Second Circuit Affirms Dismissal Of Pharmaceutical Antitrust Action, Holding The FTAIA’s Import Exclusion Is Effects-Based, Not Intent-Based
On November 5, 2019, a three-judge panel of the U.S. Court of Appeals for the Second Circuit (Panel) affirmed the U.S. District Court for the Southern District of New York’s dismissal of antitrust claims brought against manufacturers of cancer treatment drugs. Biocad JSC v. F. Hoffmann-La Roche Ltd., No. 17-3486-cv (2d Cir. Nov. 5, 2019). Plaintiff, a private pharmaceutical company based in Russia, alleged that defendants conspired to block plaintiff from entering the U.S. market for cancer treatment drugs in violation of Sections 1 and 2 of the Sherman Act and other statutes. In affirming the district court’s dismissal, the Panel held plaintiff’s claims were barred under the Foreign Trade Antitrust Improvements Act (“FTAIA”), clarifying that, in the Second Circuit, the proper test under the FTAIA’s import exclusion is effects-based, not intent-based.
Defendants, foreign entities and their U.S.-based subsidiaries, are manufacturers of cancer treatment drugs called monoclonal antibodies (“mAbs”). Plaintiff produced a biosimilar drug designed to compete with defendants’ patented mAbs with the intention of entering the U.S. market upon the expiration of defendants’ exclusivity rights. According to plaintiff, defendants conspired to block plaintiff’s entry into this market by “financially crippl[ing]” plaintiff to ensure it could not afford U.S. entry. Plaintiff alleges that defendants’ conspiracy included, among other things, (i) engaging in predatory pricing by dramatically decreasing the prices for mAbs sold in Russia (plaintiff’s principal place of business), while increasing U.S. prices; (ii) entering into an illegal kickback system with the Russian government; and (iii) limiting the samples available in the U.S. that plaintiff needed to obtain FDA approval for its biosimilar drug. On defendants’ motion to dismiss plaintiffs’ antitrust claims, the district court granted dismissal because (i) plaintiff failed to sufficiently plead antitrust standing; and (ii) its claims were barred by the FTAIA.
On appeal, the Second Circuit affirmed. In an opinion authored by Judge Denny Chin and joined by Chief Judge Robert Katzmann and Judge Amalya Kearse, the Panel held “the foreign nature of [plaintiff’s] alleged injuries places its claims beyond the reach of the United States antitrust laws.” Because the FTAIA defense was dispositive, the Panel found it unnecessary to reach the issue of antitrust standing. As an initial matter, the Panel declined to consider plaintiff’s argument that the challenged conduct fell under the “domestic effects” exception to the FTAIA’s bar on the application of the Sherman Act to foreign commerce, agreeing with the district court that plaintiff waived this argument by expressly arguing below that the exception did not apply. The Panel then addressed plaintiff’s argument that its claims fell within the “import commerce” exception to the FTAIA because the purported conspiracy was allegedly intended to prevent plaintiff from entering the mAbs market in the U.S. Based on its analysis of FTAIA’s “cumbersomely worded” language, the structure of the statute and the purpose behind it, the Panel rejected plaintiff’s argument, holding that the import exclusion to the FTAIA applies only “when a defendant’s actions immediately impact the United States import market and not merely when a defendant subjectively intends to affect the United States import market in the future.” The Panel, therefore, held plaintiff’s claims did not fall within the import exclusion to the FTAIA and were barred.
Chief Judge Katzmann filed a concurrence. He agreed the FTAIA issue was dispositive but wrote separately to express his disagreement with the district court’s holding that plaintiff needed to show the FDA approval of its drug was “probable” to establish antitrust standing at the motion to dismiss stage. In his view, the probability of the FDA’s approval of a potential entrant to a market for a pharmaceutical product “should be considered as a significant, but not dispositive, factor in a broader preparedness inquiry at the motion‐to‐dismiss stage.”
This opinion is useful in providing clear guidance that, in the Second Circuit, the proper test under the FTAIA’s import exclusion is effects-based, not intent-based. The facts of this case were not particularly close as plaintiff had no active U.S. business with which to interfere because defendants’ exclusivity periods on their mAbs patents had not expired and the connection between the alleged anticompetitive conduct in Russia and the alleged U.S. effect was attenuated at best, but there may well be cases in the future in which the line between effects and intent is not so clear. Chief Judge Katzmann’s concurrence is also useful in illustrating that the Second Circuit is likely to continue to look to the totality of the circumstances in evaluating potential market entrants’ antitrust standing, rather than creating new bright-line rules.