FTC Submits Proposed Amicus Brief Concerning “No-Authorized-Generic” Commitments in Drug Companies’ Patent Settlements

The Federal Trade Commission has asked the U.S. District Court for the District of New Jersey to accept an amicus brief that addresses the application of the U.S. Supreme Court’s recent ruling in FTC v. Actavis to a patent settlement containing a “no-authorized-generic” commitment. The FTC submitted the brief in the case of In re Effexor XR Antitrust Litigation.

An authorized generic is chemically identical to its counterpart brand-name drug, but sold by the brand company or its representative as a generic product under the same regulatory approval as the brand-name drug. A no-authorized-generic commitment means that the brand-name drug firm, as part of a patent settlement, agrees that it will not launch its own authorized-generic alternative when the first generic company begins to compete. An FTC empirical study of the competitive effects of authorized generics found that when a brand company does not launch an authorized generic during the exclusivity period reserved for the first-filing generic under the Hatch-Waxman Act, it substantially increases the first generic company’s revenues, and consumers pay higher prices for the generic product.

In Actavis, the Supreme Court held that “reverse-payment” patent settlements – agreements in which a brand-name drug manufacturer pays a would-be competitor to abandon its patent challenge and agrees not to sell its generic drug product for a number of years – are not immune from antitrust scrutiny and are to be evaluated using traditional antitrust factors.

The plaintiffs in the Effexor XR case have challenged a patent settlement agreement between drug manufacturers Wyeth and Teva Pharmaceuticals, alleging that Teva agreed to delay introduction of its generic version of Wyeth’s blockbuster antidepressant drug Effexor XR until July 1, 2010, and Wyeth agreed not to market an authorized generic version of Effexor XR for a period of time.  The defendants have argued that the antitrust analysis required by Actavis does not apply to this agreement, because the agreement did not involve a cash payment.

The FTC’s amicus brief states that the Effexor XR case presents “an issue with significant implications for American consumers”: whether pharmaceutical patent settlements are “immune from antitrust scrutiny so long as the brand-name drug manufacturer pays for delayed entry with something other than cash.”  The brief explains why “[t]he allegations here raise the same type of antitrust concern that the Supreme Court identified in Actavis,” and thus should be treated in the same fashion.  The Supreme Court’s opinion speaks in terms of “payments” and “money,” not because cash has a unique economic effect, but because Actavis involved allegations of cash payments.  But, the brief points out, “accepting the defendants’ claim of immunity whenever patentees use vehicles other than cash to share the profits from an agreement to avoid competition elevates form over substance, and it would allow drug companies to easily circumvent the ruling in Actavis, at great cost to consumers.”

The Commission vote approving the amicus brief filing was 4-0.  The filing was submitted to the court on August 14, 2013, and a ruling on the FTC’s request to participate as amicus is expected by mid-September.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action.  To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., N.W., Room 7117, Washington, DC 20001.  To learn more about the Bureau of Competition, read Competition Counts.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.