Case: 15-2236 Document: 003112439683 Page: 1 Date Filed: 10/19/2016

No. 15-2236

IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT 

____________________

MYLAN PHARMACEUTICALS INC.,

 Plaintiff-Appellant,

v.

WARNER CHILCOTT PLC, ET AL.,

 Defendants-Appellees.

____________________

On Appeal from the United States District Court

For the Eastern District of Pennsylvania (No. 2:12-cv-03824-PD) 

____________________

BRIEF FOR AMICUS CURIAE FEDERAL TRADE COMMISSION 

IN SUPPORT OF PLAINTIFF-APPELLANT 

MYLAN PHARMACEUTICALS INC.’S PETITION FOR REHEARING 

AND REHEARING EN BANC

____________________

MARKUS H. MEIER DAVID C. SHONKA

Acting Deputy Director Acting General Counsel

BRADLEY S. ALBERT JOEL MARCUS

Deputy Assistant Director Deputy General Counsel for Litigation

HEATHER M.JOHNSON MARK S. HEGEDUS

Attorney Attorney

Bureau of Competition Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov
i 

TABLE OF CONTENTS

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

INTRODUCTION .................................................................................................... 1

INTEREST OF THE FEDERAL TRADE COMMISSION..................................... 3

ARGUMENT............................................................................................................ 3

I. The Court Should Clarify That it Did Not Intend to Limit the 

Kinds of Evidence Used to Analyze Monopoly Power ....................... 3

A. Direct Evidence of Monopoly Power ........................................ 4

B. Indirect Evidence of Monopoly Power...................................... 7

II. The Panel Improperly Focused on the Effect of Product 

Hopping on Mylan Rather Than its Overall Effect on 

Competition.......................................................................................... 9

CONCLUSION....................................................................................................... 13

COMBINED CERTIFICATES

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ii 

TABLE OF AUTHORITIES

CASES

Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585 (1985) ..............................10

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007)................... 10, 11

Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962)..................................10

California Dental Association v. FTC, 526 U.S. 756 (1999).................................... 5 

FTC v. Actavis Inc., 133 S. Ct. 2223 (2013)..........................................................3, 6

FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986) ................................................ 5 

FTC v. Penn State Hershey Medical Center, 2016 U.S. App. LEXIS 17525 

(3d Cir. Sept. 27, 2016).....................................................................................2, 9

Geneva Pharm. Tech. Corp. v. Barr Labs., Inc., 386 F.3d 485 (2d Cir. 2004)......... 8 

King Drug Co. of Florence, Inc. v. Cephalon, Inc., 88 F. Supp. 3d 402 

(E.D. Pa. 2015)...................................................................................................... 6 

Lorain Journal Co. v. United States, 342 U.S. 143 (1951) .....................................11

McWane, Inc. v. FTC, 783 F.3d 814 (11th Cir. 2015)....................................... 10-11

Meijer, Inc. v. Barr Pharms., Inc., 572 F. Supp. 2d 38 (D.D.C. 2009)..................... 8 

New York v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015)..........................................11 

SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir. 1978).......................... 8 

United States v. Archer-Daniels-Midland Corp., 866 F.2d 242 (8th Cir. 1988)....... 8 

United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005)............. 10, 11, 12

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)...................... 10, 11

STATUTES

15 U.S.C. § 41 et seq. ................................................................................................. 3 

MISCELLANEOUS 

2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 520b2 

 (4th ed. 2014)......................................................................................................... 7 

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iii

FTC, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions 8 

(2010) (“Pay-for-Delay Report”), 

https://www.ftc.gov/reports/pay-delay-how-drug-company-pay-offs-costconsumers-billions-federal-trade-commission-staff.........................................1, 6

Generic Pharm. Ass’n, Generic Drug Savings in the U.S. (6th ed. 2014)................. 1 

In re Asacol Antitrust Litig., Memorandum of Law in Support of Defendants 

Motion to Dismiss, No. 1:15-cv-12730 (D. Mass. Oct. 11, 2016)....................... 8 

Case: 15-2236 Document: 003112439683 Page: 4 Date Filed: 10/19/2016
1 

INTRODUCTION

The Federal Trade Commission works to ensure that consumers benefit from 

generic drug competition, which saved them $239 million in 2013 alone.1 These 

savings are driven in part by state laws that permit or require pharmacists to 

substitute a typically cheaper generic drug for the more expensive brand-name 

drug when they fill prescriptions.2 Efforts to obstruct the operation of generic 

substitution laws can raise significant competitive concerns. This case involves 

allegations of one such way to defeat substitution laws called “product hopping”

— the practice of making trivial and non-therapeutic changes to existing drugs that 

make generic substitution laws inapplicable to the new formulation.

The panel generally acknowledged that product hopping could amount to 

anticompetitive conduct, see slip op. at 40-41, but several aspects of the decision’s

analysis are not consistent with established antitrust precedent, including decisions 

of this Circuit, and could be relied on by litigants to make it harder to prove future 

product hopping cases, to consumers’ detriment. Indeed, one litigant has already

invoked language in the opinion to defend against alleged anticompetitive conduct. 

The FTC therefore urges the Court to clarify or amend its decision to correct those 

 

1 Generic Pharm. Ass’n, Generic Drug Savings in the U.S., at 1 (6th ed. 2014). 

2 FTC, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions 8 

(2010) (“Pay-for-Delay Report”), https://www.ftc.gov/reports/pay-delay-howdrug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff. 

Case: 15-2236 Document: 003112439683 Page: 5 Date Filed: 10/19/2016
2 

misstatements of law. Although we support the petition for rehearing or rehearing 

en banc, we take no position on the ultimate merits of this case.

First, the Court should clarify that a plaintiff may seek to prove monopoly 

power with any type of evidence that directly shows monopoly power, not only the 

kinds of evidence the panel found absent here. Although the panel was correct that 

direct evidence demonstrating monopoly power includes proof of high price-cost 

margins or restricted output, under established law it also can include evidence of 

actual detrimental effects, such as a showing that a defendant’s conduct blocked 

the entry of a generic product that would have decreased price significantly. 

Monopoly power can also be inferred from conduct that would be irrational for a 

firm lacking such power.

Similarly, indirect proof of monopoly power through examination of market 

structure is not limited to evidence showing that products are functionally 

interchangeable or evidence of price cross-elasticity. As this Court recently 

recognized in FTC v. Penn State Hershey Medical Center, 2016 U.S. App. LEXIS 

17525 (3d Cir. Sept. 27, 2016), relevant markets should be defined to reflect 

evolving economic understanding, which can include frameworks such as the 

hypothetical monopolist test. 

Second, the Court should correct the panel’s analysis of exclusionary 

conduct. Antitrust analysis is concerned with effects on competition, not effects on 

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3 

competitors. But the panel incorrectly analyzed whether Warner Chilcott engaged 

in exclusionary conduct by focusing on its effect on Mylan, as a competitor, rather 

than the effect of Warner Chilcott’s alleged product hopping on competition (and

ultimately consumers), which occurs through automatic substitution at the 

pharmacy. Further, in analyzing the exclusionary conduct at issue here, the Court 

should confirm that “total foreclosure” is not required to prevail on a 

monopolization claim.

INTEREST OF THE FEDERAL TRADE COMMISSION

The FTC is an independent agency charged with promoting a competitive 

marketplace and protecting consumer interests. See 15 U.S.C. § 41 et seq. As 

exemplified by FTC v. Actavis Inc., 133 S. Ct. 2223 (2013), the Commission 

exercises primary responsibility over federal antitrust enforcement in the 

pharmaceutical industry. The Commission participated as an amicus in this 

proceeding before both the district court and the panel. 

ARGUMENT

I. THE COURT SHOULD CLARIFY THAT IT DID NOT INTEND TO LIMIT THE 

KINDS OF EVIDENCE USED TO ANALYZE MONOPOLY POWER

The panel concluded that, based on the factual record before it, Mylan failed 

to establish disputed facts that Warner Chilcott possessed monopoly power. First, it 

found that Mylan had failed to provide direct evidence of monopoly power. Slip 

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op. 28. Second, it concluded that Mylan had not shown indirect evidence of 

monopoly power through Warner Chilcott’s share of a relevant market. The panel 

concluded that the market comprised all oral tetracylines, not just Doryx and its 

generic substitutes, and that Warner Chilcott had an approximately 18 percent 

share in that market. Slip op. 29-30. The FTC is not privy to the sealed evidence 

that underlies the panel’s conclusion. Nevertheless, we are concerned that specific 

statements in the decision could be read — and already are being used — to 

prevent plaintiffs from using sound economic analysis to demonstrate monopoly 

power.

A. Direct Evidence of Monopoly Power

Addressing proof of monopoly power through direct evidence, the decision 

states that “a plaintiff must often provide an analysis of the defendant’s costs, 

showing both that the defendant had an ‘abnormally high price-cost margin’ and 

that the defendant ‘restricted output.’” Slip op. at 25-26 (quoting Geneva Pharm. 

Tech. Corp. v. Barr Labs., Inc., 386 F.3d 485, 500 (2d Cir. 2004)). It continues that 

“we must examine whether the record includes any proof of Defendants’ market 

power based on supracompetitive pricing or restricted output.” Slip op at 26; see 

also id. at n. 53 (declining to review Mylan’s expert testimony “in the absence of 

clear evidence of supracompetitive prices or restricted output”). These statements 

suggest that only supracompetitive pricing or restricted output qualify as evidence 

Case: 15-2236 Document: 003112439683 Page: 8 Date Filed: 10/19/2016
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of direct effects, and that other evidence of direct effects will not suffice to 

establish monopoly power. 

Under established principles of antitrust law, however, direct evidence of 

monopoly power is not so limited. For example, monopoly power also may be 

shown through direct evidence of detrimental effects. “Since the purpose of the 

inquiries into market definition and market power is to determine whether an 

arrangement has the potential for genuine adverse effects on competition, ‘proof of 

actual detrimental effects, such as a reduction of output,’ can obviate the need for 

an inquiry into market power, which is but a ‘surrogate for detrimental effects.’”

FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460-61 (1986) (quoting 7 Phillip E. 

Areeda, Antitrust Law ¶ 1511, at 429 (1986)). As Justice Breyer observed in 

California Dental Association v. FTC, 526 U.S. 756, 793 (1999) (Breyer, J., 

concurring in part, dissenting in part), the ultimate purpose of the monopoly power 

inquiry is to determine whether the conduct at issue makes a “real world 

difference” to consumers. 

Thus, where a plaintiff alleges competitive harm from a brand-name drug 

manufacturer’s eliminating or limiting generic competition through product 

hopping or other exclusionary conduct, direct evidence of monopoly power could 

include evidence showing that prices would have dropped had the drug not been 

excluded from the market. Before generic entry, a branded drug may compete to a 

Case: 15-2236 Document: 003112439683 Page: 9 Date Filed: 10/19/2016
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limited degree on price or some other basis with other products used to treat the 

same condition. But prices drop radically once generics enter the market — 

85 percent on average, and generics capture about 90 percent of unit sales. See

Pay-for-Delay Report at 8. The competitive effect of generic entry shows that 

generics are uniquely close competitors to their brand-name counterpart and that 

other drugs on the market were less close competitors. Indeed, if other drugs had 

offered the same degree of competition as the generic, prices would already have 

been driven down and generic entry would not have such an enormous impact on 

price and market share. Product strategies precluding or reducing generic

competition therefore can make a “real world difference” to consumers by 

allowing the brand to sustain higher prices.

The brand-name manufacturer’s own conduct may also provide direct 

evidence of monopoly power. For example, in Actavis, the Supreme Court 

observed that the willingness of a branded drug manufacturer to pay would-be 

generic competitors to stay out of the market is by itself a “strong indicator of 

power” over prices. 133 S. Ct. at 2236 (quoting 12 Herbert Hovenkamp, Antitrust 

Law ¶ 2046, at 351 (3d ed. 2012)); see also King Drug Co. of Florence, Inc. v. 

Cephalon, Inc., 88 F. Supp. 3d 402, 414 (E.D. Pa. 2015). 

The same logic applies to product hopping. A company making trivial and 

therapeutically insubstantial changes merely to prevent or delay generic entry 

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would not benefit from that behavior unless it had monopoly power that it was 

trying to protect. See 2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law 

¶ 520b2, at 214 (4th ed. 2014) (“Market power can sometimes be inferred from an 

exclusionary practice that would not be a rational act for a firm lacking significant 

power.”). The most natural explanation for product hopping is that the brand-name 

manufacturer wants to maintain profits that a generic would undermine and no 

alternative drug had yet disciplined. 

To minimize the risk that the panel decision will be misunderstood, the 

Court should clarify that a party may establish direct evidence of monopoly power 

not only by showing supracompetitive prices or restricted output, but also by 

demonstrating other actual detrimental effects or conduct that would be irrational 

absent monopoly power. 

B. Indirect Evidence of Monopoly Power

The decision correctly recognized that monopoly power may also be proven 

through indirect evidence, including high market shares in a defined relevant 

market. Slip op. at 28-29. It continued that this analysis involves an assessment of

“the reasonable interchangeability of use between a product and its substitute” and 

the products’ “cross-elasticity of demand.” Id. at 29 (quotations and citations 

omitted). The FTC is concerned that these statements can be read, and are being 

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used, to place unwarranted emphasis on the role of product interchangeability in 

defining relevant markets.3

 

Interchangeability is relevant to market definition, but it does not end the 

analysis. See, e.g., Meijer, Inc. v. Barr Pharms., Inc., 572 F. Supp. 2d 38, 58 

(D.D.C. 2009) (functional interchangeability probative but “certainly not 

dispositive”). The critical question is whether interchangeability disciplines prices. 

Where it does not, the relevant market must exclude even functionally 

interchangeable products. See Geneva Pharm. Tech. Corp. v. Barr Labs., Inc., 386 

F.3d 485, 496 (2d Cir. 2004) (relevant market limited to generic version of brandname drug); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1064-65 (3d Cir. 

1978) (despite some functional interchangeability among antibiotics, specific class 

of antibiotics represented a separate product market based on a lack of crosselasticity); United States v. Archer-Daniels-Midland Corp., 866 F.2d 242, 248 (8th 

Cir. 1988) (functionally interchangeable sweeteners were in separate product 

markets because “a small change in the price of [one] would have little or no effect 

on the demand for [the other]”). 

 

3 For example, the defendants in In re Asacol Antitrust Litigation have cited the 

decision to suggest that a brand-name and generic product market cannot be a 

relevant market and that the district court should focus solely on 

interchangeability. In re Asacol Antitrust Litig., Memorandum of Law in Support 

of Defendants Motion to Dismiss, No. 1:15-cv-12730 (D. Mass. Oct. 11, 2016). 

Case: 15-2236 Document: 003112439683 Page: 12 Date Filed: 10/19/2016
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More generally, an exclusive focus on product interchangeability is contrary 

to this Court’s recent recognition in Penn State Hershey Medical Center, that 

antitrust analysis of a practice must account for its economic and competitive 

consequences. 2016 U.S. App. LEXIS 17525, at *11. In Hershey, for example, the 

Court defined the relevant market using the hypothetical monopolist test, “a 

common method employed by courts and the FTC” as part of its competitive 

effects analysis. Id. at *15. Under that test, a proposed market is properly defined 

“if a hypothetical monopolist could impose a small but significant non-transitory 

increase in price (‘SSNIP’) in the proposed market.” Id. at *14-*15. Thus, in the 

context of evaluating the competitive impact of conduct preventing or limiting 

generic competition, evidence that a hypothetical monopolist could profitably raise 

prices if it controlled the brand and generic versions of a drug would be relevant to 

defining the relevant market. 

The Court should clarify that market definition can be shown not only 

through evidence of interchangeability and cross-price elasticity of products but 

also in other economically sound ways. 

II. THE PANEL IMPROPERLY FOCUSED ON THE EFFECT OF PRODUCT HOPPING 

ON MYLAN RATHER THAN ITS OVERALL EFFECT ON COMPETITION

The panel concluded that “Mylan was advantaged in the generic market” and 

“reaped generous profits from its sales of the generic tablet, in the amount of 

$146.9 million.” Slip op. at 36-37 & n. 79. Extrapolating from those sales, the 

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panel held that Warner Chilcott’s product hopping was not exclusionary because 

Mylan was not foreclosed from the market. Slip op. at 36. That analysis suffers 

from two flaws.

First, the principal concern in a case under Section 2 of the Sherman Act is 

whether the complained-of conduct harms competition, not whether it harms a 

competitor. Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585, 602 (1985); 

Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 308 (1962); Broadcom Corp. 

v. Qualcomm Inc., 501 F.3d 297, 308 (3d Cir. 2007); United States v. Dentsply

Int’l, Inc., 399 F.3d 181, 191 (3d Cir. 2005). The panel erred because, instead of 

examining the effect of Warner Chilcott’s product hopping on competition, it 

focused on the impact of that behavior on Mylan. 

Second, the panel misunderstood the degree of foreclosure necessary to 

prove exclusionary conduct. A monopolist acts anticompetitively if, “through 

something other than competition on the merits,” it protects its monopoly by 

“significantly reducing usage of rivals’ products.” United States v. Microsoft

Corp., 253 F.3d 34, 65 (D.C. Cir. 2001) (en banc); see also Broadcom, 501 F.3d at 

308; Dentsply Int’l, Inc., 399 F.3d at 187, 191. Such exclusion may occur when the 

monopolist forces rivals into less efficient distribution channels, materially raises 

their costs of doing business, and thereby maintains its own monopoly power. See, 

e.g., Dentsply, 399 F.3d at 191; McWane, Inc. v. FTC, 783 F.3d 814, 832-33 (11th 

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Cir. 2015); Microsoft, 253 F.3d at 69-71; see also Lorain Journal Co. v. United 

States, 342 U.S. 143, 149-50 (1951). In those circumstances, “[c]onsumer injury 

results from the delay that the dominant firm imposes on the smaller rival’s 

growth” and thus the rival’s ability to discipline the monopolist’s prices. Dentsply, 

399 F.3d at 191 (quoting Herbert Hovenkamp, Antitrust Law ¶ 1802c, at 64 (2d ed. 

2002)). 

The panel failed to examine whether Warner Chilcott competed on the 

merits in barring Mylan from its most cost-efficient means of competing — 

automatic substitution. Slip op. at 18. Mylan’s sales of some amount of its generic 

product do not disprove that Warner Chilcott harmed competition by thwarting far 

greater sales via automatic substitution. Under Dentsply “it is not necessary that all 

competition be removed from the market. The test is not total foreclosure, but 

whether the challenged practices bar a substantial number of rivals or severely 

restrict the market’s ambit.” Dentsply 399 F.3d at 191. As the Second Circuit has 

explained, “generics need not be barred ‘from all means of distribution’ if they are 

‘bar[red] ... from the cost-efficient ones.’” New York v. Actavis PLC, 787 F.3d 638, 

656 (2d Cir. 2015) (quoting Microsoft, 253 F.3d at 64, and citing Dentsply, 399 

F.3d at 191). This Court similarly explained in Dentsply that the question is not 

whether a monopolist’s conduct forecloses all “possible” distribution options, but 

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whether the remaining options are “practical or feasible” in the market “as it exists 

and functions.” 399 F.3d at 193. 

The panel’s analytical approach cannot be squared with Denstply, Microsoft

and the other foreclosure cases. The Court found that Warner Chilcott’s conduct 

was not anticompetitive because Mylan could have undertaken costly and 

inefficient marketing of its generic once Warner Chilcott thwarted automatic 

substitution. Slip op. at 36 n.79. In other words, the panel held that a brand 

company cannot face antitrust liability when it destroys the overwhelmingly most 

efficient means of generic distribution — automatic substitution — so long as 

generics could theoretically still pursue more costly distribution alternatives. That 

determination ignores the commercial reality of the pharmaceutical marketplace

and lacks grounding in antitrust law.

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CONCLUSION

The Court should grant the petition for rehearing. 

Respectfully submitted,

MARKUS H. MEIER DAVID C. SHONKA

Acting Deputy Director Acting General Counsel

BRADLEY S. ALBERT JOEL MARCUS

Deputy Assistant Director Deputy General Counsel for Litigation

HEATHER M.JOHNSON /s/ Mark S. Hegedus

Attorney MARK S. HEGEDUS

Bureau of Competition Attorney

Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov

October 19, 2016
COMBINED CERTIFICATES – CASE 15-2236

BRIEF OF AMICUS CURIAE FEDERAL TRADE COMMMISSION IN 

SUPPORT OF PETITION FOR REHEARING AND REHEARING 

EN BANC OF PLAINTIFF-APPELLANT MYLAN PHARMACEUTICALS INC.

I hereby certify that:

1. This brief complies with the type-volume limitation of Amended Fed. R. 

Civ. P. 29(b) and L.A.R. 29.1(b). It has 2,564 words as counted by 

Microsoft Word 2010.

2. The electronic version of this brief is in PDF and was scanned using 

Symantec Endpoint Protection Version 12.1.6 with virus definitions updated 

October 19, 2016. No viruses were detected.

3. I filed the electronic version of this brief with the Court via the CM/ECF 

system. The Notice of Docket Activity generated by CM/ECF system 

constitutes service upon all Filing Users in this proceeding. The docket for 

this proceeding indicates that all parties are Filing Users.

4. I am a member of the bar of this Court.

 /s/ Mark S. Hegedus

Mark S. Hegedus

DATE: October 19, 2016

Case: 15-2236 Document: 003112439683 Page: 18 Date Filed: 10/19/2016