AAI Praises Second Circuit “Product Hopping” Decision (New York v. Actavis)

The American Antitrust Institute (AAI) applauds the decision of the Second Circuit Court of Appeals upholding the District Court’s injunction in the first “product hopping” case to be decided by a Court of Appeals. The AAI had filed an amicus brief supporting the injunction, which the Second Circuit expressly relied on at various points.

The Court found that New York Attorney General Eric Schneiderman was substantially likely to succeed in demonstrating that the manufacturer of Namenda, a widely-used Alzheimer’s drug, violated Section 2 of the Sherman Act by withdrawing the twice-a-day tablet version of the drug (Namenda IR) and forcing consumers to switch to the extended-release capsule version (Namenda XR) in order to short-circuit impending generic competition for IR.

The Court also found that an injunction preventing the defendants from withdrawing Namenda IR was necessary to prevent irreparable harm, especially to patients, who are denied choice and may not be able to obtain damages because of the Illinois Brick rule.

The Second Circuit rejected the branded drug manufacturer’s argument that its effort to thwart generic entry was procompetitive because it prevented “free riding” by generics.  What the branded drug manufacturer calls “free riding” (automatic generic substitution at the pharmacy) the court said “is the explicit goal of state substitution laws” and furthers the goals of the Hatch Waxman Act.  Relying on the AAI’s amicus brief, the Court noted that state drug substitution laws were designed to correct a market failure (“the price disconnect”) that arises in prescription pharmaceutical markets where the “consumer who pays does not choose, and the physician who chooses does not pay.”

The Court also rejected the argument that applying antitrust scrutiny to product hopping would harm innovation.  “To the contrary, as the American Antitrust Institute amici argue, immunizing product hopping from antitrust scrutiny may deter significant innovation by encouraging manufacturers to focus on switching the market to trivial or minor product reformulation rather than investing in the research and development necessary to develop riskier, but medically significant innovations.”

The court’s order upholding the injunction was issued on May 22, but the release of its opinion was delayed pending redactions.  The court’s decision is available here.  AAI’s brief is available here.

Media Contact:

Richard Brunell