In House Counsel Antitrust Update

In House Counsel Antitrust Update American Bar Association Section of Antitrust Law Corporate Counseling Committee June 2, 2006

DOJ/FTC New Kids on the Block David Meyer, DOJ Deputy AG Susan DeSanti, Leaves FTC to Antitrust Modernization Commission David Balto

DOJ: Civil Enforcement • Microsoft: 2 year Extension of Decree • West Virginia Real Estate: • Eliminate Rebate Prohibition • WalMart Debit Card case • Seek damages for U.S.

DOJ Merger Enforcement • U.S. v. ATT/SBC • U.S. v. MCI/Verizon • Argument on scope of Tunney Act • Actel, Comptel can be Amici • Approve Mittal Steel Merger • ICN Conference

DOJ Criminal Enforcement • United States v. Benit • Erate fraud scheme • Fraud and conspiracy claims • United States v. Nextira One

Petition for Rehearing in Stolt-Nielsen • Stolt-Nielsen, a South African shipping firm, sought protection under the Antitrust Division’s corporate leniency program in exchange for cooperating in a criminal investigation of Stolt-Nielsen and its co-conspirators • Under the Corporate Leniency Policy the government will not charge a firm if it meets seven conditions • 1) The applying firm is the first to report illegal activity • 2) The government could not sustain a conviction at the time the firm comes forward • 3) The firm took prompt and effective action to terminate its role in the activity being reported upon discovery of that activity • 4) The firm cooperates candidly and completely • 5) The firm confesses to illegal and anticompetitive conduct as a corporation • 6) The firm makes restitution where possible • 7) The government determines that leniency to this firm would not be unfair to others

Withdrawal of Immunity • Under the agreement Stolt-Nielsen turned over lists that had been used to apportion customers and other evidence of anticompetitive behavior • The Government secured guilty pleas resulting in prison terms and fines of $62 million against co-conspirators • The Government investigation turned up evidence that Stolt-Nielsen had participated in the conspiracy for several months after it was discovered by the general counsel, in violation of the third requirement • At the district court Stolt-Nielsen succeeded in arguing that the Government could not unilaterally breach the agreement, but that decision was overturned by the 3rd Circuit, citing the limited powers of the district court to enjoin an indictment

Petition for Rehearing • Stolt-Nielsen filed a petition for rehearing citing three concerns: • 1) The decision overturning the district court conflicts with precedents establishing that the Due Process Clause requires strict adherence to agreements with defendants • 2) The decision conflicts with precedents establishing that the federal courts may enjoin prosecutions that conflict with constitutionally protected property rights • 3) The separation of powers does not exempt prosecutors from the duty to abide by binding agreements that they make with defendants • On May 16, the two-judge panel amended its original opinion, but did not overturn it • On May 30, 3d circuit asks DOJ to reply

SG Brief: Weyerhaeuser.Is there predatory overbuying? • Ross-Simmons sued Weyerhaeuser for Section 2 violations, including predatory bidding and overbuying • The district court, in its jury instruction, defined “overbuying” and “predatory bidding” as defendant’s purchasing more of an input than needed or paying a higher price than necessary to prevent plaintiff from getting the logs it needed at a fair price • The 9th Circuit upheld the district court’s decision, choosing to treat buy-side predatory behavior differently than sell-side behavior such as predatory pricing • The court noted that predatory pricing cases have a high liability standard under Brooke Group (that the predatory actor must operate at a loss and have a dangerous probability of recouping that loss), but insisted that consumers do not benefit from predatory buying, and thus the Brooke Group standard is unnecessary • Because the 9th Circuit found the higher standard of liability of Brooke Group inapplicable, it sustained the district court

Seeking Cert • The Solicitor General, joined by the FTC and the Antitrust Division, filed a brief in the Supreme Court seeking cert and urging reversal, arguing: • The concerns underlying the high standards for predatory pricing are generally applicable to predatory bidding • Plaintiffs in predatory buying cases should therefore need to prove defendant suffered a loss, and had a dangerous probability of recouping that loss • Approving the district court’s definition allows a jury to base its assessment on subjective factors such as “fairness” and “necessity” • The result of this uncertainty is to chill procompetitive aggressive bidding by companies seeking to ensure access to inputs • Jury instructions that lack an objective standard threaten to chill competition because it makes it very difficult to distinguish predation from aggressive competition, and will dissuade competitors from competing vigorously

Interlocutory Appeal in So. Carolina State Board of Dentistry v. FTC • The FTC challenged a SC Board regulation preventing oral hygienists from performing certain procedures in schools without a dentist’s examination • The Board countered that it was immune under the State Action Antitrust Immunity doctrine • After the FTC denied the protection, the Board brought an interlocutory appeal, claiming the denial was a collateral order that could be appealed • The 4th Circuit disagreed, and dismissed for lack of jurisdiction

Collateral Order Doctrine • To be appealable under the Collateral Order Doctrine, an order must: • 1) Conclusively determine the question • 2) Resolve an important issue separate from the merits of the action • 3) Be effectively unreviewable • 4th Circuit application of the Test: • 1) Denial of immunity determines the issue • 2) Issue is NOT separate from the merits, because whether state sanctions anticompetitive conduct is related to whether conduct is anticompetitive • 3) It is NOT unreviewable because Parker immunity is not concerned with avoiding the particular harm of TRIAL (compared to double jeopardy, absolute immunity, qualified immunity, etc.)

Circuit Split • The 5th and 11th Circuits have previously gone the other way on analyzing the final two prongs of the collateral order doctrine • The 3rd and 7th Circuits have stated the same in dicta • The 6th Circuit held that denial of Parker immunity was not appealable, and Judge Motz’s 4th Circuit panel agreed in South Carolina State Board of Dentistry

FTC Advocacy • Comments to PTO on Continuation Practice • Texas Legal Online Matching Service: • Online dating is procompetitive

FTC Merger Enforcement • Evanston/Northwestern Argument • The new math of efficiencies: “We learned to raise prices” • Is divestiture unprecedented or sound? • How do we sing “unilateral effects” after Peoplesoft bombed on Broadway? • The enforcer’s fantasy: liability without relevant market

FTC Pharmaceutical Settlements • Commission Leibowitz Speech “they’re back” • Recent trend of return of reverse payments • FTC Pharmaceutical Settlement Report • First time since 1999 there are payments

FTC v. DOJ: Patent Settlements • FTC v. Schering • Cert filed • Amici FTC DOJ

FTC v. DOJ: Schering Solicitor General Brief • Petition raises important issue • Case is not a good vehicle for addressing the questions • FTC approach is wrong • Need “ex ante” assessment of patent validity • No Circuit Split • Prior SG/FTC/DOJ brief in Cardizem/Hytrin

It ain't over till it's over. Yogi Berra October 17, 2004 BASEBALL; All Over but the Routing

FTC Provides Senate Testimony on Post-Katrina Gas Price Increases • Following its investigation, the FTC found no instances of illegal market manipulation, and 15 instances of “price gouging” under Section 632 of the FTC’s appropriations legislation (but all of them were excusable) • The FTC Testified that: • Regional and local market trends explained most of these increases • Gouging legislation may cause more problems for consumers than it solves • Market forces should determine the price of gasoline.

Other Findings • NO evidence that refiners manipulated prices • NO evidence that refinery expansion over past 20 years was coordinated to manipulate prices • NO evidence that companies made pipeline rate or expansion decisions to manipulate prices • NO evidence that oil companies reduced inventory to manipulate prices • NO evidence that one firm or a small group could manipulate futures prices by restricting access to New York Harbor

Antitrust Modernization Commission • Deliberation Hearings (May 8, 23) • Criminal Remedies • Civil Remedies (Gov’t) • No change • Civil Remedies (Private) • Indirect Purchasers • Joint and Several Liability • Prejudgment Interest • Attorneys Fees • Treble Damages

Antitrust Modernization Commission • Federal Government Enforcement • State Enforcement • Robinson-Patman Repeal?

Private Litigation • UFCW v. Sanofi-Aventis & Bristol-Myers Squibb (Plavix) • Teva Pharmaceuticals v. Abbott Labs (TriCor)

Plavix Antitrust Case • Direct and Indirect purchasers of Plavix (blood thinner with $3 billion annual sales) sue innovator-producer of drug (Bristol-Myers Squibb) and potential generic competitor (Apotex). • Plaintiffs’ allege fraudulent procurement of patent (Walker Process fraud) by BMS and illegal settlement of patent dispute with Apotex.

Hatch-Waxman Framework • Generic firm may file Abbreviated New Drug Application (“ANDA”) with FDA to market its drug without full new-drug approval process. • Generic certifies that it will come to market after branded patent expiration (¶ 3) or that patent is invalid/not infringed (¶ 4). • On ¶ 4 certifications, branded company may sue for infringement. If it sues, generic cannot enter until… • 30-months from date innovator notified of ANDA, or • Final judicial determination of non-infringement/invalidity • Subsequent generics cannot enter until 180 days after marketing of first generic.

Plavix: Alleged Anticompetitive Conduct • Apotex is first to file ¶ 4 ANDA for generic Plavix. • BMS asserts one patent against Apotex. (Plaintiffs allege that BMS knew it was invalid and obtained by fraud on PTO). • After 3 years of patent litigation, parties settle. • “Reverse payment” from BMS to Apotex. • Apotex agrees not to enter until 2 months before patent expiration. • Apotex retains 180-day exclusivity  other generics blocked from market. • Apotex cannot enter even if FTC determines settlement is anticompetitive.

Plavix: Plaintiffs’ Theory of Harm • Absent the fraudulent procurement of the patent in question, Apotex and other generics could have come to market in 1998 (13 years before expiration). • Absent BMS-Apotex agreement, Apotex and other generics would have entered the market in 2006 (5 years before expiration).

Plavix: WWPD?What Would Posner Do? • “Only if a patent settlement is a device for circumventing antitrust law is it vulnerable to an antitrust suit. Suppose a seller obtains a patent that it knows is almost certainly invalid (that is, almost certain not to survive a judicial challenge), sues its competitors, and settles the suit by licensing them to use its patent in exchange for their agreeing not to sell the patented product for less than the price specified in the license. In such a case, the patent, the suit, and the settlement would be devices-masks-for fixing prices, in violation of antitrust law.” • Asahi Glass, 289 F. Supp. 2d at 991.

Plavix: WWPD?What Would Posner Do? “But the private thoughts of a patentee, or of the alleged infringer who settles with him, about whether the patent is valid or whether it has been infringed is not the issue in an antitrust case.” • Asahi Glass, 289 F. Supp. 2d at 992.

Plavix: Effects Outside Scope of Patent? • Recent cases hold that settlements are legal within scope of patent. • BMS allowed Apotex to keep 180-day exclusivity, prevented entry even if FTC disallows settlement. • Does this exceed the scope of BMS’s patent right? • Is this a sign of cases to come? Stay tuned.

Teva Pharmaceuticals v. Abbott Laboratories, 02-1512-KAJ (D. Del)(TriCor)

TriCor District court denies 12(b)(6) motion to dismiss claims that therapeutic switching constituted unlawful monopolization in market for fenofibrate (cholesterol drug)

TriCor: Timeline of Events • 1998 – Abbott receives FDA approval for TriCor capsule (cholesterol medication). • 1999 – Teva submits ANDA for TriCor capsules. Abbott sues. • Sept. 2001 – Abbott NDA for TriCor capsule approved. • March 2002 – Summary judgment for Teva on capsules (non-infringement) and Teva capsule-ANDA approved. • However, Teva had difficulty selling generic TriCor because it could not get generic substitutions from Abbott • June/Sept. 2002 – Teva and Impax submit ANDAs for tablet TriCor. Abbott sues. • Abbott submits NDA for new tablet formulation and receives FDA approval. • May 2005 – Summary judgment for Teva/Impax that they do not infringe Abbott patents. • Again, Teva/Impax are not substituted for TriCor and do not get significant sales. • 2005 – Teva, Impax and direct purchasers bring suit for several antitrust violations

TriCor: Plaintiffs’ claims • Section Two claims • Conspiracy (Abbott and its partner, Fournier) to monopolize fenofibrate market • Overall scheme to monopolize • Abuse of patents (fraudulent listing, sham litigation, fraudulent prosecution) • Section One claims • Conspiracy to restrain trade

TriCor: Abbott’s defenses • Changes in TriCor were improvements to product  per se legal under antitrust laws. • Overall “scheme to monopolize” claim must be dismissed if individual tactics do not violate the antitrust laws. • Plaintiffs did not allege that litigation to enforce patents was a sham.

TriCor: Microsoft standard adopted? • Court notes risks of false positives for monopolization claims based on innovation and rejects defendants’ proposed rule of per se immunity for innovations. • Court chooses “middle road” of Microsoft balancing test.

TriCor: Microsoft balancing test • “Once the plaintiff demonstrated [an] anticompetitive effect, the burden shifted to Microsoft to present a procompetitive justification for its conduct.” • “If such a justification were offered, the plaintiff could rebut it, or alternatively, establish antitrust liability by demonstrating that ‘the anticompetitive harm of the conduct outweighs the procompetitive benefit.’’ • “That balancing approach embodies the familiar ‘rule of reason’ test first articulated by the Supreme Court in Standard Oil Co. v. United States.” (Slip op. at 17-18).

TriCor: Dismissal Denied • Even if shift to tablets “improved” product, it could still harm competition by foreclosing competitors, and that harm must be weighed in the Microsoft analysis. (Slip Op. at 19). • Even if conduct did not completely foreclose Teva/Impax from the market, it could be illegal if it deprived them of the most efficient channel of distribution – generic substitution. (Slip Op. at 20) (citing United States v. Dentsply, 399 F.3d 181, 191 (3d Cir. 2005). • Court upholds “scheme to monopolize” or “monopoly broth” theory of liability on 12(b)(6). However, non-sham litigation cannot be stirred into the broth. (Slip Op. at 29-31). • Court finds sufficient allegations that litigation to enforce patents was sham.

TriCor: What does it mean? • Therapeutic switching and fraudulent listing/delisting by innovator firms are likely to be hot topics in antitrust. • Both generic firms and purchasers can sue. • $ 50 billion of innovator drugs going off patent in the next 4 years = promising future for antitrust litigators.

TriCor: Remaining Questions • Can plaintiffs produce sufficient evidence that exclusionary effect of innovations outweighed benefits? • Will this court and future courts adopt Microsoft standard?

The Benefits of Opting Out of Class Action

Opting Out of a Class Action • Companies often receive notice that they are part of a class action • Opting out of these class actions can offer higher recoveries with little additional risk • Many companies remain in the class and accept the settlement that results, and in doing so, they may be leaving millions of dollars on the table

Benefits of Opting Out • Controlling the litigation has other benefits: • Business interests • Relationships with defendants • Political interests • Opt-out plaintiffs in cases such as the Vitamins Antitrust Class Actions, the Methionine Antitrust Litigation, Lysine Litigation, and others recovered four and five times the class recovery

The Vitamins Success Story • In re Vitamins • International Cartel pled guilty in the U.S. • Class action settled for $1.05 billion before discovery plus $225 million class counsel fees • 75% of class opted out, reducing recovery by 75% (but not class counsel fees) • 3 years of litigation commenced with some confidential settlements along the way

Other Successes • Quaker Oats opted out of two class actions in the late 1990s and tripled the recovery it would have had as a class member • Tyson Food recovered five times what it would have received in the Vitamins class action

Choosing Your Battles • Companies should have a system to review class actions and determine whether to opt-out • Assign an individual to track class action notices and deadlines • Contact counsel quickly to learn the facts of the case • Try to determine if class counsel is interested in a quick settlement • Risk can be minimized by using contingency arrangements and other incentives with class counsel

Whether to Opt-Out • Issues to Consider • Will opt-out alienate a key client or supplier? Are there political reasons to not opt-out? • What are the costs in time and money of opting out? Will it disrupt the company? • How big is your stake in the litigation? • Can in-house counsel handle this, or should we employ outside counsel?

K. Craig Wildfang K. Craig Wildfang is a partner in the firm’s Minneapolis office. He has represented parties in many private civil antitrust actions in industries ranging from insurance to agricultural commodities and has counseled clients on a wide variety of antitrust and trade regulation issues from mergers and joint ventures to marketing and sales programs. From 1993 to 1996, Craig served as Special Counsel to the Assistant Attorney General for Antitrust, United States Department of Justice in Washington, D.C. In that position he was responsible for advising the Assistant Attorney General on the Justice Department’s complex civil antitrust litigation, as well as managing certain high-profile cases. He represented large agribusiness clients who were plaintiffs in In re Vitamins Antitrust Litigation, MDL 1285 (D.D.C.). The Vitamins litigation arose out of a decade-long price-fixing cartel of the major international vitamin manufacturers, and involved vigorously contested disputes regarding jurisdiction, foreign discovery, conspiracy, and expert issues. Clients included Land O’ Lakes, Inc., Hormel Foods Corporation, CHS Co-Operatives, Gold’n Plump Poultry, and other large vitamin purchasers. He is currently representing merchants in litigation challenging Visa and MasterCard interchange fees. Craig can be reached at 612.349.8500 or kcwildfang@rkmc.com

David A. Balto David A. Balto is a partner in the firm’s Washington, D.C. office. He has practiced antitrust law for over 20 years both in the Antitrust Division of the Department of Justice, the Federal Trade Commission and private practice. David’s counseling includes antitrust and consumer protection compliance, FDA regulation, strategic alliances, distribution issues, mergers and joint ventures. David represents a wide variety of health care, pharmaceutical, medical device and financial services entities and frequently represents parties in merger investigations before the FTC and DOJ. David has over 15 years experience in the Antitrust Division of the Department of Justice and the Federal Trade Commission (1998-2001). He was the Policy Director of the Bureau of Competition of the Federal Trade Commission and attorney advisor to Chairman Robert Pitofsky (1995-1997). In these positions he was a senior advisor in all aspects of the FTC's merger and non-merger enforcement program. David can be reached at 202.736.2637 or dbalto@rkmc.com

In House Counsel Antitrust Update