Locke Lord QuickStudy: FTC v. Shire ViroPharma – Notice of Appeal

Locke Lord LLP
May 9, 2018
The Federal Trade Commission (“FTC”) has appealed to the U.S. Court of Appeals for the Third Circuit the dismissal by Delaware U.S. District Judge Richard Andrews of FTC’s complaint against Shire ViroPharma Inc. (“ViroPharma”) “alleging that ViroPharma violated Section 5(a) of the [FTC] Act, 15 U.S.C. § 45(a), by engaging in an unfair method of competition” with respect to its antibiotic drug Vancocin. Fed. Trade Comm’n v. Shire ViroPharma Inc., No. 1:17-cv-00131, slip op. at 1 (D. Del. Mar. 20, 2018).
A significant portion of Judge Andrews’s opinion centered on Section 13(b) of the FTC Act, which “authorizes the FTC to seek, and district courts to grant, permanent injunctions without the FTC’s initiating the administrative proceedings prerequisite to a grant of relief.” Id. at 5 (citation omitted). The district court held that Section 13(b) of the FTC Act required that, before the FTC may seek an injunction in federal court, the FTC must have a reasonable belief that ViroPharma “is about to violate” a law enforced by the FTC—in this case, Section 5(a) of the FTC Act. The court held that the allegations in FTC’s complaint failed to plead facts sufficient to support a reasonable inference that ViroPharma was “about to violate” a law, and therefore granted ViroPharma’s motion to dismiss. Id. at 12.
In its complaint, FTC alleged that ViroPharma had abused the Food and Drug Administration’s (“FDA”) citizen-petition process in an effort to delay generic competition and thus extend its monopoly on Vancocin. The citizen-petition regulatory process allows any person or entity to submit a citizen petition to FDA requesting that the agency “issue, amend, or revoke a regulation or order or take or refrain from taking any other form of administrative action.” 21 C.F.R. § 10.30(b)(3). This process is subject to abuse, however, as manufacturers of branded drugs may use the process to delay FDA approval of generic drugs. Because FDA is required to respond to each citizen petition, no matter how frivolous, brand manufacturers may automatically delay FDA approval of a competing generic drug by filing citizen petitions. FDA itself has stated that “FDA continues to be concerned that Section 505(q) [of the Food, Drug and Cosmetic Act] is not discouraging the submission of petitions that are intended primarily to delay the approval of competing drug products and do not raise valid scientific issues.” Complaint at 7, ViroPharma, No. 1:17-cv-00131 (D. Del. Feb. 7, 2017).
According to FTC’s complaint, over a period of six years, ViroPharma “harmed competition and consumer welfare by obstructing and delaying the FDA approval process for a generic version of Vancocin” by “inundat[ing] the FDA with regulatory and court filings—forty-six in all,” including twenty-four citizen-petition filings. ViroPharma, slip op. at 2. ViroPharma allegedly received a “Generic Management Plan” from a consultant, which suggested various “tactics,” including filing citizen petitions, “[b]efore generic approvals to slow them down.” Complaint at 17. FTC further alleged that “ViroPharma’s sham petitioning conduct denied consumers and other purchasers of Vancocin Capsules access to . . . generic versions of Vancocin Capsules that would offer the same therapeutic benefit as the branded drug, but at a significantly lower price.” Id. at 43. FTC warned that, “[a]bsent an injunction, there is a cognizable danger that ViroPharma will engage in similar conduct causing future harm to competition and consumers.” Id.
In moving to dismiss, ViroPharma argued: (1) FTC did not plead facts sufficient to invoke its authority under the Section 13(b) of the FTC Act; and (2) the Noerr-Pennington doctrine prevents FTC from challenging ViroPharma’s conduct.
With respect to ViroPharma’s first argument, the issue was whether FTC’s authority under Section 13(b)(2) to seek permanent injunctions without first initiating administrative proceedings (which is what FTC did in this case) was limited by the language in Section 13(b)(1) requiring that FTC believes an entity “is violating, or is about to violate,” a law enforceable by FTC. ViroPharma argued that the court should apply the language of Section 13(b)(1) and dismiss the case for FTC’s failure to meet that statutory requirement. ViroPharma, slip op. at 5. FTC countered that because courts have held that Section 13(b)(2) is inapplicable where, as here, a case is brought without FTC first initiating administrative proceedings, the requirement of Section 13(b)(1) should likewise be inapplicable. Id. Judge Andrews agreed with ViroPharma, stating that “[a]lthough courts have held that [Section 13](b)(2) does not apply when the FTC seeks a permanent injunction” without first initiating administrative proceedings, “I do not think that means [that this provision] serves as a stand-alone grant of authority for the FTC to file suit in federal court whenever it seeks permanent injunctive relief.” Id. at 6.
“In my opinion,” Judge Andrews continued, “the FTC’s interpretation is belied by the plain language of the statute.” Id. Because the statute first states that the FTC “may bring suit in a district court of the United States,” but later states that “in proper cases the [FTC] may seek . . . a permanent injunction,” the two provisions should not have the same meaning. Id. The provision that FTC “may bring suit,” Judge Andrews reasoned, “refers to the FTC’s authority to file suit in federal court, whereas ‘may seek’ refers to the FTC’s authority, once it is properly in federal court, to seek a particular remedy, that is, a permanent injunction.” Id. Consequently, FTC’s ability to seek a permanent injunction, under the court’s reasoning, is limited by the language of Section 13(b)(1) and therefore requires that FTC first have reason to believe that ViroPharma “is violating, or is about to violate,” a law enforceable by FTC. Because FTC failed to allege that ViroPharma “is violating, or is about to violate,” such a law, the court dismissed the complaint.
In opposing ViroPharma’s motion, FTC urged that “is about to violate” is equivalent to the general standard for granting injunctive relief and should apply to situations in which a past violation is “likely to recur.” Id. at 9. The court, however, rejected that argument because none of the cases FTC cited in support of its position had actually interpreted the specific language at issue. Id. at 11. In addition, the court found that FTC’s complaint did not allege facts that plausibly suggested that ViroPharma “is about to violate” a law enforceable by FTC. Although FTC suggested during oral argument that ViroPharma would engage in similar abuses of FDA processes in the future with respect to a new blockbuster drug in its pipeline, FTC failed to include that allegation in its complaint. Id. The complaint merely suggested that “there is a cognizable danger that ViroPharma will engage in similar conduct” and that “ViroPharma has the incentive and opportunity to continue to engage in similar conduct in the future,” and the court held that such conclusory allegations failed to plausibly suggest that ViroPharma “is about to violate” the law. Id. at 11-12.

With respect to ViroPharma’s second argument (i.e., that the Noerr-Pennington doctrine—which “provides broad immunity from liability to those who petition the government, including administrative agencies and courts, for redress of their grievances,” id. at 12 (citation omitted)—prevents FTC from challenging ViroPharma’s conduct), the issue was whether ViroPharma’s petitioning activity fell under the “sham exception” to Noerr-Pennington. The sham exception applies where the petitioning activity at issue is in reality merely an inappropriate interference with competition. In analyzing the applicability of the “sham exception,” courts apply different standards depending on whether the activity at issue is deemed to be one petition or a series of petitions. “When a series of petitions is at issue,” courts will determine whether the filing was done “with or without regard to merit and for the purpose of using the government process (as opposed to the outcome of that process) to harm a market rival and restrain trade.” Id. at 13 (citation omitted). “When there is only one alleged sham petition, on the other hand,” courts will first ask whether the complaining party has made “a showing that the petition was objectively baseless.” Id. (citation omitted). Here, the dispute turned on whether ViroPharma’s conduct constituted one petition or a series of petitions. The court, however, declined to resolve this dispute because it agreed with FTC that “whether ViroPharma’s activity was in fact a sham under either standard is a factual inquiry, which cannot be resolved at the motion to dismiss stage.” Id. Nevertheless—and notably—the court concluded that “the allegations in the complaint, taken as true, are sufficient at this stage to overcome ViroPharma’s ‘presumptive antitrust immunity under the Noerr-Pennington doctrine.’” Id. (citation omitted).

Although it granted ViroPharma’s motion to dismiss, the court gave FTC leave to amend its complaint. In particular, the court noted that in order to pass muster under Section 13(b) of the FTC Act, FTC should amend its complaint to allege that FTC has reason to believe ViroPharma “is violating, or is about to violate” a law that FTC enforces, “which is a prerequisite to the FTC’s ability to bring suit in the first place.Id. at 7 (emphasis added). The court seemed receptive to the general premise that ViroPharma’s petitioning activity may constitute a violation of federal antitrust laws, but suggested that FTC, in order to survive a motion to dismiss, must “plead facts allowing for a reasonable inference that ViroPharma ‘is about to violate’ a law enforced by the FTC” in more than a mere conclusory fashion. Id. at 12. Rather than amend, however, FTC opted to stand on its complaint and appeal the decision to the Third Circuit.