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 

SUPPORTING PLAINTIFF-APPELLANT

____________________

STEPHEN WEISSMAN

Deputy Director

MARKUS H. MEIER

Assistant Director

BRADLEY S. ALBERT

Deputy Assistant Director

DOMINIC E. VOTE

HEATHER M.JOHNSON

Attorneys

Bureau of Competition

JONATHAN E. NUECHTERLEIN

General Counsel

JOEL MARCUS

Director of Litigation

MARK S. HEGEDUS

Attorney

Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov

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TABLE OF CONTENTS

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

INTEREST OF THE FEDERAL TRADE COMMISSION...................................... 1

STATEMENT OF THE CASE .................................................................................. 2

1. Prescription Drugs and Generic Competition.................................................. 2

2. Efforts to Impede Generic Entry Through “Product Hopping” ...................... 8

3. Warner Chilcott’s Alleged Product-Hopping and the District Court 

Decision .........................................................................................................11

SUMMARY OF ARGUMENT...............................................................................12

ARGUMENT...........................................................................................................15

I. The District Court Erred by Ignoring the Unique Characteristics of 

Pharmaceutical Markets In Its Analysis of Monopoly Power.......................15

II. Pharmaceutical Product Redesign Can Violate Section 2 of the 

Sherman Act ..................................................................................................21

A. Product-Hopping Schemes Designed To Destroy Efficient 

Generic Distribution Mechanisms Can Constitute Exclusionary 

Conduct................................................................................................22

B. Innovation Concerns, While Relevant and Important, Should 

Not Categorically Preclude Product-Hopping Liability......................27

CONCLUSION........................................................................................................31

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TABLE OF AUTHORITIES

CASES

Abbott Labs. v. Teva Pharm., 

432 F. Supp. 2d 408 (D. Del. 2006)............................................................. 26, 29

Allied Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 

592 F.3d 991 (9th Cir. 2010) ..............................................................................28

Berkey Photo, Inc. v. Eastman Kodak Co., 

603 F.2d 263 (2d Cir. 1979) ...............................................................................27 

Broadcom Corp. v. Qualcomm Inc., 

501 F.3d 297 (3d Cir. 2007) ............................................................ 15, 16, 21, 22

C.R. Bard, Inc. v. M3 Sys., Inc., 

157 F.3d 1340 (Fed. Cir. 1998) ..........................................................................28

Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 

132 S. Ct. 1670 (2012).......................................................................................... 2 

Eastman Kodak Co. v. Image Tech. Servs., Inc., 

504 U.S. 451 (2002)............................................................................................20

FTC v. Actavis Inc., 

133 S. Ct. 2223 (2013)............................................................... 1, 7, 8, 16, 21, 26

FTC v. Ind. Fed’n of Dentists, 

476 U.S. 447 (1986)............................................................................................16

Gen. Indus. Corp. v. Hartz Mtn. Corp., 

810 F.2d 795 (8th Cir. 1987) ..............................................................................19

George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 

508 F.2d 547 (1st Cir. 1974)...............................................................................18

Harrison Aire, Inc. v. Aerostar Int’l, Inc., 

423 F.3d 374 (3d Cir. 2005) ...............................................................................15

In re Brand Name Prescription Drugs Antitrust Litig., 

186 F.3d 781 (7th Cir. 1999) ..............................................................................17 

In re Nexium Antitrust Litig., 

968 F. Supp. 2d 367 (D. Mass. 2013).......................................................... 17, 18

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In re Suboxone Antitrust Litig., 

64 F. Supp. 3d 665 (E.D. Pa. Dec. 2014) ...........................................................26

In re K-Dur Antitrust Litig., 

686 F.3d 197 (3d Cir. 2012), cert. granted, vacated and remanded sub nom. 

Upsher-Smith Labs., Inc. v. Louisiana Wholesale Drug Co., Inc., 

133 S. Ct. 2849 (2013)........................................................................................16

King Drug Co. of Florence, Inc. v. Cephalon, Inc., 

No. 2:06-cv-1797, 2015 WL 356913 (E.D. Pa. Jan. 28, 2015)..........................21

King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 

791 F.3d 388 (3d Cir. 2015) ................................................................................. 2 

Lear, Inc. v. Adkins, 

395 U.S. 653 (1969).............................................................................................. 8 

Lorain Journal Co. v. United States, 

342 U.S. 143 (1951)............................................................................................22

McWane, Inc. v. FTC, 

783 F.3d 814 (11th Cir. 2015) ............................................................................22

Meijer, Inc. v. Barr Pharms., Inc., 

572 F. Supp. 2d 38 (D.D.C. 2009)......................................................................18

New York v. Actavis PLC, 

787 F.3d 638 (2d Cir. 2015) (“Namenda”) ............. 4, 5, 9, 23, 24, 25, 27, 29, 30

SmithKline Corp. v. Eli Lilly & Co., 

575 F.2d 1056 (3d Cir. 1978) ...................................................................... 16, 18

U.S. Healthcare, Inc. v. Healthsource, Inc., 

986 F.2d 589 (1st Cir. 1993)...............................................................................19

United States v. Archer-Daniels-Midland Corp., 

866 F.2d 242 (8th Cir. 1988) ..............................................................................19

United States v. Dentsply Int’l, Inc., 

399 F.3d 181 (3d Cir. 2005) .................................................................. 22, 23, 24

United States v. E.I. du Pont de Nemours & Co., 

351 U.S. 377 (1956)............................................................................................15

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United States v. Grinnell Corp., 

384 U.S. 563 (1966)..................................................................................... 15, 21

United States v. Microsoft Corp., 

253 F.3d 34 (D.C. Cir. 2001).................................. 15, 16, 17, 22, 23, 24, 27, 28

Verizon Commc’ns Inc. v. Law Office of Curtis V. Trinko, LLP, 

540 U.S. 398 (2004)..................................................................................... 16, 26

Walgreen Co. v. Astrazeneca Pharms., L.P., 

534 F. Supp. 2d 146 (D.D.C. 2008)....................................................................26

Xerox Corp. v. Media Scis., Int’l, Inc., 

511 F. Supp. 2d 372 (S.D.N.Y. 2007) ................................................................28

STATUTES & RULES

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

15 U.S.C. § 46(b)....................................................................................................... 2 

21 U.S.C. § 355(b)..................................................................................................... 3 

21 U.S.C. § 355(j)(2)(A)(ii) ....................................................................................... 3 

21 U.S.C. § 355(j)(2)(A)(iii) ...................................................................................... 3 

21 U.S.C. § 355(j)(2)(A)(iv) ...................................................................................... 3 

Drug Price Competition and Patent Term Restoration Act of 1984, 

Pub. L. No. 98-417................................................................................................ 3 

OTHER AUTHORITIES

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

(4th ed. 2014).......................................................................................................20

2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 539 

(4th ed. 2014).......................................................................................................19

3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 651b5 

(3d ed. 2008).......................................................................................................22

Aaron Gal, Why Does Lifecycle Management Still Work? Bernstein Research 

(Jun. 14, 2013) ...................................................................................................... 9 

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

Prescription Drug Prices: Economic Effects of State Drug Product 

Selection Laws (1985).......................................................................................2, 5

Congresssional Budget Office, How Increased Competition from Generic Drugs 

Has Affected Prices and Returns in the Pharmaceutical Industry (Jul. 1998) .... 7 

Food and Drug Administration, Facts about Generic Drugs (Jun. 19, 2015), 

http://www.fda.gov/drugs/resourcesforyou/consumers/

buyingusingmedicinesafely/understandinggenericdrugs/ucm167991.htm ........25

Fiona Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry 

in the U.S. Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085 (2000)........... 4 

Federal Trade Commission, Authorized Generic Drugs: Short-Term Effects and 

Long-Term Impact (2011) (“AG Report”), 

http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf.............................2, 6

Federal Trade Commission, Drug Product Selection, Staff Report, Bureau of 

Consumer Protection (1979).................................................................. 2, 4, 5, 17

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

Consumers Billions (2010) (“Pay-for-Delay Report”), 

https://www.ftc.gov/reports/pay-delay-how-drug-company-pay-offscost-consumers-billions-federal-trade-commission-staff...............................6, 17

G. Michael Allen et al., Physician Awareness of Drug Cost: 

A Systematic Review, 4 PLOS Med. 1486 (2007) ................................................ 4 

Henry G. Grabowski and John M. Vernon, Brand Loyalty, Entry, and Price 

Competition in Pharmaceuticals After the 1984 Drug Act, 

35 J. L. & Econ. 331 (1992) ................................................................................. 7 

Herbert Hovenkamp et al., IP and Antitrust § 15.3 

(2d ed. 2010 & Supp. 2014)......................................................................... 26, 28

Murray L. Aitken et al., The Regulation of Prescription Drug Competition and 

Market Responses: Patterns in Prices and Sales Following Loss of Exclusivity, 

National Bureau of Economic Research (Oct. 2013)........................................... 7 

IMS Inst. for Healthcare Informatics, Medicine Use and Spending Shifts: A Review 

of the Use of Medicines in the U.S. in 2014 (Apr. 2015) ..................................... 6 

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Rebecca S. Yoshitani & Ellen S. Cooper, Pharmaceutical Reformulation: The 

Growth of Life Cycle Management, 7 Houston J. Health & Pol’y 379 (2007)..10

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).................................................................................... 2 

Stacy Dogan & Mark Lemley, Antitrust Law and Regulatory Gaming, 

87 Texas L. Rev. 685 (2009) ..............................................................................26

Susan L. Coyle, Physician-Industry Relations, Part I: Individual Physicians, 

136 Annals of Internal Med. 396 (2002).............................................................. 9 

U.S. Gov’t Accountability Off., Report No. GAO-12-371R, Savings from Generic 

Drug Use (2012) http://www.gao.gov/assets/590/588064.pdf............................. 7 

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

124 Am. J. Med. 309 (2011)................................................................................. 6 

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INTRODUCTION

Generic competition saves American consumers hundreds of billions of 

dollars in prescription drug costs each year. Brand-name drug companies use 

various strategies—some lawful and some not—to avoid such competition and 

maintain high profits. In one such strategy, called “product-hopping,” a brandname manufacturer makes minor changes to a drug and, to thwart generic 

substitution at pharmacies, takes calculated steps to damage the market for the 

original formulation before generic entry. The defendants here are alleged to have 

engaged in such a strategy in violation of the Sherman Act. As the nation’s main

antitrust enforcer for the pharmaceutical industry, the Federal Trade Commission 

submits this brief to highlight the distinct economic and legal dimensions of 

product-hopping disputes. This brief takes no position on the ultimate merits of 

this case but explains that, in the FTC’s view, the district court made significant

analytical errors in ruling for the defendants on summary judgment. 

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. It also makes use of its broad statutory authority to 

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gather market-wide information directly from businesses and other market 

participants to prepare “systematic, institutional stud[ies] of real-world industries 

and activities.”1

 Of particular relevance here, the Commission has issued a variety 

of empirical studies addressing the competitive dynamics of generic substitution 

for brand-name drugs.

2

 Because of its enforcement responsibilities and deep 

background in generic drug competition, the Commission filed an amicus brief in 

the district court proceedings, opposing defendants’ motion to dismiss. 

STATEMENT OF THE CASE 

1. Prescription Drugs and Generic Competition

Before marketing a new drug, a pharmaceutical manufacturer must file a 

“new drug application” (“NDA”) with the Food and Drug Administration and 

 

1 Report of the ABA Section of Antitrust Law Special Committee, 58 Antitrust L.J.

43, 103 (1989); see 15 U.S.C. § 46(b). The Supreme Court and this Court have 

frequently relied on such FTC studies. See, e.g., Caraco Pharm. Labs., Ltd. v. 

Novo Nordisk A/S, 132 S. Ct. 1670, 1678 (2012); King Drug Co. of Florence, Inc. 

v. SmithKline Beecham Corp., 791 F.3d 388, 404 n.21 (3d Cir. 2015). 

2 See FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact

(2011) (“AG Report”), http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf; 

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

Drug Prices: Economic Effects of State Drug Product Selection Laws at 8-13 

(1985) (“Masson & Steiner”), https://www.ftc.gov/reports/generic-substitutionprescription-drug-prices-economic-effects-state-drug-product-selection; FTC, 

Drug Product Selection, Staff Report, Bureau of Consumer Protection (1979)

(“Drug Product Selection”), http://catalog.hathitrust.org/Record/000258518. 

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obtain FDA approval. 21 U.S.C. § 355(b). A drug approved under the NDA 

process is often called a “brand-name” drug. 

Before 1984, a generic drug manufacturer had to undertake the same NDA 

process as a brand-name drugmaker. That requirement deterred generic entry 

because the NDA process is costly and can take many years to complete. To 

address that concern, Congress enacted legislation in 1984, known informally as 

the Hatch-Waxman Act, that promotes competition while continuing to encourage 

innovation.

3

 Among its other provisions, the Hatch-Waxman Act enables generic 

manufacturers to use a streamlined process to obtain FDA approval for generic 

versions of previously introduced brand-name drugs. Specifically, the Act allows

generic manufacturers to file Abbreviated New Drug Applications (“ANDAs”) that 

rely on brand manufacturers’ existing safety and efficacy studies, reducing the 

costs of generic drug development and expediting the FDA approval process. 21 

U.S.C. §§ 355(j)(2)(A)(ii), (iii), (iv); see also note 9, infra (discussing other HatchWaxman provisions). 

Because of regulatory constraints on the distribution of prescription drugs to 

individual consumers, FDA approval by itself does not allow generic drugs to 

compete efficiently with brand-name prescription drugs. In most other markets, 

 

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

98-417 (codified at various sections of Titles 15, 21, 28, and 35 of the U.S. Code). 

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consumers select, pay for, and use the products of their choice, and competition for 

their business keeps prices competitive. That dynamic is absent in the prescription 

drug marketplace. By law, a consumer cannot obtain prescription drugs without 

the approval of a third party—a prescribing physician. And the physician typically

has little incentive to consider the price of those drugs: she does not pay for them, 

and indeed payment is often the principal responsibility of yet another third party, 

such as an insurance company.

In short, “the 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.” Drug Product Selection at 2-3; accord 

New York v. Actavis PLC, 787 F.3d 638, 645-46 (2d Cir. 2015) (“Namenda”). 

Empirical studies confirm that physicians are often poorly informed about drug

prices and the availability of cheaper alternatives.4

 And even though generic drug 

companies could seek to change physicians’ prescription behavior by marketing to 

them, the marketing of generic drugs is often “impractical and ineffective” 

(Namenda, 787 F.3d at 656) for reasons specific to the pharmaceutical 

 

4 Fiona Scott Morton, Barriers to Entry, Brand Advertising, and Generic Entry in 

the U.S. Pharmaceutical Industry, 18 Int’l J. Indus. Org. 1085, 1086-87 (2000); see 

also G. Michael Allen et al., Physician Awareness of Drug Cost: A Systematic 

Review, 4 PLOS Med. 1486, 1486 (2007). 

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marketplace. See pp. 24-25, infra. Moreover, deploying resources to marketing

activities could undermine the generic companies’ ability to offer lower-priced 

alternatives to brand drugs. See Namenda, 787 F.3d at 656 n.30. 

Since the late 1970s, state legislatures throughout the country have sought to 

address the prescriber-payor pricing disconnect by enacting laws that enable (and

sometimes require) a pharmacist to substitute a therapeutically equivalent generic

drug (known as an “AB-rated” drug) when presented with a prescription for a 

brand-name drug, unless a physician directs or the patient requests otherwise.5

These substitution laws foster price competition by allowing parties “who have 

financial incentives to make price comparisons—the pharmacist and the patient—

to select drug products on the basis of price.” Drug Product Selection at 7. For 

example, retail pharmacies have financial incentives to make efficient generic 

substitutions because they compete with other pharmacies on price and because 

they earn greater profits on generics than brand-name drugs. See Masson & 

Steiner at 7. 

 

5 The FDA grants a generic drug an “AB rating” if the drug contains the same 

active pharmaceutical ingredient as the branded drug, has the same dosage and 

form, and exhibits a similar rate and extent of absorption as the brand product. As 

a practical matter, that FDA determination triggers state automatic-substitution 

laws for particular drugs. See Namenda, 787 F.3d at 645. Today, all states and the 

District of Columbia have such laws. See id. at 644-45. 

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Once unleashed, generic competition sharply lowers drug prices. In 2014, 

brand-name drugs accounted for 12 percent of total prescriptions but nearly 72 

percent of total consumer spending ($374 billion) on prescription drugs. IMS Inst. 

for Healthcare Informatics, Medicine Use and Spending Shifts: A Review of the 

Use of Medicines in the U.S. in 2014, at 5, 15 (Apr. 2015). That disparity arises 

from, inter alia, the monopoly prices that pharmaceutical companies charge for 

certain brand-name drug products and the much lower prices that prevail once 

generics enter. 

As FTC studies reveal, the first generic version of a given drug on the 

market is priced, on average, nearly 15 percent lower than the brand-name drug. 

See AG Report at ii-iii. After additional generic competitors enter, generic prices 

ultimately end up 85 percent lower on average than the brand-name manufacturers’ 

original prices.6

 And, because of automatic substitution at the pharmacy, a brandname drug ultimately loses on average about 90 percent of its market share (by unit 

sales) to its generic competitors. Pay-for-Delay Report at 8. The Congressional 

 

6 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; 

see also William H. Shrank et al., The Consequences of Requesting “Dispense as 

Written,” 124 Am. J. Med. 309, 311 (2011). 

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Budget Office and other researchers have reached similar conclusions.

7

 In short,

consumers benefit enormously from generic competition, saving about $239 billion

in 2013 alone.

8

 

This is not to say that competition policy should focus single-mindedly on

lowering prices. For example, patent law creates incentives for innovation by 

granting inventors rights of exclusivity and enabling them to earn high profits 

during the patent term. But Congress limited patent rights to a fixed period of 

years because it concluded that, beyond that period, consumers’ interests in 

competitive pricing outweigh whatever incremental innovation incentives a longer 

patent term would create. And because Congress also understood that some drug 

patents are weak or narrow, the Hatch-Waxman Act contains provisions that 

encourage generic manufacturers to challenge the patents claimed for brand-name 

drugs. See Actavis, 133 S. Ct. at 2228-29; see also id. at 2233 (recognizing 

“patent-related policy of eliminating unwarranted patent grants so the public will 

 

7 See CBO, How Increased Competition from Generic Drugs Has Affected Prices 

and Returns in the Pharmaceutical Industry at xiii, 28 (Jul. 1998); Murray L. 

Aitken et al., The Regulation of Prescription Drug Competition and Market 

Responses: Patterns in Prices and Sales Following Loss of Exclusivity, National 

Bureau of Economic Research (Oct. 2013); Henry G. Grabowski and John M. 

Vernon, Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 

1984 Drug Act, 35 J. L. & Econ. 331 (1992). 

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

also U.S. Gov’t Accountability Off., Report No. GAO-12-371R, Savings from 

Generic Drug Use 9-11 (2012), http://www.gao.gov/assets/590/588064.pdf. 

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not ‘continually be required to pay tribute to would-be monopolists without need 

or justification’”) (quoting Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969)).9

2. Efforts to Impede Generic Entry Through “Product Hopping” 

This case involves allegations that a drug company unlawfully suppressed 

generic competition and maintained its monopoly power through a strategy called 

“product hopping.” A typical product-hopping scheme works as follows. A 

brand-name pharmaceutical company expects generic rivals to win FDA approval 

to compete with the company’s profitable brand-name drug using automatically 

substitutable AB-rated equivalents. To thwart such substitution, the brand-name 

company introduces minor changes to the drug’s formulation, such as

therapeutically insignificant tweaks to dosage levels or to the form of 

administration (e.g., capsules vs. tablets). 

Before generic equivalents have a chance to enter, the brand-name 

manufacturer then takes various steps to extinguish demand for the original 

version. For example, the manufacturer might restrict or eliminate the supply of 

the original formulation, increase its effective price to patients, or flood physician 

 

9 The Hatch-Waxman Act provides procedural mechanisms that apply when a 

company seeks FDA approval to market a generic product before expiration of 

patents claimed to cover the counterpart brand-name drug. See Actavis, 133 S. Ct. 

at 2228-29. For example, if the brand-name manufacturer promptly files a patent 

suit, the FDA generally may not approve the generic company’s ANDA for 30 

months. 

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offices with free samples of the revised formulation but not the original to divert 

prescriptions to the revised formulation. That shift in prescriptions is generally a 

one-way street: once doctors prescribe a medicine and find that it works, they are 

generally reluctant to switch users back to the original formulation even if a 

cheaper generic version of it later becomes available.10 Theoretically, third-party 

payors (e.g., insurers) should have incentives to persuade physicians to switch 

patients back to generic versions of the original drugs—for example, by 

announcing that they will deny coverage when a patient shows up at the pharmacy 

with a prescription for the more expensive new formulation. Empirical research 

suggests, however, that such efforts have been generally ineffective in influencing 

physicians’ responses to product-hopping behavior.

11

Shifting the market to the reformulated product in this manner can thwart

generic entry. As noted, effective generic competition generally depends on 

 

10 See Namenda, 787 F.3d at 656 (because switching back to prior formulations 

presents “high transaction costs,” it can be “very unlikely” to occur); see also

Susan L. Coyle, Physician-Industry Relations, Part I: Individual Physicians, 136 

Annals of Internal Med. 396, 398 (2002). (“[O]nce a patient exhausts a free supply 

of medication, the physician typically writes a prescription for the same brand.”). 

11 See Aaron Gal, Why Does Lifecycle Management Still Work? Bernstein Research 

(Jun. 14, 2013) (available on request) (reformulated drugs “have consistently 

maintained their script levels after generics to the first generation drugs launched 

... despite very minor clinical difference between the two drugs and substantial 

difference in prices. It thus appears that while care managers have the ability to 

influence ‘forward switches’, they are unable to ‘back-switch’ drug markets.”); see 

also Namenda, 787 F.3d at 656. 

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automatic substitution at the pharmacy. But automatic substitution ordinarily

requires an FDA determination of therapeutic equivalence—an “AB rating.” In 

general, because an AB rating is specific to dosage and form, a pharmacist cannot 

automatically substitute a generic drug that differs even slightly from the dosage or 

form of the prescribed brand-name drug.12 Thus, if a brand-name manufacturer 

tweaks its brand-name product shortly before anticipated generic entry and begins 

eliminating the market for the original formulation, it can impede competition from

would-be generic entrants, which have sought FDA approval to sell a generic 

version only of the original formulation and not the replacement. The foiled

generic entrant can try to make conforming changes to its own product, but it 

cannot sell its reformulated version without restarting the FDA approval process

(and under certain circumstances provoking patent litigation and automatic 

regulatory stays (see note 10, supra)). The brand-name manufacturer’s well-timed

tweaks to its drugs can thus create an ever-retreating horizon of generic 

competition at the expense of consumers. 

 

12 See, e.g., Rebecca S. Yoshitani & Ellen S. Cooper, Pharmaceutical 

Reformulation: The Growth of Life Cycle Management, 7 Houston J. Health & 

Pol’y 379, 398 (2007). 

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3. Warner Chilcott’s Alleged Product-Hopping and the District 

Court Decision

The product-hopping scheme alleged in this case involves delayed-release 

doxycycline hyclate, a prescription drug used primarily to treat severe acne. 

JA.17. Defendant Warner Chilcott markets a brand-name form of the drug sold 

under the name Doryx; plaintiff Mylan sought to market a generic version. 

Mylan alleges that, before generic entry, Warner Chilcott engaged in an 

anticompetitive product-hopping scheme by curtailing the availability of the 

original formulation in order to shift the market to three successive product 

reformulations that, according to Mylan, offered little or no therapeutic benefit to 

consumers. See Mylan Br. 8-17. Mylan claims that this conduct impeded

meaningful generic competition and preserved Warner Chilcott’s monopoly 

profits, not because the market valued the reformulations on the merits, but 

because Warner Chilcott had successfully manipulated the pharmaceutical 

regulatory system. 

After discovery, the district court granted summary judgment to Warner 

Chilcott. The court first concluded that no reasonable juror could find on this 

record that Warner Chilcott had monopoly power, given what the court deemed 

“uncontradicted evidence” of “the interchangeability of Doryx with other oral 

tetracyclines.” JA.31. The court further held that, even if Warner Chilcott had 

monopoly power, the product-hopping scheme would not have violated the 

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Sherman Act. The court accepted arguendo Mylan’s claims that Warner Chilcott

“made the Doryx ‘hops’ ... primarily to defeat generic competition” and that the 

hops “prevented Mylan from taking advantage of more profitable means of 

distributing its generic Doryx.” JA.25, 40. But the court nonetheless held that 

Mylan could have competed against Warner Chilcott through means other than 

automatic substitution and faulted Mylan for not promoting its generic versions of 

Doryx through, for example, advertising and marketing. JA.38-39. The court

further characterized automatic substitution as a “regulatory windfall” to generic 

manufacturers and concluded that Warner Chilcott’s efforts to deny Mylan the 

benefits of that mere “windfall” were “hardly predatory.” JA.47. 

SUMMARY OF ARGUMENT

1. The district court’s analysis of the threshold monopoly-power question 

foundered on a basic misunderstanding of the special characteristics of the 

pharmaceutical marketplace. Generics are unique sources of competition for 

brand-name prescription drugs. Without automatic substitution, the disconnect 

between prescribing physicians and payors often insulates brand-name prescription 

drugs from effective price competition, and a given drug may be priced at 

monopoly levels even if other drugs are therapeutically similar. The district court 

here thus erred when, in granting summary judgment, it relied heavily on evidence 

that Doryx is therapeutically similar to other antibiotics. 

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13

The court further contradicted established antitrust doctrine when it 

concluded that evidence of price-related substitution among these drugs showed

that Doryx was priced at competitive levels. As courts have long understood, even 

when a product is priced at a profit-maximizing monopoly level, further price 

increases from that level will nonetheless trigger substitution to other, increasingly 

distant products. Warner Chilcott’s high profit margins make that possibility, if 

anything, more likely.

Finally, the very fact of product-hopping can itself be evidence of monopoly 

power. The manufacturer of a brand-name drug generally undertakes a product 

hop to preserve high profits that generic versions of the same drug would undercut 

but that no alternative drug, competing in the same market, has yet disciplined. If 

such a broader market existed, competition from those alternative drugs should 

already have driven down the price for the brand-name drug, and a brand company 

would thus normally have little incentive to make minor product changes solely to 

defeat generic entry. 

2. The district court also erred in its analysis of exclusionary conduct. 

Under established Sherman Act precedent, a monopolist’s conduct is unlawful if, 

without countervailing procompetitive justifications, it raises rivals’ costs by 

depriving them of their most efficient distribution mechanisms and thus harms 

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14

consumers by impeding the rivals’ competitive ability to discipline monopoly 

prices. 

As the Second Circuit recently held in Namenda, that principle applies to 

anticompetitive product hops, which deprive generics of their most—indeed, often 

their only—efficient distribution mechanism: automatic substitution at the 

pharmacy. The district court here was wrong to dismiss automatic substitution as a 

mere “regulatory windfall” undeserving of antitrust protection. State and federal 

laws facilitate automatic substitution as an efficient solution to the regulationinduced disconnect between the physicians who choose drugs and the market 

actors who pay for them. And a monopolist may not avoid antitrust liability 

simply because the efficient distribution mechanism it destroys was created in part 

by procompetitive government action. 

Contrary to the district court’s suggestion, policies favoring innovation do 

not categorically preclude antitrust liability for product-hopping. In wellfunctioning markets, a modified product’s success is typically evidence that 

consumers value the innovation. A similar inference is not always warranted in the 

pharmaceutical marketplace, however, because the physicians who choose 

prescription drugs do not pay for them and thus do not internalize the economic 

costs of anticompetitive product modifications. As the Second Circuit held in 

Namenda, pharmaceutical innovation is also unlikely to be chilled simply because 

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antitrust law holds brand-name manufacturers liable when they make minor

product tweaks to avoid automatic substitution and take calculated steps to damage

or destroy the market for the original formulation.

ARGUMENT

A plaintiff alleging unlawful monopolization under Section 2 of the 

Sherman Act must prove two elements: “(1) the possession of monopoly power in 

the relevant market and (2) the willful acquisition or maintenance of that power” 

through anticompetitive means, as distinct from competition on the merits. 

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 (3d Cir. 2007) (quoting 

United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). This brief 

addresses those two elements in turn. The FTC offers no views on how a 

factfinder should ultimately resolve this case but explains why the district court’s 

grant of summary judgment rested on fundamentally flawed reasoning. 

I. THE DISTRICT COURT ERRED BY IGNORING THE UNIQUE 

CHARACTERISTICS OF PHARMACEUTICAL MARKETS IN ITS ANALYSIS OF 

MONOPOLY POWER

“Monopoly power is ‘the power to control prices or exclude competition.’” 

Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374, 380 (3d Cir. 2005)

(quoting United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 

(1956)). Monopoly power may be established through direct evidence, such as

“prices substantially above the competitive level,” United States v. Microsoft 

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Corp., 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc), or indirect evidence, such as a 

large share of a relevant market subject to entry barriers. See Broadcom, 501 F.3d 

at 307 (citing Microsoft and SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 

1062-63 (3d Cir. 1978)); see also Actavis, 133 S. Ct. at 2236 (direct evidence of 

anticompetitive effects can be sufficient to show market power); FTC v. Ind. Fed’n 

of Dentists, 476 U.S. 447, 458-61 (1986) (same). 

Antitrust inquiries “must always be attuned to the particular structure and 

circumstances of the industry at issue.” Verizon Commc’ns Inc. v. Law Office of 

Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004). That “admonition is particularly 

relevant in an industry, like the pharmaceutical industry, that is subject to extensive 

regulation in which Congress has balanced the protection of intellectual property 

and the need for competition.” In re K-Dur Antitrust Litig., 686 F.3d 197, 216-17 

(3d Cir. 2012), cert. granted, vacated and remanded sub nom. Upsher-Smith Labs., 

Inc. v. Louisiana Wholesale Drug Co., Inc., 133 S. Ct. 2849 (2013). Here, the 

“particular structure and circumstances” of the pharmaceutical industry cast serious

doubt on the district court’s rationale for granting summary judgment.

In general, generic prescription drugs are uniquely effective sources of 

competition for their brand-name counterparts. See pp. 6-7, supra. For example, 

generic drugs end up priced 85 percent lower on average than the corresponding 

brand-name drugs and capture on average about 90 percent of the market (by unit 

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sales). See Pay-for-Delay Report at 8. Generic entry has such radical competitive 

effects precisely because the generic is a uniquely close competitor to its brandname counterpart, and many brand-name prescription drugs face only weak 

competition from other drugs. Generic entry would not have such an enormous 

average impact on price and market share if competition from other drugs had 

already driven down prices for typical brand-name drugs. 

In short, price competition from other drugs is often so attenuated in the 

absence of automatic substitution that brand-name manufacturers can maintain 

“prices substantially above the competitive level,” the key criterion for monopoly 

power. Microsoft, 253 F.3d at 51. That market power arises from the unique 

disconnect in the pharmaceutical industry between prescribers and payors—the 

fact that “the consumer who pays does not choose, and the physician who chooses 

does not pay.” Drug Product Selection at 2-3. The most important agents of price 

competition are often pharmacies, empowered by state automatic-substitution laws 

to fill prescriptions for brand-name drugs with therapeutically equivalent generic 

drugs at much lower prices. But that particular source of price competition is by 

definition confined to a branded drug and its generic equivalents.

13 

 

13 See, e.g., In re Nexium Antitrust Litig., 968 F. Supp. 2d 367, 388-89 (D. Mass. 

2013) (properly constituted market may be comprised of single product; lower 

courts have ruled that both brand-name drug and its generic analogs can constitute 

a relevant antitrust market) (internal citation omitted); see also In re Brand Name 

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The district court was thus mistaken when, on summary judgment, it found a 

broader market here on the basis of ostensible evidence that many dermatologists 

view other oral tetracyclines as therapeutically “interchangeable” with Doryx for 

some patients. JA.32. Functional interchangeability between products is the 

beginning, not the end, of the analysis.14 At bottom, the monopoly-power analysis 

asks whether the prospect of substitution is strong enough to keep prices at 

competitive levels. See, e.g., Geneva Pharm. Tech. Corp. v. Barr Labs. Inc, 386 

F.3d 485, 496 (2d Cir. 2004) (“The goal in defining the relevant market is to 

identify the market participants and competitive pressures that restrain an 

individual firm’s ability to raise prices above the competitive level”). In 

pharmaceutical markets, the prescriber-payor disconnect often limits such pricemotivated substitution, even among therapeutically similar drugs.

15 

 

Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (“It would 

not be surprising, therefore, if every manufacturer of brand name prescription 

drugs had some market power.”). 

14 See, e.g., Nexium, 968 F. Supp. 2d at 387-88 (“[t]he reasonable 

interchangeability of a set of products is not dependent on the similarity of their 

forms or functions’”) (quoting George R. Whitten, Jr., Inc. v. Paddock Pool 

Builders, Inc., 508 F.2d 547, 552 (1st Cir. 1974)); Meijer, Inc. v. Barr Pharms., 

Inc., 572 F. Supp. 2d 38, 58 (D.D.C. 2009) (functional interchangeability probative

but “certainly not dispositive”). 

15 See, e.g., Geneva Pharm., 386 F.3d at 496-96 (relevant market limited to generic 

version of brand-name drug); SmithKline Corp., 575 F.2d at 1064-65 (despite some 

functional interchangeability among antibiotics, specific class of antibiotics 

represented separate product market based on a lack of cross-elasticity); see also 

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The district court further erred when it relied on evidence that Doryx sales 

declined in response to effective increases in its price. See JA.32-34. Even if there 

were no material issue of fact on the extent of this phenomenon, the district court 

was wrong to assume that competition from other drugs kept Doryx prices below 

monopoly levels or demonstrated that the other products fall within a relevant 

antitrust market for assessing the effects of the conduct at issue.

16 Price-motivated 

substitution is found in monopolistic markets as well as competitive ones, and here 

Doryx might well have been priced at monopoly levels even though further 

increases above that level triggered some substitution. Under established 

economic theory, buyers are sensitive to price increases in monopoly markets, as in 

other markets, and they therefore defect to other, increasingly distant products 

when price is increased.17 As the Supreme Court has explained, therefore, “[t]he 

 

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]”).

16 Antitrust speaks of the “relevant” market because market definition is merely a 

tool to assess the competitive effects of particular conduct. See, e.g., U.S. 

Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 598 (1st Cir. 1993); Gen. 

Indus. Corp. v. Hartz Mtn. Corp., 810 F.2d 795, 805 (8th Cir. 1987). 

17 “[I]n seeking out a profit-maximizing price the monopolist ... finds a price so 

high that a still further price increase would be unprofitable because too many sales 

would be lost. As a result, cross-elasticity of demand is high when prices are 

already monopolistic.” See 2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust 

Law ¶ 539, at 317 (4th ed. 2014). A failure to appreciate this point, and to infer a 

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20

existence of significant substitution in the event of further price increases or even 

at the current price does not tell us whether the defendant already exercises 

significant market power.” Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 

U.S. 451, 471 (2002) (internal quotation marks omitted). Here, price-motivated 

substitution to other antibiotics is entirely consistent with the claim that Doryx was 

already priced at monopoly levels. And Warner Chilcott’s profit margins—

apparently as high as 83 percent at times (see JA.29)—provide further reason to 

hesitate before inferring a lack of monopoly power from such substitution, 

although the significance of such margins varies with the facts of each case. 

Finally, the very fact that a brand-name company has executed a producthopping strategy may itself be evidence of monopoly power. “Market power can 

sometimes be inferred from an exclusionary practice that would not be a rational 

act for a firm lacking significant power.” 2B Phillip E. Areeda & Herbert 

Hovenkamp, Antitrust Law ¶ 520b2, at 214 (4th ed. 2014). Here, when a brandname company makes minor changes to a drug formulation “primarily to defeat 

generic competition,” as the district court found Warner Chilcott did, see JA.25, 

the most natural explanation is that the company wishes to maintain substantial 

profits that (1) generic versions of the same drug would undermine and (2) no 

 

competitive market from the mere fact of price-related substitution, is known as the 

“Cellophane fallacy.” See id. 

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alternative drug, competing in the same market, has yet disciplined. See Actavis, 

133 S. Ct. at 2236 (observing that expensive efforts to block generic competition 

can demonstrate market power); accord King Drug Co. of Florence, Inc. v. 

Cephalon, Inc., No. 2:06-cv-1797, 2015 WL 356913, at *10 (E.D. Pa. Jan. 28, 

2015). Otherwise, the brand-name company would likely perceive little value in 

executing the product hop. 

Again, the FTC takes no position on whether Mylan should ultimately 

prevail on the monopoly-power issue; that depends on the facts. But the district 

court’s grant of summary judgment rested on economically unsound rationales that 

ignore defining features of the pharmaceutical marketplace. 

II. PHARMACEUTICAL PRODUCT REDESIGN CAN VIOLATE SECTION 2 OF THE 

SHERMAN ACT

The district court also erred in granting summary judgment on the alternative 

ground that, even if Warner Chilcott had monopoly power, its product hops could 

not have constituted “the willful ... maintenance of that power” through 

anticompetitive means. Broadcom, 501 F.3d at 307 (quoting Grinnell, 384 U.S. at 

570-71). The district court’s rationale for that conclusion, too, reflects an 

erroneous understanding of how competition works in the pharmaceutical industry

and effectively embraces a rule of nearly per se legality for product-hopping 

conduct. That approach contradicts the decisions of this and several other courts.

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A. Product-Hopping Schemes Designed To Destroy Efficient Generic 

Distribution Mechanisms Can Constitute Exclusionary Conduct

A monopolist’s conduct is anticompetitive if, “through something other than 

competition on the merits, [it] has the effect of significantly reducing usage of 

rivals’ products and hence protecting [the] ... monopoly.” Microsoft, 253 F.3d at 

65; see also Broadcom, 501 F.3d at 308; United States v. Dentsply Int’l, Inc., 399 

F.3d 181, 187, 191 (3d Cir. 2005). Such conduct violates Section 2 of the Sherman 

Act when its anticompetitive effects outweigh its procompetitive benefits. See

Microsoft, 253 F.3d at 58-59; 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust 

Law ¶ 651b5, at 107 (3d ed. 2008) (addressing “raising rivals’ costs” doctrine of 

antitrust liability).

Unlawful exclusive-dealing arrangements—in which a monopolist ties up 

distribution channels to keep its rivals less efficient and protect its monopoly 

prices—are perhaps the best-known application of this general principle. As this 

Court and others have held, a monopolist supplier violates Section 2 if, without a 

countervailing efficiency justification, it uses exclusive dealing to force rival 

suppliers 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 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 

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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)). 

Applying this same basic principle, the Second Circuit recently held in 

Namenda that a pharmaceutical manufacturer can violate Section 2 if it uses a 

product-hopping scheme to foreclose rival generic manufacturers from their most

efficient distribution channel: automatic substitution at the pharmacy for AB-rated 

drugs. In that case, a brand-name manufacturer altered the formula for an antiAlzheimer’s drug to avoid automatic generic substitution, and it took various steps, 

including sharply limiting supply of the legacy version, to ensure that most 

physicians would prescribe only the reformulated version before the expected date 

of generic entry. The Second Circuit concluded that “[b]ecause Defendants’ 

forced switch ‘through something other than competition on the merits[] has the 

effect of significantly reducing usage of rivals’ products and hence protecting its 

own ... monopoly, it is anticompetitive.’” Namenda, 787 F.3d at 655 (quoting 

Microsoft, 253 F.3d at 65). 

The district court’s decision here, which would foreclose liability for 

product-hopping under virtually any circumstances, contradicts both Namenda and 

this Court’s own Section 2 precedent. The district court accepted Mylan’s 

argument that, like the brand-name manufacturer in Namenda, Warner Chilcott

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24

undertook the Doryx product hops “primarily to defeat generic competition.” 

JA.25. But the court found that “there was no exclusionary conduct” because 

generics could “reach consumers though, inter alia, advertising [or] promotion.” 

JA.41. In other words, the district court held that a brand company may with 

impunity destroy what is often the only means of generic distribution—automatic 

substitution—so long as generics remain hypothetically free to pursue new and 

more costly distribution alternatives, such as direct advertising to physicians. 

The Second Circuit correctly rejected a virtually identical argument in 

Namenda. “For there to be an antitrust violation,” it held, “generics need not be 

barred ‘from all means of distribution’ if they are ‘bar[red] ... from the costefficient ones.’” Namenda, 787 F.3d at 656 (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 whether the remaining options are “practical or feasible” 

in the market “as it exists and functions.” 399 F.3d at 193. 

Indeed, as the Namenda court concluded, “competition through state drug 

substitution laws” is often “the only cost-efficient means of competing available to 

generic manufacturers.” 787 F.3d at 655-56 (emphasis added). Because different 

generic companies’ AB-rated products are by design mutually substitutable at the 

pharmacy, “a generic manufacturer promoting a product would have no way to 

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25

ensure that a pharmacist would substitute its product, rather than one made by one 

of its generic competitors,” and thus “additional expenditures by generics on 

marketing would be impractical and ineffective.” Id. at 656. And even if a generic 

manufacturer could expect that its marketing redounds only to its own benefit, 

“marketing costs [would] severely impact generic manufacturers’ ability to offer 

the lower prices upon which they compete.” Id. at 656 n.30.

18 In the context of 

therapeutically equivalent generic drugs, that outcome would thwart the efforts of 

Congress and the states to make such generics available to consumers by means of 

automatic substitution and thus without the extra costs imposed by marketing. 

The district court also suggested that Warner Chilcott’s efforts to shut down 

automatic substitution “were hardly predatory” because, in the court’s view, 

automatic substitution is a mere “regulatory windfall.” JA.47. There is no basis 

for either the “windfall” characterization or the court’s legal conclusion. Congress 

and the states created automatic substitution mechanisms to correct a market 

failure arising from prescription drug regulation: the disconnect between the 

physicians who choose among drugs and the patients and insurers who pay for 

 

18 “Generic manufacturers are able to sell their products for lower prices because,” 

inter alia, they “generally do not pay for costly advertising, marketing, and 

promotion.” FDA, Facts about Generic Drugs (June 19, 2015), 

http://www.fda.gov/drugs/resourcesforyou/consumers/buyingusingmedicinesafely/

understandinggenericdrugs/ucm167991.htm. 

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them. See pp. 3-5, supra. “The Hatch-Waxman process, by allowing the generic 

to piggy-back on the pioneer’s approval efforts, speed[s] the introduction of lowcost generic drugs to market, thereby furthering drug competition.” Actavis, 133 S. 

Ct. at 2228 (citations and internal quotation marks omitted). This legislatively 

sanctioned and procompetitive mechanism is now an integral component of the 

“particular structure and circumstances of the industry at issue,” Trinko, 540 U.S. 

at 411, which antitrust law takes as given. A monopolist may not avoid antitrust 

liability for destroying its rivals’ only efficient distribution mechanism simply 

because that mechanism was created in part by legislation designed precisely to 

enhance competition. 

The Second Circuit is hardly alone in so ruling. A number of courts and 

leading commentators have concluded that, in various circumstances, producthopping can violate Section 2 of the Sherman Act. See, e.g., In re Suboxone 

Antitrust Litig., 64 F. Supp. 3d 665 (E.D. Pa.. Dec. 2014); Abbott Labs. v. Teva 

Pharm., 432 F. Supp. 2d 408 (D. Del. 2006); Herbert Hovenkamp et al., IP and 

Antitrust § 15.3 at 15-75, 15-78.3 to 15-79 (2d ed. 2010 & Supp. 2014); Stacy 

Dogan & Mark Lemley, Antitrust Law and Regulatory Gaming, 87 Texas L. Rev. 

685 (2009); but cf. Walgreen Co. v. Astrazeneca Pharms., L.P., 534 F. Supp. 2d 

146 (D.D.C. 2008) (ruling that alleged conduct did not cause antitrust injury or 

harm to competition). The district court here departed from that growing 

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consensus by adopting broad rationales that would bar product-hopping liability in

almost all circumstances. 

B. Innovation Concerns, While Relevant and Important, Should Not 

Categorically Preclude Product-Hopping Liability

Once a plaintiff demonstrates harm to competition, the burden shifts to the 

defendant to show a “nonpretextual” and offsetting procompetitive justification. 

Microsoft, 253 F.3d at 59; see, e.g., Namenda, 787 F.3d at 652. A defendant 

typically defends a product hop on the grounds that the revised formulation is 

superior to the original one and that the specter of liability would deter future 

pharmaceutical innovation. The district court appeared to accept that innovation 

concern as a basis for rejecting product-hopping liability in any context, no matter 

how trivial the proffered innovation might be in any given case and no matter how 

aggressively the monopolist shifts the market to a revised formulation before it can 

face generic substitution for the original formulation. JA.43-44. That position 

contradicts established antitrust doctrine. Innovation concerns are important and 

relevant to the antitrust analysis, but they should not categorically bar producthopping liability. 

“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; see also Berkey Photo, Inc. v. Eastman Kodak Co., 603 

F.2d, 263, 281 (2d Cir. 1979). “Judicial deference to product innovation, however,

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

Microsoft, 253 F.3d at 65. For example, the en banc D.C. Circuit unanimously 

held that two of Microsoft’s software changes violated the Sherman Act because 

they had no “procompetitive justification” and served no purpose “other than 

protecting [Microsoft’s] operating system monopoly” against nascent competition. 

Id. at 59, 67. In another case, the Federal Circuit likewise upheld a finding of 

antitrust liability where the evidence on product improvement was mixed but the 

defendant’s “real reasons for modifying [its product] were to raise the cost of 

entry.” C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1382 (Fed. Cir. 1998).

19

The potential for anticompetitive product redesign is particularly acute in the 

pharmaceutical industry. In well-functioning markets, consumers choose the 

products they pay for, and the success of a product modification is thus presumed 

to reflect increased consumer welfare. As discussed, however, the physicians who 

 

19 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 competition-suppressing, unjustified 

product redesign can violate antitrust laws); Herbert Hovenkamp et al., IP and 

Antitrust, § 15.3 at 15-75 (2d ed. 2010). The Ninth Circuit appears to attach 

somewhat greater weight than other courts to innovation defenses in Section 2 

cases. See Allied Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 592 

F.3d 991 (9th Cir. 2010). But even the Ninth Circuit recognizes such a defense 

only if the “design change is an improvement,” and even then, a “monopolist’s 

discontinuation of its old technology may violate Section 2 if it effectively forces 

consumers to adopt its new technology.” Id. at 1000, 1002 (internal quotation 

marks omitted).

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choose prescription drugs do not pay for them and thus do not account for the 

economic costs of anticompetitive product modifications. See Abbott Labs., 432 F. 

Supp. 2d at 422 (“[t]he nature of the pharmaceutical drug market” does not always 

permit “the merits of any new product [to] be tested by unfettered consumer 

choice”). There is thus no reason to conclude that the “success” of such 

modifications necessarily reflects either genuine innovation or increased consumer 

welfare.

Genuine pharmaceutical innovation is also unlikely to be chilled simply

because antitrust law may hold brand-name manufacturers liable for minor product 

tweaks that have little or no therapeutic value and serve only to avoid generic 

competition. First, a manufacturer that incorporates a genuine innovation in its 

reformulated product can offer that fact as a procompetitive justification. Second, 

as the Namenda court observed, actionable product-hopping conduct typically

consists not only of a product reformulation, but also calculated efforts to damage

or destroy the market for the original formulation. See Namenda, 787 F.3d at 659

(“While introducing Namenda XR may be procompetitive, that argument provides 

no procompetitive justification for withdrawing Namenda IR.”). A company is 

unlikely to face potential antitrust liability if it does not take targeted steps to 

damage the market for the original formulation and instead allows the marketplace 

itself to choose between that formulation and the modified version. 

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But when a brand-name company conducts an anticompetitive product hop 

with no countervailing justification, the benefits of antitrust enforcement—the 

promotion of competition and efficient pricing—outweigh any residual risk of 

chilling actual pharmaceutical innovation. Indeed, if anything, foreclosing 

antitrust liability in those circumstances might itself sometimes chill genuine 

innovation. As the Second Circuit explained, “immunizing product hopping from 

antitrust scrutiny may deter significant innovation by encouraging manufacturers to 

focus on switching the market to trivial or minor product reformulations rather 

than investing in the research and development necessary to develop riskier, but 

medically significant, innovations.” Id. at 659. 

In this case, Mylan argues that Warner Chilcott’s product hop had no 

redeeming therapeutic value and was designed solely to thwart generic 

competition. The district court did not examine that claim on the merits; instead, it 

expressed broad-brush opposition to product-hopping liability in any 

circumstances. This Court should thus remand the case with instructions to apply 

the antitrust principles set forth above.

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31

CONCLUSION

The Court should reverse and remand for further proceedings.

Respectfully submitted,

STEPHEN WEISSMAN

Deputy Director

MARKUS H. MEIER

Assistant Director

BRADLEY S. ALBERT

Deputy Assistant Director

DOMINIC E. VOTE

HEATHER M.JOHNSON

Attorneys

Bureau of Competition

JONATHAN E. NUECHTERLEIN

General Counsel

JOEL MARCUS

Director of Litigation

/s/ Mark S. Hegedus

MARK S. HEGEDUS

Attorney

Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov

September 30, 2015

Case: 15-2236 Document: 003112088104 Page: 38 Date Filed: 09/30/2015
COMBINED CERTIFICATES – CASE 15-2236

BRIEF OF AMICUS CURAIE FEDERAL TRADE COMMMISSION AS 

SUPPORTING OF PLAINTIFFS-APPELLANTS

I hereby certify that:

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32(a)(7)(B) and L.A.R. 29.1(b). It has 6,767 words as counted by Microsoft 

Word 2010.

2. The electronic version of this brief is identical to the version sent in hard

copy to this Court.

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

Symantec Endpoint Protection Version 12.1.4112.4156 with virus 

definitions updated September 29, 2015. No viruses were detected.

4. 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.

5. I have caused to be sent to the Court seven hard copies of this brief via 

FedEx Next Day Delivery to:

Clerk of Court

U.S. Court of Appeal, Third Circuit

Independence Mall West

601 Market Street 

Philadelphia, PA 19106

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

DATE: September 30, 2015 /s/ Mark S. Hegedus

 Mark S. Hegedus

Case: 15-2236 Document: 003112088104 Page: 39 Date Filed: 09/30/2015