Continuity and Change Were FTC Themes for 2009

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

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

Pfizer’s Acquisition of Wyeth Clears Antitrust Hurdles

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

Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth was conditionally approved by the Federal Trade Commission (FTC) today. The agency signed off on the combination of the pharmaceutical giants, subject to divestitures aimed at preserving competition in multiple U.S. markets for animal pharmaceuticals and vaccines.

The FTC alleged that, if the acquisition were to proceed as proposed, it could have had anticompetitive effects in 21 U.S. markets for vaccines, antibiotics, and other treatments for animals. It was determined, however, that the transaction did not raise anticompetitive concerns in the markets for human pharmaceuticals.

In announcing the complaint and proposed consent order, the FTC took the somewhat unusual step of issuing a separate statement. Commission statements are more commonly issued when the agency seeks to explain a decision not to take an action or when there are dissenting views. In this matter, there were no dissents. Only two commissioners approved the proposed settlement, with Commissioners Pamela Jones Harbour and William E. Kovacic recused.

The statement was issued by the Commission to explain [the] decision, provide greater visibility into this important investigation, and, in the event that there are future such transactions, describe the framework . . . used in [the] analysis.”

The Commission’s statement noted that the transaction involved the combination of the largest prescription pharmaceutical company in both the United States and the world (Pfizer) and the twelfth-largest prescription pharmaceutical company in the United States (Wyeth). It explained the agency’s investigation into the competitive effects analysis of the acquisition with respect to markets for human pharmaceuticals, including Alzheimer’s disease treatments.

While it was determined that the merger was not likely to substantially reduce competition or potential competition in any relevant human health market in which Pfizer and Wyeth might compete, the Commission expressed its intention to monitor the markets and continue to evaluate future transactions “to ensure that any merger or acquisition does not undermine the pharmaceutical industry’s competitiveness.”

International Approvals

Canada’s Competition Bureau also approved the transaction today, subject to the divestiture of a significant number of animal health products. The U.S. and Canadian approvals are the last significant antitrust hurdles for the acquisition. Today’s settlements follow clearances from competition authorities in Europe in July, and more recently in China and Australia in September. Approval in each of these jurisdictions was also conditioned on the divestment of certain animal health assets. The FTC’s announcement noted that the U.S. agency’s cooperation with its foreign counterparts.

Details of the complaint and proposed consent order, In the Matter of Pfizer
Inc. and Wyeth, FTC Dkt. C-4267, appear on the FTC website and will appear at CCH Trade Regulation Reporter ¶16,376.

The statement of the Canada Competition Bureau appears on the Competition Bureau's website.

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.

Former Pfizer Sales Rep Awarded $51.5 Million in Marketing Fraud Settlement

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act triggered the government investigation that led to Pfizer’s agreement to pay $2.3 billion for fraudulently marketing drugs for off-label uses, according to today’s Department of Justice press release announcing the settlement.

Over $51.5 million of the settlement proceeds were awarded to John Kopchinski, a former Pfizer sales representative, West Point graduate, and Gulf War veteran. Another $50.5 million was divided between five other False Claim Act “relators” or whistleblowers.

Qui Tam

“Qui tam” is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “[he] who sues in this matter for the king as [well as] for himself,” according to Wikipedia.

Under the False Claims Act, an individual with independent knowledge of false or fraudulent claims made to secure government money may bring suit in the name of the federal government even where that person does not have the traditional “injury in fact” needed to satisfy U.S. Constitution Article III standing requirements. See the August 24, 2009 Trade Regulation Talk posting, “False Claims Act Amendments Expand Liability for Private Sector.”

Pfizer has agreed to pay $1 billion to resolve allegations under the False Claims Act that the company illegally promoted four drugs—Bextra, an anti-inflammatory withdrawn from the market in 2005; Geodon, an anti-psychotic; Zyvox, an antibiotic; and Lyrica, an anti-epileptic drug.

False Claims to Government Health Care Programs

Pfizer allegedly caused false claims to be submitted to government health care programs for uses that were not medically accepted indications and therefore not covered by those programs. The civil settlement also resolves allegations that Pfizer paid kickbacks to health care providers to induce them to prescribe these, as well as other, drugs.

The federal share of the civil settlement is $668,514,830 and the state Medicaid share of the civil settlement is $331,485,170. This is the largest civil fraud settlement against a pharmaceutical company in history, according to the Department of Justice.

Criminal Liability

Pfizer subsidiary Pharmacia & Upjohn Company Inc. has agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead.

Under the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA. Once approved, the drug may not be marketed or promoted for so-called “off-label” uses—i.e., any use not specified in an application and approved by FDA.

Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns, according to the Department of Justice. The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States for any matter. Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.

State Consumer Protection Laws

In addition, Pfizer announced that it has reached agreements with attorneys general of 42 states and the District of Columbia to settle state civil consumer protection law allegations related to past promotional practices concerning Geodon. The company will pay a total of $33 million to the settling states.

The settlement documents appear here on the Department of Justice website.

A detailed fact sheet jointly posted by the U.S. Department of Health & Human Services and U.S. Department of Justice is here.

The False Claims Act complaint of John Kopchinski is posted here.