With the J.P. Morgan Healthcare Conference taking place in San Francisco this week, what better time for an update on the Orange Book? The US Federal Trade Commission (FTC), supported by the US Food and Drug Administration (FDA), recently issued a policy statement describing how the FTC intends to “scrutinize improper Orange Book listings” to identify potential violations of Section 5 of the FTC Act, which prohibits “unfair methods of competition.”
There were many unanswered questions when the policy statement was issued in September 2023—and at the time of our first blog post on this subject—including what types of listings the FTC would consider “improper” and what actions it would actually take to enforce this policy statement. Recent warning letters sent by the FTC to innovator companies, comments from a deputy director of the FTC’s Bureau of Competition, and responses to the agency’s warning letters have provided some insight into what the future could hold in terms of antitrust enforcement concerning allegedly “improper Orange Book listings,” but some lingering questions remain.
Warning Letters
On November 7, 2023, the FTC followed its September policy statement by challenging Orange Book listings of more than 100 patents held by manufacturers of asthma and other inhalers, epinephrine autoinjectors, and Restasis MultiDose bottles.
The FTC sent notice letters to these companies specifically identifying the challenged patent listings and informing them that the agency had submitted patent listing dispute communications to the FDA regarding the patent listings at issue. The agency noted that the list of challenged patents was not intended to be exhaustive and noted that the recipient “bears the burden of listing patents in the Orange Book accurately and in accordance with all relevant statutory and regulatory requirements.”
Importantly, in the letters, the FTC made clear that it was not challenging the listing of these patents as a violation of the FTC Act or the Sherman Act. Rather, the FTC was invoking the FDA’s regulatory process to challenge these Orange Book listings, which process is laid out in the FDA’s regulations at 21 CFR 314.53. The FTC warned the companies, however, that it retains “the right to take any further action the public interest may require, which may include investigating this conduct as an unfair method of competition under Section 5 of the FTC Act.”
Under the FDA’s process, the recipients had 30 days to either withdraw the allegedly wrongful listings, amend the listings, or certify under penalty of perjury that the listings comply with applicable statutory and regulatory requirements.
Comments from FTC Deputy Director
In an interview immediately after the publication of the warning letters, Bureau of Competition Deputy Director Rahul Rao explained that the FTC targeted drug-device patents listed in the Orange Book that do not include an active drug. According to Deputy Director Rao, the Orange Book “is only supposed to list patents covering active drug ingredients.” He explained that the FTC’s initial focus was on asthma and COPD inhalers because the prices for those devices remained high despite being on the market for an extended period of time.
Deputy Director Rao stated in this same interview that his hope is that companies will simply delist patents and then enforcement will not be necessary, but that the FTC will continue to “monitor how the companies respond” and “take further enforcement action” if necessary.
Despite the FTC’s seeming certainty in this space, we note that statements from the FDA acknowledge that questions remain regarding the scope of patents that should be listed in the Orange Book. A 2020 notice in the Federal Register requested that stakeholders comment on the issue and, as recently as October 2023, the FDA has stated that an internal working group continues to consider feedback to the Federal Register notice and whether additional guidance or policy could be needed or helpful.
Further Insights
Although prefaced by the standard disclaimer that his comments reflect his own views and not those of the FTC, Deputy Director Rao offered these additional insights into the future of antitrust enforcement as a result of allegedly improper Orange Book patent listings.
Improperly Listed Patents
When the FTC believes that a patent is improperly listed, it will use whatever tool it deems most appropriate to address the conduct based on the facts of the case. Deputy Director Rao emphasized that the FTC may even take action on an improper listing if the listing did not result in a 30-month stay. Deputy Director Rao repeatedly referred to the “chilling effect” of an improper listing, in which the listing alone “distorts the incentives” of generic competitors. As an example, he described a hypothetical circumstance in which the mere “prospect” of a 30-month stay would deter generic competitors from developing a competing product at all.
In these situations, Deputy Director Rao suggested the FTC would strongly consider pursuing a standalone Section 5 claim. Consistent with the FTC’s policy statement last year pronouncing its broad enforcement authority under Section 5, Deputy Director Rao reiterated that the agency need not show “actual anticompetitive effects” to establish liability and that it has a variety of options it can pursue in terms of relief.
Intent
The innovator’s intent behind the improper listing will inform the FTC’s decision on whether to pursue a Section 5 action against the company, as well as what form of relief to seek. Deputy Director Rao suggested that the FTC will be more likely to take action against a company if there are “hot doc[ument]s showing intentional misuse of the Orange Book.”
Notably, Deputy Director Rao said that in a case where the listing falls into a “gray area”—i.e., there is ambiguity as to whether the patent should have been listed—the FTC will consider whether there is evidence that the company opted to list the patent because doing so would potentially delay generic competition. He described this as evidence of a “thumb on the scale to list because of an intent to delay generic entry.” This type of evidence, according to Deputy Director Rao, will “change the calculus on how the FTC wants to approach the case,” making it more likely that the FTC will sue.
Types of Patents
Although the FTC’s recent warning letters focused exclusively on the listing of drug-device patents, the agency is in no way limiting its focus to these types of patents. Instead, according to Deputy Director Rao, the FTC will pursue challenges to other types of patents that it views as having been improperly listed.
History of Improper Listing
“[T]he FTC may also scrutinize a firm’s history of improperly listing patents during merger review,” said Deputy Director Rao, reiterating a principle set out in the agency’s policy statement. He cited two ways in which this could occur but emphasized that these are nonexhaustive. First, when the FTC reviews pharmaceutical mergers involving companies with large patent portfolios, it may analyze the companies’ histories of Orange Book listings to inform its view of whether the post-merger company is likely to engage in “strategic behavior” to delay competition. Second, as part of its review of pharmaceutical mergers, the FTC may examine a company’s Orange Book listings to determine if any of them are improper and then possibly take action on these listings.
Self-Correction
In his remarks during the ABA webinar, Deputy Director Rao reiterated that it was the hope and expectation of the FTC that its policy statement would provide innovator firms with an “opportunity for patent portfolio spring cleaning” so that they can “self-correct” any improperly listed patents.
Responses to Warning Letters
In late December, in response to the FTC’s warning letters, some companies asked the FDA to have some of the patents identified in the letters delisted. In connection with its decision to withdraw the challenged listings, a spokesperson observed that “[p]ublic policy positions and case law have shifted in recent years regarding the proper application of the Orange Book listing criteria for patents covering drug/device combinations,” which contributed to the company’s decision.
The company later added: “We believe that the decision to list each of the patents in the Orange Book was proper and consistent with a reasonable interpretation of the applicable statutes, regulations, and FDA guidance at the time that decision was made.” The agency lauded these companies’ decisions to withdraw patent listings from the Orange Book as “a big win for the FTC on patent abuse.”
Another company took a different approach, maintaining that the patents identified in the FTC’s warning letters pertaining to its COPD products are properly listed in the Orange Book. A spokesperson said: “While FDA could provide additional clarity in the existing criteria for these listings, current regulations require the holder of an approved new drug application to submit patent information, not only for the active ingredient but also for the drug product—which includes the device that delivers the drug to the patient . . . .” On that basis, the company declined to withdraw from the Orange Book the patents identified in the FTC’s letter.
The other companies that received warning letters apparently have taken no action. The FTC has said that it is “discussing next steps for [those] companies that ignored [its] warning letters.” According to the agency, “[t]he delays in generics coming to the market that can be caused by these illegal listings raise prices on millions of Americans who rely on these medicines.”
Questions Remain
At this point, it remains to be seen whether the FTC will invoke its Section 5 authority against the firms that declined to withdraw the challenged patent listings, which may provide insight to other industry participants as to the reasons the agency perceives those listings to be improper.
It is likewise unclear whether private litigants will attempt to characterize the withdrawn listings as admissions that they were improper and violated the antitrust laws. In the meantime, questions remain as to whether the FDA or other agencies will provide needed clarity on the contours of proper Orange Book listings. Only time will tell. Stay tuned to this blog for further updates.
As Prescribed will be bringing you one more post this week from San Francisco highlighting the major 2023 trends in transactions and transaction types—including the ups and downs—from the US life sciences industry.