Introduction

A French drug manufacturer sued a US drug distributor, alleging that the terms of a settlement agreement arising from a pharmaceutical drug patent dispute were anticompetitive and prevented the French manufacturer from competing in the US market. Following up from our previous article on the district court’s opinion in this case¹, in Ethypharm S.A. France v. Abbott Laboratories², the Third Circuit vacated the district court’s grant of summary judgment to the defendant and remanded the case to the district court to dismiss for lack of antitrust standing. The Third Circuit held that the French corporation had not suffered an antitrust injury, since it could not legally compete in the US market and instead used a US distributor to obtain FDA approval and to market and distribute the drug. Therefore, pursuant to Associated General Contractors³, the French manufacturer lacked antitrust standing to sue.

Background

Ethypharm S.A. France (Ethypharm), a private French corporation, developed a fenofibrate drug in 2001 and began manufacturing it under the brand name Antara.⁴ Since entry into the US pharmaceutical market requires “substantial time and resources,” Ethypharm entered into a license and distribution agreement with an American company, Reliant Pharmaceuticals, Inc. (Reliant), to sell Antara in the US⁵ Under the terms of the agreement, Ethypharm granted Reliant an exclusive license to market and sell Antara in the US, and Reliant was responsible for obtaining FDA regulatory approval of the drug.⁶

Reliant chose to seek FDA approval under §505(b)(2) of the Food, Drug, and Cosmetics Act.⁷ Under §505(b)(2), a manufacturer may rely on “the full reports of investigations” of the original drug when filing its NDA in order to establish the new drug’s safety and efficacy, even though those investigations were not conducted by or for the applicant.⁸ Accordingly, Reliant filed a New Drug Application (NDA) claiming that Antara was neither an entirely new drug nor simply a generic version of a branded drug. The NDA applicant must also certify to the FDA whether its drug will infringe any patents listed in the FDA “Orange Book”.⁹ Reliant, however, began marketing Antara immediately after receiving FDA approval, and did not make the required certification that Antara did not infringe any patents in the Orange Book.¹⁰ Consequently, to minimize the risk of a patent infringement suit, Reliant filed a declaratory judgment action in June 2004 seeking declaration of noninfringement with respect to four of Abbott’s fenofibrate patents in the US District Court for the District of Delaware.¹¹ Abbott counterclaimed for infringement, but the parties settled their dispute in April 2006 and entered into a Settlement Term Sheet (STS).¹²

The STS granted Reliant a non-exclusive license for Abbott’s fenofibrate patents in exchange for Reliant agreeing to make quarterly royalty payments to Abbott and Fournier in the total amount of 7% of net sales.¹³ The STS also contained a provision providing that if Reliant either acquired or sold the Antara business, the new owner’s license fee would increase to 10% of net sales.¹⁴ Further, certain companies listed as “Restricted Entities” were excluded from acquiring Abbott’s patent licenses from Reliant.¹⁵ In July 2006, Reliant sold the exclusive rights to market and sell Antara to Oscient Pharmaceutical Company, which was not considered a “Restricted Entity” under the STS.¹⁶ Oscient’s sales of Antara slowed, and in the summer of 2009 it discontinued its marketing of Antara.

Ethypharm filed suit against Abbott in March 2008, asserting claims under Sections 1 and 2 of the Sherman Act as well as state law claims including unfair competition, tortious interference with contract, tortious interference with prospective economic advantage, and common law restraint of trade.¹⁷ Ethypharm alleged that Antara’s failure to successfully compete with Abbott’s TriCor was the direct result of the allegedly anticompetitive terms of the STS.¹⁸ Abbott moved to dismiss the complaint for lack of antitrust standing, but the district court denied the motion.¹⁹ The district court later granted summary judgment to Abbott on Ethypharm’s federal and state claims, holding that “there was insufficient evidence that Abbott’s allegedly anticompetitive conduct caused Antara’s failure in the market and, therefore, Ethypharm’s antitrust claim was untenable.”²⁰ Ethypharm then appealed the court’s summary judgment grant as to the Sherman Act claims to the Third Circuit.²¹

Antitrust Standing

On appeal, Abbott again raised its antitrust standing argument, and the Third Circuit held that the district court erred when it denied Abbott’s motion to dismiss on that ground.²² The Third Circuit relied on the Supreme Court’s opinion in Associated General Contractors, which lists several factors to consider when deciding whether a plaintiff has standing to sue under the antitrust laws.²³ The Third Circuit described the Associated General Contractors test as involving the following factors:

(1) the causal connection between the antitrust violation and the harm to plaintiff and the intent by the defendant to cause that harm, with neither factor alone conferring standing; (2) whether the plaintiff’s alleged injury is of the type for which the antitrust laws were intended to provide redress; (3) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (4) the existence of more direct victims of the alleged antitrust violations; and (5) the potential for duplicative recovery or complex apportionment of damages.²⁴

The Third Circuit only addressed the second factor, antitrust injury, and noted that antitrust injury “is limited to consumers and competitors in the restrained market and to those whose injuries are the means by which the defendants seek to achieve their anticompetitive ends”²⁵ and “for Ethypharm to have standing it must be either a competitor in the defined relevant market or it must have suffered injuries as ‘are the means by which the defendant seek[s] to achieve [its] anticompetitive ends.’”²⁶

Ethypharm claimed that its decision to use a US distributor to market and distribute Antara in the US was irrelevant to antitrust standing, arguing that its “offering of the manufactured product is reasonably interchangeable with Abbott’s offering of Tricor.”²⁷ The court disagreed and relied on Abbott’s argument that the case was controlled by an earlier Third Circuit decision, Barton & Pittinos.²⁸ In Barton & Pittinos, the Third Circuit held that a drug marketing company lacked antitrust standing to sue a drug manufacturer, because the plaintiff was an advertiser and not a competitor in the relevant drug market.²⁹ Similarly, the Third Circuit held that Ethypharm was not a competitor with Abbott in the highly regulated US pharmaceutical market, because customers in the US could not purchase the drug at issue from Ethypharm.³⁰ Further “there is no cross-elasticity of demand between what Ethypharm can lawfully offer, i.e., bulk drug sales from outside the United States to an FDA-approved entity, and what Abbott offers, a finished pharmaceutical product within the United States.”³¹

The Third Circuit noted that the manufacturer-distributor relationship between Ethypharm and Reliant did not affect its analysis; rather, “it is the fact that Ethypharm cannot sell Antara in the United States because of legal barriers particular to the pharmaceutical market.”³² Ethypharm “is literally not a lawful competitor” of Abbott’s in the US fenofibrate market, “so it cannot be considered a competitor for purposes of antitrust injury.”³³ The Third Circuit found it compelling that Ethypharm chose not to seek FDA approval of Antara on its own, and Reliant “took the risk and bore the expense of filing the NDA and gaining FDA approval.”³⁴ Since Ethypharm itself lacked FDA regulatory approval to market and distribute Antara, “Abbott could raise the price of TriCor and consumers could not turn to Ethypharm for Antara.”³⁵

Ethypharm also argued that notwithstanding whether it could compete with Abbott in the US market, it suffered antitrust injury because its injury was “inextricably intertwined” with Abbott’s conduct such that its “injuries are the means by which the defendants seek to achieve their anticompetitive ends.”³⁶ The Third Circuit rejected this argument and declined to extend the “inextricably intertwined” exception to a case in which the plaintiff and defendant were not competitors in the same relevant market.³⁷

The Third Circuit vacated the district court’s grant of summary judgment as to Ethypharm’s federal claims and remanded the case to the district court to dismiss the federal claims for lack of standing.

Implications for Antitrust Plaintiffs

In its opinion, the Third Circuit was careful to “stress” that “it is not the general arrangement of manufacturer and distributor that is problematic; it is the fact that Ethypharm cannot sell Antara in the United States because of legal barriers particular to the pharmaceutical market, barriers that Ethypharm chose not to surmount.”³⁸ While the case may be limited to its unique pharmaceutical facts, there are other circumstances where the analysis requiring a “lawful competitor” may apply, including antitrust counterclaims by an accused patent or trade secret infringer, and the scope of Ethypharm may be broader than anticipated.