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FTC Commissioner Wright and D.C. Circuit Judge Ginsburg Criticize Second Circuit’s Actavis Ruling

We have been following developments in People of the State of New York v. Actavis, the New York Attorney General’s “product hopping” suit against Actavis and its subsidiary, Forest Laboratories LLC (together, “Actavis”). Now, an FTC Commissioner and a D.C. Circuit Judge have weighed in as well—and they are criticizing a key portion of the Second Circuit’s ruling.

As we have explained, “product hopping” cases allege that a pharmaceutical manufacturer has reformulated or otherwise altered a drug to prevent automatic generic substitution, and that this violates the antitrust laws.  In the Actavis case, the Attorney General’s office claims that Actavis introduced an extended release formulation of its Alzheimer’s drug, Namenda, to stave off predicted losses from generic sales of the drug.

In ruling for the Attorney General, the district court found that “generic products are typically not marketed to physicians or patients,” and that substitution by pharmacists is the “principal means by which generics are able to compete in the United States.” The Second Circuit credited this finding and wrote that “as the district court determined, competition through state drug substitution laws is the only cost-effective means of competing available to generic manufacturers.”

FTC Commissioner Joshua D. Wright and D.C. Circuit Judge Douglas H. Ginsburg have now weighed in as part of a comment they submitted to the Canadian Competition Bureau on the Bureau’s latest draft enforcement guidelines. In the comment, they dispute the district court’s finding about substitution as “not supported by empirical evidence.” Rather, Commissioner Wright and Judge Ginsberg assert that “in general, product switching does not amount to exclusionary conduct because the generic company is still free to compete and is able to reach consumers through, inter alia, advertising, promotion, cost competition, or superior product development.”

As Commissioner Wright and Judge Ginsburg note, the Second Circuit panel also affirmed the district court’s legal conclusion that antitrust law requires brand-name pharmaceutical companies “to allow generic competitors a fair opportunity to compete using state substitution laws.” They criticize this conclusion as “contrary to the teaching of the United States Supreme Court, which has explicitly held that the antitrust laws do not impose a general duty to aid one’s rivals.” Ultimately, Commissioner Wright and Judge Ginsburg recommend “against imposing a competition law sanction on product switching absent clear and convincing evidence that [the new formulation of a drug] represents a sham innovation with zero or negative consumer welfare benefits.”

Elsewhere in the comment, Commissioner Wright and Judge Ginsburg argue that competition enforcement must draw a sharp distinction between so-called “hard” and “soft” switches of products, a topic we have discussed in several previous updates. The entire comment can be found here.