IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

__________________________________________ 

 ) 

MYLAN PHARMACEUTICALS, INC., et al., ) 

 ) 

Plaintiffs, ) Civil Action No. 12-3824 

 ) CONSOLIDATED

 v. ) 

 ) 

WARNER CHILCOTT PUBLIC LIMITED ) 

COMPANY, et al., ) 

 ) 

Defendants. ) 

__________________________________________) 

FEDERAL TRADE COMMISSION’S BRIEF AS AMICUS CURIAE 

RICHARD A. FEINSTEIN MARKUS H. MEIER 

Director BRADLEY S. ALBERT 

Bureau of Competition HEATHER M. JOHNSON 

 KARA LEE MONAHAN 

 Attorneys for Amicus Curiae

PETER J. LEVITAS Federal Trade Commission 

Deputy Director 600 Pennsylvania Avenue N.W. 

Bureau of Competition Washington, D.C. 20580 

 Telephone: (202) 326-3759 

 Facsimile: (202) 326-3384 

DAVID C. SHONKA mmeier@ftc.gov 

Acting General Counsel 

Federal Trade Commission 

 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 1 of 20
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TABLE OF CONTENTS 

I.   Interest of the Federal Trade Commission .......................................................................... 2

II. Competition in the Pharmaceutical Industry ........................................................................ 4

III. Pharmaceutical Product Redesigns Can Constitute Exclusionary Conduct ...................... 10

IV. Conclusion ......................................................................................................................... 14

 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 2 of 20
iii 

TABLE OF AUTHORITIES 

Cases

Abbott Labs v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006) ............................. 13 

Aspen Skiing Co. v. Aspen Highlands Corp., 472 U.S. 585 (1985) .............................................. 11 

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ........................................................................... 2 

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979) ............................... 11, 12 

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) ............................................... 11 

C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1988) ................................................. 12 

Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, — U.S. —, 132 S. Ct. 1670 (2012) .................. 3 

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).............................................................. 3 

LePage’s Inc., v. 3M, 324 F.3d 141 (3d Cir. 2003) ................................................................ 10, 11 

Mannington Mills, Inc. v. Congoleum Indus., Inc., 610 F.2d 1059 (3d Cir. 1979) ...................... 11 

SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir. 1978) ............................................. 11 

United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005) ............................................... 11 

United States v. Grinnell Corp., 384 U.S. 563 (1966) .................................................................. 10 

United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) .................................................. 2, 11, 12 

Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748 (1976) ............ 4 

Xerox Corp. v. Media Scis. Int'l, Inc., 511 F. Supp. 2d 372 (S.D.N.Y 2007) ............................... 12 

Statutes

15 U.S.C. § 46 ................................................................................................................................. 3 

15 U.S.C. §§ 41-58 ......................................................................................................................... 2 

21 U.S.C. § 355 ............................................................................................................................... 5 

H.R. Rep. No. 98-857, Pt. 1, p.14-17 (1984) .................................................................................. 5 

The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417 ....... 3 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 3 of 20
iv 

Other Authorities

Allison Masson & Robert L. Steiner, FTC, Generic Substitution and Prescription Drug 

Prices: Economic Effects of State Drug Product Selection Laws (September 1985) ........... 4, 10 

Drug Product Selection, Staff Report to the FTC, Bureau of Consumer Protection 

(Jan. 1979)............................................................................................................................4, 6, 7 

FDA Center for Drug Evaluation and Research, Approved Drug Products with Therapeutic 

Equivalence Evaluations (32d ed.) ............................................................................................. 5 

FDA, Facts About Generic Drugs ................................................................................................... 7 

FTC, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition 

(2011) .......................................................................................................................................... 3 

FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy 

(2003) .......................................................................................................................................... 3 

Fiona M. Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry in the US 

Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085 (2000) ................................................... 6 

FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (2011) .......... 4, 7, 8 

FTC, Emerging Health Care Issues: Follow-on Biologic Drug Competition (June 2009) ............ 4 

FTC, Pay-For-Delay: How Drug Company Pay-offs Cost Consumers Billions (2010) ............ 4, 7 

G. Michael Allen et al., Physician Awareness of Drugs Cost: A Systematic Review, 4 PLOS 

Med. 1486 (2007)........................................................................................................................ 6 

Generic Pharmaceutical Association, Generic Drug Savings in the U.S. (4th ed. 2012) ............... 7 

Herbert Hovenkamp et al, IP and Antitrust, 2d. Ed. (2010) § 15.3 .......................................... 9, 12 

KaiserEDU.org, Prescription Drug Costs ...................................................................................... 4 

Marc-André Gagnon, Joel Lexchin, The Cost of Pushing Pills: A New Estimate of 

Pharmaceutical Promotion Expenditures in the United States, 5 PLoS Med 32 (Jan. 2008) .... 9 

Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing 

Dimension of Product Hopping, 62 Fla. L. Rev. 1009 (2010)................................................ 5, 8 

Overview of FTC Antitrust Actions in Pharmaceutical Services and Products (June 2012) ......... 2 

Report of the American Bar Association Section of Antitrust Law Special Committee to Study 

the Role of the Federal Trade Commission, 58 Antitrust L.J. 43 (1989) .................................... 3 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 4 of 20
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The Use of Medicines in the United States: Review of 2010, IMS Institute for Healthcare 

Informatics (April 2011) ............................................................................................................. 8 

U.S. Department of Justice & FTC, Antitrust Enforcement and Intellectual Property Rights: 

Promoting Innovation and Competition (2007) .......................................................................... 3 

U.S. Department of Justice & FTC, Antitrust Guidelines for the Licensing of Intellectual 

Property (1995) ........................................................................................................................... 3 

William H. Shrank et al., The Consequences of Requesting “Dispense as Written,” 124 Am. 

J. Med. 309 (2011) ...................................................................................................................... 7 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 5 of 20
Competition from lower-priced generic drugs saves American consumers billions of 

dollars a year. These consumer savings, however, mean lower profits for brand drug companies. 

It is well-established that when generic entry occurs, the brand drug company suffers a rapid and 

steep decline in sales and profits. The threat of generic competition thus creates a powerful 

incentive for brand companies to protect their revenue streams. This incentive can prompt brand 

companies to create innovative new products that offer medical benefits to patients. But it may 

also drive brand companies to seek to obstruct generic drug competition by making modest 

product reformulations that offer patients little or no therapeutic advantages. 

Such tactics, often referred to as product switching or product hopping, can be an 

effective way to game the regulatory structure that governs the approval and sale of generic 

drugs, thereby frustrating the efforts of federal and state policymakers to facilitate price 

competition in pharmaceutical markets. As discussed below, a brand company can interfere with 

the mechanism by which generic drugs compete by making modest non-therapeutic changes to 

its product, and effectively prevent generic competition, not because the reformulated product is 

preferred by consumers, but simply because it is different. 

Plaintiffs allege that Warner Chilcott engaged in a pattern of product switching, 

introducing three successive product reformulations that, according to their complaints, offered 

little or no apparent medical benefit to consumers. Each reformulation, plaintiffs allege, was 

designed to, and did, impede meaningful generic competition and preserve Warner Chilcott’s 

monopoly profits not on the merits of the reformulations, but by manipulating the pharmaceutical 

regulatory system. Warner Chilcott has moved to dismiss the complaints, asserting that the 

introduction of a new product is essentially per se legal. While courts are properly cautious 

when confronting antitrust challenges to new product introductions, “[j]udicial deference to 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 6 of 20
2 

product innovation. . . does not mean that a monopolist’s product design decisions are per se 

lawful.”1

A key issue raised by Warner Chilcott’s motion to dismiss is whether plaintiffs have 

plausibly alleged exclusionary conduct sufficient to state a claim under Section 2 of the Sherman 

Act.2

 Assessing the plausibility of these allegations requires an understanding of the history and 

context of the federal and state regulations affecting generic drug competition in the 

pharmaceutical industry.3

 The Federal Trade Commission submits this brief as amicus curiae to 

assist the Court in this assessment. The Commission presents background and analysis on the 

role of generics in creating price competition in the pharmaceutical sector and the federal and 

state laws that promote generic competition. In addition, the Commission addresses the 

appropriate antitrust framework to apply when assessing allegations that a brand drug 

reformulation unlawfully delayed or inhibited generic competition. 

I. Interest of the Federal Trade Commission 

The FTC is an independent agency charged by Congress with protecting the interests of 

consumers by enforcing competition and consumer protection laws.4 It exercises primary 

responsibility over federal antitrust enforcement in the pharmaceutical industry.5

 The 

Commission has substantial experience considering and analyzing the balance between antitrust 

 

1 United States v. Microsoft, 253 F.3d 34, 65 (D.C. Cir. 2001) (en banc).

2

 For purposes of this brief, we accept the allegations in Mylan’s complaint as true, as is 

appropriate for a motion to dismiss. The FTC takes no position on the merits of Mylan’s 

allegations. 

3 See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 567 (2007) (considering the history and context 

of the highly regulated telecommunications industry in assessing the plausibility of a complaint). 

4

 15 U.S.C. §§ 41-58. 

5

 For a summary of the FTC’s antitrust actions in the pharmaceutical industry, see Overview of 

FTC Antitrust Actions in Pharmaceutical Services and Products (June 2012), available at

http://www.ftc.gov/bc/healthcare/antitrust/rxupdate.pdf. 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 7 of 20
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and intellectual property laws6

 and the impact of the Hatch-Waxman Act on competition in the 

pharmaceutical industry.7

 

In addition to its role as a law enforcement agency, the FTC has a congressionallymandated role to conduct studies of industry-wide competition issues. To fulfill this role, 

Congress granted the agency broad authority to compel the production of data and information 

not directly related to any law enforcement investigation.8

 As an American Bar Association 

report observed, this authority gives the agency a unique capacity to conduct “systematic, 

institutional stud[ies] of real-world industries and activities” that “modern academic research in 

industrial organization rarely undertakes.”9

 Courts, including the Supreme Court, have relied on 

FTC studies when resolving legal and policy issues.10

 

6

 See, e.g., FTC, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with 

Competition (2011), available at http://www.ftc.gov/os/2011/03/110307patentreport.pdf; U.S. 

Department of Justice & FTC, Antitrust Enforcement and Intellectual Property Rights: 

Promoting Innovation and Competition (2007), available at http://www.ftc.gov/reports/ 

innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf; Federal Trade 

Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and 

Policy (2003), available at www.ftc.gov/os/2003/10/innovationrpt.pdf; U.S. Department of 

Justice & FTC, Antitrust Guidelines for the Licensing of Intellectual Property (1995), available 

at www.usdoj.gov/atr/public/guidelines/0558.htm. 

7

 The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417 

(codified at various sections of Titles 15, 21, and 35 of the U.S. Code). 

8

 The FTC has authority “[t]o require, by general or special orders, persons, partnerships, and 

corporations, engaged in or whose business affects commerce . . . to file with the Commission in 

such form as the Commission may prescribe . . . reports or answers in writing to specific 

questions, furnishing to the Commission such information as it may require as to the 

organization, business, conduct, practices, management, and relation to other corporations, 

partnerships, and individuals.” 15 U.S.C. § 46(b). 

9 Report of the American Bar Association Section of Antitrust Law Special Committee to Study 

the Role of the Federal Trade Commission, 58 Antitrust L.J. 43, 103 (1989). 

10 See, e.g., Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, — U.S. —, 132 S. Ct. 1670, 1678 

(2012) (citing an FTC study on generic pharmaceuticals); eBay Inc. v. MercExchange, L.L.C., 

547 U.S. 388, 396 (2006) (Kennedy, J., concurring) (citing an FTC study on the proper balance 

between competition and patent law); Va. State Bd. of Pharmacy v. Va. Citizens Consumer 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 8 of 20
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The Commission has conducted a variety of empirical studies covering the 

pharmaceutical industry generally and generic substitution for brand drug prescriptions in 

particular.11 The FTC’s 1979 “Drug Product Selection” report examined the effect of legislative 

barriers to generic market entry at the state level, which imposed significant costs on consumers 

by unnecessarily restricting pharmaceutical price competition.12 In 1985, the FTC published a 

comprehensive report analyzing the impact of state legislative initiatives designed to expand 

generic competition and drive down overall prescription drug prices.13 These reports reflect the 

Commission’s long-standing interest in and study of generic drug competition and the legislative 

measures designed to encourage it. 

II. Competition in the Pharmaceutical Industry 

Today, generic drugs play a crucial role in containing rising prescription drug costs by 

offering consumers therapeutically identical alternatives to brand drugs at a significantly reduced 

cost. 14 This was not always the case, however. In the late 1970s, two legal barriers limited 

 

Council, Inc., 425 U.S. 748, 754 n.11, 765 n.20 (1976) (referring to an FTC study concerning 

drug price advertising restrictions). 

11 FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (2011), available 

at http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf (hereinafter AG Report); FTC, 

Pay-For-Delay: How Drug Company Pay-offs Cost Consumers Billions (2010), available at

http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf (hereinafter Pay for Delay); FTC, 

Emerging Health Care Issues: Follow-on Biologic Drug Competition (June 2009), available at

http://www.ftc.gov/os/2009/06/P083901biologicsreport.pdf. 

12 Drug Product Selection, Staff Report to the FTC, Bureau of Consumer Protection (Jan. 1979) 

(hereinafter Drug Product Selection). 

13 Allison Masson & Robert L. Steiner, FTC, Generic Substitution and Prescription Drug Prices: 

Economic Effects of State Drug Product Selection Laws at 8-13 (September 1985) (hereinafter 

Masson & Steiner). 

14 See e.g., KaiserEDU.org, Prescription Drug Costs, available at http://www.kaiseredu.org 

/Issue-Modules/Prescription-Drug-Costs/Background-Brief.aspx (explaining that “increases in 

prescription drug costs have outpaced other categories of health care spending” in the past two 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 9 of 20
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generic competition: (1) the costly and lengthy FDA approval process and (2) state antisubstitution laws that restricted generic sales.15 Congress remedied the first issue through the 

Hatch-Waxman Act; state legislatures remedied the second issue through drug substitution law 

reform. 

In 1984, Congress passed the Hatch-Waxman Act, which was designed to foster the entry 

of low-cost generic drugs without sacrificing the incentives for pharmaceutical companies to 

invest in developing new drugs.16 This Act provides for accelerated approval of generic drugs by 

the FDA through an Abbreviated New Drug Application (ANDA), upon a showing that the 

generic drug is bioequivalent to its brand drug counterpart. 21 U.S.C. § 355(j). A generic drug 

is considered bioequivalent or “AB-rated” if it contains the same active pharmaceutical 

ingredient as the brand drug, is the same dosage and form, and exhibits a similar rate and extent 

of absorption as the brand product.17 Allowing generic manufacturers to rely on brands’ safety 

and efficacy studies significantly reduced generic drug development costs and expedited the 

FDA approval process.18 

 

decades and that prescription drug costs are “projected to exceed the growth rates for hospital 

care and other professional services in 2010 and through 2019”) (last visited Nov. 14, 2012). 

15 In the early 1980s, 150 drugs whose patent terms had expired did not face generic competition. 

Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing 

Dimension of Product Hopping, 62 Fla. L. Rev. 1009, 1013 (2010). 

16 H.R. Rep. No. 98-857, Pt. 1, p. 14-17 (1984). The Act safeguards brand patent rights by 

affording a patent holder the opportunity to trigger a 30-month stay on FDA approval of a 

generic drug so that it may attempt to enforce its patents through litigation. 21 U.S.C. § 

355(j)(5)(B)(iii). 

17 FDA Center for Drug Evaluation and Research, Approved Drug Products with Therapeutic 

Equivalence Evaluations (32d ed.), http://www.fda.gov/drugs/developmentapprovalprocess 

/ucm079068.htm (last visited October 11, 2012). 

18 21 U.S.C. §§ 355 (j)(2)(A)(ii), (iii), (iv). 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 10 of 20
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As to the second barrier, anti-substitution laws in effect in most states in the 1970s 

prohibited pharmacists from substituting a generic version of a brand drug at the pharmacy 

counter. These laws reinforced an existing feature of prescription drug markets that already 

significantly limited price competition: The physician – who selects the drug product but does 

not pay for it – has little incentive to consider price when deciding which drug to prescribe. In 

its Drug Product Selection Report, the FTC explained this basic problem: 

[T]he forces of competition do not work well in a market where the consumer 

who pays does not choose, and the physician who chooses does not pay. Patients 

have little influence in determining which products they will buy and what prices 

they must pay for prescriptions.19

 

Given this feature, it is not surprising that studies have consistently shown that physicians 

are not well-informed about the price of existing products or the availability of cheaper 

alternatives.20 

In 1979, the FTC and FDA published a model state drug substitution law to allow 

pharmacy substitution among bioequivalent products. State legislatures responded with legal 

reforms to promote access to generic drugs. Today, all states facilitate competition through laws 

that allow a pharmacist to substitute an AB-rated generic drug when presented with a 

prescription for its brand equivalent, unless a physician directs or the patient requests otherwise. 

These state substitution laws “foster price competition by allowing the only principals who have 

financial incentives to make price comparisons – the pharmacist and the patient – to select drug 

 

19 Drug Product Selection, supra note 12, at 2-3. 

20 Fiona M. Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry in the US 

Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085, 1086-87 (2000); see also, e.g., G. Michael 

Allen et al., Physician Awareness of Drugs Cost: A Systematic Review, 4 PLOS Med. 1486, 1486 

(2007) (reviewing studies over the last ten years and concluding the doctors overestimated prices 

of inexpensive products and underestimate the prices of expensive ones). 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 11 of 20
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products on the basis of price.”21 Together, the Hatch-Waxman Act and the state substitution 

laws create a regulatory framework designed to reduce costs for consumers by lowering generic 

costs and increasing the role of price at the retail pharmacy counter. Whatever “free-riding” 

occurs (Defs. Br. Mot. Dismiss 23-24) is the intended result of the legislative framework of the 

Hatch-Waxman Act and the state substitution laws. 

The Hatch-Waxman Act and state substitution law reforms have been remarkably 

successful in facilitating generic competition and generating large savings for patients, health 

care plans, and federal and state governments. The first generic competitor’s product is typically 

offered at a 20% to 30% discount to the brand product.22 Subsequent generic entry creates 

greater price competition, with discounts of 85% or more off the price of the brand name drug.23 

A recent study of 5.6 million prescriptions revealed that patients and their insurance plans 

respectively paid an average of $17.90 and $26.67 for generic drugs and an average of $49.50 

and $158.25 for brand drugs where no generic existed. 24 In 2011 alone, the use of generic drugs 

generated $192 billion in total consumer savings.25 

While generic alternatives save consumers billions of dollars, these savings come at the 

expense of additional profits to brand companies. As a result of lower prices and ease of 

substitution, many consumers routinely switch from the brand drug to a bioequivalent generic 

 

21 Drug Product Selection, supra note 12, at 7. 

22 AG Report, supra note 11, at ii-iii. 

23 Pay for Delay, supra note 11, at 8 (“in a mature generic market, generic prices are, on average, 

85% lower than the pre-entry branded drug price”); see also FDA, Facts About Generic Drugs, 

http://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/Understa

ndingGenericDrugs/ucm167991.htm (last visited Nov. 14, 2012). 

24 William H. Shrank et al., The Consequences of Requesting “Dispense as Written,” 124 Am. J. 

Med. 309, 311 (2011). 

25 Generic Pharmaceutical Association, Generic Drug Savings in the U.S. (4th ed. 2012) at 2. 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 12 of 20
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drug upon its introduction. Consequently, bioequivalent generic drugs typically capture over 

80% of a brand drug’s sales within six months of market entry.26 As just one example, the brand 

osteoporosis drug Fosamax, which had over $1.5 billion in annual sales prior to generic entry, 

lost 84% of its retail market share just 30 days after generic entry.27

The threat posed to existing brand drugs by generic competition can incentivize the brand 

company facing dramatic loss of sales to develop new and innovative drugs that benefit 

consumers. This threat can also incentivize the brand company to engage in a strategy known as 

“product switching,” or “product hopping” to impede generic substitution and thus meaningful 

generic competition. Product hopping can work in the following way: first, the brand 

manufacturer makes minor non-therapeutic changes to the brand product, such as a dosage or 

form change. Next, prior to generic entry, it removes the original product from the marketplace, 

or accomplishes this indirectly, such as by recalling supply of the original product or raising the 

price of the original product by a meaningful amount above the reformulated one.28 Such 

conduct can push patients and physicians to abandon the original product. In this way, a brand 

manufacturer can convert existing market demand for the original product to its reformulated 

product – not because physicians and patients prefer it, but simply because the original product is 

no longer as available or is more costly.29 Once the original version of the brand product is less 

 

26 AG Report, supra note 11, Ch. 4, n.6; see also The Use of Medicines in the United States: 

Review of 2010, IMS Institute for Healthcare Informatics, at 3 (April 2011), available at 

http://www.imshealth.com/imshealth/Global/Content/IMS%20Institute/Documents/IHII_UseOf

Med_report%20.pdf. 

27 AG Report, supra note 11, Ch. 4, n.7. 

28 Carrier, supra note 15, at 1025-27, 1035. 

29 While it is true that physicians are typically uninformed about drug prices and do not price 

compare between products, they may be persuaded by the claim made by brand companies: that 

the reformulated product is equal to or better than the original version at a lower price to the 

consumer. See id. 

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available or more expensive, physicians will stop writing prescriptions for it. Because the 

prescription must contain, among other things, the same dosage and form as the generic for a 

pharmacist to substitute it for the brand, a product switch will effectively eliminate substitution 

at the pharmacy counter and thus meaningful generic competition. As the author of the leading 

antitrust treatise put it: “Product-hopping seems clearly to be an effort to game the rather 

intricate FDA rules. . . . The patentee is making a product change with no technological benefit 

solely in order to delay competition.”30 

As a practical matter, if a generic cannot be substituted at the pharmacy counter, the 

economically meaningful market for the generic product disappears. Generic substitution is 

based, in part, on the premise that generic products will not be promoted like brand drugs. While 

the generic can attempt to market a non-substitutable generic product directly to prescribing 

physicians, such a costly undertaking undermines the ability of generic companies to offer the 

lower price benefits that the federal and state regulatory framework was intended to foster. 31 

Moreover, such marketing, even if effective in causing physicians to prescribe the particular 

company’s generic product, does not guarantee the sale of that product when the patient goes to 

the pharmacy. The pharmacy may stock a different company’s generic and unless the physician 

has ordered “dispense as written” the pharmacy can fill the prescription with the alternative 

generic. Indeed, a company that does not bear the cost of such marketing to physicians is likely 

 

30 Herbert Hovenkamp et al, IP and Antitrust, 2d. Ed. (2010) § 15.3 at 15-75. 

31 Indeed, the promotional budgets for brand pharmaceutical companies are large and can be 

double the research and development budgets. See e.g., Marc-André Gagnon, Joel Lexchin, The 

Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United 

States, 5 PLoS Med 32 (Jan. 2008). 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 14 of 20
10 

to offer a lower-priced generic product.32 Thus, by definition and design generic drugs are 

lower-cost substitutes that do not compete with the promotional efforts of brand drug firms. If 

the brand manufacturer reformulates its product before a generic receives FDA approval, the 

generic’s only practical option is to go back to the drawing board and reformulate its own 

product to be bioequivalent to the brand reformulation and thus substitutable at the pharmacy. 

III. Pharmaceutical Product Redesigns Can Constitute Exclusionary Conduct 

Plaintiffs allege, among other things, that Warner Chilcott maintained its monopoly in the 

Doryx market by suppressing competition from lower-priced generic versions of the drug in 

violation of Section 2 of the Sherman Act. A monopolization offense has two basic elements: 

“(1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or 

maintenance of that power as distinguished from growth or development as a consequence of a 

superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 

U.S. 563, 570-71 (1966). A central issue raised by Warner Chilcott’s motion to dismiss is 

whether plaintiffs have adequately alleged that Warner Chilcott maintained its monopoly power 

through exclusionary conduct.33 

Generally speaking, “[a] monopolist willfully acquires or maintains monopoly power 

when it competes on some basis other than the merits.” LePage’s Inc., v. 3M, 324 F.3d 141, 147 

(3d Cir. 2003). Specifically, exclusionary conduct involves “behavior that not only (1) tends to 

impair the opportunities of rivals, but also (2) either does not further competition on the merits or 

does so in an unnecessarily restrictive way.” Aspen Skiing Co. v. Aspen Highlands Corp., 472 

 

32 Under the drug substitution laws, a pharmacy has the incentive to stock only the lowest priced 

generic drug to increase the pharmacy’s own margins. Masson & Steiner, supra note 13, at 7, 

35-39. 

33 The FTC does not address Warner Chilcott’s additional contention that plaintiffs have failed 

adequately to allege monopoly power. 

Case 2:12-cv-03824-PD Document 116-2 Filed 11/21/12 Page 15 of 20
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U.S. 585, 605 n.32 (1985). Such conduct is condemned under Section 2 of the Sherman Act 

when its anticompetitive effects outweigh its procompetitive benefits. See United States v. 

Microsoft Corp., 253 F.3d 34, 58-59 (D.C. Cir 2001) (en banc). Traditional Section 2 analysis 

therefore involves a balancing test that is inherently fact-intensive and depends on the specific 

context of the conduct involved. LePage’s, 324 F.3d at 152. It also must be guided by the 

“economic realities” of the industry at issue. United States v. Dentsply Int’l, Inc., 399 F.3d 181, 

189 (3d Cir. 2005). Applying this fact-intensive analysis, the Third Circuit has found a broad 

range of conduct to be unlawfully exclusionary.34 

The basic premise of Warner Chilcott’s motion to dismiss is that product changes or 

redesigns can never constitute exclusionary conduct. According to Warner Chilcott, “such 

conduct is either competition-enhancing (if the new version represented an improvement) or at 

worst competition-neutral because one version was replaced by another.” (Defs.’ Br. Mot. 

Dismiss 21.) To be sure, product changes are often procompetitive. As the Second Circuit 

explained in Berkey Photo, Inc. v. Eastman Kodak Co., “a monopolist is permitted, and indeed 

encouraged . . . to compete aggressively on the merits, [and] any success that it may achieve 

through the process of invention and innovation is clearly tolerated by the antitrust laws.” 603 

F.2d 263, 281 (2d Cir. 1979). Accordingly, “[as] a general rule, courts are properly very 

skeptical about claims that competition has been harmed by a dominant firm’s product design 

changes.” Microsoft, 253 F.3d at 65. 

 

34 See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) (patent holder engaging 

in deceptive conduct before standard-setting organization); Dentsply, 399 F.3d at 181 (exclusive 

contracts denying access to a particular distribution channel); LePage’s, 324 F.3d at 141 

(exclusive dealing and bundled rebates); Mannington Mills, Inc. v. Congoleum Indus., Inc., 610 

F.2d 1059 (3d Cir. 1979) (patent licensing practices); SmithKline Corp. v. Eli Lilly & Co., 575 

F.2d 1056 (3d Cir. 1978) (bundling of pharmaceutical products). 

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Nonetheless, it is well-established that a monopolist’s product change can violate the 

antitrust laws. “Judicial deference to product innovation . . . does not mean that a monopolist’s 

product design decisions are per se lawful.” Id. For example, in Microsoft, the en banc D.C. 

Circuit unanimously affirmed the holding that two design changes by Microsoft to its software 

violated the Sherman Act because they had no “procompetitive justification,” and served no 

purpose “other than protecting [Microsoft’s] operating system monopoly.” Id. at 59, 66-67. And 

in C.R. Bard, the Federal Circuit similarly affirmed a monopolization verdict based on the jury’s 

finding that Bard modified its product to injure competitors rather than to improve the product. 

C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1382 (Fed. Cir. 1988).35 

The potential for anticompetitive product redesign is particularly acute in the 

pharmaceutical industry. In most other industries, the success of a new product in the 

marketplace reflects consumer choice. Courts are properly reluctant to question the innovative 

value of a new product in those circumstances. See Berkey Photo, 603 F.2d at 286-87 (“If a 

monopolist’s products gain acceptance in the market. . . it is of no importance that a judge or jury 

may later regard them as inferior”). In the pharmaceutical industry, however, the success of a 

product switching scheme does not depend on whether consumers prefer the reformulated 

version of the product over the original, or whether the reformulated version provides any 

medical benefit. Instead, as the district court in Abbott Labs v. Teva (Tricor) explained, “[t]he 

 

35 See also Xerox Corp. v. Media Scis. Int'l, Inc., 511 F. Supp. 2d 372, 387 (S.D.N.Y 2007) 

(“several courts have found that product redesign, when it suppresses competition and is without 

other justification, can be violative of the antitrust laws”); Berkey Photo, 603 F.2d at 286 n.30 

(“This is not to say, of course that new product introductions are ipso facto immune from 

antitrust scrutiny . . . . [I]n all such cases, however, it is not the product introduction itself but 

some associated conduct that supplies the violation.”); Hovenkamp, supra note 30, § 15.3 at 15-

75. 

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13 

nature of the pharmaceutical drug market” does not always permit “the merits of any new 

product [to] be tested by unfettered consumer choice.”36 

For example, prior to facing generic competition, a brand company can introduce a 

reformulated product, and simply withdraw the original product, as the plaintiffs alleged in 

Tricor. In such a situation, consumers do not choose the reformulated product based on its 

merits; instead, the brand forces the switch by removing the product from the market and 

preventing consumers from weighing the relative merits of competing products. A brand 

company can achieve the same result through indirect means (such as by raising the price of the 

original product by a meaningful amount or by creating supply shortages of the original product 

prior to facing generic competition) so that there is effectively no longer a market for the original 

product when a generic would be ready to enter. 

In Tricor, the district court denied a motion to dismiss where the brand company argued 

that its product changes were per se lawful – the same argument Warner Chilcott advances here. 

Instead, the court held that the relevant antitrust inquiry should assess whether the consumer 

harm created by lost generic competition outweighed the procompetitive benefit of the product 

reformulation.37 The court further rejected the suggestion that plaintiffs were required to prove 

that the “new formulations were absolutely no better than the prior version or that the only 

purpose of the innovation was to eliminate the complementary product of a rival.”38 Instead, the 

court explained, “as in Microsoft, if plaintiffs show anticompetitive harm from the formulation 

changes, that harm will be weighed against any benefits presented by defendants.”39 

 

36 Abbott Labs v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408, 422 (D. Del. 2006). 

37 Id. 

38 Id. 

39 Id. 

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The FTC respectfully submits that, like the plaintiffs in Tricor, plaintiffs in this case have 

stated a plausible claim that defendants’ product reformulations constitute an unlawful means of 

preserving monopoly power in violation of Section 2 of the Sherman Act. Plaintiffs allege that 

Warner Chilcott effectuated three successive product reformulations to impede generic 

substitution (Mylan’s Compl. ¶¶ 2, 52-56, 61-72); that Warner Chilcott effectively converted the 

market from the prior Doryx version to the reformulated version in advance of generic entry by, 

among other things, discontinuing the sale of the prior version (Mylan’s Compl. ¶¶ 49, 54), 

asking its major customers to return inventory of the prior version (Mylan’s Compl. ¶ 67) or 

otherwise making the prior versions less available (Mylan’s Compl. ¶ 63); that the reformulated 

products “provided little or no benefit other than to exclude generic competition from the 

market” (Mylan’s Compl. ¶¶ 55, 75); and that Warner Chilcott’s conduct “precluded and/or 

reduced, rather than expanded consumer choice.” (Mylan’s Compl. ¶ 82). The allegations that 

defendants used product reformulations to manipulate the pharmaceutical regulatory system and 

thereby suppress generic competition are sufficient to state a claim of exclusionary conduct. 

Applying a per se legal standard, as Warner Chilcott effectively advances here, would entitle 

brand pharmaceutical companies, as a matter of law, to manipulate the FDA regulatory process 

and undermine state and federal laws that encourage generic competition. 

IV. Conclusion 

The FTC respectfully requests that the Court carefully consider the history and context of 

the federal and state regulations affecting generic drug competition in the pharmaceutical 

industry when considering the allegations in plaintiffs’ complaints. The FTC would be pleased 

to address any questions the Court may have, including by participation at any hearing, should 

the Court find it useful. 

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Dated: November 21, 2012 

Respectfully submitted, 

 /s/ Markus H. Meier 

RICHARD A. FEINSTEIN MARKUS H. MEIER 

Director BRADLEY S. ALBERT 

Bureau of Competition HEATHER M. JOHNSON 

 KARA LEE MONAHAN 

Attorneys for Amicus Curiae

PETER J. LEVITAS Federal Trade Commission 

Deputy Director 600 Pennsylvania Avenue N.W. 

Bureau of Competition Washington, D.C. 20580 

 Telephone: (202) 326-3759 

 Facsimile: (202) 326-3384 

DAVID C. SHONKA mmeier@ftc.gov

Acting General Counsel 

Federal Trade Commission 

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