer's monopoly profits, the federal district court in Atlanta has ruled.

However, several other antitrust claims brought by the FTC and putative classes of direct and indirect purchasers were not similarly viable.
Specifically, the court rejected claims that the reverse payment aspect of the settlements rendered them illegal and the drug makes had violated antitrust law by agreeing not to compete.

Also rejected were (1) claims by all of the plaintiffs that the drug companies had attempted to monopolize the market for the generic version through an overall scheme that included improper patent listing in the Food and Drug Administration's Orange Book, the filing of sham litigation, and the reverse payment settlements and (2) claims by indirect purchasers that the defendants' actions violated the common law and antitrust laws of 40 states.

Therefore, the defendants' motions to dismiss were granted as to the claims of the FTC and indirect purchasers and granted in part and denied in part as to the claims of the direct purchasers.

Noerr-Pennington Immunity

Three of the defendants asserted immunity under the Noerr-Pennington doctrine, which provides that no antitrust liability may arise from petitioning the government for an anticompetitive outcome. Immune petitioning activity may include legislative lobbying and administrative and judicial proceedings. However, there is a well-established exception to the Noerr-Pennington doctrine for sham litigation.

In this case, the complaining putative class of direct purchasers sufficiently alleged that the branded manufacturer's infringement actions were objectively baseless on the grounds that the generic versions clearly did not infringe the original patent covering the drug and the patent clearly did not meet the written description requirement as to the drug's composition ranges, the court reasoned.

The drug manufacturers did not unreasonably restrain trade simply by entering into settlements under which the generic drug makers were paid to keep their generic versions off the market, the court found. Because the complaining drug purchasers and FTC did not allege that the settlements exceeded the scope of the manufacturer's patent on the drug, it did not matter that the companies settled their patent disputes with reverse payments.

By their nature, patents created an environment of exclusion and crippled competition. Thus, the anticompetitive effect was already present. It was irrelevant whether the patent might ultimately be found invalid. Moreover, the conduct was not illegal per se. Per se illegality analysis did not apply to reverse payments, the court noted.

The February 22 decision is In re: Androgel Antitrust Litigation (No. II), 2010-1 Trade Cases ¶76,914.

Claims that Company Schemed to Monopolize Market for Drug Proceed

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Pfizer Inc. and its subsidiary Warner-Lambert Company LLC have failed to convince the federal district court in Newark, New Jersey, to dismiss claims that the drug maker engaged in an "overall scheme" to monopolize the market for gabapentin anhydrous products by forestalling, if not completely preventing, generic competition for Warner-Lambert's anti-epilepsy drug Neurontin.

In two separate decisions, the court denied motions to dismiss claims filed by direct purchasers, including wholesale drug distributor Louisiana Wholesale Drug Company, and antitrust counterclaims filed in a patent infringement action against generic competitor Purepac Pharmaceutical Company.

Overall Scheme

Both sets of plaintiffs sufficiently alleged that Warner-Lambert engaged in monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, according to the court. They alleged an "overall scheme to forestall, preclude, and delay generic competition" for Neurontin.

As part of the scheme, Warner-Lambert allegedly manipulated the prosecution of a patent to delay its issuance, improperly listed patents in the Food and Drug Administration (FDA) Orange Book to obtain additional stays of approval for generic applicants, filed objectively baseless patent infringement actions, and engaged in the fraudulent promotion of the drug for off-label uses.

Antitrust violations were not asserted on the basis of any of those activities independently. Rather, an overall pattern of alleged abuse of the regulatory process was targeted.

Antitrust Injury

Both the direct purchasers and the generic competitor sufficiently alleged antitrust injury, a threshold requirement for antitrust standing, the court held. Moreover, the alleged injuries flowed from the drug company's purported violations of Sec. 2 of the Sherman Act.

Warner-Lambert contended that there was no causal link between some of the challenged conduct—such as the allegedly sham patent litigation and fraudulent promotion of the drug for off-label uses—and the direct purchasers' alleged injury.

It suggested that allegations concerning the patent litigation could not support antitrust claims because generic competition was impossible regardless of the 30-month stay imposed by the patent actions and that the inability of generic manufacturers to obtain even tentative FDA approval until after the stays associated with the patent suits expired was an independent barrier to generic entry.

Further, Warner-Lambert contended that the direct purchasers' alleged injury was not connected to any off-label marketing of Neurontin. However, at the motion to dismiss stage, the direct purchasers sufficiently alleged that they suffered an antitrust injury in the form of overcharges on their purchases of gabapentin anhydrous and that such injuries flowed from the allegedly unlawful conduct, according to the court.

The generic competitor's standing to assert counterclaims could be supported by Warner-Lambert's alleged manipulation of the regulatory advantages afforded by its patents for Neurontin to prevent generic entry into the Neurontin marketplace, the court decided. Moreover, it had already been determined that the generic drug company had sufficiently alleged a causal connection between the challenged conduct and the injury imposed.

Noerr-Pennington Doctrine

In addition, the antitrust claims were not dismissed on the ground that Warner-Lambert's conduct in prosecuting a patent and its efforts to enforce patents against generic manufacturers through infringement actions were immune from antitrust liability under the Noerr-Pennington doctrine, which shields government petitioning activity from antitrust attack.

The generic competitor alleged that the branded drug company manipulated the prosecution of a patent, not to promptly obtain government action in its favor but rather to delay its issuance, forestall generic competition for Neurontin, and improperly preserve its patent monopoly.

The branded drug company allegedly withheld prior art, abandoned a patent application that had already been approved approximately one month before the patent was scheduled to issue, and filed unnecessary continuation applications. Abuse of the Patent Office's administrative and regulatory process itself was not entitled to immunity, the court explained.

The direct purchasers also adequately alleged facts which, if proven, would show that Warner-Lambert engaged in unlawful manipulation of the patent approval process for one of the patents.

Although Warner-Lambert's aggressive practice of filing patent infringement cases against generic drug companies was presumptively immune from antitrust scrutiny under the Noerr-Pennington doctrine, a determination could not be made on a motion to dismiss. Judgment on the issue could be resolved later in the proceedings, the court explained.

The two decisions are In re Neurontin Antitrust Litigation, 2009-2 Trade Cases ¶76,723, and In re Gabapentin Patent Litigation, DC N.J., 2009-2 Trade Cases ¶76,724.

FDA Filing by Drug Company Was Not Sham Petitioning, Monopolization

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in New York City has refused to disturb a jury's verdict that Sanofi-Aventis (Aventis) did not violate Section 2 of the Sherman Act by filing a petition with the Food and Drug Administration (FDA), purportedly in an effort to delay approval of generic competition to its rheumatoid-arthritis drug sold under the name “Aravae.”

Complaining wholesale drug distributors' motions for judgment as a matter of law—or, alternatively, for a new trial—were denied.

Citizen Petition

Shortly after Aventis' period of patent exclusivity for Aravae expired, the drug company filed a "Citizen Petition," asking the FDA to impose certain conditions on the approval of applications for generic versions of Aravae.

The FDA ultimately denied the petition and approved applications for six generic manufacturers to produce and sell generic leflunomide, including one manufacturer who did so pursuant to an agreement with Aventis to sell an "authorized generic" version of the drug.

In denying the petition, the FDA noted that Aventis' request for relief "seem[ed] to be based on a false premise." An action was later filed on behalf of a class of wholesale drug distributors who alleged they were injured by the delayed market entry of generic leflunomide that they claimed was the direct result of Aventis' petition, an alleged act of monopolization in violation of Sec. 2 of the Sherman Antitrust Act.

Noerr-Pennington Doctrine

Although the court had previously denied Aventis' motion for summary judgment based on the Noerr-Pennington doctrine (2008-2 Trade Cases ¶76,339), it upheld the jury's determination that the drug company's conduct was protected by the doctrine, which shields government petitioning activity from antitrust attack.

The first question of the two-pronged test for determining whether government petitioning was protected from antitrust attack by the Noerr-Pennington doctrine—or actionable under the sham exception—was whether the petitioning was objectively baseless. The jury concluded that the petition was not "objectively baseless."

The wholesale drug distributors argued that the petition was objectively baseless because it was not only contrary to FDA statutes, regulations, and practices, but also lacked medical or scientific basis. However, there was ample evidence introduced at trial that tended to show that the issues raised by the Citizen Petition, which concerned dosage strengths and labeling, were sufficiently novel and unsettled to permit an objectively reasonable drug company to perceive some likelihood that the FDA would grant the relief requested, according to the court.

The August 28 decision in Louisiana Wholesale Drug Co., Inc. v. Sanofi-Aventis will appear at 2009-2 Trade Cases ¶76,720.