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Global Competition Review

Third Circuit: Pharmaceutical cases

The Third Circuit is a prominent venue for antitrust litigation involving pharmaceuticals. The proximity of the industry and the large body of law ensure several noteworthy developments.

Plaintiffs are finding creative antitrust claims to assert, which raise novel questions of substantive and procedural law. Among others, this chapter describes a rare Federal Trade Commission (FTC) injunction request under section 13(b) of the FTC Act, indirect purchaser and competitor standing to sue under federal antitrust laws, class certification, and refusal to deal, pay for delay and exclusivity allegations.

 

FTC v Shire ViroPharma, Inc

The Third Circuit’s 2019 decision in FTC v Shire ViroPharma, Inc1 involves a rare FTC effort to use section 13(b) of the FTC Act to enjoin the recurrence of past conduct alleged to have been anticompetitive. In Shire ViroPharma, the Third Circuit held that the FTC cannot initiate litigation in federal court under section 13(b) for prior conduct without specifically alleging in its complaint how the defendant ‘is violating or is about to violate’ the law. The appellate court’s denial dealt a significant blow to the FTC’s ability to litigate cases in federal court where the challenged conduct has already ended.

 

Background

The FTC Act sets out the parameters of the FTC’s enforcement authority.2 While in-house administrative proceedings under section 5(b) are an often-used enforcement tool for antitrust litigation, the FTC can also seek a temporary restraining order or injunction in federal court under section 13(b) where there is ‘reason to believe’ that a party ‘is violating, or is about to violate’ any of the laws enforced by the FTC.3 In other words, section 13(b) gives the FTC the authority to ‘speedily address ongoing or impending illegal conduct [in federal court], rather than wait for an administrative proceeding to conclude.’4

In 2017, the FTC sued Shire ViroPharma Inc (Shire) in federal court in Delaware, pursuant to section 13(b), alleging Shire violated the FTC Act by filing a number of allegedly meritless or ‘sham’ citizen petitions in an effort to delay or block the launch of generic versions of Shire’s branded drug Vancocin, an antibiotic used to treat gastrointestinal infections. The FTC sought injunctive relief, in the form of permanently enjoining Shire from engaging in this type of conduct in the future, as well as for restitution and disgorgement.5 Shire moved to dismiss the complaint, arguing that the alleged anticompetitive conduct occurred back in 2010–2012, and therefore Shire was not ‘violating or about to violate’ the FTC Act under section 13(b).6 The FTC argued in response that dismissal would be improper because the FTC had pleaded a ‘reasonable likelihood that past violations will recur,’ which should have satisfied the ‘about to violate’ requirement.7 The District Court, however, rejected the FTC’s argument and granted Shire’s motion to dismiss in 2018.8

 

Third Circuit decision

The Third Circuit affirmed the dismissal in February 2019, concluding that section 13(b) is ‘unambiguous’ in that ‘it prohibits existing or impending conduct’ and ‘does not permit the FTC to bring a claim based on long-past conduct without some evidence that the defendant “is” committing or “is about to” commit another violation.’9 The Court explained that the FTC’s only allegations that Shire was ‘about to violate’ the law – that Shire had the ability and incentive to repeat the same type of behavior with other products – were ‘woefully inadequate’ to meet the ‘about to violate’ standard from section 13(b).10 ‘[A]bout to violate,’ the Court explained, ‘means something more than a past violation and a likelihood of recurrence.’11 The Third Circuit also rejected the FTC’s argument that foreclosing the FTC from bringing section 13(b) in federal court for prior conduct could lead to a ‘parade of horribles’ in that wrongdoers could avoid the FTC in federal court by stopping the challenged conduct once it learned of the FTC’s investigation.12 The Court concluded that such circumstances could be addressed by traditional in-house administrative proceedings for prior violations under section 5(b) rather than in federal court.13 The Third Circuit’s decision is a significant setback for the FTC, which until now has had success using section 13(b) cases to pursue large disgorgement awards for prior conduct. Moving forward, it is expected that the Third Circuit’s interpretation of section 13(b) will put significant pressure on the FTC to accelerate investigations where there is a risk that the challenged conduct could stop before the FTC can file its complaint.

 

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1 917 F.3d 147 (3d Cir. 2019).
2 See 15 U.S.C. § 41.
3 See id. § 53(b).
4 FTC v Shire ViroPharma, Inc., 917 F.3d 147, 155 (3d Cir. 2019).
5 FTC v Shire ViroPharma, Inc., Civil Action No. 17-131-RGA, 2018 U.S. Dist. Lexis 45727, at *2 (D. Del.
Mar. 20, 2018) (‘The FTC seeks a permanent injunction and other equitable relief.’).
6 See id. at *6–9.
7 Id. at *12.
8 See id. at *12–16.
9 Shire ViroPharma, 917 F.3d at 156.
10 Id. at 160 (‘The few factual allegations in the FTC’s forty-five page complaint that suggest Shire “is about to violate” the law are woefully inadequate to state a claim under Section 13(b).’).
11 See id. at 158.
12 See id. at 159.
13 See id. (‘But there is no reason to believe that our decision today unnecessarily restricts the FTC’s ability to address wrongdoing. Section 5 authorizes administrative proceedings based on past violations. And, of course, if the FTC believes that a wrongdoer is “about to violate” the law during the pendency of an administrative proceeding, it could then come to court and obtain an injunction under Section 13(b).’).

 

Reproduced with permission from Global Competition Review’s US Courts Annual Review

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