Markets Wired

The Federal Trade Commission filed an amicus brief before the U.S. Court of Appeals for the Third Circuit explaining that the district court made significant analytical errors in ruling for defendants in a dispute involving allegations of pharmaceutical “product hopping.” The brief explains that, in examining whether such conduct is unlawful, courts should account for the unique aspects of the pharmaceutical marketplace, including the nature of competition between branded pharmaceutical products and their generic counterparts.

Generic competition through state automatic substitution laws saves American consumers billions of dollars each year. Brand-name pharmaceutical companies can avoid this competition and preserve monopoly profits by combining minor product reformulations with efforts to damage or destroy the market for the original formulation. This tactic, commonly called product hopping, can harm consumers.

As the brief explains, “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 but not the replacement.” Such conduct could deprive generic companies of their most-efficient means of distribution – automatic substitution at the pharmacy – and, as a result, maintain the brand’s monopoly through illegal means.

The FTC filed its amicus brief in a private antitrust action in which Mylan Phamraceuticals Inc. alleges that Warner Chilcott PLC/Mayne Pharm Group maintained a monopoly in the market for its antibiotic Doryx by suppressing generic competition through three successive insignificant reformulations of the drug, combined with various efforts to curtail the availability of the original formulations. The district court granted the defendants’ motion for summary judgment, and the plaintiffs appealed that ruling to the U.S. Court of Appeals for the Third Circuit.

The FTC takes no position on the ultimate merits of this case. The brief explains, however, that the district court’s broad ruling effectively embraces a rule of nearly per se legality for product-hopping conduct: “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.” That outcome, the brief states, conflicts with the law of the Third Circuit, as well as other circuits.

The FTC’s brief also explains that the district court’s analysis of the monopoly-power question failed to account for the special characteristics of the pharmaceutical marketplace, including that generics are unique sources of competition for brand-name prescription drugs.

The FTC vote approving the amicus brief filing was 3-1, with Commissioner Maureen Ohlhausen voting no. It was filed on September 30, 2015.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., NW, Room CC-5422, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.