FTC Says Brand Name Drug Redesign Violates Antitrust Law

The Federal Trade Commission recently filed an amicus brief in a case in the U.S. District Court for the Eastern District of Pennsylvania.  The brief is notable because the FTC explains in the brief that it is their learned opinion that minor, non-therapeutic changes to a branded pharmaceutical product harm generic competition and can constitute exclusionary conduct that violates U.S. antitrust laws.

Wow! I almost don’t know where to start to unpack such nonsense, but I will give it the old college try! Before proceeding, however, I can’t help but notice that with the notable exception of the United States Patent and Trademark Office, the Obama Administration has recently started to sound quite anti-patent.

Not only is the FTC arguing that product changes to patented drugs violate U.S. antitrust laws, but the FTC and Department of Justice (DOJ) are going to look into whether patent enforcement activities that seek redress for infringement violate U.S. antitrust laws.  See FTC, DOJ to Hold Workshop on Patent Assertion Entities. This does not bode well for a second Obama term, and I have to wonder whether those in the patent community that decided to vote for President Obama due to his perceived friendliness to patents and smooth running of the Patent Office are going to start to have regrets, particularly now that David Kappos is leaving the USPTO.

[Bio-Pharma]

The FTC Amicus Brief

The FTC’s amicus brief in Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co. states, “The potential for anticompetitive product redesign is particularly acute in the pharmaceutical industry.” Regardless of whether that is true or not, why is product redesign at all problematic? And the idea that a product design or redesign is believed to be anticompetitive shouldn’t come as a shock to anyone, does it? Isn’t the goal of business to succeed?  Don’t businesses that operate in the same field try and succeed more than competitors? Isn’t the very nature of a patent to prevent competition in exchange for the dissemination of information? Yes, yes and YES!

Frankly, when I hear government regulators or ivory tower academics complain about the anticompetitive nature of patents I feel nauseated. Such inane comments are like fingers on a chalkboard. Either they simply don’t understand the patent system, which in many cases is a distinct possibility, or they do understand the patent system and consciously taking an absurd anti-patent position. Unfortunately, both are bad, wrong-headed and rather ignorant. Those who don’t understand really shouldn’t be taking positions that can and will affect policy.  Those who do understand the issues and intentionally ignore history and business reality in favor of a world without patents are misguided at best, and malevolent in their disregard of truth at worst.

But how can the FTC believe the modifying a product, even a pharmaceutical, can lead to an antitrust violation? I don’t know, and neither will you even if you read the FTC amicus brief.  Their logic is never explained. Only conclusions are provided. If I were a professor grading this assignment it would receive at best a D. The writing is fine, the presentation good, citations seem in appropriate format, but on the central point there is an utter failure to explain how and why they reach their misguided opinion.

The FTC’s conclusion is that brand name pharmaceutical companies try to obstruct generic competitors and preserve monopoly profits on a patented drugs by making modest reformulations that offer little or no therapeutic advantages.  Prior to facing generic competition, a brand drug company can simply withdraw its original product from the market.  According to the FTC this then forces consumers to switch to the reformulated brand drug, which then through some feat of magic allows the branded company to keep its market exclusivity and prevent consumers from obtaining the benefits of generic competition. But why does the a switch of product have any impact at all on the generic? That is not explained, almost certainly because there would be no impact on the supplier of the generic.

The Problem with the FTC Argument

The problem with the FTC argument is that there is no argument. There is no logic. They leave the critical question unanswered.  Why can’t a generic drug company proceed to release the generic despite the product redesign?  The reason that vital question is not asked and is never answered by the FTC amicus brief is because the simple answer is that the generic drug company CAN still release the original generic despite a product redesign.

Once the patent expires anyone can make, use, sell, offer for sale or import the drug.  Of course, in the pharmaceutical arena there are other issues involved thanks to the regulatory power of the Food and Drug Administration (FDA). Generic companies don’t want to have to go through the complete FDA process required for new drugs, so they will file what is called an Abbreviated New Drug Application (ANDA) and piggy-back on the research of the brand name drug company to get approval to distribute an equivalent of the brand name drug. So once the original patented drug comes off patent and the FDA has approved an ANDA the generic company can sell.

The argument the FTC seems to be making is that brand name drug companies forfeit the right to make alterations to their products unless there is a therapeutic rationale for the change. Non-therapeutic changes are simply not allowed under the FTC view because that would lead to the finding of an antitrust violation, and no company wants that scrutiny. But why? Under what principle of law or logic does that make sense? None.

Why should the federal government be able to tell a drug company what types of designs or redesigns of a product are authorized? If the reformulation of the drug passes scrutiny under whatever process the FDA thinks is appropriate then why should the FTC have the authority to step in and say no? And what exactly is the problem with a reformulation given that the generic drug companies will be able to make the former version of the drug once it goes off patent?

Conclusion

It seems pretty clear to me that the FTC, and by necessary implication the Obama Administration, does not want patented drugs to be reformulated prior to generic competition. They seem to believe that patients will continue to want the reformulated drug that they recognize, with whatever advantages or differences (or perceived advantages or differences) it comes with over the previous version of the drug.  So when a reformulated version hits the market prior to the patent expiring they must think that the generic market will be compromised.  But why is the preference of consumers an antitrust violation?

It seems to me that the FTC, and by extension the Obama Administration, believes that consumers need to be protected from themselves. Perhaps it is better to say that the FTC thinks that generic manufacturers need to be protected from what they believe to be illogical or irrational choices of consumers. The real issues lies in a paternalistic view of consumers as needing protection. Non-therapeutic changes to a drug formulation can’t have any advantage or difference, so goes the FTC logic, so it is unfair to generic manufacturers for brand name drug companies to change formulations and provide consumers something different. But why?

Since when did providing an alternative product choice become an antitrust violation? Generic manufacturers can charge less than the brand name for the original patented drug that is now off patent. So how could it be manipulative and anticompetitive to charge more for something that provides no therapeutic value? You see, the FTC argument folds in on itself and collapses.

There is simply no justification for punishing brand name manufacturers for the conscious decisions of consumers. If consumers want to pay more for a drug that doesn’t have any additional therapeutic value that is a choice they are making.

Preventing consumers from having a choice is what is anticompetitive, and what the law has always sought to punish. How ironic that it is the FTC position that would lead to less competition.  Indeed, the FTC has jumped the shark and is advocating in favor of less choice.

For those interested in more reading on the topic, you might find the Motion to Dismiss filed in the case to be worth a read. I think the defendants have nailed it perfectly. Hopefully the district court will agree and put an end to what seems a wholly frivolous case if you ask me.