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Brief of ICLE and NCLA to the 2nd Circuit, In Re Bystolic Antitrust Litigation

Amicus Brief Interests of Amici Curiae and Introduction The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights organization devoted to defending constitutional freedoms from . . .

Interests of Amici Curiae and Introduction

The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights organization devoted to defending constitutional freedoms from violations by the administrative state.[1] The “civil liberties” of the organization’s name include rights at least as old as the U.S. Constitution itself, such as jury trial, due process of law, the right to be tried in front of an impartial and independent judge, and protection against government taking of private property without just compensation. Yet these self-same rights are also very contemporary—and in dire need of renewed vindication—precisely because Congress, administrative agencies, and even sometimes the courts have neglected them for so long. NCLA aims to defend civil liberties—primarily by asserting constitutional constraints on the administrative state.

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public policy debates and has longstanding expertise in the evaluation of antitrust law and policy. ICLE has an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis.

In establishing a patent system, Congress sought to spur invention of new and useful products by conferring property rights on those who, through investment of substantial time and resources, successfully develop such products. As evidenced by its amicus curiae filing in this case, the Federal Trade Commission has sought for decades to weaken the patent laws by invoking antitrust law to pare back the scope of the property rights conferred by Congress on pharmaceutical patent owners. The Supreme Court’s decision in FTC v. Actavis, 570 U.S. 136 (2013), rebuffed those efforts to a significant degree. Appellants—the Direct-Purchaser Plaintiffs, the Retailer Plaintiffs, and the End-Payor Plaintiffs—largely parrot the FTC’s misinterpretation of patent and antitrust law.

NCLA and ICLE have no connection, financial or otherwise, with any of the parties before the Court. They are filing this brief for the sole purpose of providing the Court with their economically informed assessment of relevant statutory principles. In particular, NCLA and ICLE agree with the district court’s holding that, in determining whether a patentee’s payment to an alleged infringer qualifies under the Actavis standard as ” large,” the proper focus is on the “net” payment to the alleged infringer (that is, the amount by which the payment exceeds the value of what the patentee receives in return), not the “gross” payment. See D. Ct. ECF 438 (Second Op.) at 15 n.9.

Based on NCLA’s and ICLE’s reading of the district court’s opinions and the parties’ briefs, amici agree with Appellees that the complaints fail to state claims upon which relief can be granted. However, because amici have not closely studied the patent-litigation settlement documents, they do not have a well-informed view on whether Appellants have met the antitrust pleadings standards established by Bell Atlantic Corp. v. Twombly, 530 U.S. 544, 556-59 (2007), and do not address that issue in this brief.

Statement of the Case

Bystolic is a prescription drug approved by the Food and Drug Administration for the treatment of high blood pressure. Forest[2] obtained two patents covering Bystolic: the ‘”040 Patent” (which issued in 2003 and expired in 2021) and the ‘”580 Patent” (which issued in 1998 and expired in 2015). In 2011, seven generic-drug manufacturers (the “Generic Manufacturers”) filed Abbreviated New Drug Applications (ANDAs) with FDA, seeking authority to market generic forms of Bystolic. All seven ANDAs claimed that the ‘040 Patent and the ‘580 Patent were invalid and that their generic formulations would not infringe the patents. Those claims essentially forced Forest to file patent infringement suits against the seven Generic Manufacturers (which it did in March 2012); otherwise, FDA could have immediately approved the ANDAs.

Over the course of the next 20 months, Forest entered into separate settlement agreements with each of the Generic Manufacturers. The litigation-settlement agreements were all lengthy and included a variety of side deals. Appellants allege that each included the following two terms: (1) Forest licensed each of the seven Generic Manufacturers to sell generic Bystolic beginning September 17, 2021 (three months earlier than sales would have begun had they awaited expiration of the ‘040 Patent); and (2) all seven agreed to drop their invalidity/noninfringement counterclaims and not to begin marketing until September 17, 2021—unless another one of the Generic Manufacturers entered the market earlier.

Appellants allege that Forest and the Generic Manufacturers violated federal and state antitrust laws by conspiring to restrain trade. They allege that the Generic Manufacturers agreed to delay their entry into the Bystolic market in return for large payments from Forest. In January 2022, the district court dismissed their complaints for failure to state a claim, with leave to file amended complaints. D. Ct. ECF 354 (First Op.).

Appellants filed amended complaints in February 2022, and Forest and the Generic Manufacturers again moved to dismiss the complaints. On February 21, 2023, the district court granted the motions and dismissed the complaints with prejudice. Second Op. at 3.

The court recognized that Forest, in connection with the patent-litigation settlements, entered into side deals that entailed payments to each of the Generic Manufacturers. It concluded, however, that Appellants’ factual allegations failed to show that any of the side-deal payments were “large and unjustified,” as those terms are defined in Actavis. Id. at 19. The Court explained that whether a payment is “large” within the meaning of Actavis should be determined based on the patentee’s “net” payment (i.e., the gross payment minus the value received in return). Id. at 15 n.9.[3] After carefully examining Appellants’ factual allegations regarding the settlement agreements, the court concluded the allegations “d[id] not suffice to state a claim” because Appellants had “not asserted facts as to any of the factors that would suggest conduct inconsistent with a pro-competitive justification.” Id. at 20.

Summary of Argument

Congress has long mandated that courts should strive to maintain a balance between the sometimes-competing claims of the patent law and antitrust law, and that antitrust law should not be used to shortchange the rights of patent holders. Simpson v. Union Oil Co., 377 U.S. 13, 14 (1964). In its Actavis decision, the Supreme Court sought to maintain that balance in the context of drug-patent litigation settlements between brand-name and generic drug companies. It sought to steer a middle ground between the “presumption of unreasonable restraint” approach espoused by FTC and adopted by the Third Circuit,[4] and the “scope of the patent” test adopted by other federal appeals courts,[5] under which such “reverse payment” settlements were not subject to antitrust scrutiny so long as their anticompetitive effects did not extend beyond the exclusionary potential of the underlying patents. Actavis, 570 U.S. at 158-160.

The Court held that when a generic drug company agrees, in connection with a patent-litigation settlement, to drop its challenge to patent validity, the agreement is subject to antitrust scrutiny under a rule-of-reason analysis if, but only if, the settlement also includes an “unusual,” “large,” and “unjustified” “payment” from the brand-name drug company to the generic company. Id. at 147, 158. The Court explicitly rejected FTC’s argument that “reverse payment settlement agreements are presumptively unlawful” and that such agreements should be examined under a “quick look” approach rather than applying “a rule of reason.” Id. at 158-59.

Although the Court did not define with specificity when a settlement-agreement payment should be deemed “unusual,” “large,” and “unjustified” (and thus subject to antitrust scrutiny), it provided several guideposts to assist lower courts in making that determination. First, a payment is not “unjustified” if it consists of granting a license to market the patented product in advance of the patent expiration date. Id. at 158. Second, the Court held that a payment is not “large” (and thus not actionable under antitrust law) if it is less than the litigation expenses the brand-name company could be expected to incur if it did not settle. Id. at 159. Third, the magnitude of any payment from the brand-name company (whether provided in cash or in the form of a non-cash benefit) is to be measured by the “net” benefit (i.e., the gross value of the benefit minus any goods or services the generic company is required to supply in return), not the gross value. Id. at 156. Determining whether a payment is “large” based solely on the amount of cash transferred to the generic company makes little sense, because that rule would not account for the many types of non-cash benefits that can flow between the parties. Fourth, a payment is not “unusual” or “unjustified” if it is one “supported by traditional settlement considerations.” Id. at 154.

The guideposts cited above are highly relevant to the district court’s decision that the complaints fail to state a cause of action. To survive the motion to dismiss, Appellants were required to allege facts sufficient to render plausible their claims that the payments from Forest were “large”; and for purposes of determining whether a payment is “large,” that figure is computed by subtracting, from the amount of cash paid by Forest, the value of goods and services Forest contracted to receive in return.  Moreover, simply alleging facts showing that the cash paid exceeds the value of goods and services received in return does not suffice to demonstrate the requisite “large” payment; the payment is not “large” unless it exceeds the expected litigation costs saved by settling the lawsuit. Finally, entering into “side deals” in conjunction with a litigation settlement (deals that by definition entail benefits flowing from both settling parties) is a “traditional settlement consideration” and does not by itself provide cause to subject the settlement to antitrust scrutiny.

[1] No counsel for a party authored this brief in whole or in part, nor has any person or entity, other than amici curiae and their counsel, made a monetary contribution intended to fund the preparation and submission of the brief. All parties consented to the filing of the brief.

[2] The developers and marketers of Bystolic are collectively referred to herein as “Forest.”

[3] As the district court explained, “If the payment reflects fair value for goods or services, it would say nothing about the patentee’s belief in the validity of the patent.” Ibid.

[4] In re K-Dur Antitrust Litig., 686 F .3d 2012 (3d Cir. 2012), vacated, 570 U.S. 913 (2013).

[5] See, e.g., In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).

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Intellectual Property & Licensing

Gus Hurwitz on AI Regulation

Presentations & Interviews ICLE Director of Law & Economics Programs Gus Hurwitz was a guest on The Cyberlaw Podcast to discuss commitments made last week by leaders of the . . .

ICLE Director of Law & Economics Programs Gus Hurwitz was a guest on The Cyberlaw Podcast to discuss commitments made last week by leaders of the artificial-intelligence (AI) industry to political leaders in Washington, as well the European Commission’s struggles to get other jurisdictions to adopt the EU’s regulatory framework for AI.

Other topics included the Federal Communication Commission’s new cybersecurity label for IoT devices, the Environmental Protection Agency’s regulations for water-system cybersecurity, and the latest U.S. Justice Department/Federal Trade Commission draft merger-review guidelines.

The full episode is embedded below.

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Data Security & Privacy

Antitrust at the Agencies Roundup: The Joint FTC/DOJ Guidelines to Nowhere (or Nowhere Good) Edition

TOTM The FTC and DOJ have done it: on July 19 they released the long awaited (or dreaded) draft merger guidelines, which . . . well, could . . .

The FTC and DOJ have done it: on July 19 they released the long awaited (or dreaded) draft merger guidelines, which . . . well, could have been worse, given current agency leadership, but could have been better (as demonstrated by the certainly imperfect, but still better, 2010 guidelines they replaced). Jumping on the agencies’ myopia bandwagon, I protest: it’s late July and I’m on vacation, damnit! Having been deep in the central American jungle, I’m late to this party, even as the party I’d long planned has been interrupted.

Read the full piece here.

 

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Antitrust & Consumer Protection

Amicus Brief in US Supreme Court’s Loper Bright v Raimondo

Amicus Brief QUESTION PRESENTED Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but . . .

QUESTION PRESENTED

Whether the court should overrule Chevron v. Natural Resources Defense Council, or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

INTEREST OF AMICI CURIAE

The Manhattan Institute for Policy Research (“MI”) is a nonpartisan public policy research foundation whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility. To that end, MI has historically worked sponsored scholarship and filed briefs supporting economic freedom against government overreach.

Richard Epstein is the Laurence A. Tisch Professor of Law at New York University. He also serves as the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and the James Parker Hall Distinguished Service Professor of Law emeritus and a senior lecturer at the University of Chicago.

Todd Zywicki is George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law and a research fellow of the GMU Law and Economics Center.

Justin “Gus” Hurwitz is a senior fellow and academic director of the Center for Technology, Innovation, and Competition at the University of Pennsylvania Carey Law School.

Geoffrey Manne is the president and founder of the International Center for Law and Economics and a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics.

This case interests amici because it involves an agency regulation that was not explicitly authorized by statute. Indeed, it gives the Court a chance to revisit Chevron—either overruling it or clarifying that statutory silence does not require judicial deference.

SUMMARY OF ARGUMENT

Family-run fishing businesses face a fraught and competitive environment even before the intrusion of burdensome regulations. Here, the National Marine Fisheries Service (“NMFS”) promulgated a rule for certain classes of herring boats that sweeps in most such businesses, as portrayed in the Oscar-winning movie CODA. If a vessel needs a monitor and has not already been assigned one under a federally funded program, it must pay for one itself. The cost for most herring boats exceeds $710 per sea day.

Petitioners, four family-owned and -operated fishing companies, contend that the industry-funding requirement which is not explicitly authorized by statute—will have a devastating economic impact on the herring fleet and will disproportionately impact small businesses, destroying historic communities.

The district court ruled for the government, finding that various provisions of the Magnuson-Stevens Fishery Conservation and Management Act (“MSA”) together conferred broad authority on the NMFS to implement regulations to carry out fishery management plan’s measures. Without any analysis, the court also found that, even if the statute were ambiguous, the government’s reading would be reasonable under Chevron Step Two and thus worthy of judicial deference. A divided panel of the D.C. Circuit affirmed, reasoning that the MSA’s authorization for the placement of monitors, through silence on funding, left room for agency discretion. This Court granted certiorari to determine whether the Court should overrule Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.

The Court should now take this opportunity to overhaul the Chevron-deference regime, because this experiment in rebalancing the relationship between administration and judicial review has failed. It has led to agency overreach, haphazard practical results, and the diminution of Congress. Although intended to empower Congress by limiting the role of courts, Chevron has instead empowered agencies to aggrandize their own powers to the greatest extent plausible under their operative statutes, and often beyond. Congress has proved unequal to the task of responding to this pervasive agency overreach and now has less of a role in policymaking than in the pre-Chevron era. Courts, in turn, have become sloppy and lazy in interpreting statutes. It’s a vicious cycle of legislative buckpassing and judicial deference to executive overreach.

Chevron deference rests on the presumption that Congress won’t over-delegate and that agencies will be loyal agents. But the past 40 years have shown that Congress loves passing the buck and agencies are actually principals who pursue their own interests. The time has more than come for the Court to revisit Chevron, whether it chooses to overrule it explicitly or keep it nominally under a newly restricted standard. Cf. Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (preserving Auer deference but reworking it so completely that both Chief Justice Roberts, who joined Justice Kagan’s majority opinion, and Justice Kavanaugh, who joined Justice Gorsuch’s effective dissent, noted that there wasn’t much difference between the two).

 

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Antitrust & Consumer Protection

Norwegian Decision Banning Behavioral Advertising on Facebook and Instagram

TOTM The Norwegian Data Protection Authority (DPA) on July 14 imposed a temporary three-month ban on “behavioural advertising” on Facebook and Instagram to users based in Norway. The . . .

The Norwegian Data Protection Authority (DPA) on July 14 imposed a temporary three-month ban on “behavioural advertising” on Facebook and Instagram to users based in Norway. The decision relied on the “urgency procedure” under the General Data Protection Regulation (GDPR), which exceptionally allows direct regulatory interventions by other national authorities than the authority of the country where the business is registered (here: Ireland).

My initial view of the decision is that it is both a misuse of the urgency procedure and mischaracterizes the leading judgment from the EU Court of Justice (CJEU) on which it purports to rely (see my analysis of that judgment: part 1 and part 2). The decision misses the critical legal issue that it’s unclear to what extent the CJEU’s analysis applies to first-party personal data (collected by Facebook and Instagram) as the Court’s judgment expressly covered third-party data (collected “off-platform”).

Read the full piece here.

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Data Security & Privacy

The IEA’s Net Zero Pathway Is Economically Illiterate

Popular Media The International Energy Agency (IEA) is either woefully economically ignorant or intent on misleading world governments with respect to the so-called net zero energy transition. . . .

The International Energy Agency (IEA) is either woefully economically ignorant or intent on misleading world governments with respect to the so-called net zero energy transition. This much is clear to me, as an economist, after reading the recent report from the RealClearFoundation and the Energy Policy Research Foundation (EPRF) on the IEA’s net zero scenario.

Read the full piece here.

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Telecommunications & Regulated Utilities

The New Merger Guideline Commandments: Thirteen is an Unlucky Number

TOTM On July 19, the Department of Justice (DOJ) and Federal Trade Commission (FTC) (the agencies) finally issued new draft Merger Guidelines (DMG), open to public comments for . . .

On July 19, the Department of Justice (DOJ) and Federal Trade Commission (FTC) (the agencies) finally issued new draft Merger Guidelines (DMG), open to public comments for two months. The DMG embody a set of thirteen individual Guidelines, which “are not exhaustive of the ways that a merger may substantially lessen competition or tend to create a monopoly” (Guideline 13). Coincidentally or not, the decision to promulgate thirteen Guidelines is a bad omen – the DMG are fatally flawed from start to finish.

Read the full piece here.

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Antitrust & Consumer Protection

Note to the FTC: Punishing Efficiency Means Destroying Competition

TOTM Yesterday, Lina Khan’s FTC released their long-awaited draft merger guidelines for public comment. Regrettably yet unsurprisingly, the new guidelines are a radical departure from established case law . . .

Yesterday, Lina Khan’s FTC released their long-awaited draft merger guidelines for public comment. Regrettably yet unsurprisingly, the new guidelines are a radical departure from established case law and antitrust thinking. They’re marked by a failure to account for the role of efficiencies in the competitive process, and a failure to distinguish between the implications of generally pro-competitive vertical mergers and horizontal mergers. If the FTC’s 0-4 losing track record in merger litigation so far is any indication, then they’re likely to be struck down by courts nationwide.

Read the full piece here.

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Antitrust & Consumer Protection

New Merger Guidelines Are As Expected. That’s Not a Compliment.

TOTM Fifteen months after the close of the comment period, we finally have the release of the draft merger guidelines by the Federal Trade Commission (FTC) and the . . .

Fifteen months after the close of the comment period, we finally have the release of the draft merger guidelines by the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ).

While there is a lot to digest in the 51 page document with over 100 (largely stale) footnotes, the broad picture is clear: the goal of this document is to stop more mergers. Period.

Read the full piece here.

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Antitrust & Consumer Protection