Electronic Newsletter of the

Intellectual Property Committee

ABA Section of Antitrust Law

At issue was whether Biovail’s suit against Andrx was properly dismissed on standing grounds. The district court had dismissed the claim with prejudice. The appellate court affirmed the dismissal but reversed the decision to reverse with prejudice. Although a standing decision may not seem that intriguing, the decision may provide guidance to the Sixth and Eleventh Circuits as they consider the appeals of the Cardizem and Hytrin consumer treble damage suits.

Standing litigation focuses on several issues: (1) whether the plaintiff has suffered injury in fact and whether the defendants conduct caused the injury (2) whether the injury is the type the antitrust laws were meant to prevent; (3) whether the harm was speculative (4) whether there is a more appropriate plaintiff and (5) the risk of duplicate recovery. The court's analysis focused on the first two issues.

The district court held that Biovail not only failed to plead an injury or a threatened injury but also was unable to do so because Biovail had yet to receive FDA approval for its generic version of Cardizem CD and gave no assurance that it would have entered the market had it gained approval. The Court of Appeals rejected that argument. First, it explained in order to demonstrate exclusion, a potential competitor like Biovail had to demonstrate "both its intention to enter the market and its preparedness to do so." citing Hecht v. Pro-Football, 570 F.2d 982, 994 (D.C. Cir. 1977). Here Biovail failed in its pleadings: it did not explicitly allege that it was prepared to bring a generic version of Cardizem to market or that it anticipated FDA approval and it failed to inform the court when it received FDA approval. That made dismissal of the claim appropriate.

But the district court went further and dismissed with prejudice, deciding that as a matter of law that Biovail could not set forth any facts that would entitle it to relief. Since Biovail could correct the pleading deficiency by pleading its intent and preparedness to enter the DC Circuit held that this decision was erroneous.

Andrx posed several other legal grounds to support the dismissal with prejudice. First, it argued that the agreement did not cause any injury since it was the FDA regulatory scheme that kept Biovail off the market. Andrx noted that the successful defense requirement applied when the agreement was entered into, so Andrx would have had exclusivity only if it won its suit. The DC Circuit disagreed noting that the agreement was entered into "almost nine months after the [DC district] court's ruling." It also emphasized that the Hoechst-Andrx agreement "did not go into effect until three months" after the DC Circuit's Mova decision in April 1998. The court concludes "the timing of the Agreement and of the demise of the successful defense requirement defeats Andrx's argument on this point."

Andrx had turned to more conventional antitrust arguments to defend the agreement, arguing that its restrictions were appropriate under the ancillary restraints doctrine, relying on Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185 (7th Cir. 1985). The court rejected that argument noting that "the Agreement's allegedly anticompetitive provisions, including Andrx's pledge to continue to pursue its ANDA so as to forestall other applicants from receiving final FDA approval, were not necessarily ancillary restraints but rather could reasonably be viewed as an attempt to allocate market share and preserve monopolistic conditions."

Andrx also argued there was no restraint because Biovail had other alternatives including petitioning the FDA to nullify the 180-day exclusivity period. Andrx relied on CBS v. ASCAP, 620 F.2d 930, 935 (2d Cir. 1980), which held that "a practice that is not a per se violation ... does not restrain trade when the complaining consumer elects to use it in preference to realistically available marketing alternatives." The DC Circuit distinguished the cases Andrx relied on because Andrx failed to demonstrate an efficiency rationale for the agreements: "Andrx cited not consumer benefit here." In addition, the time for Biovail to exercise any of these alternatives "made this option less than ‘fully available.’"

Under the law antitrust plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. Andrx argued that there was no antitrust injury arguing the case was akin to the Bruswick case in which competing bowling alleys did not have standing to challenge a bowling alley merger since they would have benefited from any post-merger price increases. The DC Circuit rejected the argument:

Andrx then argued that it could have decided on its own not to market the drug and that would have had the same effect of excluding Biovail. The court rejected that argument because of the $10 million quarterly payment: "Andrx's argument that any rational actor would wait for resolution of the patent infringement suit is belied by the quid of HMRI's quo."

The DC Circuit also rejected Andrx’s argument that the agreement merely preserved the status quo and thus was no more than a stipulated preliminary injunction. But the DC Circuit rejected that argument noting the important role of judicial review in protecting the public interest (and considering the likelihood of success) --- concerns articulated in FTC Commissioner Sheila Anthony’s speech on patent settlements. Moreover, the court noted that even if the settlement was legal, its commitment to continue to prosecute its ANDA and do nothing to jeopardize the 180-day exclusivity period "went beyond the status quo" and were not ancillary, citing Judge Bork’s decision in Rothery:

The remaining issues of injury, the speculative nature of the harm, existence of more appropriate plaintiff and duplicate recovery were straightforward.

Finally, Andrx argued that the agreement should be protected under the Noerr-Pennington doctrine in the same fashion as threatened litigation or an offer of a settlement. The court disagreed and specifically adopted the reasoning of the district court in the private consumer litigation involving the Andrx agreement. In Cardizem CD Antitrust Litigation, 105 F. Supp. 2d 618, 635 (E.D. Mich. 2000) the district court found that the competitive harm was not the result of a court decision: "[r]ather, it is the result of purely private conduct and thus constitutes a private restraint of trade subject to liability under the antitrust laws." The DC Circuit also relied on Judge Posner’s decision in Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 789 (7th Cir. 1999) ("[T]he doctrine does not authorize anticompetitive action in advance of government's adopting the industry's anticompetitive proposal. The doctrine applies when such action is the consequence of legislation or other governmental action, not when it is the means for obtaining such action (or in this case inaction)."). The DC Circuit observed that this Agreement was "not unlike a final, private settlement agreement resolving the patent infringement litigation by substituting a market allocation agreement" and that type of agreement would not enjoy Noerr-Pennington immunity.

It is notable that the both the Andrx case and the Heinz/Beech-Nut mergers were argued on the same day before the same panel (Henderson, Garland and Randolph). In both cases, a panel with two Conservative Republican judges, in decisions authored by Judge Henderson, reversed district court decisions. In doing so, both appellate decisions adopted a relatively expansive notion of the bounds of antitrust law, at least enabling the plaintiffs to have their day in court. And the Andrx decision will be on the top of the reading pile for several judges and clerks on the Sixth and Eleventh Circuits.

1. In re Cardizem CD Antitrust Litigation, 105 F.Supp. 2d 682 (E.D.Mich. 2000) (hereinafter Cardizem). The Fall 2000 issue of the Intellectual Property Committee’s Newsletter, Antitrust and Intellectual Property at 39-42, contains a detailed discussion of the decision. The newsletter is available at http://www.abanet.org/antitrust/committees/intell_property/fall2000.pdf.

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