National Ass'n of Pharmaceutical Mfrs., Inc. v. Ayerst Laboratories, Div. of/and American Home Products Corp., 442

• Decision Date: 22 June 1988
• Docket Number: D,No. 442,442
• Parties: , 57 USLW 2068, 1988-1 Trade Cases 68,113, 11 Fed.R.Serv.3d 547, 7 U.S.P.Q.2d 1530 The NATIONAL ASSOCIATION OF PHARMACEUTICAL MANUFACTURERS, INC., and Zenith Laboratories, Inc., Plaintiffs-Appellants, v. AYERST LABORATORIES, DIVISION OF/AND AMERICAN HOME PRODUCTS CORPORATION, Pharmacists Planning Service, Inc. and Frederick S. Mayer, Defendants, Ayerst Laboratories, Division of/and American Home Products Corporation, Defendant-Appellee. ocket 87-7710.
• Court: U.S. Court of Appeals — Second Circuit

Page 904

850 F.2d 904

57 USLW 2055, 57 USLW 2068, 1988-1 Trade

Cases 68,113,

11 Fed.R.Serv.3d 547, 7 U.S.P.Q.2d 1530

The NATIONAL ASSOCIATION OF PHARMACEUTICAL MANUFACTURERS, INC., and Zenith Laboratories, Inc., Plaintiffs-Appellants, v. AYERST LABORATORIES, DIVISION OF/AND AMERICAN HOME PRODUCTS

CORPORATION, Pharmacists Planning Service, Inc.

and Frederick S. Mayer, Defendants,

Ayerst Laboratories, Division of/and American Home Products

Corporation, Defendant-Appellee.

No. 442, Docket 87-7710.

United States Court of Appeals,

Second Circuit.

Argued Nov. 30, 1987.

Decided June 22, 1988.

Milton A. Bass, New York City (I. Scott Bass, Leslie B. Levine, Bass & Ullman, New York City, of counsel), for plaintiffs-appellants.

Mark J. Spooner, Washington, D.C. (Stuart J. Land, Louis M. Bograd, Rebecca E. Swenson, Arnold & Porter, Washington, D.C., John C. Fleming, Jr., Bruce J. Banks, American Home Products Corp., New York City, of counsel), for defendant-appellee.

Before PIERCE, MINER and DAVIS, ^* Circuit Judges.

PIERCE, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the Southern District of New York, Kram, Judge, entered pursuant to an order of United States Magistrate Buchwald, dismissing appellants' complaint. The underlying dispute began in January, 1986, when appellee Ayerst Laboratories, Inc. ("Ayerst"), a division of American Home Products Corporation engaged in the manufacture and sale of brand name pharmaceuticals, sent a letter (the "January 1986 Letter" or the "Letter") to pharmacists throughout the United States discussing the merits of substituting a generic drug, propranolol hydrochloride ("propranolol"), for Ayerst's brand name product, Inderal. In response, appellants Zenith Laboratories, Inc. ("Zenith"), a manufacturer of generic drug products, and the National Association of Pharmaceutical Manufacturers ("NAPM"), an organization that represents generic drug companies, commenced the present action, alleging that Ayerst's publication of the January 1986 Letter constituted an unfair trade practice in violation of Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982). Zenith also claimed separately that publication of the Letter constituted an unlawful act of monopolization, in violation of Sec. 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1982). Ayerst moved to dismiss or, in the alternative, for summary judgment. Upon consideration thereof, Magistrate Buchwald held that appellants lacked standing to assert their claims under both federal antitrust law and the Lanham Act. In the alternative,

the magistrate held that, on the basis of the undisputed facts of the case, appellants could not prevail on either claim as a matter of law. For the reasons stated below, we reverse and remand.

BACKGROUND

In 1967, the Food and Drug Administration ("FDA") first authorized Ayerst to market Inderal, the active ingredient of which is propranolol, for the treatment of arrythmia, a heart condition. Ayerst later obtained approval to market Inderal for the treatment of several other conditions, including hypertension and angina. In September 1983, Ayerst obtained approval to label and market Inderal for the treatment of persons who have suffered a prior heart attack; this is known as "post-myocardial infarction" or "post-MI" treatment. Until 1984, Ayerst was the only company authorized by the FDA to market propranolol for medicinal purposes.

In 1984, Congress amended the Food, Drug and Cosmetic Act ("FD & C Act"), 21 U.S.C. Sec. 355 et seq., and the federal patent laws, Title 35, U.S.C., by enacting the Drug Price Competition and Patent Term Restoration Act of 1984, Pub.L. No. 98-417, 98 Stat. 1585, also known as the Waxman-Hatch Act (the "Act"). The main purpose of the Act was to make available more low cost generic drugs by establishing a procedure for FDA approval of generic drugs. See 21 U.S.C. Sec. 355(j) (Supp. III 1985); H.R. No. 98-857, U.S.Code Cong. & Admin.News 1984, p. 2647. In addition, the Act extended the effective patent term available for companies that suffer the effect of delays incurred by product testing and regulatory approvals. 35 U.S.C. Sec. 156 (Supp. III 1985). Further, the Act provided that, if the FDA authorized any new use for an existing drug between January 1, 1982, and the date of enactment of the statute (September 24, 1984), the creator of the drug would have the exclusive right to label and market the drug for that indication until two years after the enactment date (that is, until September 24, 1986)--regardless of whether the underlying patent otherwise would have expired, and regardless of whether generic competitors could market the drug for other uses. See 21 U.S.C. Sec. 355(j)(4)(D)(v) (Supp. III 1985). Thus, when Ayerst's patent on propranolol expired in 1984, its competitors, including Zenith, began marketing generic propranolol for medicinal purposes. However, since Ayerst had obtained approval to market Inderal for a new use--post-MI treatment--between January 1982 and September 1984, Ayerst had the exclusive right under the Act to market its propranolol product for this use until September 1986.

According to Joseph Mahady, who served as American Home Products' Group Product Director for Inderal, Ayerst's January 1986 Letter was part of an ongoing "public debate within the pharmaceutical and medical communities regarding the merits of substitution" of generic products for brand name drugs. In October 1985, Martec Pharmaceuticals, the company for which Zenith distributes propranolol, sent a letter to California pharmacists stating that Martec/Zenith generic propranolol was "therapeutically equivalent" to Inderal, and that pharmacists could dispense Martec's propranolol "without fear." Soon afterwards, Lederle Laboratories, a division of American Cyanamid Company, sent a letter to pharmacists throughout the United States stating that "Lederle propranolol 'is considered to be therapeutically equivalent to Inderal F .'"7 In response, Ayerst sent the January 1986 Letter, which reads as follows:

Dear Pharmicist:

As you know, INDERAL Fistheonlybrand of propranolol HC1 tablets indicated to reduce mortality post-MI. Recently, questions have been raised on the significance of this exclusive claim to practicing pharmacists, particularly as it relates to potential liability resulting from substitution on INDERAL prescriptions.

Some generic manufacturers may tell you that the indication for which a drug is prescribed is confidential between the physician and the patient. We feel that the pharmacist is an equal member of the health care team, a respected professional who shares in protecting the The issue of possible liability associated with dispensing a generic drug for an indication not included in its labeling has not been resolved in the courts. It's not possible to determine, in advance, the outcome of a suit which may arise from such a situation. It is clear, however, that litigation is troublesome, expensive and will generate adverse publicity. Although some generic product manufacturers may be willing to indemnify for monetary awards, no company could adequately compensate you for the trouble and negative publicity that may result from a court case.

health of the patient. Therefore, a brief review of the implications of exclusive labeling is appropriate.

We believe that, consistent with prudent pharmacy practice, you will want to dispense INDERAL tablets, the only propranolol product with the approved indication for reduction of mortality post-MI. ^* If you know the patient is being treated for this condition, dispense only INDERAL. If you are considering substitution and don't know the condition being treated, take a few minutes to discuss the subject with your patient and the prescribing physician. Ayerst Laboratories considers pharmacists to be important members of the health-care profession. We support your need to be informed about critical issues regarding drug selection, and hope that we've helped to clarify the important issue of exclusive labeling.

Sincerely,

Marvin A. Heuer, MD

In response to the January 1986 Letter, William V. Purvis, an official at the FDA's Office of Drug Standards, Division of Drug Advertising and Labeling, sent a letter (the "FDA Letter") to Ayerst in February 1986, claiming that the FDA regarded the January 1986 Letter to be false and misleading, in violation of Sec. 502(a) of the FD & C Act, 21 U.S.C. Sec. 352(a) (1982). The FDA raised three objections to the January 1986 Letter. First, the agency charged that Ayerst's use of the word "approved" (as in "We believe ... you will want to dispense INDERAL tablets, the only propranolol ... with the approved indication") violated Sec. 301(l) of the FD & C Act, 21 U.S.C. Sec. 331(l) (1982), which prohibits in any advertisement relating to a drug any representation or suggestion that the drug is approved or meets the requirements of Sec. 505 of the FD & C Act, 21 U.S.C. Sec. 355 (1982). Second, the agency stated that it regarded the January 1986 Letter's discussion of pharmacists' liability to be "an attempt to intimidate pharmacists to always dispense Inderal." The agency also took issue with the Letter's failure to "inform[ ] pharmacists that many states have enacted legislation that exempt [sic] pharmacists from liability through 'good faith' practice of generic substitution." Finally, the FDA Letter disputed Ayerst's suggestion that "If you know the patient is being treated for [post-MI], dispense only INDERAL." The FDA viewed this statement "as falsely suggesting that pharmacists must dispense Inderal for this condition," even though "[t]here are no laws, that we [the FDA] are aware of, requiring the pharmacists to take such action."

In June 1986, NAPM and Zenith commenced an action for damages and injunctive relief in the United States District Court for the Southern District of New York, alleging, inter alia, that Ayerst's publication of the...