Orange Is the New Black: FTC Targets Improper Patent Listings As Anticompetitive

Nearly a year after announcing the expansion of its Section 5 “standalone authority” (https://www.mintz.com/insights-center/viewpoints/2022-11-14-dose-steroids-chair-khans-ftc-releases-expansive-policy), which encompasses conduct outside the scope of the foundational federal antitrust laws, the FTC voted unanimously to issue a policy statement explaining how its authority applies to the listing of brand-name drug patents in the Food and Drug Administration’s (FDA) Orange Book.

On September 14, with support from the FDA, the FTC issued a policy statement warning brand-name drug manufacturers that improper listing of patents in the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book, could result in legal action by the agency.[1]

2023 Policy Statement

After reciting the history and purpose of the Hatch-Waxman Act,[2] a 1984 law intended to encourage generic drug competition, the policy statement goes on to describe how improper listing of patents may harm competitive conditions in the pharmaceutical industry.[3] Specifically, as part of a new drug application (NDA), brand drug companies must provide the FDA with statutorily defined information for any patent that:

1. claims the drug for which the applicant submitted the application and is a drug substance (active ingredient) patent or a drug product (formulation or composition) patent; or
2. claims a method of using such drug for which approval is sought or has been granted in the application.[4]

This information then serves as a reference in the Orange Book for companies wishing to market follow-on drug products to the brand drug listed in the Orange Book. Follow-on applicants, which can be generic developers or developers of so-called 505(b)(2) products that make changes to the original rather than a copy, must follow a certification process that either questions the validity of each patent or otherwise asserts non-infringement of each patent, generally resulting in a 30-month stay of generic approval either way.[5]

In an open meeting discussing the policy statement, Chair Lina Khan asserted “a pharmaceutical company can weaponize the Orange Book to protect monopoly rights to a medical product even if those monopoly rights are invalid,” thereby delaying or blocking innovative or generic drugs from entering the market and keeping prices “sky-high”.[6]

The policy statement suggests that improper Orange Book listing may have distorted the pharmaceutical market for decades, relying on Supreme Court dicta in Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S[7] suggesting that brand drug companies were purposefully exploiting the listing process to prevent generic competition. The FTC also relied on its own 2002 study, where the Commission identified instances where the 30-month stay was used to block competition.[8]

Finally, the statement reiterates the FTC’s power, under Section 5, to take action against improper listings in the Orange Book that do not meet the statutory requirements. The FTC considers these improper listings both an unfair method of competition and possible illegal monopolization.[9]

Key Takeaways

Considering the FTC’s recent focus on enforcement against the pharmaceutical industry, the policy statement is not surprising, but of critical importance.[10] Notably, in her statement, Chair Khan relies on Jazz Pharms., Inc. v. Avadel CNS Pharms., LLC,[11] where the Court of Appeals for the Federal Circuit upheld the district court's determination that a patent was improperly listed because it was a systems patent directed to Risk Evaluation and Mitigation Strategies (REMS) for the FDA-approved drug and not a method-of-use patent.[12] This ruling was narrow and said nothing about improperly listing patents as discussed by the policy statement. It also articulated the remedy for challenging whether a patent is improperly listed.[13]

The FTC is asserting its standalone Section 5 authority to challenge practices which may be potentially anticompetitive but not otherwise actionable under the Sherman Act. This assertion remains controversial and it is unclear that the FTC will convince courts to expand its authority in a way that goes well beyond what is actionable under the Sherman Act.

If you have any questions about the conduct listed in the policy statement or any other antitrust concerns, please contact one of the individuals listed above or your Mintz attorney.

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