Third Circuit decision in product-hopping case may be at odds with prior case, attorney says

By Karen Kidd | Oct 26, 2016

PHILADELPHIA – A decision out of the U.S. Court of Appeals for the Third Circuit earlier this fall that a pharmaceutical company in a Pennsylvania product-hopping case did not violate the Sherman Antitrust Act seems to be at odds with a prior precedent-setting case, a Washington, D.C.-based attorney says.

"In some ways the outcome is not surprising given the lower court’s factual findings and the oral argument before the Third Circuit panel," Cassie R. Gourash, an associate with Knobbe Martens Intellectual Property law.

"However, commentators have noted that the Court’s analysis under the anticompetitive conduct prong is seemingly at odds with language in the New York v. Actavis opinion. For example, in Actavis the Second Circuit stated that 'competition through state drug substitution laws is the only cost-efficient means of competing available to generic manufacturers' and '[f]or there to be an antitrust violation, generics need not be barred ‘from all means of distribution’ if they are ‘bar[red] . . . from the cost-efficient ones.’”

The Third Circuit in September upheld a lower court’s decision last year to throw out the case, Mylan Pharmaceuticals Inc. v. Warner Chilcott PLC et al.

Mylan accused Warner Chilcott of product-hopping by making modest changes to the acne medication Doryx that offered little or no therapeutic value in order to block competition. Warner Chilcott countered that its tweaks to Doryx benefited patients and were no different from any other changes to drugs that any other pharmaceutical company in the U.S. might make.

"The Third Circuit’s decision regarding monopoly power, the first element of monopolization, hinged largely on how the Court defined 'the relevant market' - whether that market was limited to Doryx and generic Doryx products or included all oral tetracycline products," Gourash said.

"In selecting the latter market, the Court emphasized the 'uncontradicted evidence' that dermatologists, health insurers, and managed care providers consider Doryx products to be interchangeable with other oral tetracyclines prescribed for the treatment of acne.

"The Court also pointed to Defendants’ 'unrebutted expert testimony,' which included 'detailed statistical analyses,' demonstrating that 'when Defendants increased the price of Doryx, its sales decreased and the sales of other tetracyclines increased.'

"Given that Defendants maintained only a small percentage of the larger oral tetracycline market, the Court found that they did not possess monopoly power."

In April 2015, U.S. District Judge Paul S. Diamond ruled that Mylan was never blocked from competition, that it still launched its own generic versions of the medication and, eventually, hiked its own price above the last reported price for branded Doryx.

Diamond granted Warner Chilcott’s summary judgment motion, tossing out Mylan's allegations while ruling that any damage Mylan may have suffered was due to its own poor business strategy.

"Although Mylan had numerous opportunities to market generic Doryx, it waited until the sales of branded Doryx were so great that huge generic sales - buoyed by regulatory compulsion - were assured," Diamond wrote.

"Defendants’ efforts to deny Mylan this regulatory windfall were hardly predatory. On the contrary, these efforts have compelled pharmaceutical giant Mylan to compete against much smaller Warner Chilcott and Mayne on the merits and price of its products.

"Mylan’s reading of the Sherman Act would not only require federal courts to serve as FDA adjuncts, it would strongly discourage pharmaceutical development and innovation. Finally, giving generics a regulatory ‘preferred place’ would not necessarily reduce drug prices.

"Once Mylan was the exclusive seller of generic 75 and 100 mg Doryx tablets, it raised prices so that they were higher than those of branded Doryx. Presumably, it would seek to do the same once its generic sales were assured by automatic substitution laws. I cannot allow Mylan, solely for its own benefit, to thus stand the Sherman Act on its head."

Diamond's ruling effectively ended Mylan's litigation against Warner Chilcott and four other pharmaceutical retailers, most of them Mylan subsidiaries. The lawsuit once included putative classes of direct and indirect purchasers in addition to the retailers, but the purchasers settled last year for a combined $23 million, which Diamond described as a modest amount.

Mylan appealed, but the Third Circuit affirmed Diamond's ruling.

While the Third Circuit's decision is considered precedential, Gourash said the courts have addressed only a handful of cases addressing pharmaceutical product-hopping.

"But it is certainly an issue that has gained more attention in the past several years," she said. "For example, in the present case, the Federal Trade Commission filed an amicus brief with the Third Circuit 'to highlight the distinct economic and legal dimensions of product-hopping disputes.'

"The FTC did not take a position on the merits of the case, but expressed its view that the District Court’s ruling failed to take into account the idiosyncrasies of the pharmaceutical marketplace and undermined the mechanisms for promoting generic competition established by the Hatch Waxman Act."

The courts have addressed product-hopping in the context of allegations of antitrust violations that require specific evidentiary showings, Gourash said.

"In other words, a ruling in favor of a defendant is not necessarily an endorsement of the conduct at issue," she said. "In considering the appropriate legal standard, courts have noted the need to balance the significant costs associated with delays in generic entry to the market with the public interest in promoting innovation in the pharmaceutical industry.

"Courts have expressed reluctance to employ a legal standard that would require them to determine whether a product change is sufficiently innovative to justify the effects on generic competition."

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