chevron-down Created with Sketch Beta.


FTC Investigates Use of Orange Book to Prevent Competition

Rahul Rao, Adam M Acosta, and Susannah P. Torpey

FTC Investigates Use of Orange Book to Prevent Competition
nico_blue via Getty Images

Alleged Misuse of the FDA’s Orange Book as an Anticompetitive Vehicle: Attorney Insights on Recent Scrutiny by the FTC based on theNovember 28, 2023, panel discussion “FTC's Foray into Orange Book Listings: Challenges or Challenging

Over the past six months, the Federal Trade Commission (“FTC”) has taken increased interest in patent listings that may be improperly listed in the Food and Drug Administration’s (“FDA”) Orange Book. In September 2023, the FTC issued a policy statement that put brand manufacturers on notice that improper Orange Book listings may violate Section 5 of the FTC Act or a number of other statutes. As of November 2023, ten manufacturers have been notified that the FTC is challenging over 100 patent listings in the Orange Book.

Attorneys Rahul Rao (RR) of the FTC, Adam Acosta (AA) of White & Case, and Susannah Torpey (ST) of Winston & Strawn provide perspective on this recent scrutiny of pharmaceutical patent listings, and discuss the potential anticompetitive concerns.

What brought about this policy statement by the FTC?

[RR]: The FTC has a long history of ensuring that improper Orange Book listings do not harm competition in the pharmaceutical space. Under the Hatch-Waxman Act, branded drug manufacturers must list patents that claim either the drug itself or an approved method of using the drug in the FDA’s Orange Book, as these patents could be infringed by a follow-on generic manufacturer looking to enter. This strict statutory limit is important because a patent listed in the Orange Book has significant consequences for competition. If a brand manufacturer timely sues a generic competitor for infringement of an Orange Book listed patent, an automatic 30-month stay is triggered where the FDA cannot approve the competitor drug. For properly listed patents, this 30-month stay reflects careful congressional balancing of interests between branded and generic drugs. When the stay is triggered by an improperly listed patent, this may create harm by unnecessarily delaying consumer access to a competing product that might be more accessible, cheaper, or of better quality.

The harm to consumers is not limited to the 30-month stay, however, as the patent listing itself can affect the planning of competitors by distorting incentives. The prospect of a 30-month stay may deter competitors from bringing a new product to market. This would permanently deprive the market of competition and deprive consumers of additional products.

The FTC first examined the effect of improper Orange Book listings on competition two decades ago as part of a 2002 study. Around that time, the FTC entered an order against Biovail, among other things, for improperly listing a patent. The FTC has also filed amicus briefs on this topic, once in 2002 and twice more recently. And now in September 2023, the FTC issued a policy statement explaining that improper Orange Book listings may constitute an unfair method of competition under Section 5 of the FTC Act. The FTC has since sent letters to ten drug manufacturers informing them that the FTC has availed itself of the FDA’s regulatory process to dispute listings in the Orange Book.

Does the FTC intend to litigate challenges to improper listings in the Orange Book themselves, even absent any 30-month stay or other delay? Does the FTC take the position that the improper listing itself is a new category of unlawful conduct?

[RR]: There is no forgone conclusion or predetermined path of what action the bureau plans to take. The FTC intends to scrutinize whether brand manufactures are improperly listing patents in the Orange Book and is prepared to use any tools that are available to it to address any potential harms. Litigation is of course one tool at the FTC’s disposal, but it is not the only tool available.

And as described above, the harm to competition is not limited to the 30-month stay because the Orange Book listing itself can have a chilling effect on competition. An Orange Book listing might impact how rivals plan to enter a market or it might disincentivize them from coming to market altogether. Whether or not a patent is associated with a 30-month stay, the FTC is prepared to use any tool, including litigation, to address the harm caused just by the improper listing.

Assuming that the FTC were to sue companies for an improper listing absent a 30-month stay, what types of challenges might the FTC face in court? How would this be different if the improper listing were associated with a 30-month stay?

[AA]: There are generally two routes the FTC might take in court. The FTC may either bring a more traditional antitrust claim or sue under a broader unfair method of competition theory (or both). Last November, the FTC put forward this unfair method of competition theory in a policy statement addressing Section 5 of the FTC Act, which, it contends, allows for more flexibility in addressing conduct the FTC deems improper. This theory has not yet been tested in court and has received criticism that there is no limiting principle on what the FTC might deem as “unfair” competition.

The FTC has also said that an allegedly improper listing “may” impact competition but not that it unequivocally does. It is not necessarily the case that even an improperly listed patent impacts competition adversely. For example, even if there is a 30-month stay, there could be other properly listed patents in the Orange Book or other regulatory issues preventing a rival from coming to market. In addition, the FTC’s theory in its policy statement that generic manufacturers may be disincentivized from developing generic drugs simply by a patent holder improperly listing a patent might be harder to prove as there are many factors that influence whether a generic manufacturer decides to bring a product to market. Indeed, generic manufacturers are aggressive in challenging patents and do so despite the 30-month stay. A generic challenger could also file a counterclaim or go through the FDA’s dispute process to challenge the listing. Overall, I think there will need to be a case-by-case review to assess the competitive effect of an improperly listed patent.

What kind of evidence has the FTC been looking at when putting together these policy statements?

[RR]: Under Section 5, it is not necessary to establish actual competitive effects. Rather, Section 5 only requires conduct that could tend to lead to impeding competition. And that makes sense, in the past, Section 5 has been used for incipient violations.

That aside, the FTC does see anticompetitive effect from improperly listed patents. For example, in the inhaler market space, there are few remaining patents as most have expired, yet there is still very little generic competition in the space. With this inhaler example, there is very little competition in this space despite the underlying active ingredients being decades old. IP protections appear to have largely been extended due, in part, to impermissible device patent listings in the Orange Book.

Whether an improper Orange Book listing might be the sole reason for delayed entry or a contributing factor is an open question for each case. Nevertheless, it is one of a portfolio of tactics that brand manufacturers employ to impermissibly extend their market dominance and delay generic entrants. It is therefore appropriate that the FTC scrutinize this tactic, even if there are other tactics, as we have seen potentially anticompetitive effects.

Is this an area that generic competitors need to consider? Should we expect to see private plaintiffs bring claims of improper patent listings?

[ST]: Yes. While some competitors would never go forward with an at-risk launch and would prefer to have all the potential infringement issues wrapped up before entering the market, this has been a real issue for some generic competitors. Over the past decade, the number of patents in the Orange Book has skyrocketed from just a few to dozens in some cases where the patents are pretty clearly invalid or not infringed. We expect an increase in monopoly maintenance claims under Section 2 that rely on improper listings either as the sole basis for the claim of exclusionary conduct or as part of a larger course of conduct.

Plaintiffs can already rely on the SDNY Buspirone case to argue that they do not need to show that the listing was done in bad faith such that Noerr-Pennington does not even apply because of the ministerial nature of the listing. This will make it easier to pursue a claim than in a standard sham litigation context.

I also suspect that we will likely see broader unfair competition claims in states like California where the Cartright Act and 17200 claims are broader than the Sherman Act. Especially in cases where the brand’s market share might have come down precipitously and a Section 2 claim would be unlikely to survive. Courts are likely to use the FTC’s reasoning and enable a case to go forward in this kind of a context.

To what extent should we expect to see Noerr-Pennington arguments made in response?

[ST]: This defense will likely come up in virtually all cases going forward regardless of how many cases are already on the books regarding whether conduct is ministerial or not. It remains to be seen whether plaintiffs are brave enough to plead without supporting the objective and subjective reasonableness of the listing and move forward just on the belief that the court will accept that Noerr-Pennington immunity does not apply, or whether plaintiffs will come forward and balance their allegations in case the judge or court goes in the other direction.

[AA]: Relatedly, but separate from the Noerr-Pennington issue, the Court of Appeals for the First Circuit in the Lantus case was open to the defense that there might be instances where there is a reasonable misinterpretation of whether the relevant laws and regulations permit, or even require, a patent to be listed. In other words, a patent might ultimately be found to be listed improperly, but the listing is still done in good faith and based on a reasonable interpretation of the law. This may be another defense that we see.

How might the FTC view the applicability of Noerr-Pennington arguments?

[RR]: I don’t want to discourage anyone from any defense they would like to raise, but I do not think Noerr-Pennington applies here. Noerr-Pennington applies in the context of petitioning a government agency to do something. The FDA’s Orange Book listing is purely a ministerial action where no government discretion is taking place. Noerr-Pennington, therefore, does not apply. In fact, one court, Buspirone in SDNY, has taken this issue square on and has concluded that Noerr-Pennington does not apply.

On the related, Lantus argument, there is a statutory framework here. Parties are not forced to list a patent that does not fall within the strict parameters around what types of patents should be listed.

There are legitimate gray areas in terms of what constitutes a “drug product” claimed by a patent and is required to be listed. How is that informing the FTC’s judgement in terms of delisting patents on the front end?

[RR]: There are patents that clearly should be listed and patents that clearly should not be listed. Nevertheless, it is a fair taken point that there are some patents that may be in a gray area where there might be reasonable differences in opinion around whether the patent must be listed.

This gray area requires careful consideration of which tools are available to the FTC. It could be, for example, that a “gray area” patent is associated with internal “hot docs” which show that the thumb was on the scale to list a patent just for the protection against competition. This hypothetical changes the calculus on how the FTC would seek to address the harm. It could also be that the listing company is made aware either by the FDA or another party that their patent should not be listed. What the company then does also factors into the calculus of the tools employed and the relief sought by the FTC. There is a spectrum of what tools we want to employ and what relief we are seeking that can meet the circumstances of the case.

I want to be clear, I don’t think it is fair to say that anyone is compelled, under Hatch-Waxman or anything else, to list patents that do not fall within the statutory framework.

Does the FTC have the bandwidth and/or technical expertise on the subject matter, particularly in life sciences, to weigh in on whether a particular patent needs to be listed?

[RR]: There are many patents listed in the Orange Book that are clearly proper and many patents listed in the Orange Book that are clearly improper. These can be identified relatively easily by the FTC. It is then the patents that exist in this gray area that might require some more careful consideration.

The FTC has a long history of enforcing competition in pharmaceutical and healthcare markets and has gained significant expertise in this space as well as in other markets. While not everyone working at the FTC is a patent lawyer, that is not an obstacle. The FTC has in-house experts and can retain experts when there is a need for specific factual knowledge.

What is the role of the FTC relative to independent parties to pursue improper patents for their own gain?

[RR]: This is an important point that the FTC considers in all our matters. Whether it’s a generic rival or another brand manufacturer that raises a concern about an Orange Book patent, that party is entitled to prosecute that on their own if they have the motivation and capacity. Those cases, however, are not Section 5 cases because there is no private right of action under Section 5. Those parties would need a traditional Sherman Act-based “hook,” most likely a monopolization claim. There are different barriers to being successful in that kind of case as opposed to a Section 5 case.

This is by design. Section 5 is meant to be broader than the Sherman Act. It is meant to capture conduct that may not rise to, for example, a monopolization claim but might lead to harm nonetheless. But with its breadth comes selective rights to enforce. This is why authority to enforce Section 5 is vested in the FTC only and not in private entities.

In cases where a manufacturer lists a patent to have an anticompetitive “chilling” effect and the conduct does not rise to a monopolization claim, the FTC is the only party that is capable of redressing that harm.

Are there other categories of patents that might be at risk of being challenged?

[AA]: There is some guidance from the FTC, especially from their amicus briefs, noting which patents are potentially improper for listing in the FTC’s view. One such area is a patent that claims manufacturing processes. We have also seen case law, like in the Xyrem case, that states that the REMS distribution system patents in that case should not be listed. From private litigation, like in the Lantus case, we have further seen that certain drug device patents may be improper. The First Circuit in that case, notably, did not come up with any “bright line” rule that states that all device patents are necessarily improper. I think that case illustrates that you must look at the specific patent at issue. The other private plaintiff case, the Actos case in the Second Circuit in 2021, involved a combination patent that the court found did not contain any of the component drug substances and therefore allowed the monopolization claim to go forward, but again the Second Circuit did not adopt a bright-line rule against listing all combination patents. These cases and the amicus briefs serve as good guideposts to assess patent-listing risks, but they also demonstrate the need for a patent-by-patent assessment.

[RR]: Certainly, the letters that have gone out so far that have raised challenges against listed patents should not be considered as the entire universe of improperly listed patents.

Nevertheless, there should not be a hyper-categorical approach to evaluating what kind of patents might raise concerns at the FTC. Instead, one should look at the listing statutes themselves and its related regulations.

To what extent do the concerns related to the Orange Book apply to the Purple Book? Should companies with patents listed in the Purple Book be concerned?

[RR]: The Purple Book does not present the same competition concerns because there is no 30-month stay. Thus, the Purple Book should not be considered as a direct analogue to the Orange Book.

From a broader perspective, the FTC’s statements are aimed at addressing the harm done by companies who might be abusing the regulatory system for anticompetitive gains. If there are ways that companies can abuse the Purple Book for anticompetitive gains, then that would be concerning and might be an unfair method of competition.

[ST]: I agree, the Purple Book is just not as prone to regulatory abuse as the Orange Book is because you cannot get the 30-month stay.

What measurable outcome is the FTC hoping to achieve?

[RR]: An ideal outcome would be a form of self-correction and not that the FTC files lots of litigation. The notice that the FTC has sent out should hopefully put these companies, and others, on notice that they should keep this concern in mind and reevaluate whether Orange Book listed patents are proper. The Orange Book should serve the purpose that it is intended to serve and allow for free-flowing competition and generic entry that is not impermissibly hindered.

Delisting patents may not solve the policy problem as companies can still sue each other on patents. It may even be harder for potential generic entrants to evaluate the patent landscape. Is the FTC considering anything else to address this policy problem?

[RR]: It is correct that delisting the patent does not mean that the patent no longer exists, and companies can certainly still litigate on infringement. However, there is a material difference in terms of the burden and the dynamics in that kind of a litigation. If a patent is listed in the Orange Book, even if facially improper, that patent still allows an automatic 30-month stay. In comparison, an unlisted patent forces the party to weigh whether they want to enforce the patent. This shifts the dynamics in terms of how long a potential stay is and who has the burden in the case.

The 30-month stay was a balance struck by Congress on promoting branded drugs and ensuring appropriate and timely generic entry. The issue is that that balance was struck with a specific subset of patents and not others. These protections are still there, and this FTC initiative is to enforce the law as written.

There is no active rule-making or notice of public comment that has been issued.

In the FTC’s policy statement, it is mentioned that a company’s history of improper Orange Book patent listing might be scrutinized during merger review. What kind of potential theories might the FTC bring forward in any potential merger reviews involving improper patent listings?

[RR]: While this is not the focus of the policy statement, it is true that the FTC will scrutinize a history of improper patent listings in potential merger reviews. There are two recent FTC filings that are illustrative though they are not the entire universe of possible theories that the FTC might pursue. One is the FTC’s challenge of Amgen’s acquisition of Horizon Therapeutics. There, the FTC alleged that post-merger, Amgen could leverage its large portfolio of products, including blockbuster drugs, to force PBMs and payers to favor Horizon’s two then-current monopoly products and disadvantage future competing products. While this has nothing to do with the Orange Book, the point more broadly is that the FTC is looking at the portfolio of patents to determine whether a proposed merger makes it more likely, or if they have the ability or incentive, to engage in strategic behavior that may reduce competition for any particular drug.

Another illustration is the FTC’s amicus brief filed in the Mylan v. Sanofi case on improper listings in the Orange Book. This conduct alone or in combination with other behavior could constitute illegal exclusionary conduct. This is also something the FTC might be on the look-out for in merger reviews.

Should companies start evaluating improper patent listings during due diligence?

[AA]: Yes. Challenges to improper Orange Book listings is not entirely new. These types of issues have existed going back to the 90s, which led to an FTC study in 2002, the Orange Book Transparency Act in 2020, and lots of litigation and antitrust cases implicating these issues. The policy statement does serve as a good reminder during due diligence or just in the course of risk assessment in general that a company’s patent portfolio listed on the Orange Book should be an element to review.

This article is based on the November 28, 2023 panel discussion “FTC's Foray into Orange Book Listings: Challenges or Challenging?”. The views expressed in this article are those of the authors and do not necessarily reflect those of the FTC, White & Case, Winston & Strawn, or their respective clients.