05-2851-cv(L)

05-2852-cv(CON)

IN THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Arkansas Carpenters Health and Welfare Fund, Maria Locurto,

Paper, Allied-Indus, United Food and Commercial Workers Union-Employer,

Louisiana Wholesale Drug Co., Inc., CVS Pharmacy, Inc., Rite Aid Corporation,

Arthur’s Drug Store, Inc.,

Plaintiffs-Appellants,

Sol Lubin, Ann Stuart, Linda K. McIntyre,

Plaintiffs,

v

.

Bayer AG, Bayer Corp., formerly doing business as Miles Inc.,

Hoechst Marion Roussel, Inc., The Rugby Group, Inc.,

Watson Pharmaceuticals, Inc., Barr Laboratories Inc.,

Defendants-Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR

THE EASTERN DISTRICT OF NEW YORK (HON. DAVID G. TRAGER, J.)

BRIEF AMICUS CURIAE OF FEDERAL TRADE COMMISSION

IN SUPPORT OF REHEARING EN BANC

RICHARD A. FEINSTEIN

 Director

MARKUS H. MEIER

Assistant Director

BRADLEY S. ALBERT

Deputy Assistant Director

BUREAU OF COMPETITION

MAY 20, 2010

WILLARD K. TOM

 General Counsel

JOHN F. DALY

 Deputy General Counsel for Litigation

IMAD D. ABYAD

 Attorney

FEDERAL TRADE COMMISSION

600 PENNSYLVANIA AVENUE, N.W.

WASHINGTON, DC 20580

(202) 326-2375
-iTABLE OF CONTENTS

Page

TABLE OF AUTHORITIES. ......................................... ii

INTEREST OF THE AMICUS CURIAE. ............................... 1

ARGUMENT...................................................... 1

CONCLUSION. ................................................... 8

CERTIFICATE OF SERVICE
-iiTABLE OF AUTHORITIES

Cases Page

Apotex, Inc. v. Thompson,

347 F.3d 1335 (Fed. Cir. 2003). .................................. 7

Cardizem CD Antitrust Litig., In re,

332 F.3d 896 (6th Cir. 2003). .................................... 6

Eli Lilly & Co. v. Medtronic, Inc.,

496 U.S. 661 (1990). .......................................... 6

FTC v. Cephalon, Inc.,

No. 08-2141 (E.D. Pa. complaint filed Feb. 13, 2008). ................ 4

Merck KGaA v. Integra Lifesciences I, Ltd.,

545 U.S. 193 (2005). .......................................... 6

Tamoxifen Citrate Antitrust Litig., In re, 

466 F.3d 187 (2d Cir. 2006). ................................ 1, 2, 3

Statutes & Rules

Drug Price Competition and Patent Term Restoration Act of 1984,

(“Hatch-Waxman Act”), Pub. L. No. 98-417, 98 Stat. 1585.. . . . . . . . . . . . 6

Medicare Prescription Drug, Improvement, and Modernization Act

of 2003, Pub. L. No. 108-173, 117 Stat. 2066.. . . . . . . . . . . . . . . . . . . . . 3, 7

§§ 1101-1104, 1111-1117. ...................................... 3

15 U.S.C. §§ 41 et seq................................................ 1

21 U.S.C. § 355(b)(1). .............................................. 6

21 U.S.C. § 355(j). ................................................. 6
-iiiStatutes & Rules – Cont’d Page

21 U.S.C. § 355(j)(2)(A)(vii)(IV). ..................................... 7

21 U.S.C. § 355(j)(5)(B)(iii). ......................................... 7

21 U.S.C. § 355(j)(5)(B)(iv). ....................................... 5, 7

35 U.S.C. § 155. ................................................... 6

35 U.S.C. § 271(e)(1)................................................ 6

35 U.S.C. § 271(e)(2)................................................ 6

Fed. R. App. P. 35(a)(2) . ............................................ 1

Miscellaneous

Federal Trade Commission, Agreements Filed with the

Federal Trade Commission under the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003:

Summary of Agreements Filed in FY 2004. ......................... 3

Federal Trade Commission, Agreements Filed with the

Federal Trade Commission under the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003:

Summary of Agreements Filed in FY 2008. ......................... 5

Federal Trade Commission, How Pay-for-delay Settlements

Make Consumers and the Federal Government Pay More

for Much Needed Drugs (Prepared Statement Before

House Subcommittee on Commerce, Trade, and Consumer

Protection) (Mar. 31, 2009). ..................................... 2

Federal Trade Commission, Pay-for-Delay: How Drug Company

Pay-Offs Cost Consumers Billions: An FTC Staff Study

(January 2010). ........................................... 3, 4, 5
-ivMiscellaneous – Cont’d Page

H.R. Rep. No. 98-857(I) (1984)........................................ 6

O’Reilly, James T., Prescription Pricing & Monopoly Extension:

Elderly Drug Users Lose the Shell Game of Post-Patent

Exclusivity, 29 N. Ky. L. Rev. 413 (2002). ......................... 7

S. Rep. No. 107-167 (2002). ........................................ 3, 7

Wroblewski, Michael, Paying off Generics to Prevent Competition

with Brand Name Drugs: Should it Be Prohibited?: Hearing

Before Senate Judiciary Comm., 110th Cong. 164, 166 (2007). . . . . . . . . . 5
INTEREST OF THE AMICUS CURIAE

The Federal Trade Commission is an independent federal agency, charged with

enforcing the antitrust laws, promoting the efficient functioning of the marketplace,

and protecting consumer welfare. 15 U.S.C. §§ 41 et seq. It exercises primary

responsibility for federal antitrust enforcement in the pharmaceutical industry. Over

the past decade, the Commission has been particularly concerned with pharmaceutical

patent settlements involving “exclusion payments” – payments to delay entry of a

lower-cost generic drug – and has challenged agreements it believes violate the antitrust laws. It has also extensively studied settlements in patent cases arising under the

Hatch-Waxman Act and has examined every such settlement since 2004. As

discussed below, this empirical evidence provides strong support for the Court to

grant rehearing en banc to reconsider the ruling in In re Tamoxifen Citrate Antitrust

Litig., 466 F.3d 187 (2d Cir. 2006), which bound the panel here.

ARGUMENT

Though sparingly granted, rehearing en banc is warranted for issues of

“exceptional importance.” Fed. R. App. P. 35(a)(2). As the panel correctly observed,

Op. 2, this case presents just such an issue. Under Tamoxifen, the law of this Circuit

effectively shields a pernicious practice, which imposes enormous costs on American

consumers of pharmaceutical drugs, from robust antitrust scrutiny. Neither the Patent

Act nor the public policy in favor of settlements justifies immunizing from antitrust
 This is due primarily to the pricing policies of generic firms, which generally offer 1

their products at significant discounts, reaching “80 percent or more” compared to

their branded counterparts. See How Pay-for-Delay Settlements Make Consumers and

the Federal Government Pay More for Much Needed Drugs (FTC Prepared Stmt.

Before House Subcomm. on Commerce, Trade, and Consumer Protection), at 13 (Mar.

31, 2009) (www.ftc.gov/os/2009/03/P859910payfordelay.pdf).

-2-

scrutiny agreements that compensate generic firms for delaying competition. There

are three additional and compelling reasons for rehearing en banc, on which we focus

here. First, although the Tamoxifen majority recognized the incentives for drug

companies to use exclusion payments to protect the weakest patents, it dismissed this

“troubling dynamic” based on mistaken assumptions about the pharmaceutical

industry. Second, five years of empirical evidence confirms that this troubling

dynamic has created a costly reality. Exclusion-payment settlements have become

more common, delaying competition and costing consumers $3.5 billion a year.

Third, the practice allowed under Tamoxifen threatens a primary goal of the

Hatch-Waxman Act: the promotion of earlier generic competition in instances where

branded drugs are protected by weak or narrow patents.

1. The Tamoxifen majority recognized that its rule opens the door for firms to

enter exclusion-payment settlements: absent antitrust constraints, it will “make

obvious economic sense,” 466 F.3d at 209, for the branded firm to buy off its generic

rivals by paying them as much as or (as alleged here) more than they would make by

entering the market. As a result, owners of even “fatally weak” patents will be able 1
 In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 2

Congress – concerned with the danger of drug patent settlements involving exclusion

payments and delay, see S. Rep. No. 107-167, at 4 (2002) – required such settlements

to be filed with the Commission and with the U.S. Department of Justice. See Pub.

L. No. 108-173, §§ 1101-1104, 1111-1117, 117 Stat. 2461-2463 (2003).

 Federal Trade Commission, Agreements Filed with the Federal Trade Commission 3

under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003:

Summary of Agreements Filed in FY 2004, at 1-2 (www.ftc.gov/os/2005/01/050107-

medicareactrpt.pdf).

 Federal Trade Commission, Pay-for-Delay: How Drug Company Pay-Offs Cost 4

Consumers Billions: An FTC Staff Study (January 2010) (“Pay for Delay Study”)

(www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf).

-3-

to use exclusion payments to prevent competition. Id. at 212. Nevertheless, the

Tamoxifen majority adopted its rule because it believed an alternative ruling would

“outlaw all, or nearly all, settlements of Hatch-Waxman infringement actions.” Id.

The majority also reasoned that such settlements would be an ineffective tool to delay

competition because there would be too many generic firms to pay off. Id. at 211-12.

Experience shows otherwise, on both counts. First, branded and generic

pharmaceutical firms can and do settle their patent litigation without exclusion

payments. In fiscal year 2004, prior to the Tamoxifen ruling, none of the fourteen

Hatch-Waxman settlements filed with the Commission involved an exclusion

payment; yet, the parties found other ways to settle. Overall, of the 218 final- 2 3

settlement agreements filed between FY 2004 and FY 2009, 152 (nearly 70 percent)

did not involve such exclusion payments. See Pay for Delay Study, at 4. 4
-4-

Also contrary to the Tamoxifen majority’s assumption, branded firms can (and

do) pay off multiple generic firms. When multiple generic firms are poised to enter,

expected competition among them will substantially reduce their prospective profits,

and each will find it advantageous to agree not to enter, even for a modest exclusion

payment. Indeed, the Commission has charged that, shortly after Tamoxifen, this

phenomenon occurred, delaying generic entry of a drug with nearly $1 billion in

annual sales. See FTC v. Cephalon, Inc., No. 08-2141 (E.D. Pa. complaint filed Feb.

13, 2008) (alleging exclusion-payment settlements with four generic companies).

Of course, even where a branded firm pays off only a single generic challenger,

significant anticompetitive effects can ensue. Paying off the first generic firm will

often delay all entry, for years, because subsequent generic firms are often well behind

in product development. During that time, the branded incumbent will profit

handsomely – at the expense of consumers.

2. The “troubling dynamic” that the Tamoxifen majority dismissed has become

a costly reality. As Commission staff recently found, exclusion-payment settlements

currently protect at least $20 billion in sales of branded drugs from generic

competition. See Pay for Delay Study, supra note 4, at 2. Since the Tamoxifen

decision, the number of final patent settlements that contain both compensation to the

generic firm and a restriction on its ability to market its product has increased from

three in FY 2005 to fourteen in FY 2006 to nineteen in FY 2009. Id. at 1. Not
 Federal Trade Commission, Agreements Filed with the Federal Trade Commission 5

under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003:

Summary of Agreements Filed in FY2008, at 2 (www.ftc.gov/os/2010/01/100113-

mpdim2003rpt.pdf).

 See also Paying off Generics to Prevent Competition with Brand Name Drugs: 6

Should it Be Prohibited?: Hearing Before Senate Judiciary Comm., 110th Cong. 164,

166 (2007) (Stmt. of Michael Wroblewski, Consumers Union) (savings in 2006 alone

from generic competition to Zocor, Pravachol, Zoloft, Wellbutrin, and Flonase

estimated at $6.6 billion).

-5-

surprisingly, these settlements are most common when the generic firm is a first-filer,

whose 180-day marketing exclusivity can effectively block subsequent filers’

attempted entry. Cf. 21 U.S.C. § 355(j)(5)(B)(iv). In FY 2008, for example,

81 percent (13 of 16) of all the final settlements containing both a restriction on

generic entry and compensation to the generic firm involved the generic first-filer.

5

The cost to consumers of these agreements is enormous. In its recent study of

these agreements, Commission staff found that settlements containing exclusion

payments delay generic entry, on average, by nearly 17 months, compared to

settlements with no such payments. See Pay for Delay Study, supra note 4, at 9.

Furthermore, Commission staff found that, even if the practice becomes no more

prevalent than it is now, these settlements already cost consumers an estimated $3.5

billion annually, by conservative estimates. Id. at 2.6

If the Tamoxifen rule were to become settled law nationwide, moreover, the

costs are likely to be even higher. In light of the current uncertainty of the legal
 Compare Tamoxifen with In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th 7

Cir. 2003) (holding such agreements can be per se unlawful).

 The Act fast-tracks FDA drug approval via an Abbreviated New Drug Application 8

(ANDA), upon a showing that the new (generic) drug is “bioequivalent” to an already

approved one. 21 U.S.C. § 355(j). It promotes generic drug development by

declaring certain research and development activities non-infringing, 35 U.S.C.

§ 271(e)(1); Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005), but

maintains the incentives to develop new drugs by extending patent terms to account

for the FDA approval process. 35 U.S.C. § 155.

 The Act requires drug firms to submit to the FDA a list of all the patents that the 9

firm claims cover its drug (the FDA’s “Orange Book”). 21 U.S.C. § 355(b)(1); see

-6-

standard, firms are showing restraint. See supra, text accompanying note 4. If these 7

agreements were clearly beyond antitrust scrutiny, however, there would almost

certainly be more of them (as they are profitable to both sides), causing further delay

in generic entry, beyond current levels, and dramatically increasing the cost to

consumers.

3. Finally, the Tamoxifen rule threatens to eviscerate one of the primary goals

of the Hatch-Waxman Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984). In that Act,

Congress struck a balance that would “make available more low cost generic drugs,”

while fully protecting legitimate patent claims. H.R. Rep. No. 98-857(I), at 14

(1984). The Act includes a range of regulatory mechanisms and economic incentives 8

to accelerate the marketing of generic drugs. It spurs early commencement and

resolution of the patent challenge in this context, by declaring the filing of a

“Paragraph IV-ANDA” an act of infringement, 35 U.S.C. § 271(e)(2); Eli Lilly & Co. 9
Apotex, Inc. v. Thompson, 347 F.3d 1335, 1338 (Fed. Cir. 2003). A generic firm filing

an ANDA must make a certification regarding the coverage of any listed patent over

its proposed product. Most pertinent here, a “Paragraph IV certification” states that

the claimed patent is invalid or is not infringed. 21 U.S.C. § 355(j)(2)(A)(vii)(IV).

 See James T. O’Reilly, Prescription Pricing & Monopoly Extension: Elderly Drug 10

Users Lose the Shell Game of Post-Patent Exclusivity, 29 N. KY. L. REV. 413, 414

(2002) (Congress provided the 180-day exclusivity period as “a reward for

challenging monopolists’ abuse of weak patents”).

 Among their corrective measures, the amendments required the reporting of drug 11

patent settlements, to facilitate review by the antitrust enforcement agencies. See

supra, note 2. Surely Congress would not have imposed such a requirement if it

believed that those agreements raised antitrust concerns only in the rare circumstances

recognized by the Tamoxifen rule.

-7-

v. Medtronic, Inc., 496 U.S. 661, 676 (1990), and by granting the patent holder an

automatic 30-month stay on FDA approval of generic entry if – but only if – it sues

the generic firm for infringement within 45 days, 21 U.S.C. § 355(j)(5)(B)(iii). It also

grants the first generic firm to file a Paragraph IV-ANDA a 180-day marketing

exclusivity for its product, 21 U.S.C. § 355(j)(5)(B)(iv), providing an extra incentive

for challenges to pharmaceutical patents.10

Congress reinforced its statutory policy to encourage such challenges in its

2003 amendments to the Hatch-Waxman Act. See 117 Stat. 2066, 2448-2464 (2003).

Those amendments sought to stamp out the “abuse of the Hatch-Waxman law”

resulting from “pacts between big pharmaceutical firms and makers of generic

versions of brand name drugs, that are intended to keep lower-cost drugs off the

market.” S. Rep. No. 107-167, at 4 (2002).11
-8-

Congress’s decision to reward generic filers challenging patents and to require

that pharmaceutical patent settlements be filed with the federal antitrust agencies

expresses a clear policy preference that pharmaceutical companies not be allowed to

protect weak and narrow patents by buying off challengers. But the Tamoxifen ruling

allows such an outcome, and economic realities make such deals irresistible as long

as they are condoned. This Court should act now to revitalize the congressional

policies undermined by Tamoxifen.

CONCLUSION

The Court should grant rehearing en banc.

RICHARD A. FEINSTEIN

 Director

MARKUS H. MEIER

Assistant Director

BRADLEY S. ALBERT

Deputy Assistant Director

BUREAU OF COMPETITION

MAY 20, 2010

Respectfully submitted,

WILLARD K. TOM

 General Counsel

JOHN F. DALY

 Deputy General Counsel for Litigation

/s/ Imad Abyad

____________________________

IMAD D. ABYAD

 Attorney

FEDERAL TRADE COMMISSION

600 PENNSYLVANIA AVENUE, N.W.

WASHINGTON, DC 20580

(202) 326-2375
CERTIFICATE OF SERVICE

I, Imad Abyad, certify that on this 20 day of May, 2010, I caused copies of the th

foregoing brief amicus curiae to be served on each of the following counsel, by

electronic mail and overnight delivery:

Bruce E. Gerstein

GARWIN GERSTEIN & FISHER LLP

1501 Broadway, Ste. 1416

New York, NY 10036

bgerstein@garwingerstein.com

David F. Sorensen

BERGER & MONTAGUE, P.C.

1622 Locust St.

Philadelphia, PA 19103

dsorensen@bm.net

Steve D. Shadowen

HANGLEY ARONCHICK SEGAL &

PUDLIN

30 North 3rd St., Ste. 700

Harrisburg, PA 17101

sshadowen@hangley.com

David E. Everson

STINSON MORRISON HECKER LLP

1201 Walnut St., Ste. 2900

Kansas City, MO 64106

deverson@stinson.com

Heather S. Woodson

STINSON MORRISON HECKER LLP

10975 Benson, Ste. 550

12 Corporate Woods

Overland Parks, KS 66210

hwoodson@stinson.com

Paul E. Slater

SPERLING & SLATER, P.C.

55 West Monroe St.

Chicago, IL 60603

pes@sperling-law.com

Phillip A. Proger

JONES DAY

51 Louisiana Ave., N.W.

Washington, DC 20001

paproger@jonesday.com

Fred H. Bartlit, Jr.

BARTLIT BECK HERMAN PALENCHAR

& SCOTT LLP

54 West Hubbard St., Ste. 300

Chicago, IL 60654

fred.bartlit@bartlit-beck.com

Karen N. Walker

KIRKLAND & ELLIS LLP

655 15th St., N.W., Ste. 1200

Washington, DC 20005

kwalker@kirkland.com

Stacy J. Canan

AARP FOUNDATION

601 E. St., N.W.

Washington, DC 20049

scanan@aarp.org
Don L. Bell, II

NATIONAL ASSOCIATION OF CHAIN

 DRUG STORES

413 N. Lee St., P.O. Box 1417-D49

Alexandria, VA 22313

dbell@nacds.org

Catherine G. O’Sullivan

U.S. DEPARTMENT OF JUSTICE

950 Pennsylvania Ave., N.W.,

Room 3224

Washington, DC 20530

catherine.o’sullivan@usdoj.gov

 /s/ Imad Abyad

____________________________

IMAD D. ABYAD

 Attorney

FEDERAL TRADE COMMISSION