Tuesday, December 02, 2003

Rights & Reason: The Latest Battle for Intellectual Property

CAC is preparing an amicus brief to the Supreme Court in Andrx Pharmaceuticals v. Kroger Company, a case that mixes a dangerous cocktail: antitrust law and patent infringement. The case started a few years ago when Andrx, a generic drug manufacturer, asked the FDA for permission to market a generic version of Cardizem, a hypertension medication made by Hoechst Marion Roussel (HMR). Like many generic drug applications, this one became embroiled in a patent infringement dispute when HMR sued Andrx. Under federal law, the infringement suit triggered an automatic 30-month stay of Andrx’s FDA application, during which time the generic Cardizem was kept off the market.

As the 30 month period was expiring, the two companies reached an interim settlement whereby Andrx agreed to keep its drug off the market until the patent dispute was resolved, and in exchange HMR would make quarterly payments (of several million dollars) to Andrx. These interim settlements are common in patent litigation disputes, and in fact are encouraged as a means of helping obtain quicker resolutions.

This is where the antitrust lawyers come in. A group of antitrust plaintiff’s attorneys, backed by a group of businesses and drug purchasers, sued both Andrx and HMR, claiming the interim agreement “harmed” consumers by denying them quicker access to cheaper, generic Caridizem. Like the interim settlements, these antitrust suits are now commonplace, as trial lawyers seek to exploit the public outrage over prescription drug costs. The case was tried in Michigan, and the trial court held the Andrx-HMR interim settlement was a per se violation of the antitrust laws. Essentially, the court found the companies conspired to deny consumers access to cheaper medication. The U.S. Court of Appeals for the Sixth Circuit affirmed, holding that any attempt to put the agreement into its proper context was forbidden by the antitrust laws; after all, the whole point of the per se antitrust rule is to permit courts to declare actions illegal without having to bother with context or evidence.

A few months after the Sixth Circuit’s decision, the Eleventh Circuit in Atlanta ruled on a case brought by essentially the same lawyers and plaintiffs against another interim patent settlement, and that court reached the opposite conclusion. The Eleventh Circuit found the interim settlement did not violate the antitrust laws. Hence we have a disagreement between two courts of appeal, and Andrx seeks to have the Eleventh Circuit’s ruling adopted as the national standard.

CAC’s amicus brief will obviously support Andrx’s petition to have this case heard. We’ve seen firsthand what the per se rule can do to an industry. In 1982, the Supreme Court held the per se rule applied to agreements among physicians regarding fees, and the result is the current FTC-DOJ policy of preventing physicians from engaging in any meaningful negotiations with government-backed managed care companies. The Sixth Circuit’s ruling against Andrx and HMR has a similarly disastrous effect, since it effectively outlaws any effort to settle a patent case without considering the subjective desires of third-party consumers.

This will be the fifth amicus brief filed by CAC with the Supreme Court in the past two years. You may wonder what the value of these briefs is, since it’s difficult to measure their precise impact, if any, on the Court’s decision-making. Amicus briefs are often superfluous, restating arguments made by the parties, and in high-profile cases, the sheer volume of filings renders an individual brief’s contribution worthless. Seventh Circuit Judge Richard Posner, a notorious stickler for judicial efficiency, claims 99% of amicus briefs are a waste of time and money. I would not go that far, but I do believe that amicus briefs must have clear ideological and practical objectives in order to be worth the time and cost.

In the Andrx case, CAC’s ideological motive is obvious: We disapprove of the antitrust laws, and the Sixth Circuit decision, left undisturbed, would vastly expand the reach of antitrust into intellectual property law. But CAC is hardly the only critic of antitrust out there, nor are we a group of career antitrust lawyers who can debate the finer points of particular antitrust theories. Thus, our practical (or political) objective here is to try and shape the debate to our unique organizational strengths.

Here, CAC’s advantage is its substantial experience with the FTC, an agency that is not scrutinized by most other advocacy groups. The FTC plays an important, though not immediately obvious, role in the Andrx case, because the Commission has been laying the groundwork over the past two years to mount a major assault on intellectual property rights. The FTC views patents as a necessary evil—rather than a necessity of capitalism—because consumers are inconvenienced by higher prices for patented goods. The Commission actually investigated the Andrx-HMR agreement in 2001, but settled after concluding it didn’t have a strong enough case. A Supreme Court ruling affirming the Sixth Circuit would strengthen the FTC’s power to scuttle future patent settlements, making it more difficult for firms to file infringement suits defending their property rights. At the end of the day, property rights are an anathema to the “consumer rights” the FTC is sworn to protect.

Our amicus brief will provide the Court, and the general public, with a broader context to this case then the parties themselves will present. This is especially important because appellate courts are notoriously pragmatic—they take every measure to avoid public policy context, preferring to issue narrow rulings outside of any broad principle. Even if the Supreme Court does not accept Andrx’s case for review, CAC’s brief will set the stage for the larger debate over the FTC’s role in balancing property rights with “consumer rights.” This debate affects the nation at-large, and hopefully those of you reading this entry will be motivated to contribute to CAC so that we can remain at the forefront of the discussion.

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