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Federal Trade Commission v. Paul M. Bisaro

December 2, 2010


The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge


Petitioner, the Federal Trade Commission, has filed this action for the purpose of obtaining an order compelling Respondent Paul Bisaro to comply in full with a subpoena ad testificandum issued to him on July 22, 2009 in aid of a law enforcement investigation being conducted by the Federal Trade Commission ("FTC"). This Court referred the matter to Magistrate Judge Alan Kay, who issued a Report & Recommendation recommending that the FTC's petition be granted. See Report & Recommendation ("R&R") (Aug. 17, 2010), Docket No. [35]. Respondent timely objected to Magistrate Judge Kay's Report & Recommendation, and the parties have fully briefed Respondent's objections. Pursuant to Local Civil Rule 72.3(c), this Court makes a de novo determination regarding Respondent's objections. For the reasons explained below, the Court shall overrule Respondent's objections to the Report & Recommendation and GRANT the FTC's [3] Petition for an Order Enforcing Administrative Subpoena Ad Testificandum.


Respondent Paul Bisaro is the President and CEO of Watson Pharmaceuticals, Inc.

("Watson"), a company engaged in the development and distribution of generic pharmaceuticals. This dispute arises from the FTC's attempts to investigate and stop so-called "reverse payment" settlements between brand-name pharmaceutical companies and their generic counterparts. "Reverse payment" settlements are the result of patent infringement litigation between brand-name pharmaceuticals and generic companies who seek to enter the market with a generic versions of brand-name drugs prior to the expiration of their patent terms pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the "Hatch-Waxman Act," Pub. L. No. 98-417, 98 Stat. 1585 (1984).

The Hatch-Waxman Act enables generic drugmakers to obtain expedited approval for generic drugs and challenge the validity of brand-name drug patents by submitting an Abbreviated New Drug Application ("ANDA") with the Food & Drug Administration. See 21 U.S.C. § 355(j). As part of the ANDA, the applicant must submit a so-called "Paragraph IV" certification attesting that brand-name patent on which the generic drug is based is either invalid or will not be infringed by the generic drug. See id. § 355(j)(2)(A)(vii)(IV). The ANDA is approved immediately unless, within 45 days, the brand-name patent holder files an infringement lawsuit against the applicant, in which case approval is delayed for a period of 30 months (unless the patent expires or the patent litigation is resolved sooner). Id. § 355(j)(5)(B)(iii). The first generic drugmaker who files a successful ANDA receives a 180-day period of marketing exclusivity for the drug. Id. § 355(j)(5)(B)(iv). A "reverse payment" settlement occurs when the brand-name drugmaker pays the generic drugmaker to delay its entry into the market, effectively extending the monopoly period for the brand-name drug. The FTC believes that such payments are "unfair methods of competition" in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. However, most federal courts examining the issue have determined that such agreements are not unlawful so long they do not expand the scope or duration of the monopoly granted by the patent. See, e.g., In re Ciproflaxin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1333 (Fed. Cir. 2008), cert. denied, 129 S. Ct. 2828 (2009).

A. The FTC's Modafinil Investigation

In 2006, the FTC began an investigation into settlement agreements reached between Cephalon, Inc. ("Cephalon") and five generic drugmakers, including Watson, relating to generic versions of modafinil, a narcolepsy drug that Cephalon sells under the brand-name Provigil. See Pet. Ex. 2 (Resolution Authorizing Use of Compulsory Process in a Nonpublic Investigation, File No. 0610182 (Aug. 30, 2006)). These generic companies had filed ANDAs challenging Cephalon's patent for Provigil (the '546 patent), and the four companies other than Watson had all filed on the same day before Watson, making them potentially eligible for first-filer marketing exclusivity. See Pet. Ex. 1 (Decl. of James Rhilinger, Esq.) ¶ 6. Cephalon sued all of the generic companies for patent infringement, ultimately settling these suits in 2005 and 2006. Id. ¶ 7. Cephalon reached a settlement with Watson and its development partner, Carlsbad Technology, Inc. ("Carlsbad"), on August 6, 2006 (the "2006 Settlement Agreement"). Id. ¶ 7. Under the terms of these agreements, Watson and the other companies agreed not to market generic Provigil until 2012. Id. The FTC filed a lawsuit against Cephalon on February 13, 2008, alleging that its agreement with the four "first filers" was unlawfully anticompetitive. See FTC v. Cephalon, Inc., Civil Action No. 2:08-cv-02141-MSG (E.D. Pa. filed Feb. 13, 2008).

On December 19, 2007, Cephalon listed a new patent for Provigil (the '346 patent), and Watson and Carlsbad filed a supplemental ANDA and Paragraph IV certification as to the newly listed patent on the same day. See Resp't's Opp'n, Decl. of Steven C. Sunshine ("Sunshine Decl.") ¶¶ 14-15.

B. The FTC Reopens Its Investigation

Although the listing of a new patent by Cephalon was a matter of public record, the FTC staff who had conducted the modafinil investigation did not learn of it until January 2009. See FTC's Interrog. Resp. at 3. When the FTC learned that Watson had filed a supplemental ANDA and Paragraph IV certification with respect to the new patent, the FTC realized that it was possible that Watson could have first-filer marketing exclusivity and potentially block other companies from entering the market for generic modafinil. See id. at 3-4. The FTC had discussions with FDA staff in January and February 2009 regarding the implications of the '346 patent and how Watson's potential first-filer status might affect the market for generic modafinil. Id. at 4-5.

As part of its investigation, the FTC also contacted Apotex, Inc. ("Apotex"), a pharmaceutical company that had filed an ANDA for modafinil and was selling generic modafinil in Canada. See FTC's Interrog. Resp. at 7. From February 2 through March 3, 2009, FTC staff had approximately four conversations with Apotex's Vice President, who is a published expert in the field of generic drug patent and FDA law. Id. at 7-8. The discussions focused on the following issues: (1) Cephalon's listing of the '346 patent; (2) whether Apotex had submitted to the FDA an amended ANDA containing a Paragraph IV certification as to the '346 patent; (3) Apotex's analysis of whether any first filer(s) eligible for marketing exclusivity on the later-listed '346 patent would block Apotex's ability to launch generic Provigil; (4) what it would take Apotex to launch a generic version of Provigil in the United States, assuming it was interested in doing so; and (5) how a generic company could know the date on which a brand-name patent holder would list a later-issued patent with the FDA so that it could try to become a first-filer by submitting an amended ANDA on the same day. See id. at 9.

Beginning on March 2, 2009, Markus H. Meier and Saralisa Brau, Assistant Director and Deputy Assistant Director in the FTC's Health Care Division of the FTC, respectively, contacted counsel for Watson, Steven C. Sunshine, to discuss the FTC's modafinil investigation. See FTC's Interrog. Resp. at 9. According to Mr. Sunshine, Mr. Meier suggested that Watson should consider relinquishing any first-filer exclusivity rights associated with its supplemental ANDA for the '346 patent, and he posited several hypothetical scenarios under which Watson could profit from relinquishment. Sunshine Decl. ¶ 16. The FTC believed at this time that relinquishment could be a more profitable option for Watson than waiting to launch its generic modafinil product under the terms of the 2006 Settlement Agreement. See Decl. of Saralisa C. Brau ("Brau Decl.") ¶ 7. According to Mr. Sunshine, Mr. Meier telephoned him on March 13, 2009 and reiterated that Watson should consider relinquishing its marketing exclusivity and stated that failure to relinquish would likely cause the FTC "Front Office" to reopen the modafinil investigation. Sunshine Decl. ¶ 17. Mr. Meier also told Mr. Sunshine that he was in contact with a third-party generic company and inquired whether Watson would be open to communicating with them. Id. ¶ 18. Mr. Sunshine indicated that Watson would be interested and identified Watson's General Counsel, David Buchen, as the appropriate contact person. FTC's Interrog. Resp. at 9. The FTC then contacted Apotex's Vice President to inform him of Watson's interest and gave him Mr. Buchen's contact information. Id. at 10. Apotex subsequently contacted Watson to discuss a possible agreement whereby Watson would relinquish its exclusivity to bring generic modafinil to market. Sunshine Decl. ¶ 18.

The FTC claims that it did not "broker a deal" between Watson and Apotex and that it played no further role in the discussions between the two companies. See FTC's Interrog. Resp. at 10. However, the FTC did periodically follow up with Apotex to inquire about the status of the discussions with Watson. Id. On May 6, 2009, Apotex told the FTC that discussions with Watson had stalled and that Watson did not appear to be interested in pursuing a deal. Id.; Brau Decl. ¶ 10. The FTC became concerned that the reason Watson was not pursuing a potentially profitable business deal was because its 2006 Settlement Agreement with Cephalon restricted Watson's right to relinquish, and FTC believes that such an agreement would be unlawful. See Brau Decl. ¶¶ 5-7, 11. On May 19, 2009, the FTC issued civil investigative demands ("CID") to Watson and Carlsbad and a subpoena ad testificandum to David Buchen. Sunshine Decl. ¶ 19. The CIDs sought to determine, inter alia, whether Watson is a party to any agreement that limits its ability to relinquish any marketing ...

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