A bipartisan group of lawmakers in the US House of Representatives’ Judiciary Antitrust Subcommittee recently voted three bills out of committee that target the pharmaceutical industry practices of so-called “reverse payments,” “product hopping,” and “sham” citizen petitioning. Versions of some of these bills had been under consideration by this subcommittee for years, but had not been voted out of committee until now.
Each bill, if enacted in its current form, would create new presumptions in favor of the Federal Trade Commission (FTC) that do not currently exist and shift various burdens to defendants. These changes could have wide-reaching ramifications for innovator and generic pharmaceutical and biosimilar manufacturers alike. The bills currently seek to bolster the FTC’s authority under the FTC Act to eliminate some of the significant legal hurdles the FTC has encountered in the past when prosecuting pharmaceutical manufacturers. We would anticipate increased enforcement as a result.
While the bills received bipartisan support in committee, it remains to be seen if any bill has enough support to pass the full House and Senate. Our antitrust practice is tracking these developments, and we have provided below a brief overview of the three bills and some key takeaways.
This bill would overturn the US Supreme Court’s FTC v. Actavis, 570 U.S. 136 (2013) decision, which held that so-called reverse payment settlement agreements are subject to the rule of reason, and amend Section 5 of the FTC Act to create a presumption of an antitrust violation whenever pharmaceutical companies enter into an alleged reverse-payment settlement. Under this legislation, if a patent challenger receives “anything of value,” including an exclusive license or a customary most-favored-nation term, then the parties to the agreement would have to prove through “clear and convincing evidence” that either the value provided by the settlement is compensation “solely for other goods and services” promised to the alleged infringer, or that the settlement’s procompetitive benefits outweigh its (presumed) anticompetitive effects. Violations would be subject to civil penalties that can be trebled based on the value received, mandatory injunctions, and potential forfeiture of a generic’s 180-day Hatch-Waxman exclusivity period.
This legislation is similar to California’s A.B. 824, which passed in 2019 and renders certain pharmaceutical patent settlements presumptively anticompetitive, with potential penalties against those reaching patent settlement agreements. If enacted, this federal law would create even more complexity for pharmaceutical companies seeking to resolve patent litigation under the Hatch-Waxman Act, given how broadly the bill is phrased.
Affordable Prescriptions for Patients Through Promoting Competition Act (H.R.2873)
This bill would amend the FTC Act to create a presumption that so-called “hard switches”—where a new brand drug is introduced and the old brand drug is taken off the market—are anticompetitive. This presumption also applies to so-called “soft switches,” where the older product is left on the market, if the conduct unfairly “disadvantages” generic competitors. The term “disadvantages” is currently undefined.
Under the bill, a hard or soft switch would be unlawful if it takes place within 180 days after the new generic is first marketed. Additionally, the bill places the burden on the manufacturer undertaking the switch to justify its decisions. Hard switches can be justified for “reasons related to the safety risk to patients” or supply disruptions outside the manufacturer’s control. A soft switch can be justified by a showing of “legitimate pro-competitive reasons, apart from the financial effects of reduced competition.” Under this legislation, the FTC could seek disgorgement of any unjust enrichment for violative conduct in federal court, thereby partially overturning the Supreme Court’s recent decision in AMG Capital Management, LLC vs. FTC, which held that the FTC did not have the authority to seek disgorgement under Section 13(b) of the FTC Act.
This legislation is significant given the presumptions it creates, as well as the types of conduct it covers. While some courts that have addressed switching have found that hard switches may violate existing antitrust law, soft switches generally have not been considered anticompetitive by the courts. This bill’s prohibition on soft switches could cause brand drugmakers to think twice before introducing improved versions of existing drugs, thus arguably reducing the incentive for procompetitive innovation.
This bill would create a rebuttable presumption that a citizen petition is a “sham” and thus a violation of the FTC Act if the FDA first determines that a petition was “submitted with the primary purpose of delaying approval” of a generic or biosimilar drug. The FTC would then have a rebuttable presumption in any subsequent enforcement action involving the petition’s primary purpose. This unique structure means the FDA’s determination would drive whether the FTC can establish its prima facie case for a violation. There is no indication of what standard the FDA will be required to use to make this determination, or whether the standard can include more than scientific factors, but the FDA already has some experience analyzing a petition’s “primary purpose” given its authority to deny certain petitions for that reason under Section 505(q) of the Federal Food, Drug, and Cosmetic Act.
The bill specifically defines “sham” as a petition that is “objectively baseless” and an “attempt to use a governmental process (as opposed to the outcome of the process) to interfere with the business of a competitor.” In the event of a series of petitions, the “objectively baseless” requirement would not apply, with the FTC only needing to show an anticompetitive subjective intent behind the submissions. A violation of this provision incurs a civil penalty up to the revenue earned from sale of any drug related to the sham petition during the period the petition was under review, or $50,000 per day, whichever is greater.
This legislation could result in a significant weakening of the Noerr-Pennington doctrine in the context of citizen petitions, which generally provides that private actors enjoy immunity from antitrust suits for government-petitioning activity. The Stop STALLING Act would invert the burden on defendants and clarify applicable standards, particularly in the context of a series of petitions. However, by pulling back on this immunity, the proposed legislation could have the unintended effect of chilling legitimate government petitioning.