F.T.C. v. Mylan Laboratories, Inc.
| Decision Date | 07 July 1999 |
| Docket Number | No. 98-3114 (TFH).,No. 98-3115(TFH).,98-3114 (TFH).,98-3115(TFH). |
| Citation | 62 F.Supp.2d 25 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. MYLAN LABORATORIES, INC., Cambrex Corp., Profarmaco S.R.L., and Gyma Laboratories of America, Inc., Defendants. The State of Connecticut, et al., Plaintiffs, v. Mylan Laboratories, Inc., Cambrex Corp., Profarmaco S.R.L., Gyma Laboratories of America, Inc., and SST Corp., Defendants. |
| Court | U.S. District Court — District of Columbia |
Richard A. Feinstein, Bureau of Competition, Federal Trade Competition, Washington, DC, for Plaintiffs.
Steven A. Newborn, Rogers & Wells, Washington, DC, for Mylan Laboratories, Inc.
Bertram W. Rein, Wiley, Rein & Fielding, Washington, DC, for U.S. Chamber of Commerce.
Ann M. Ashton, Jonathan M. Tuttle, Debevoise & Plimpton, Washington, DC, for Cambrex.
Peter Dean Isakoff, Weil, Gotshal & Manges, Washington, DC, for Gyma Laboratories.
The above-captioned cases are actions by the Federal Trade Commission (FTC) and thirty-two States against Mylan Laboratories and other drug companies for various federal and state law antitrust violations. Pending before the Court are defendants' motions to dismiss the complaints in both cases. There are three motions to dismiss pending in FTC v. Mylan and three pending in State of Connecticut v. Mylan. Defendants argue both that plaintiffs have not stated a claim upon which relief can be granted, and that this Court lacks subject matter jurisdiction over certain aspects of the complaints. For the reasons set forth below, defendants' motions will be granted in part and denied in part.
The first action is brought by the Federal Trade Commission ("FTC") under § 13(a) of the Federal Trade Commission Act, 15 U.S.C. § 53(a) ("FTC Act"), to secure a permanent injunction and other relief against the defendants. Defendants are Mylan Laboratories, Inc., Cambrex Corporation, Profarmaco S.R.L. and Gyma Laboratories of America, Inc. The FTC alleges that the defendants engaged and are engaging in unfair methods of competition in or affecting commerce in violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a). The Complaint contains eight counts of unfair competition.1 The relief sought by the FTC is for the Court to (1) find that the defendants have violated § 5(a) of the FTC Act; (2) permanently enjoin the defendants from engaging in such conduct; (3) rescind the defendants' unlawful licensing arrangements; and (4) order other equitable relief, including the disgorgement of $120 million plus interest.
The second case, State of Connecticut v. Mylan Labs, is an action brought by thirty-two states against defendants for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, as well as various state antitrust laws. Plaintiffs bring the action as parens patriae on behalf of natural persons; on behalf of their state's general economies in their sovereign capacities; and as injured purchasers or as reimbursers under state Medicaid and other programs. The defendants are the same as in FTC v. Mylan Labs, except that the State complaint names an additional defendant, SST Corporation. The substantive allegations contained in the State complaint are identical to those in the FTC complaint, except that the State complaint contains an additional ninth count alleging that Mylan and SST entered into an illegal price-fixing agreement. As relief, the States are requesting that the Court (1) find that the defendants have violated §§ 1 and 2 of the Sherman Act; (2) permanently enjoin the defendants from engaging in such conduct; (3) rescind the defendants' unlawful licensing arrangements; and (4) award treble damages; (5) award appropriate relief under the state statutes; and (6) order other equitable relief under federal law, including disgorgement and restitution.
The defendants have filed motions to dismiss in both cases.2 The six motions are:
1. Defendants' motion to dismiss the FTC's amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6);
2. Defendants' motion to dismiss the FTC's amended complaint in part pursuant to Fed.R.Civ.P. 12(b)(6);
3. Gyma Corporation's motion to dismiss the FTC's amended complaint pursuant to Fed.R.Civ.P. 12(b)(6);
4. Defendants' motion to dismiss the States' amended complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6);
5. Defendants' motion to dismiss the States' amended complaint pursuant to Fed.R.Civ.P. 12(b)(6);
6. Gyma Corporation's motion to dismiss the FTC's amended complaint pursuant to Fed.R.Civ.P. 12(b)(6).
After briefly reviewing the factual background of these cases, the Court will address each of defendants' motions.
For purposes of the instant motions to dismiss, the allegations of the complaints are taken as true. The facts below are presented accordingly, and do not constitute factual findings.
These cases concern the generic drug industry. Generic drugs, which are chemically identical versions of branded drugs, cannot be marketed until after the patent on the branded drugs has expired. Firms that manufacture and market generic drugs often specialize in such drugs, although Mylan manufactures both generic and branded drugs. Generic drugs are sold at substantial discounts from the price of branded drugs.
Mylan and other generic drug manufacturers require the approval of the Food and Drug Administration (FDA) to market a generic product in the United States. For each generic drug, the manufacturer must file an Abbreviated New Drug Application (ANDA) with the FDA to establish that its version of the drug is therapeutically equivalent to the branded drug. FDA approval of an ANDA takes an average of about 18 months..
Typically, the generic manufacturer purchases the Active Pharmaceutical Ingredient (API) from a specialty chemical manufacturer (API Supplier). The generic manufacturer combines the API with inactive filters, binders, colorings and other chemicals to produce a finished product. To sell an API in the United States, the API supplier must file a Drug Master File (DMF) with the FDA. The DMF explains the processes that the API supplier uses to make the API and to test chemical equivalence and bioequivalence to the brand product. To use an API, the generic manufacturer's ANDA must refer to the API supplier's DMF filed with the FDA. More than one drug manufacturer can reference the DMF of the same API supplier. A generic manufacturer that wants or needs to change its API supplier must obtain FDA approval of an ANDA supplement which includes a reference to the new supplier's DMF and test results regarding the generic manufacturer's product using the new API. This process averages about 18 months, though it can take as long as three years.
Lorazepam and clorazepate are two of the approximately 91 generic drugs that Mylan currently manufactures and sells in tablet form. Lorazepam is used to treat anxiety, tension, agitation, insomnia, and as a preoperative sedative. Doctors issue over 18 million prescriptions a year for lorazepam tablets. Because lorazepam is used to treat chronic conditions and is heavily prescribed for nursing home and hospice patients, lorazepam users tend to stay on the drug for long periods of time. Clorazepate is used to treat anxiety and in adjunct therapy for nicotine and opiate withdrawal. Doctors issue over three million prescriptions a year for clorazepate tablets.
Profarmaco (which is a wholly owned subsidiary of Cambrex) manufactures APIs in Italy. Profarmaco holds DMFs for lorazepam API and clorazepate API, and has supplied such APIs to drug manufacturers in the United States. Foreign firms, like Profarmaco, that supply APIs to the United States typically have distributors in the United States who purchase APIs and resell them to generic drug manufacturers in the United States. Mylan purchases its lorazepam and clorazepate API from Gyma, Profarmaco's U.S. distributor of these products. Several other drug manufacturers have purchased API from SST Corporation, another U.S. distributor of this product.
The plaintiffs in these two cases allege the following anti-competitive conduct on the part of the defendants. Mylan sought from its API suppliers long-term exclusive licenses for the DMFs of certain APIs selected because of limited competition. If Mylan obtained such an exclusive license, no other generic drug manufacturer could use that supplier's API to make the drug in the U.S. Mylan sought exclusive licenses for the DMFs for lorazepam API and clorazapate API as well as one other drug not the subject of these lawsuits.
Mylan entered into contracts with Profarmaco and Gyma such that these companies would license exclusively to Mylan for 10 years. The exclusive licenses would provide Mylan with complete control over Profarmaco's entire supply of lorazepam API and clorazapate API entering the U.S. With complete control of Profarmaco's supply of these products and by refusing to sell to any of its competitors, Mylan would deny its competition access to the most important ingredient for producing lorazepam and clorazapate tablets.
In return for the 10-year exclusive licenses, Mylan offered to pay Cambrex, Profarmaco and Gyma a percentage of gross profits on sales of lorazepam and clorazapate tablets, regardless of who Mylan purchased the API from. Mylan also tried to execute an exclusive licensing arrangement with SST for control of its lorazepam supply. This is significant because Mylan was not authorized by the FDA to sell lorazepam manufactured with SST API (i.e. Mylan's ANDA did not reference SST's DMF). Thus, the States allege that Mylan was entering into a deal for exclusive rights even though it would not have been able to use SST API until after an ANDA...
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