1. State Antitrust Enforcement in the Pharmaceutical Industry
Pharmaceuticals Conference
National State Attorney General Program at Columbia Law School
New York, NY
May 10-11, 2007
Elinor R. Hoffmann, Office of the NYS Attorney General

2. Elinor R. Hoffmann, Office of the NYS Attorney General
Why do States care?
In 2004, $188.5 Billion was spent on prescription pharmaceuticals. One estimate for 2006 is $213.7 billion.
Attorneys General represent state agencies and consumers who make significant purchases of pharmaceuticals.
Poisal, J.A. et al, Health Spending Projections through 2016: Modest Changes Obscure Part D’s Impact Health Affairs 26, No. 2 (2007).
Elinor R. Hoffmann, Office of the NYS Attorney General

3. What are the relevant statutes?
The antitrust laws.
Sherman Act §§1,2; Clayton Act §§ 4, 16. (15 U.S.C. §§ 1,2,15,26.)
State antitrust laws.
The patent law.
35 U.S.C. § 101 et seq.
The Hatch-Waxman Act.
Pub.L. No , 98 Stat.1585 (codified in relevant part as 21 U.S.C.§355).
This list of statutes is not all-inclusive. I left out the statute for mergers, which I am not going to discuss in any detail.
Elinor R. Hoffmann, Office of the NYS Attorney General

4. What are the goals of antitrust law?
To promote and protect the competitive process; to enable consumers to access the best possible product at the lowest possible price; to encourage innovation.
Contracts, combinations and conspiracies that unreasonably restrain trade are unlawful;
Abuses of monopoly power are unlawful;
Mergers that may substantially lessen competition are unlawful.
“Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise.” United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972) (opinion by Justice Marshall), quoted in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko LLP, 540 U.S. 398, 415 (2004) (“The Sherman Act is indeed the ‘Magna Carta of free enterprise’”) (opinion by Justice Scalia). Different ends of the political spectrum agree.
That is not an all inclusive catalogue. But generally speaking, the antitrust laws are deceptively simple and short. The devil is in the facts, the judicial precedents, and the sometimes conflicting, but equally important regulatory policies.
Antitrust law condemns unreasonable restraints of trade. What is unreasonable is a subject that has preoccupied the Supreme Court for more than 100 years. Some types of conduct traditionally have been called “per se illegal.” That is, they are conclusively presumed to be illegal once the collusion among competitors is shown. Price-fixing or allocation of markets between competitors is the paradigmatic example. The general rule, though is sometimes called the “rule of reason” where anticompetitive effects are weighed against procompetitive benefits of certain types of conduct. As a general matter, there is no bright line any more, if there ever was, between per se unlawful conduct and other types of conduct. Think of a continuum—some types of conduct are per se unlawful or very close to it. Other types of conduct and factual contexts require a limited amount of evidence before a fact-finder can conclude that the conduct is more anticompetitive than not. And yet other types of conduct require extensive evidence regarding the impact on the market. Think of it as an evidentiary continuum.
Elinor R. Hoffmann, Office of the NYS Attorney General

5. How does state antitrust law differ from federal law?
Not very much
Most states have statutes that look very much like the federal antitrust statutes.
States enforce both federal and state antitrust law.
We most often bring pharmaceutical cases in federal court, often with pendent state claims if we are interested in recovering for consumers. The reason? State and federal law do not differ a lot from one another.
Elinor R. Hoffmann, Office of the NYS Attorney General

6. What are the differences?
In many states, “Illinois Brick repealers” or other indirect purchaser statutes enable recovery on behalf of indirect purchasers. Supreme Court precedent generally precludes such recovery under federal antitrust law.
Somewhat different exemptions.
Remember, state laws are not uniform. State antitrust statutes may differ from one another, exemptions may differ, some states rely on consumer protection laws for antitrust-like enforcement, other states may rely on statutes which give the AG special enforcement or investigatory powers. Indirect purchaser statutes vary as well. They may give only the Attorney General the right to recover on behalf of indirect purchasers, or they may allow indirect purchasers to recover in their own lawsuit (provided they can prove damages with the requisite certainty).
I’ll get back to indirect purchaser statutes in a moment.
Elinor R. Hoffmann, Office of the NYS Attorney General

7. What are the goals of patent law?
To promote and protect innovation:
By giving an inventor the right to exclude others from making, using or selling the patented work for a limited number of years.
In exchange, an inventor must disclose the details of his/her invention in a publicly available patent.
A patent represents a monopoly interest that extends to the four corners of the patent claims. Not further. An inventor has a patent monopoly, but there is no presumption that he has an economic monopoly after the Supreme Court’s decision last year in Illinois Tool Works v. Independent Ink, Inc. 126 S.Ct (2006).
Elinor R. Hoffmann, Office of the NYS Attorney General

8. The Hatch-Waxman Act of 1984
Intended to facilitate generic competition.
Generics are “me-too” drugs: they do not have to go through the same lengthy, expensive clinical testing process as innovator drugs.
The trade-off was a longer period of patent protection for pioneer pharmaceuticals.
[Cite]
Elinor R. Hoffmann, Office of the NYS Attorney General

9. What was the effect of Hatch-Waxman?
A resounding success in many ways.
Generics on the market more quickly.
Generics, on average, are sold at a 50% discount from brand price, and take away 50% of the brand market within 12 months from launch. This may differ from product to product, but the inroads made by generics is substantial.
See Generic Entry Prior to Patent Expiration: An FTC Study (2002)(hereinafter referred to as “FTC Study on Generic Entry”), at pg 9, available at
Henry Grabowski and John Vernon, Brand Loyalty, Entry, and Price Competition in Pharmaceuticals After the 1984 Drug Act, 35 Journal of Law & Economics , 336 (1992))(using data of 18 drugs marketed b/t , found that "generic prices averaged 61% of the leader [branded] price during the first month after entry, and this declined to 46% one year after entry and then to 37% two years after entry")
Elinor R. Hoffmann, Office of the NYS Attorney General

10. What was the effect of Hatch-Waxman?
Pharmaceutical manufacturers developed ways to manipulate the Act. Used litigation as an offensive business strategy.
Manipulation of regulatory processes to extend and enhance patent monopolies.
Exclusionary settlements that delay the entry of competition in exchange for a share monopoly profits.
Creative and innovative ways. Better to devote creative energy to real innovation. The name of the game here is delay. If you can delay generic entry for even six months and you are dealing with a $6 billion/year drug (that would be Plavix or Lipitor) it brings new meaning to the phrase time is money.
Elinor R. Hoffmann, Office of the NYS Attorney General

11. Overview: Types of Cases Involving Unilateral Conduct
Fraud or inequitable conduct with PTO (can lead to monopolization claims if the other elements of unlawful monopolization are present).
Walker Process v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).
Improper Orange Book patent listings (fraudulent certifications to the FDA; listings of patents known to be unenforceable). (E.g., Taxol, Buspar).
Product reformulations and product switching as a mechanism to protect monopoly. (e.g., Ovcon, Nexium)
In Walker Process v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court ruled that enforcement of a patent procured by fraud on the patent office could be the basis for a claim under section 2 of the Sherman Act.
If, for example, a patent is procured by fraud, but then the product is listed in the Orange Book, a potential generic competitor would be prompted to file a paragraph IV certification that the patent was either invalid or uninfringed. That certification is an act of constructive infringement. If the brand sues within 45 days, there is an automatic stay of 30 months before the FDA may give final approval to the generic.
Elinor R. Hoffmann, Office of the NYS Attorney General

12. Types of Cases Involving Collusive Conduct
Patent infringement litigation settlements delaying entry of generic defendant in exchange for money. Agreements to delay entry outside of the patent infringement context.
Agreements to take advantage of provisions of the Hatch-Waxman Act to prevent other generics from entering the market.
“share of monopoly rents”
30 month stay, 180 days of exclusivity for first ANDA filer.
Elinor R. Hoffmann, Office of the NYS Attorney General

13. Examples of Cases Involving Collusion
In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003), cert. denied, 544 U.S.1049 (2005). Exclusionary agreement between brand and generic that went beyond the scope of the patent. Affirmed grant of partial summary judgment based on a per se rule condemning allocation of markets among competitors.
Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert. denied, 126 S.Ct (2006). Exclusionary agreement that did not extend beyond the scope of the patent. Tripartite test: What is the scope of the patent? Does the agreement go beyond the scope? What are the anticompetitive effects?
In re Tamoxifen Citrate Antitrust Litig, 429 F.3d 370 (2d Cir. 2005). Affirmed dismissal on the pleadings. Exclusionary settlements are ok so long as they are within the scope of the patent and the litigation is not a sham. Petition for certiorari has been filed.
State of Colorado v. Warner Chilcott, et al, Civ. Action No (CKK) (D.D.C. 2005). Pending case brought by 34 states and the FTC alleging agreement between brand manufacturer and generic manufacturer to keep generic off of the market in exchange for $20 million and a supply agreement (at twice fully loaded cost). No patent involved.
These cases illustrate the current seminal issue: What should the test of illegality be in the patent infringement litigation settlement context? Should the patent make a difference? To what extent? Should the patent be presumed to be valid? Should the patentee be permitted to accomplish by agreement what it can accomplish unilaterally by an exercise of valid patent power?
In Schering, the FTC petitioned for certiorari, the States filed an amicus supporting that position, and the DOJ opposed. The DOJ opposed the grant of certiorari on the grounds that there were difficult factual issues and administrative law issues.
In Tamoxifen, the Supreme Court has asked for the DOJ’s views again. The procedural posture is very different from Schering—there are no factual issues, because this came up on a motion to dismiss, and no administrative law issues. How will the DOJ come out?
Elinor R. Hoffmann, Office of the NYS Attorney General

14. Elinor R. Hoffmann, Office of the NYS Attorney General
Back to Enforcement
In a sense, a real race to keep up with all the creative thinking out there.
Elinor R. Hoffmann, Office of the NYS Attorney General

15. Potential State Claimants in Antitrust Cases.
State agencies (proprietary)
Medicaid
State employee/retiree
benefit programs
State hospitals
Mental health facilities
State correctional facilities
Consumers
Represented through parens patriae authority
Elinor R. Hoffmann, Office of the NYS Attorney General

16. Remedies Available to State Attorneys General.
Civil and Criminal Authority
Damages (many states have laws providing recovery for indirect purchasers)
Equitable Relief (restitution and/or disgorgement)
Civil Penalties (Fines)
Injunctive Relief
Elinor R. Hoffmann, Office of the NYS Attorney General

17. Enforcement Framework.
States enforce both state and federal antitrust laws in state and federal courts.
Multistate investigations and litigation coordinated through the NAAG Antitrust Task Force.
Pharmaceutical Industry Working Group.
Cooperate with FTC, DOJ.
Cooperate with class counsel in actions filed by private bar.
In the Pharmaceutical Industry Working Group, we exchange information about current issues in the pharmaceutical industry, investigations, cases, legislation and policy.
Elinor R. Hoffmann, Office of the NYS Attorney General

18. What’s News? Product Extensions.
Introduce next generation product with no meaningful improvements
Switch existing patient base to new product
Take additional steps to delay generic entry to buy time to implement this strategy.
Ovcon,TriCor, Nexium are examples.
Elinor R. Hoffmann, Office of the NYS Attorney General

19. What’s News? Authorized Generics.
An authorized generic is a brand drug produced under a generic label, either by the brand manufacturer or its licensee.
Manufactured under the original NDA, so no new FDA approval is necessary.
Do authorized generics undercut the incentives for generic entry by undercutting the 180 day exclusivity granted the first ANDA filer by the HWA?
Do authorized generics increase competition and lower prices?
Agreements to keep authorized generics off of the market may be problematic. The FTC is studying whether authorized generics undercut the incentives of true generics to enter more than they benefit competition.
Elinor R. Hoffmann, Office of the NYS Attorney General

20. What’s News? Federal Legislation.
S. 316, voted out of the Senate Judiciary Committee, would prohibit all patent infringement litigation settlements that involve an exchange of “something of value” for a delay in generic entry.
Statute has bipartisan support, and there is a parallel bill in the House, HR 1902.
Elinor R. Hoffmann, Office of the NYS Attorney General

21. What’s News? Biogenerics.
There is no expedited FDA approval process for biogenerics or biosimilars as there is for traditional pharmaceuticals under the Hatch-Waxman Act although legislation has been introduced. HR 1956.
Biologics now comprise approximately $32 billion or 15% of total U.S. pharmaceutical sales, and usage is growing at about twice the rate of other pharmaceuticals.
Legislation has been introduced to expedite approval of biogenerics here. Legislation is in place in Europe. Testimony of Senator Charles E. Schumer, HELP committee Hearing on follow-on Biologics, March 8, 2007.
The five largest Medicare Part B (in office administration) drug expenditures are all for biotech medicines, and the biggest drug expenditure for CMS was $2 billion on Epogen, a biologic for anemia used extensively in dialysis. The two next largest, Aranesp and Procrit, are also for anemia, and all were developed by the same company, Amgen, although Procrit is sold by Ortho, a J&J sub, pursuant to a license. The average cost of a biotech drug is approximately $45 per day, as opposed to a synthetic pharmaceutical, which is roughly $1.66 per day.
Elinor R. Hoffmann, Office of the NYS Attorney General

22. What should the States be doing?
Investigations and litigation.
Tracking and commenting on legislation.
Working with our own agencies to develop comprehensive approaches to policy in this area.
Elinor R. Hoffmann, Office of the NYS Attorney General

23. Slides prepared by Elinor R
Slides prepared by Elinor R. Hoffmann, NY OAG; with contributions by Beth Finnerty and Patrice Fatig, Ohio OAG.

24. Appendix: Recent State Cases in Pharmaceutical Industry (1).
Relafen – SmithKline Beecham(Arthritis treatment)(fraud on patent office, sham litigation).
Paxil – GlaxoSmithKline (Antidepressant)(fraud on patent office, sham litigation).
Remeron – Organon Inc. and Akzo Nobel N.V. (Antidepressant)(fraud on patent office, improper Orange Book listings).
Cardizem CD – Hoechst Marion Roussel (now Aventis Pharmaceuticals) and Andrx Corp. (Heart medication)(agreement to delay generic entry).
Elinor R. Hoffmann, Office of the NYS Attorney General

25. Appendix: Recent State Cases in Pharmaceutical Industry (2).
Hytrin – Abbott Labs, Zenith Goldline Phamaceuticals, Geneva Pharmaceuticals Inc. (Hypertension and Enlarged prostate)(agreement to delay generic entry)
Ovcon – Warner Chilcott, Barr Labs (oral contraceptive)(agreement to delay generic entry).
Children’s Ibuprofen—Alpharma, Perrigo (ibuprofen) (agreement to limit competition for OTC drug).
Elinor R. Hoffmann, Office of the NYS Attorney General

26. Appendix: Recent State Cases in Pharmaceutical Industry (3).
BuSpar – Bristol-Myers Squibb (Anti-anxiety medication)(fraud on patent office, improper Orange Book listing, agreement to delay generic competition).
Taxol – Bristol-Myers Squibb (Cancer treatment)(fraud on patent office, improper Orange Book listings).
K-Dur 20 – Schering-Plough, ESI Lederle, Upsher-Smith, American Home Products Corp.(Cardiac medication)(agreement to delay competition).
Lorazepam and clorazepate) – Mylan Labs, Cambrex Corp., Profarmaco and Gyma (Anti-anxiety medications)(monopolization using exclusionary supply arrangements).
Elinor R. Hoffmann, Office of the NYS Attorney General