MONOPOLY MATTERS

Amicus Brief: FTC v. Impax Laboratories

Open Markets Institute filed an amicus brief on Monday in support of theFederal Trade Commission in its case against Impax Laboratories. In the case, the commission unanimously held that Impax engaged in an illegal pay-for-delay agreement, in which Endo Pharmaceuticals paid Impax to abandon its patent challenge and delay market entry of its generic version of the drug Opana ER for 2 1/2 years.

In our brief, we argue that pay-for-delay agreements are a form of per se illegal, horizontal market allocation agreements that seek to prohibit market entry and thus harm market competition. In market allocation agreements, rivals agree not to compete in the same product line, geographic area, or for the same set of customers. Pay-for-delay agreements have the same effect. Thus, similar to the Supreme Court’s 80-year-old holding that market allocation agreements are per se illegal, pay for delay agreements should be per se illegal.

Our brief also argues that the anti-competitive effects of pay-for-delay agreements outweigh any marginal competitive benefit that they may have. One harmful effect includes prolonging a drug patent monopoly, which deprives consumers of a competing drug that could lower prices for consumers, as a 2010 FTC report described.

Other harms, such as corporations allocating competition or depriving the drug market of a lower-cost competitor, provide more justification why pay-for-delay agreements should be illegal.

Importantly, we argue that the pay-for-delay agreement detailed in this case should be illegal, even under a comprehensive rule-of-reason analysis.

In its holding, the FTC found, citing the Supreme Court’s Actavis decision, that the agreement between Impax and Endo “provide[s] strong evidence that the patentee seeks to induce the generic challenger to abandon its claim.” The commission further elaborated that a pay-for-delay scheme “would be an irrational act unless the patentee believed that generic production would cut into its profits.” However, the Supreme Court has not ruled that all pay-for-delay agreements illegal. Nevertheless, the commission found that Endo’s market power and the risk of eliminated competition from the agreement were sufficient for Impax to incur liability, too.

The commission justified its holding based on having “ample evidence” of a “real threat” to competition. The commission’s opinion noted that “the relevant anti-competitive harm [with pay-for-delay agreements] occurs when the branded manufacturer and its generic competitor replace the possibility of competition with the certainty of none.”

We strongly urge the Fifth Circuit Court of Appeals to uphold the FTC’s findings, so as to increase competition and to provide the public with cheaper prescription drugs.

You can read our full brief here.