Shearman & Sterling LLP | Antitrust Blog | United States District Court For the Eastern District Of Pennsylvania Finds Violation Of FTC Act Section 5 By Pharmaceutical Companies And Orders $448 Million Disgorgement
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  • United States District Court For the Eastern District Of Pennsylvania Finds Violation Of FTC Act Section 5 By Pharmaceutical Companies And Orders $448 Million Disgorgement
    07/10/2018
    On June 29, 2018, Judge Harvey Bartle III of the U.S. District Court for the Eastern District of Pennsylvania issued a decision ruling that AbbVie Inc., Abbott Laboratories, and Unimed Pharmaceuticals LLC (together, “AbbVie”), along with Besins Healthcare, Inc. (“Besins”), violated Section 5(a) of the FTC Act by engaging in sham litigation to delay entry of competition to its testosterone replacement drug, and ordered disgorgement of $448 million. Federal Trade Commission v. AbbVie Inc., No. 2:14-cv-05151-HB (E.D. Pa. June 29, 2018). This represents the largest monetary award that the Federal Trade Commission (“FTC”) has achieved in a litigated antitrust case.

    AbbVie and Besins are pharmaceutical companies that own the patents for a brand-name testosterone replacement drug, AndroGel. AndroGel was the first FDA-approved gel transdermal testosterone replacement therapy (“TTRT”) used for the treatment of hypogonadism, a clinical syndrome that results from the failure of a man’s body to produce sufficient amounts of testosterone. As the first such product, AndroGel achieved commercial success after its entry into the market in 2000 and became a “blockbuster” product. In 2008, generic manufacturer Perrigo sought to enter the market with a generic competitor to AndroGel, followed by Teva, another generic manufacturer, in 2011. In 2011, AbbVie and Besins commenced separate patent infringement suits against both Perrigo and Teva, automatically triggering a 30-month stay of FDA approval under the Hatch-Waxman Act and therefore precluding entry of the generic versions of the drug for at least that period, unless the suits were resolved sooner. In 2014, the FTC filed a complaint alleging that AbbVie and Besins violated FTC Act Section 5(a), which prohibits “[u]nfair methods of competition in or affecting commerce,” by illegally maintaining a monopoly through the filing of sham litigation against the two potential competitors—whose products used different penetration enhancers than the patented AndroGel—in order to prevent or delay entry of generic versions of AndroGel into the market.

    Judge Bartle first considered whether the FTC sufficiently demonstrated that AbbVie and Besins engaged in sham litigation. He found that they did, explaining that their “very experienced patent attorneys, who also knew the extensive financial benefits to defendants if generic versions of AndroGel were kept or delayed from entry into the market,” and who “understood that prosecution history estoppel barred the infringement suits against Teva and Perrigo,” nevertheless filed the objectively baseless infringement suits. In finding the lawsuits a sham, the Court determined that: “The only reason for the filing of these lawsuits was to impose expense and delay on Teva and Perrigo so as to block their entry into the TTRT market with lower price generics and to delay defendants’ impending loss of hundreds of millions of dollars in AndroGel sales and profits.”

    Judge Bartle next considered whether the sham litigation was used to maintain monopoly power in the relevant market. The Court began by defining the relevant market as the market for all transdermal testosterone replacement therapies, and excluding injectable and oral testosterone therapies. The Court next concluded that AndroGel had a dominant share of the TTRT market during the relevant period, where its market share exceeded 60% at all times until the end of 2014, when Perrigo’s generic product entered the market, and where its market share was always three times greater, and almost always more than four times greater, than the market share of its brand-name competitors. The Court noted also that AndroGel’s monopoly power was supported by significant barriers to entry in the TTRT market.

    Based on the above analysis, the court concluded that the “FTC has established the actual market reality that defendants possessed monopoly power and illegally and willfully maintained that monopoly power through the filing of sham litigation.” Such conduct “delayed the entry of much less expensive competitive generic products into the TTRT market to the detriment of consumers and protected the defendants against loss of hundreds of millions of dollars in sales and profits,” in violation of Section 5 of the FTC Act.

    Upon finding a violation of FTC Section 5, Judge Bartle lastly considered the appropriate form of relief. The FTC sought disgorgement of profits and an injunction to prevent or deter similar conduct. Using a calculation based on assumptions about the financial gains that resulted from delayed entry of other competitors into the market caused by the sham litigation, the court ordered disgorgement of $448 million in profits, to be apportioned between AbbVie and Besins. Because the Court found that the FTC had not presented evidence of continued violations of the antitrust laws, or of a likelihood of reoccurrence, it saw “no basis” upon which to grant the FTC’s request for an injunction.

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