THE NEW
INQUISITION
during her days as a Dutch politician in the 1980s for her
harder-than-steel approach to cracking Dutch bureaucracy, a
reference to then British prime minister Margaret Thatcher,
known as the Iron Lady. Since donning the mantle of
Europe’s top trustbuster in 2004, she has taken on some of
the world’s biggest companies, including Microsoft Corporation, Intel Corporation, German energy behemoth E.ON
AG, and Spanish telecommunications giant Telefónica S.A.
Now she has turned her attentions to drugs.
“Intellectual property rights are a cornerstone for innovation in any dynamic economy,” Commissioner Kroes told IP
Law & Business this summer. “But every jurisdiction accepts
that companies can both use and abuse those rights, and
that abuse can have very
serious chilling effects on
innovation and on consumers. Where necessary, the
Commission will therefore
step in.”
Kroes said in a January 16 speech that the E.C. had no
proof of actual wrongdoing by drugmakers. What it had
were suspicions, built on earlier cases against AstraZeneca
Pharmaceuticals LP, GlaxoSmithKline, and Boehringer
Ingelheim Pharmaceuticals, Inc., and on informal complaints
from generic drug companies. Commissioner Kroes and her
team have stated that the surprise raids ensured that they
had immediate access to relevant information—such as use
of IP rights, litigation, and settlements—and that no information was withheld, concealed, or destroyed.
“Regulatory authorities seem to be rather unrestrained
in what they can do [in Europe],” says Robert Baechtold, a
partner at Fitzpatrick, Cella, Harper & Scinto in New York.
Although “these questions have been taken up by the U.S.
[Federal Trade Commission], we haven’t seen these sort of
wholesale attacks on pharmaceutical companies,” he says.
[See sidebar “And, On This Side of the Atlantic ....” below.]
Although the Commission is looking at the sector as a
whole—it has sent out hundreds of questionnaires to drug-makers, customers, and others—antitrust regulators have
indicated the raids were carefully targeted. Details are confidential; however, at least nine companies have confirmed
their involvement: Johnson & Johnson, Pfizer Inc., GlaxoSmithKline, AstraZeneca, Wyeth, Sandoz Inc., Merck & Co.
Inc., Sanofi-Aventis, and Teva Pharmaceutical Industries
Ltd. Because attorney-client privilege is less far-reaching in
the E.U., outside counsel on both sides of the Atlantic are
anxious about the prospect of law-firm documents seized
by the authorities being used
against their clients.
Kroes has stated that the
inquiry will look at agreements between pharmaceutical companies, such as set-
tlements in patent disputes, to see whether they infringe the
E.C. Treaty’s ban on restrictive business practices. The E.C.
will also look at whether companies have created artificial
barriers to innovative or generic product entry, by vexatious
litigation brought to harass competitors, or by misleading
the authorities that regulate patents, to see whether such
practices infringe the E.C. Treaty’s ban on abuses of dominant positions. It cites statistics showing that the number of
new branded and generic drugs introduced into the market
has fallen 30 percent, from an annual average of 40 between
1995 and 1999 to just 28 between 2000 and 2004.
Kroes hopes to release final results in the spring of 2009,
though the E.C.’s investigations almost invariably miss deadlines. But observers say that Kroes will be keen to claim some
victories before the end of her term in September 2009.
Although the Commission is looking at
the sector as a whole, regulators say
the raids were carefully targeted.
And, On This Side of the Atlantic ....
The interest of the U.S. Federal Trade
Commission in the pharmaceutical industry has heightened in recent years. Most
controversially, the agency has challenged
settlements involving “reverse payments,”
which are payments from a branded company to a generic company that delay the
generic’s market entry.
In 2001 the FTC brought a complaint
against Schering-Plough Corp. challenging settlement agreements that it had
entered into with two generic companies
it had accused of violating its patents for
its potassium chloride supplements. The
FTC concluded that the settlement agreements—which the FTC found involved
reverse payments—violated the antitrust
laws. On appeal, however, in 2005 the U.S.
Court of Appeals for the Eleventh Circuit
overturned the decision, finding no evidence that the agreements had impaired
competition beyond the scope of Schering-Plough’s patents.
The Schering-Plough case led to a most
interesting—and highly unusual—disagree-
ment between U.S. enforcement agencies.
When the FTC petitioned the U.S. Supreme
Court for certiorari, the Court asked the
U.S. solicitor general to submit views. The
solicitor general, supported by the antitrust
division of the U.S. Department of Justice,
opposed the FTC’s petition. The High Court
ultimately denied certiorari.
But the FTC has refused to back down,
even after the Eleventh Circuit’s decision
was endorsed by several other courts in private litigation, including the Second Circuit.
The FTC recently filed suit in federal district court against Cephalon Inc., charging
