First published in Antitrust News & Notes, August 2010
On July 13, 2010, the magistrate judge presiding over a subpoena enforcement action in the United States District Court for the District of Columbia granted a rarely-approved request for discovery from the Federal Trade Commission (FTC).1 Paul Bisaro, Chief Executive Officer of generic drug manufacturer Watson Pharmaceuticals (Watson), obtained the Order directing the FTC to respond to his discovery requests in the context of an enforcement action seeking to compel him to testify in response to a FTC subpoena. The FTC subpoena sought testimony from Mr. Bisaro as part of its investigation of a “reverse-payment” settlement of a patent infringement action in which patent holder Cephalon, Inc. (Cephalon) paid Watson, the alleged infringer, in return for Watson’s promise not to market a generic version of Cephalon’s branded drug for a specific period of time. Such settlements make economic sense for both branded and generic drug manufacturers because of the unique provisions of the Hatch-Waxman Act, 21 U.S.C. § 355(j) (2006).2
Although, three circuit courts and several lower courts have found such settlements to be legal as long as the generic manufacturer’s agreement not to compete does not last longer than the original patent’s term,3 the FTC has long believed that they are “unfair methods of competition” which violate Section 5 of the FTC Act.4 Mr. Bisaro claimed the FTC’s subpoena was motivated by its hostility toward reverse-payment settlements. According to Mr. Bisaro, the FTC issued the subpoena to harass Watson and force it to enter into a business transaction with a competitor under which it would relinquish statutory rights it potentially could use to obtain another reverse-payment settlement with Cephalon.
U.S. Magistrate Judge Alan Kay ruled that while discovery is available in subpoena enforcement proceedings only in “extraordinary circumstances,” Mr. Bisaro presented a “colorable claim” that the FTC issued the subpoena to harass Watson, and he was entitled to discovery to substantiate his claim.5 Judge Kay explained: “The FTC Act empowers the FTC ‘to prevent [persons or corporations] . . . from using unfair methods of competition in or affecting commerce.’15 U.S.C. § 45(a)(2). But, it does not appear that there is any statutory or regulatory authority that would empower the FTC to use its investigative power to pressure a company to waive statutory rights it had legitimately acquired or to enter into a business deal with a competitor.”6
This battle is not likely to be over soon. The FTC responded to Mr. Bisaro’s interrogatories on July 22, 2010, as Judge Kay had ordered it to do. However, on the same day, the FTC also filed a motion to supplement the record and presented new evidence to establish that “the Commission’s actions were carried out for legitimate law enforcement purposes in furtherance of the public interest.”7 The FTC is also seeking to enforce its subpoena for Mr. Bisaro’s testimony. Judge Kay will soon have to address these issues, and his ruling will no doubt be reviewed by the district court.8 This matter may well ultimately be resolved by the D.C. Circuit.9
V&E partner Dionne Lomax has deep experience on FTC proceedings and will be actively following this matter. Please contact her with questions on this or any other FTC issues.Visit our website to learn more about V&E's Antitrust practice. Get a .pdf of this issue of Antitrust News & Notes e-newsletter.
1 Order, Federal Trade Commission v. Bisaro, No. 10-289 (D.D.C. July 13, 2010).
2 See id. at 2-3; Federal Trade Comm’n, Pay-For-Delay: How Drug Company Pay-Offs Cost Consumers Billions (Jan. 2010), available at www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf.
3 See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 129 S. Ct. 2828 (2009); In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006); Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Circ. 2005); In re Androgel Antitrust Litig., No. 1:09-md-02084, 2010 WL 668291 (N.D. Ga. Feb. 22, 2010); Special Master’s Report and Recommendation, In re K-Dur Antitrust Litig., No. 01-1652, 2009 WL 508869 (D.N.J. Feb. 6, 2009); and In re Ciproflaxacin Hydrochloride Antitrust Litig. (“Cipro II”), 363 F.Supp.2d 514 (E.D.N.Y. 2005), aff’d by, 544 F.3d 1323 (Fed. Cir. 2008).
4 See, e.g., Jon Leibowitz, Chairman, Federal Trade Commission, Remarks at the Center for American Progress: “Pay for Delay” Settlements in the Pharmaceutical Industry: How Congress Can Stop Anticompetitive Conduct, Protect Consumers’ Wallets, and Help Pay for Health Care Reform (The $35 Billion Solution) (June 23, 2009), avail. at www.ftc.gov/speeches/leibowitz/090623payfordelayspeech.pdf.
5 Order, supra note 1, at 10.
6 Id.
7 Petitioner FTC’s Motion for Leave to Supplement the Record and to Enforce the Subpoena Ad Testificandum Forthwith, Bisaro, No. 10-289 (D.D.C. July 22, 2010), available at www.ftc.gov/os/caselist/0910182/index.shtm.
8 After the Magistrate Judge issues a final decision on the FTC’s petition to enforce Bisaro’s subpoena, the losing party will generally have 14 days to file an objection.The District Judge will then review the Magistrate’s decision and set aside any part of the order that is contrary to law.D.D.C. Loc. R. 72.2 (2010).
9 After review by the District Judge, the decision becomes final and the losing party may file an appeal in the U.S. Court of Appeals for the D.C. Circuit. 28 U.S.C. § 1291 (2006).