Fed. Trade Comm'n v. Endo Pharm.

• Docket Number: 22-5137
• Decision Date: 25 August 2023
• Parties: Federal Trade Commission, Appellant v. Endo Pharmaceuticals Inc., et al. Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

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Federal Trade Commission, Appellant
v.
Endo Pharmaceuticals Inc., et al. Appellees

No. 22-5137

United States Court of Appeals, District of Columbia Circuit

August 25, 2023

Argued May 1, 2023

Appeal from the United States District Court for the District of Columbia (No. 1:21-cv-00217)

Mark S. Hegedus, Attorney, Federal Trade Commission, argued the cause for appellant. With him on the briefs were Anisha S. Dasgupta, General Counsel, and Joel Marcus, Deputy General Counsel.

George G. Gordon argued the cause for appellees Endo Pharmaceuticals Inc., et al. With him on the brief were Michael H. McGinley, Julia Chapman, and John P. McClam.

Jay P. Lefkowitz argued the cause for appellees Impax Laboratories, LLC, et al. With him on the brief were Devora W. Allon, Kevin Neylan, and James R.P. Hileman. Evelyn Blacklock entered an appearance.

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Before: SRINIVASAN, Chief Judge, MILLETT and CHILDS, Circuit Judges.

OPINION

CHILDS, CIRCUIT JUDGE

The Federal Trade Commission Act, 15 U.S.C. §§ 41-58 (FTC Act), authorizes the Federal Trade Commission (the Commission) to investigate and prevent "unfair methods of competition" that affect commerce, see id. § 45(a)(2). In this matter, the Commission appeals the district court's dismissal of claims against pharmaceutical manufacturers for violations of §§ 1 and 2 of the Sherman Act. Id. §§ 1, 2. The district court dismissed the action against Appellees Endo Pharmaceuticals Inc. (Endo), its parent, Endo International plc (Endo International), Impax Laboratories, LLC (Impax), and its parent, Amneal Pharmaceuticals, Inc. (Amneal) (collectively Appellees) for failure to state a claim because a single patentee granting an exclusive license is conduct protected and allowed under the Patent Act. 35 U.S.C. § 261; see FTC v. Endo Pharms. Inc., 596 F.Supp.3d 115, 125-30 (D.D.C. 2022). For the reasons that follow, we affirm the district court's dismissal of the Commission's claims.

I.

Congress has the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." U.S. Const. art. I, § 8, cl. 8. Pursuant to that authority, Congress enacted the Patent Act that, inter alia, grants patentees a twenty-year "right to exclude others from making, using, offering for sale, or selling the[ir] invention," 35 U.S.C. § 154(a)(1), and the ability to "grant and

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convey an exclusive right under [their] application for patent, or patents, to the whole or any specified part of the United States," id. § 261.

Nearly a century later, Congress enacted the Sherman Act. Section 1 declares as illegal "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1. Section 1 is interpreted to outlaw "unreasonable restraints" on trade. Ohio v. Am. Express Co., 138 S.Ct. 2274, 2283 (2018) (quoting State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)) (formatting modified). To plead a claim under § 1, a plaintiff must allege: (1) the existence of an agreement; and (2) that the agreement unreasonably restrains trade. See Am. Needle, Inc. v. NFL, 560 U.S. 183, 190 (2010) (citations omitted).

Section 2 of the Sherman Act declares it a felony for a person to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 2. To plead a claim under § 2, a plaintiff must allege: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

II.

Because this case arises on a motion to dismiss, the following background is derived from the Commission's complaint and the documents it incorporates by reference. See Lewis v. Mutond, 918 F.3d 142, 144 (D.C. Cir. 2019) (citing Scandinavian Satellite Sys., AS v. Prime TV Ltd., 291 F.3d 839, 844 (D.C. Cir. 2002));

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EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997).

Endo develops, manufactures, markets, and distributes prescription pharmaceutical products. It holds several patents covering a long-acting or extended-release (ER) version of the semi-synthetic opioid oxymorphone sold under the brand name Opana ER. Oxymorphone provides "relief of moderate to severe pain in patients requiring continuous, around-the-clock opioid treatment for an extended period of time." Compl. ¶ 18 (J.A. 19).

In 2006, Endo began selling Opana ER and continued to sell the drug until 2017 with success. In its inaugural year, Opana ER generated revenues of less than $7 million. That increased to $384 million in 2011, and $159 million in 2016.

In 2007, Impax decided to market its own generic version of Opana ER and sought approval from the Federal Drug Administration (FDA). In its Abbreviated New Drug Application to the FDA, Impax certified that its generic drug would not infringe on Endo's Opana ER patents and that Endo's patents were invalid. See Teva Pharms. USA, Inc. v. Sebelius, 595 F.3d 1303, 1305 (D.C. Cir. 2010) ("After a new drug hits the market, [prospective generic competitors] can effectively challenge the brand maker . . . by filing a certification that a proposed generic version of the brand drug would not run afoul of one (or more) of the . . . blocking patents, either because the patent is invalid or because the generic maker has found a way to design around it." (citation omitted)). Endo responded to Impax's FDA certification by filing a patent infringement action in January 2008.

After two and a half years of litigation, Endo and Impax settled their patent infringement action (the 2010 Agreement).

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That agreement did three things of note. First, Impax agreed that it would not sell its generic Opana ER until a "Commencement Date" in January 2013. 2010 Agreement § 3.2 (J.A. 49). Second, the Agreement conveyed a license from Endo to Impax to cover all of Endo's patents involved in manufacturing, selling, and marketing of generic Opana ER, including patents acquired after the agreement became effective. Id. § 4.1(a) (J.A. 51). Finally, after the expiration of an "Exclusivity Period," the 2010 Agreement contemplated that Impax and Endo would "negotiate in good faith an amendment to the terms of the License to any patents which issue from any Pending Applications." Id. § 4.1(d) (J.A. 53).

Starting in 2012, purportedly to prevent abuse of Opana ER, Endo launched a replacement "crush resistant" Reformulated Opana ER, which would not be covered by its agreement with Impax and stopped selling Opana ER. Also, beginning in 2012, "Endo developed or acquired the rights to several additional patents related to Opana ER," Compl. ¶ 44 (J.A. 24), and began asserting its patent rights against other generic oxymorphone sellers, id. ¶ 49 (J.A. 24).

In 2013, in accordance with the 2010 Agreement, Impax started selling its generic ER version of oxymorphone. Impax's generic oxymorphone helped create a competitive environment that lowered the price of ER oxymorphone. After successfully obtaining injunctions in patent infringement cases it litigated, Endo was left with only Impax as a competitor legally capable of selling generic oxymorphone ER.

In October 2015, Endo asked Impax to pay an eighty-five percent royalty on the license for additional Opana ER patents. When Impax refused this request, Endo sued Impax for breach of the 2010 Agreement. While litigation with Impax was ongoing, Endo faced FDA scrutiny because of new information

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that linked Reformulated Opana ER to intravenous drug abuse and Endo decided to remove the drug from the market. A few months later, after unsuccessfully attempting to get the contract action dismissed, Impax reached a settlement with Endo (the 2017 Agreement) which "clarifie[d]" Impax's license to all of Endo's Opana ER patents in exchange for a monetary payment in addition to a percentage of royalties relating to Impax's gross oxymorphone ER profits. Compl. ¶ 92 (J.A. 33). Impax and Endo also agreed that Impax's obligation to pay royalties would terminate if Endo took various actions, such as using its own patents to enter the oxymorphone ER market. Considering those terms, the district court found that Impax had functionally "paid Endo for the exclusive right to use the patent licenses for oxymorphone ER," and that even if the terms of the agreement left room for an "option to compete," the Commission had "plausibly alleged an exclusive licensing agreement and a patent monopoly." Endo Pharms. Inc., 596 F.Supp.3d at 123-24 (capitalization altered).

With the 2017 Agreement, Endo tabled a possible relaunch of Opana ER and closed the door on any potential plans to license its oxymorphone ER patents to any other companies. After Endo's market exit, there was an increase in the average price of a 40 mg tablet of oxymorphone ER. Compl. ¶ 106 (J.A. 35). In light of these results, the Commission determined that the 2017 Agreement was anticompetitive and harmful to consumers and filed a complaint for injunctive and other equitable relief against Appellees. The Commission alleged that (1) Appellees' 2017 Agreement violated § 1 of the Sherman Act and it constituted an unfair method of competition in violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a); and that (2) Amneal exercised monopoly power in violation of § 2 of the Sherman Act and § 5(a) of the FTC Act. Appellees moved to dismiss the Commission's complaint for failure to state a claim. Endo International also moved to

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dismiss for lack of personal jurisdiction. The district court dismissed the action, without...