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AAI Has Allergic Reaction to Misguided Decision in EpiPen Monopolization Case (Sanofi v. Mylan)

AAI filed an amicus brief urging the Tenth Circuit Court of Appeals to reverse a district court order granting summary judgment to the defendant Mylan in a closely watched monopolization case involving the ubiquitous EpiPen, a device used to treat allergy patients who suffer from life-threatening anaphylaxis.

In Sanofi v. EpiPen, Sanofi alleges that Mylan, the owner of the EpiPen, illegally foreclosed the first meaningful rival to the EpiPen in the market for epinephrine auto injectors (“EAI market”) in more than a decade. In 2013, when Mylan’s EpiPen allegedly enjoyed an overwhelming monopoly with market share exceeding 99 percent, Sanofi introduced the Auvi-Q, an innovative, rival product invented by two brothers who suffer from anaphylaxis and were unsatisfied with the EpiPen. Instead of competing with the Auvi-Q on price or quality, however, Mylan allegedly instituted a multi-part scheme to lock the new product out of the EAI market.

At summary judgment, Sanofi introduced evidence that, in response to the launch of the Auvi-Q, Mylan raised the price of the EpiPen enormously and then offered conditional rebates to Pharmacy Benefit Managers (PBMs), which would partially offset the increase provided PBMs promised to exclude or disadvantage the Auvi-Q on their drug formularies (which dictate which treatments insured patients can access under their health plans).

Because the EpiPen’s list prices were raised so high, the foregone rebates would have made it cost-prohibitive for many PBMs to make the Auvi-Q available to patients unless Sanofi gave it counter-rebates that would have rendered the Auvi-Q unprofitable. After Mylan’s scheme effectively prevented the Auvi-Q from establishing a foothold, a product that both Mylan and Sanofi projected to take 30 percent of the EpiPen’s market share within three years, and that had already successfully achieved that share in Canada, was a commercial failure in the United States. Sanofi subsequently exited the market.

The district court granted summary judgment to Mylan, emphasizing that PBMs benefitted from the Mylan’s rebate payments, actively encouraged them, and gave comparable exclusives to Sanofi when Sanofi made (unprofitable) counter-offers in an effort to match the Mylan rebate. AAI’s amicus brief argues that the district court erred by conflating the interests of PBMs and consumers, and misapplying the rule of reason.  The court should have recognized that Sanofi established its prima facie case, and created a triable issue, when it established harm to competition and patients. The court erred by confusing PBMs’ interest in obtaining high rebates for evidence of a consumer welfare benefit. Empirical evidence in the highly concentrated PBM market suggests that PBMs’ demand for high rebates, on which they are typically compensated by health plans, has put upward pressure on net drug prices, with consumers left to suffer net price increases and drug manufacturers and PBMs sharing the spoils. Moreover, there was no evidence in the record of any efficiency justification that would otherwise explain the exclusionary rebate contracts.

The AAI brief also argues that the district court failed to account for Mylan’s overwhelming monopoly power in assessing the likelihood that its conduct would have anticompetitive effects in the EAI market. Although the district court accurately cited language from a different case emphasizing that exclusive dealing is common in the economy and can often be procompetitive, it neglected to account for the economic realities of the EAI market, in which Mylan was eliminating its only capable rival. Because the court failed to appreciate that competition cannot exist without competitors, it did not recognize that conduct eliminating the Auvi-Q on some basis other than efficiency was all but assured of causing cognizable harm under the antitrust laws.

The brief was written by AAI Vice President of Legal Advocacy Randy Stutz.

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Supreme Court Adopts Narrow Reading of Computer Fraud and Abuse Act Urged by AAI

The Supreme Court has reversed an 11th Circuit decision upholding a federal criminal conviction of a police officer under the Computer Fraud and Abuse Act (CFAA) for accessing license plate information in a department computer database in exchange for money.  Consistent with the position taken in the amicus brief filed by the R Street Institute, and joined by AAI, Public Knowledge, Lincoln Network, Engine Advocacy, and the Innovation Defense Foundation, the Court construed the CFAA narrowly, avoiding the broad interpretation urged by the government, which amici argued would have hampered interconnectivity and competition.

In Van Buren v. United States, the issue before the Court involves a circuit split over the CFAA’s scope. The statute creates civil and criminal liability for accessing a computer without authorization. Under a narrow interpretation given by some courts, a user becomes liable when she accesses a database that the user does not otherwise have permission to access, such as breaking into a password-protected website or otherwise hacking a computer database. Under a broader construction, other courts have held that authorization is “without access” whenever access occurs in a manner that contravenes the database owner’s expressed preferences, including where the access contravenes the website’s click-through terms of service.

The amici asked the Court to adopt a construction of the CFAA that accounts for competition enabled by platform interoperability. In several past instances, website owners have made data publicly available to users but employed their terms of service to prevent competitive uses of the data by rival firms. If a dominant platform, for example, can selectively wield the CFAA’s liability and injunctive relief provisions by manipulating the terms of service it imposes, it obtains a powerful tool to foreclose competitive interoperable products and services from accessing what may be a key input. Past uses of the CFAA reveal the success of this strategy, including CFAA actions that have had the effect of eliminating rival products dependent on user-permitted platform access, thwarting consumer price-comparison services, and thwarting internet privacy-based products and services.

The brief also argued that the broad construction of the CFAA is inconsistent with competition policy underlying trade secret and copyright law. Trade Secret and copyright law strike a careful balance between allowing information to stay in the public domain, to encourage competitive uses, and protecting special kinds of information in order to encourage investments in innovation. The broad construction of the CFAA allows firms to get IP-like protection for information that would not qualify for protection under trade secret or copyright law, undermining that balance.

Finally, the brief noted that, under a properly narrow construction of the CFAA, database owners still enjoy protection from hacking, as well as protections under contract law. Contract law gives firms remedies for unauthorized use of information but provides competition-preserving limitations that the CFAA lacks.

The brief was written by the R Street Institute’s Director of Technology & Innovation, Charles Duan. AAI Vice President of Legal Advocacy Randy Stutz assisted with certain sections of the brief.

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AAI Urges Ninth Circuit to Reinstate Conspiracy Case Against the National Association of Realtors (The PLS.com v. NAR, et al.)

AAI submitted an amicus brief asking the Ninth Circuit Court of Appeals to overturn the dismissal of a complaint from pocket-listing network PLS.com against the National Association of Realtors (NAR) and several of its affiliated multiple listing (MLS) services.

NAR has long dominated the market for residential real estate transactions and its affiliated MLSs have held a comparable monopoly on residential real estate listing networks. NAR has been the subject of multiple consent decrees from the Department of Justice over the years, including related to its MLS listing policies. PLS is a recent entrant to the residential real estate listing market, which sought to provide a nationwide electronic platform for pocket listings. Pocket listings are listings that contain less information about a property than a traditional MLS listing, and they are desired by buyers and sellers who wish to maintain privacy.

PLS alleged that, faced with the threat of competition from PLS’s nationwide pocket listing network, NAR and its affiliated MLSs conspired to enact a Clear Cooperation Policy that, effectively, excluded PLS from the market entirely. The district court, after hearing oral argument, dismissed PLS’s complaint for lack of antitrust standing and denied PLS leave to amend.

AAI’s brief argues that reversal is warranted because the district court baselessly imposed an “ultimate consumer harm” requirement for plaintiffs to establish antitrust standing and wrongly concluded the Clear Competition Policy was “competitively neutral” because the court did not understand the nature of platform competition. The brief points out that an “ultimate consumer harm” requirement contravenes the logic and purpose of the direct purchaser rule and would needlessly hamper private antitrust enforcement and burden courts. In the brief, AAI also argues that far from being competitively neutral, the Clear Competition Policy seeks to eliminate the ability of realtors and brokers to use more than one listing network, which reinforces the barriers to entry in this market from network effects.

The brief was written by AAI Vice President of Policy Laura Alexander. A group of law and economics professors, including Professors and AAI Board Members Josh Davis and John Kirkwood, filed a separate amicus brief in support of PLS.

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AAI Issues Report on Market Power and Digital Business Ecosystems

A new report from the American Antitrust Institute, Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies, takes an important, multidisciplinary approach to evaluating competition issues raised by the digital business ecosystems (DBEs), filling an important analytical gap, and informing the enforcement and legislative debate over reining in the market power of the large DBEs.

The report was co-authored by Diana Moss, President, American Antitrust Institute; Gregory T. Gundlach, Professor of Marketing, Coggin College of Business, University of North Florida; and Riley T. Krotz, Assistant Professor of Marketing, Texas Tech University.

The report was made possible by a grant from the Omidyar Network Fund, Inc. View the report.

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AAI Issues Report: Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies

The American Antitrust Institute has issued the report: Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies. The AAI report takes an important, multidisciplinary approach to evaluating competition issues raised by the digital business ecosystems (DBEs), filling an important analytical gap, and informing the enforcement and legislative debate over reining in the market power of the large DBEs. The report was co-authored by Diana Moss, President, American Antitrust Institute; Gregory T. Gundlach, Professor of Marketing, Coggin College of Business, University of North Florida; and Riley T. Krotz, Assistant Professor of Marketing, Texas Tech University. The report was made possible by a grant from the Omidyar Network Fund, Inc.

Introduction

“Digital business ecosystems” (DBEs) reflect the culmination of progressive changes in business models and organizational structure over the last 40 years. The ubiquity of many large DBEs in our economy, society, and political system is troubling, as is their significant market power, which is the subject of competition investigations in the U.S. and abroad. But the DBE business model, which far surpasses other models and structures in its scope, scale, and complexity, remains largely under-analyzed. DBEs feature unique economic, technological, and business characteristics that increase their opacity to consumers, competition enforcers, and lawmakers. These include information as the currency of exchange and a range of market failures such as positive network effects, information asymmetries around user data and privacy, and data externalities. As the “engine” of commerce and growth in DBEs, cloud computing technology adds further complexity to the analysis of market power. This is particularly true of data analytics, supported by artificial intelligence (AI) and machine learning, which powers the DBE “value proposition” of maximizing user engagement and monetizing user data.

This report examines the unique characteristics of DBEs and assesses their implications for competition enforcement and policy. This analysis raises numerous questions around the adequacy of conventional competition analysis in evaluating market power concerns. The widening gap between the complexity and growth of DBEs—and the likely inadequacy of policy responses to the market power problems they raise—elevates the importance of such questions. However, they cannot be answered by relying solely on a legal-economic framework. We therefore adopt a multidisciplinary approach, incorporating economics, law, and business theory and research in our analysis. Not surprisingly, it reveals important caveats and cautions regarding the application of conventional competition analysis to DBEs, with implications for how competition enforcers and legislators assess market power and design remedies, particularly in the merger and monopolization contexts.

The report begins with the evolution of the DBE business model and its rapid and expansive growth. We then turn to an analysis of the major structural and behavioral features of DBEs. Next are implications for competition analysis, such as how markets are defined, how market power is exercised, and remedies. The final section concludes with recommendations. As public and private antitrust cases against large DBEs mount, the U.S. Department of Justice (DOJ), Federal Trade Commission (FTC), state Attorneys General, and courts will continue to grapple with their unique features. This report provides important analysis, insights, and recommendations for enforcers and policymakers as they explore the full complement of tools available to rein in the market power of DBEs.

Conclusions and Recommendations

The body of scholarship and policy analysis surrounding the competition problems raised by DBEs is relatively saturated. Many countries are now actively framing public policy solutions and are poised to act through some combination of legislation and competition enforcement. This study fills an important void in the body of competition research on DBEs through multidisciplinary analysis of their unique economic, technological, and business characteristics. These include significant market failures on both the demand and supply sides, and other economic anomalies. Because they have an outsized effect on the analysis of competition and remedial approaches involving DBEs, these features should receive important attention from policymakers. The conclusions outlined below inform the debate over proposals to regulate the digital technology sector, antitrust agency guidance on digital technology markets, potential FTC rulemakings involving the digital sector, or other mechanisms that would affect how the antitrust agencies, the courts, and a potential sector regulator assess competitive issues involving DBEs.

  • In light of the distinct economic, technological, and business features exhibited by the DBEs, agency guidance on how enforcers will evaluate competition concerns involving them is urgently needed. The antitrust agencies have issued guidance over the years on a number of specific issues and sectors, including healthcare and others. This report reveals how those unique features challenge conventional competition analysis, as applied to DBEs. The public, consumers, and businesses would thus be well served by dedicated agency guidance on how enforcers propose to address competition issues raised by DBEs.
  • The centrality of data to the DBE business model reveals the under-recognized but strategic importance of cloud infrastructure as the engine of DBE growth and expansion. Analysis in this report fully reveals the centrality of data analytics, supported by AI and machine learning, to the DBE value proposition and associated market power concerns. Significant and unrestrained growth in the large DBEs’ cloud infrastructure over the last decade has reinforced this capability, reinforcing platforms, setting the stage for further expansion, and enhancing incentives to extend market power throughout larger DBEs. Antitrust enforcers should more closely scrutinize cloud infrastructure acquisitions by the large DBEs.
  • Consumers do not engage with DBEs in ways that accurately reflect their preferences for privacy, with significant implications for conventional competition analysis. Consumers lack information regarding how DBEs collect and deploy their data, creating a misalignment between users’ preferences and actions. This information asymmetry strains key economic assumptions that underpin conventional analysis of consumer behavior. The vital role of demand as the ultimate arbiter of market power amplifies this concern. Antitrust enforcers should consider how these features affect critical issues such as market definition and competitive effects in cases involving DBEs.
  • Unique characteristics of DBEs shift the mode of interaction between the firm and consumers to algorithmic preference-shaping, with significant implications for conventional competition analysis. The DBE value proposition is driven by maximizing user engagement throughout an interconnected, multiproduct ecosystem. DBEs exploit numerous market failures and economies of scale to create value through algorithmic preference-shaping. But users’ choices based on curated, personalized algorithmically generated suggestions may be inferior. Moreover, DBEs can use such algorithms to steer users to the services provided by their affiliated or preferred providers, at the expense of rivals operating on a platform. Antitrust enforcers should consider the mechanisms through which such conduct occurs, and the evidence needed to support a showing of adverse effects.
  • Policymakers should consider the need for “hybrid” remedies and close coordination between competition enforcement and regulation to address market power problems raised by DBEs. Structural remedies do not entirely address the unique economic, technological, and business characteristics of DBEs that give rise to market power problems. Post-breakup, DBEs could be expected to continue to exploit anomalies and potentially re-emerge as dominant market players. Disrupting the DBE value proposition with conduct regulation will likely lead to imperfect regulation. As such, a hybrid structural-behavioral approach to reining in the market power of DBEs is likely to emerge as the best policy approach. This should be implemented through a broader regulatory regime, with careful thought given to how antitrust and regulation will coordinate, not conflict.

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AAI Asks En Banc Ninth Circuit to Reconsider Rigid Predominance Standard in Antitrust Class Actions (Olean v. Bumble Bee)

AAI submitted an amicus brief on May 19 urging the Ninth Circuit Court of Appeals to grant en banc rehearing to address a flaw in a recent panel opinion vacating class certification in a closely watched price-fixing case.

In Olean Wholesale Grocery Cooperative, Inc. v. Bumble Bee Foods, LLC, a district court certified three classes of purchasers, including direct purchasers and two groups of indirect purchasers, seeking to recover for the confessed price fixing of the three leading producers of packaged tuna, Bumble Bee Foods LLC, Starkist, and Chicken of the Sea.  The defendants had either sought leniency or pled guilty after a Department of Justice Investigation, and several of their executives have been sentenced to prison.

Unable to contest liability given their admissions, the defendants focused extensive resources and attention on defeating class certification.  In district court proceedings, they introduced rebuttal experts seeking to counter plaintiffs’ economic experts, which had introduced statistical analysis attempting to show that the price fixing caused widespread injury across the respective classes.  The district court, after a three-day evidentiary hearing, found plaintiffs’ experts more persuasive and held that the plaintiffs’ common statistical evidence of impact was sufficient to help satisfy Rule 23’s predominance requirement, though it allowed that defendants could still challenge the admissibility and probative value of the common statistical evidence at trial.

On interlocutory appeal, the defendants, supported by the U.S. Chamber of Commerce and the Washington Legal Foundation, argued that the district court erred by refusing to definitively resolve the battle of the experts at class certification, and that plaintiffs’ expert statistical analysis was inherently problematic because it relied on the average overcharges to the classes, thereby masking the possibility that some of the class members were uninjured by the price fixing.  The defendants maintained that, because plaintiffs’ expert evidence could not necessarily sustain a jury finding for every class member, it should not be a permissible means of establishing that common questions would predominate at a class trial.

In an amicus brief submitted last August, AAI argued that such evidence need only be relevant and reliable to be admissible; it does not have to assure that each plaintiff would prevail on the merits of the impact element in an individual action. Rule 23 requires only that common “questions” must predominate over individual questions at trial; it cannot be read to suggest that the questions’ answers must be determined to permit class certification. Moreover, any uninjured class members may be identified after trial, and longstanding case law prevents defendants from capitalizing on the uncertainty created by their own illegal conduct, including uncertain damages calculations.

The AAI brief also argued that the court should unequivocally reject the defendants’ effort to cast categorical doubt on statistical analysis, and specifically regression modelling, in antitrust cases.  Regression models frequently rely on averaging techniques, but that is not where they begin and end.  Such models are routinely accepted as reliable methods of proving widespread injury to antitrust classes because econometric techniques can control for price changes caused by supply and demand factors and then focus on the uniformity of differences across class members to reliably show common impact.

All three judges on the merits panel adopted the position advocated by AAI in rejecting defendants’ categorical arguments on the use of statistical analysis and regression modeling to prove class-wide impact in antitrust cases.  However, the three judges sided with defendants in holding that the district court erred by refusing to resolve the disagreement among the parties’ experts over the number of potentially uninjured members in the class.  And the panel then split over the standard for determining whether the presence of uninjured class members may defeat predominance.  The panel majority concluded that the district court, before certifying a class, must find that only a “de minimis” number of class members are uninjured. Judge Hurwitz, partially dissenting, maintained that neither the text of Rule 23 nor Ninth Circuit precedent permit the court to implement such a requirement.

In the aftermath of the panel opinion and partial dissent, neither party petitioned for panel or en banc rehearing, instead agreeing to accept remand. But on April 28, the Court sua sponteordered briefing on whether en banc hearing is warranted and directed the parties to focus on the “de miminis” issue that divided the panel.

AAI’s brief argues that en banc rehearing is warranted because the panel majority’s ruling is unduly rigid and will undermine the efficacy of private antitrust class actions. The brief points out that in this case and many other antitrust cases, the presence of uninjured class members does not create a risk that individual questions will predominate over common questions at trial because the plaintiffs rely solely on common statistical evidence of aggregate damages, meaning the claims rise or fall as one, both as a legal and practical matter.  Moreover, common issues need only predominate in a case as a whole, not as to each element of a claim.  Impact need not be a common question for common questions to predominate as a whole in an antitrust case.

The brief was written by Professor and AAI Board Member Joshua Davis of the University of San Francisco Law School, with assistance from AAI Vice President of Legal Advocacy Randy Stutz and AAI Research Fellow Berk Bahceci.

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Study Finds Private Equity Investment Accelerates Concentration and Undermines a Stable, Competitive Healthcare Industry

A decade’s worth of evidence supports troubling findings that private equity business practices have a negative impact on competition in healthcare and on patients. A new white paper, produced by experts at the American Antitrust Institute (AAI) and UC Berkeley, calls for immediate attention to the role that private equity investment plays in harming patients and impairing the functioning of the healthcare industry.  In this groundbreaking new white paper, Soaring Private Equity Investment in the Healthcare Sector: Consolidation Accelerated, Competition Undermined, and Patients at Risk, AAI’s Laura Alexander and Professor Richard Scheffler of The Nicholas C. Petris Center on Health Care Markets and Consumer Welfare in the School of Public Health at UC Berkeley detail the emerging threat posed by private equity investment in healthcare markets.

“The report documents the astronomical growth of private equity’s investment in healthcare, which focuses on short-term profits and not the wellbeing of patients, and its consequences” says UC Berkeley School of Public Health Professor and Petris Center Director Richard Scheffler.

The paper’s major conclusions include:
  1. Private equity investment in healthcare has grown dramatically—to nearly $750 billion in the last decade—and is poised to increase even further due to the COVID-19 pandemic’s impact on the healthcare sector and its projected growth.
  2. The private equity business model is fundamentally incompatible with a stable, competitive healthcare system that serves patients and promotes the health and wellbeing of the population.
  3. Private equity’s focus on short-term revenue generation and consolidation undermines competition and destabilizes healthcare markets.
  4. Private equity acts as an anticompetitive catalyst in healthcare markets, amplifying and accelerating concentration and anticompetitive practices.
  5. Private equity funds operate under the public and regulatory “radar,” leaving the vast majority of private equity deals in healthcare unreported, unreviewed, and unregulated.
  6. Urgent action is needed to oversee, investigate, and understand the impact of private equity on patients and healthcare markets, including changes to antitrust reporting requirements, withdrawal of the Department of Justice’s guidance on remedies, and study of additional oversight of healthcare mergers by the Department of Health and Human Services.

“The ramifications of private equity investment in healthcare are still unfolding,” says study co-author and AAI Vice President of Policy Laura Alexander. “But given the speed with which private equity is transforming healthcare markets and the implications for competition, patients, and public health, the time to act is now.”

Media Contacts:

Laura Alexander
American Antitrust Institute
lalexander@antitrustinstitute.org
(202) 276-4050

Dr. Richard Scheffler
Petris Center
rscheff@berkeley.edu
(510) 508-5079

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AAI Says UnitedHealth Group’s Acquisition of Rival, Change Healthcare, Could Harm Competition: Letter to DOJ Examines Features of Digital Healthcare Technology Markets That Exacerbate Antitrust Concerns

The American Antitrust Institute sent a letter to the U.S. Department of Justice Antitrust Division outlining concerns that the proposed acquisition of independent digital healthcare technology rival, Change Healthcare, by UnitedHealth Group (UHG) is likely to harm competition and consumers. Such harm could result from the effects of eliminating competition between UHG’s information and technology-enabled health services subsidiary, Optum, and Change Healthcare. AAI’s letter also states the concern that a larger and more powerful Optum could enhance UHG’s incentives to favor its dominant health insurer, UnitedHealthcare, to the disadvantage of rivals. This letter highlights important issues that arise from the unique characteristics of competition in digital technology markets and, more specifically, in digital healthcare technology markets.

The substantive issues of competition and antitrust analytics raised by UHG’s proposed acquisition of Change Healthcare are summarized below. In light of these concerns, AAI’s letter urges the Antitrust Division to apply careful scrutiny. The U.S. healthcare system is under siege by consolidation and concentration. The current matter provides an important opportunity for the Antitrust Division to move the ball forward on protecting competition in critically important healthcare markets, but also in leveraging its knowledge of digital technology markets and the unique challenges they pose for competition.

1. The proposed acquisition is a takeover of an independent, disruptive digital healthcare technology company by the largest, vertically integrated health insurer in the U.S. Consolidation in the digital technology sector more broadly has flown under the antitrust “radar” for two decades, including significant and rapid consolidation involving data analytics and cloud infrastructure that is at the heart UHG-Change Healthcare acquisition. The Antitrust Division has an opportunity here to address the problematic accretion of market power in digital healthcare technology markets.

2. The timing of the acquisition occurs at the intersection of COVID-19 disruption, rapid growth in digital healthcare technology markets, and high and rising concentration in critical healthcare markets. This confluence of factors highlights the high stakes nature of the Antitrust Division’s investigation into the proposed acquisition of Change Healthcare by UHG/Optum that, among other adverse effects, could stifle innovation in a critical sector.

3. UHG’s acquisition of Change Healthcare raises myriad competitive concerns. These include elimination of head-to-head rivalry in digital healthcare technology markets in which UHG’s Optum competes. But competition concerns also include stronger incentives for UHG/Optum to favor its own healthcare insurer, UnitedHealthcare, and disadvantage rivals, thus harming competition. Unique economic aspects of digital technology markets significantly exacerbate these competitive concerns.

4. Given the competitive concerns raised by the acquisition, any efficiencies claims should be viewed with extreme skepticism. Such efficiencies are likely to be achievable without the acquisition. And the many unique features of digital healthcare technology markets that amplify anticompetitive incentives and abilities would likely diminish the purported value of claimed efficiencies. This significantly raises the bar for UHG-Change Healthcare to prove their transaction is not anticompetitive.

5. Structural divestiture remedies, if included in a settlement agreement, would gut the gains from the strategic accretion of market power that motivates UHG’s acquisition of Change Healthcare and likely force the parties to abandon the deal. Given the unique features of digital technology markets, antitrust conduct remedies, applied in the digital healthcare technology markets at issue here, would be highly unlikely to restore competition.

6. The U.S. healthcare system is under siege by consolidation and high and rising concentration, to the proven detriment of consumers and healthcare providers. The current matter presents an important opportunity for the Antitrust Division to advance the ball on protecting competition in critically important healthcare markets, but also to leverage its knowledge of digital technology markets and the unique challenges they pose for competition enforcement.

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AAI Director Roberta Liebenberg Publishes “Practicing in the Pandemic”

AAI Director Roberta Liebenberg and Stephanie Scharf published findings from a national survey of 4,200 members of the American Bar Association. “Practicing Law in the Pandemic and Moving Forward,” covers how the pandemic has affected lawyers and the future plans for law practice as the worldwide health crisis winds down.:

The authors said “The report calls out for new approaches to challenges that have been heightened by the pandemic, which have disproportionately affected women lawyers and lawyers of color, and which will impact how well corporations and law firms move forward.”

Among the findings:

  • Lawyers feel overwhelmed by the pressures of their work — especially women with children and lawyers of color — with many considering leaving the legal profession.
  • More than a third of respondents (35%) are thinking significantly more often about working part time. Women with children age 5 or younger (53%) and women with children age 6-13 (41%), were even more likely to be thinking about part-time work.
  • Lawyers are stressed about workplace resources, recognition and job security. At the top of the list were worries about a salary reduction (55%), getting furloughed or laid off (40%) and advancement (28%).
  • Clear pathways to advancement are viewed as important throughout the profession, and especially valued by lawyers of color (57%) and women (58%).
  • Lawyers want their employers to provide programs and policies around wellness, better resources for working parents and comprehensive plans for family leave and sick leave.
  • Lawyers are seeking a culture where leaders are engaged, empathic and show that they value the effort and contributions made throughout the organization.

 

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Fifth Circuit Sides with FTC, AAI in Preserving Supreme Court’s Actavis Ruling (Impax v. FTC)

The Fifth Circuit has affirmed an FTC administrative decision finding generic drug manufacturer Impax liable for entering an illegal reverse-payment settlement with brand manufacturer Endo, adopting several positions advocated in AAI’s amicus brief.

The case began when Impax sought to launch a generic version of Endo’s Opana ER, a branded opioid pain medication. Endo sued Impax alleging that Impax’s planned entry would infringe Endo’s patents on Opana ER.  Under the Hatch-Waxman Act, Impax is permitted to seek to enter the market prior to the expiration of the patent term by filing an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA), and certifying that Endo’s patents covering the brand drug are invalid or not infringed.  But by filing an infringement lawsuit, Endo obtains an automatic 30-month stay during which the FDA may not grant final approval of the ANDA and Impax may not enter the market.

Shortly after Impax received preliminary FDA approval and just before expiration of the 30-month stay, Impax and Endo settled their patent litigation with Endo agreeing to make a “reverse payment” to Impax in exchange for Impax agreeing to delay its entry into the Opana ER market.  The FTC challenged the settlement as a violation of Section 5 of the FTC Act.   After an administrative trial, an administrative law judge dismissed the FTC’s complaint.  Complaint Counsel then appealed, and in an opinion authored by Commissioner Phillips, a unanimous Commission reversed.

On appeal of the Commission decision to the Fifth Circuit, Impax conceded that it made a large and unjustified reverse payment, but it characterized the FTC’s burden in establishing a prima facie case under FTC v. Actavis as requiring the FTC to prove that Impax’s entry was delayed longer than it would have been had the patent litigation continued.

AAI, Public Knowledge, and Patients for Affordable Drugs  submitted an amicus brief asking the Fifth Circuit to affirm the FTC’s ruling.  The brief explained why Impax’s argument, if accepted, would amount to a radical rewrite of the Supreme Court’s watershed ruling in Actavis.  When drug companies settle infringement claims with reverse payments, Actavis identifies the relevant antitrust harm as eliminating a “risk of competition,” without regard to the strength of the underlying patents.  By asking the court to require the FTC to show the elimination of more risk than the strength of Endo’s patents warranted, Impax effectively sought to resurrect the “scope of the patent” test, which Actavis rejected.

The brief also explained why Impax’s claimed procompetitive justifications—that entry occurred earlier than if the patent infringement claim had been litigated and won, and that the agreement included a broad license covering future patents on Opana ER, which could not have been obtained in litigation—are non-cognizable.  Among other things, the proper benchmark is the date of entry without a payment, not the date of entry without any settlement at all.  And broad licenses covering after-acquired patents on brand drugs are routinely included in procompetitive settlements that do not include a payment for delayed entry.

In a carefully written, unanimous opinion authored by Judge Gregg Costa, the Fifth Circuit squarely rejected Impax’s arguments.  With regard to Impax’s patent-validity argument, the court correctly found that “[t]he fact that generic competition was possible, and that Endo was willing to pay a large amount to prevent that risk, is enough to infer anticompetitive effect.”  With regard to Impax’s argument that the agreement did not prove anticompetitive in hindsight, the court recognized that “it is a basic antitrust principle that the impact of an agreement on competition is assessed as of ‘the time it was adopted,’” and it held that “[t]hat approach also makes sense in reverse payment cases.”

The opinion is also notable and important for its recognition that an early-entry-date settlement, without a payment, is a less restrictive alternative to a reverse-payment settlement as a matter of economic logic.  The court found “more than enough evidence” to support the unanimous view of the Commissioners that a no-payment settlement was a viable less restrictive alternative to a reverse-payment settlement based on industry practice and witness credibility determinations, but also based on “economic analysis.”  The court recognized it is “fairly obvious” that “those large payments were the price for Impax’s delayed entry” insofar as a settlement with an earlier entry date would have allowed Endo to keep the more than $100 million it ended up paying Impax.

This aspect of the Court’s holding embraces a key point that AAI has emphasized in this and other reverse-payment briefs: namely that “the relevant baseline is the entry date that the parties would have agreed to in the absence of a reverse payment,” and “[d]eparture from the baseline (towards delay) is established by the large, unjustified payment itself.”

The AAI brief was written by Hilliard & Shadowen partner Rick Brunell, with assistance from AAI Vice President of Legal Advocacy Randy Stutz and AAI Research Fellow Taryn Smith.

AAI Advisory Member Michael Carrier, a leading authority on antitrust and intellectual property law, also submitted an amicus brief on behalf of 82 professors in support of the FTC, which was joined by numerous other AAI Advisory Board members.