Pharmaceutical regulatory law

Regulatory framework and authorities

Which legislation sets out the regulatory framework for the marketing, authorisation and pricing of pharmaceutical products, including generic drugs? Which bodies are entrusted with enforcing these rules?

Approving pharmaceutical products

The Federal Food, Drug, and Cosmetic Act (FFDCA) regulates small molecule drugs and establishes processes for bringing new drugs to market. For innovator (brand-name) drugs, a new drug application (NDA), requiring proof that a drug is safe and effective and that the benefits of the drug outweigh the risks, must be submitted to the Food and Drug Administration (FDA). For generic drugs, an abbreviated new drug application (ANDA), requiring proof that the product is the same as, and bioequivalent to, an already approved product, must be submitted. The FDA publishes a list of drugs already approved under the FFDCA - ‘Approved Drug Products with Therapeutic Equivalence Evaluations’ - more commonly known as the ‘Orange Book’.

The Drug Price Competition and Patent Restoration Act of 1984 (commonly known as the Hatch-Waxman Act) establishes the process for approving generic drugs and is intended to protect innovator drug patents while providing a process for making generic equivalents available as soon as the patent exclusivity period expires. To accomplish this, the Act provides for three- or five-year periods of patent exclusivity for innovator drugs and a process for litigating patent claims before the FDA approves a generic equivalent. It also provides a 180-day period of market exclusivity to the first generic applicant to challenge a listed patent.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 revised rules regarding certain approval stays and exclusivities under the Hatch-Waxman Act. It requires innovator and generic companies that enter into certain types of litigation settlements to file copies of their agreement with the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DoJ).

In contrast, over-the-counter (OTC) drugs are approved under a monograph system. The FDA reviews the active ingredients of over 80 therapeutic classes of drugs and, for each category, develops a drug monograph. Once finalised, these monographs are published in the Federal Register. Companies that make and market OTC products conforming to a final monograph do not need to seek pre-approval from the FDA. Products that do not conform, however, must be approved through the NDA or ANDA application process.

The Public Health Service Act (PHSA) regulates biologics and establishes a separate process for bringing biologics to market. Innovator (brand name) biologics are approved via a Biologics License Application, which requires proof that a biologic is safe and effective. The Biologics Price Competition and Innovation Act of 2009 (BPCIA) creates an abbreviated approval process for approving ‘biosimilars’, which are biologic drugs that are similar, but not identical, to FDA-licensed biologics. The FDA publishes a list of biologics already licensed under the PHSA and any interchangeable biosimilars, commonly known as the ‘Purple Book’.

Biosimilar applicants must demonstrate that the product is safe and effective, but can rely on previous FDA findings for similar, licensed products. Applicants must, however, provide additional data and seek a separate finding by the FDA before the product can be approved as a biosimilar. Like the Hatch-Waxman Act, the BPCIA provides periods of market exclusivity for innovator biologics and the first biosimilar applicant. Under the BPCIA, a biosimilar application cannot be submitted to the FDA until four years after the date of the innovator product’s licensure and may not be approved until 12 years after such date. In addition, the first biosimilar applicant is itself eligible for an exclusivity period of 12 months. However, that exclusivity period may be extended if, for example, patent litigation under the PHSA remains pending.

Marketing pharmaceutical products

The FFDCA regulates the advertising and promotion of prescription drugs and biologics and the Federal Trade Commission Act (the FTC Act) regulates the advertising and promotion of OTC drugs. Both Acts prohibit making false and misleading representations regarding pharmaceutical products. The FDA is responsible for enforcement of the FFDCA and the FTC is responsible for enforcement of the FTC Act.

The federal Anti-Kickback Statute makes it a felony for any individual or entity to solicit or receive anything of value in exchange for influencing a federal healthcare beneficiary to use a particular drug.

The Physician Payments Sunshine Act provisions, enacted as part of the Affordable Care Act, also require that drug manufacturers who sell products eligible for federal healthcare reimbursement report to the Centers for Medicare and Medicaid Services (CMS) certain payments or items of value given to physicians and teaching hospitals. CMS aggregates reported data and then publishes it annually on a public website.


Are drug prices subject to regulatory control?

In general, the US federal government does not regulate the pricing of pharmaceutical products purchased by commercial payers and private individuals. It does, however, impose special pricing rules in the context of certain federal health programmes such as Medicare and Medicaid. Recently, there have been efforts by several states to institute pharmaceutical pricing transparency regulations. A number of these regulations have been the subject of litigation.

In addition, Maryland has passed the first US law designed to penalise generic drugmakers for price-gouging. Under the new law, the Maryland Attorney General will investigate ‘unconscionable increases’ in prices for essential off-patent or generic medicines. Branded pharmaceuticals are not covered by the Maryland statute. In September 2017, a US district court judge denied a request from the Association for Accessible Medicines (AAM) to enjoin the new Maryland statute. The AAM’s appeal of the district court ruling is currently pending in the Fourth Circuit.


Is there specific legislation on the distribution of pharmaceutical products?

At the federal level, the distribution of pharmaceutical products is governed by the Prescription Drug Marketing Act, as amended. The Act requires each person engaged in wholesale distribution of prescription drugs who is not the manufacturer or an authorised distributor of record for the drug, to provide a statement to the person receiving the drug identifying each prior sale, purchase or trade of the drug, along with other information.

Drug wholesalers also must be licensed under state licensing systems and meet certain minimum requirements for the storage, security and handling of prescription drugs, including the treatment of returned, damaged and outdated drugs.

Intersection with competition law

Which aspects of this legislation are most directly relevant to the application of competition law to the pharmaceutical sector?

As described in greater detail in question 1, the Hatch-Waxman Act provisions that regulate the approval and entry of generic drugs generally have had the greatest impact on competition in the pharmaceutical sector. Enforcers and private plaintiffs have alleged that brand-name pharmaceutical manufacturers have abused or improperly manipulated this process to delay or restrict generic entry or enter into anticompetitive patent litigation settlements. The BPCIA is only now being put into force; it remains to be seen to what extent it creates situations similar to what has occurred under the Hatch-Waxman Act.

Competition legislation and regulation


Which legislation sets out competition law?

The principal federal competition statutes in the United States are the Sherman, Clayton, FTC and Robinson-Patman Acts. Section 1 of the Sherman Act prohibits unreasonable restraints of trade, including per se illegal agreements such as price fixing and market allocation, as well as other forms of agreements that are evaluated under the ‘rule of reason’. Section 2 of the Sherman Act prohibits certain unilateral conduct, including obtaining or maintaining a monopoly through predatory or exclusionary means.

Mergers and acquisitions are regulated by section 7 of the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act). The Clayton Act prohibits mergers and other acquisitions ‘where the effect . . . may be substantially to lessen competition or tend to create a monopoly in any line of commerce’. The HSR Act requires companies to notify the DoJ and FTC in advance of any planned mergers or acquisitions (or certain joint ventures) exceeding certain size thresholds and to observe a waiting period. The FTC Act authorises the FTC to bring enforcement actions against ‘unfair methods of competition’ and ‘unfair or deceptive acts or practices’ and generally prohibits the same types of conduct that would violate the Sherman Act. The Robinson-Patman Act prohibits certain forms of price discrimination in the sale of commodities, including pharmaceuticals, to resellers or distributors.

The vast majority of states have adopted antitrust laws, most of which are modelled on the federal antitrust laws or are interpreted consistently with their federal counterparts, although some substantively differ from federal antitrust law.

Competition authorities

Which authorities investigate and decide on pharmaceutical mergers and the anticompetitive nature of conduct or agreements in the pharmaceutical sector?

The FTC and DoJ (the Antitrust Agencies) share the responsibility of enforcing US federal antitrust laws. The agencies utilise an informal process based on each agency’s expertise to allocate responsibility between them for particular investigations. The DoJ, however, has the sole authority to prosecute criminal antitrust matters such as price fixing and bid rigging. In practice, non-criminal matters relating to the pharmaceutical industry are generally handled by the FTC, making it the primary federal antitrust enforcement body for pharmaceutical companies. State attorneys general can enforce both state and federal antitrust laws on behalf of residents, as well as pursue claims on behalf of the state with respect to purchases by state agencies.


What remedies can competition authorities impose for anticompetitive conduct or agreements by pharmaceutical companies?

Criminal violations of the Sherman Act are generally punishable by fines of up to US$100 million for a corporation and US$1 million for an individual, although those fines may be increased to twice the amount gained by the conspirators or double the amount lost by the victims. Individuals also may be sentenced to imprisonment for up to 10 years. For civil antitrust violations, the Antitrust Agencies may seek civil penalties of up to approximately US$40,000 per day and injunctive relief and, in some circumstances, the disgorgement of ill-gotten gains. Divestitures are the most common remedy for merger-related anticompetitive conduct. HSR-related and other procedural violations are generally punishable by civil penalties.

For example, in the merger control area, the FTC required Mylan NV (Mylan), to divest assets and marketing rights for 400mg and 600mg generic felbamate tablets, which treat refractory epilepsy and 250mg generic carisoprodol tablets, which treat muscle spasms and stiffness, in order to proceed with its acquisition of Meda AB (Meda). Mylan and Meda were three of only four competitors in the market for 400mg and 600mg generic felbamate tablets. Only two firms marketed generic carisoprodol, but Mylan had recently received FDA approval to market a generic carisoprodol product. In addition to Meda, only one other firm marketed a generic carisoprodol product, and Mylan had recently received FDA approval to market a generic carisoprodol product. As a result, the acquisition would have eliminated the entry of a third market participant. (In the matter of Mylan NV, FTC File No. 161-0102,

Private actions and remedies

Can private parties obtain competition-related remedies if they suffer harm from anticompetitive conduct or agreements by pharmaceutical companies? What form would such remedies typically take and how can they be obtained?

Private parties can sue for injunctive and monetary relief under the Clayton Act. The monetary relief available to a private plaintiff can be significant, as the Clayton Act provides for treble damages and the recovery of attorneys’ fees and costs for successful plaintiffs. While federal law allows only direct purchasers of goods and services to recover damages for antitrust violations (Illinois Brick Co v Illinois, 431 US 720 (1977)), many states allow indirect purchasers to recover for antitrust violations under state antitrust law. Private antitrust suits in the US often take the form of class action lawsuits (see In re Plasma-Derivative Protein Therapies Antitrust Litigation US District LEXIS 2501 (ND Ill 2012) (holding that an indirect purchaser of plasma-derivative protein therapies lacked antitrust standing under the Sherman Act and, therefore, could not seek damages, but instead only injunctive relief)).

Sector inquiries

May the antitrust authority conduct sector-wide inquiries? If so, have such inquiries ever been conducted into the pharmaceutical sector and, if so, what was the main outcome?

In general, the Antitrust Agencies only issue subpoenas when there is cause to believe that there has been a legal violation. While there has been no sector-wide inquiry into the pharmaceutical industry to date, in May 2015 the FTC issued a staff report on competition in the pet medications industry (see Competition in the Pet Medications Industry, FTC Staff Report,

NGO involvement

To what extent do non-government groups play a role in the application of competition rules to the pharmaceutical sector?

Non-government organisations can play an important role in providing input to the competition authorities, either by informing the authorities about a potential competition issue, or by providing input (either voluntarily or in response to the authorities’ request) with respect to an ongoing investigation of a specific conduct or merger. The most weight, however, is given to information furnished by market participants, especially customers, directly affected by the conduct at issue. Private antitrust litigation can only be brought by parties that have standing, which requires that they be directly affected by the challenged conduct and have sustained the kind of injury that the antitrust laws were designed to prevent.

Review of mergers

Sector-specific considerations

Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?

The Antitrust Agencies apply the same substantive test to the analysis of a proposed merger, regardless of industry, with the Horizontal Merger Guidelines (the Merger Guidelines) providing the framework for the agencies’ review. The agencies do, however, take the specific features of a market into account when analysing the competitive effects of a transaction, and the highly regulated nature of the pharmaceutical market is an important part of the analysis in a pharmaceutical transaction.

Entry that is timely, likely and sufficient to counteract anticompetitive effects can be a defence to the assertion that a merger will substantially reduce competition. Entry into the pharmaceutical industry can be time-consuming and expensive, however, because of the regulatory approval process for new drugs. Thus, the FTC generally has taken the position that de novo entry into a pharmaceutical product market will not be timely because of a combination of drug development times and FDA approval requirements (eg, In the Matter of Hikma Pharmaceuticals plc, FTC File No. 1510198,

In reviewing mergers of generic pharmaceutical manufacturers, the FTC has taken into account the merging firms and their competitors’ ability to compete for new generics during the initial 180-day marketing exclusivity period. For example, in connection with Teva’s acquisition of Cephalon, the FTC required Teva to extend its supply agreement with Par, enabling Par to continue to compete during the initial 180 days, and to enter into a licensing agreement with Mylan to establish an independent competitor to Teva after the exclusivity period had ended (In the Matter of Teva Pharmaceuticals Industries Ltd and Cephalon Inc, FTC File No. 111 0166,

Market definition

How are product and geographic markets typically defined in the pharmaceutical sector?

When defining a relevant pharmaceutical market, the Antitrust Agencies focus on the nature of the transaction and specific products at issue. The ultimate question with respect to market definition is to what alternatives customers could turn in the face of an attempted price increase by the merged firm. In the pharmaceutical sector, the relevant product market is sometimes defined by the illness or condition that the drug is approved to treat (eg, In re Pfizer and Pharmacia, FTC File No. 021-0192,; one relevant market defined as drugs for treatment of erectile dysfunction). In other instances, the agency will define a market based on the particular mechanism by which the pharmaceutical works or the manner in which it is administered (eg, In the Matter of Novartis AG, FTC File No. 141-0141,; two separate relevant markets defined for BRAF and MEK inhibitors, cancer treatment drugs that inhibit molecules associated with the development of cancer). Product markets in some cases have been limited to a specific drug and its generic substitutes, but even more commonly, solely to the generic form of a particular drug (eg, In the Matter of Teva Pharmaceutical Industries and Barr Pharmaceuticals, FTC File No. 081-02224,

The FTC has said that where a ‘branded drug manufacturer may choose to lower its price and compete against generic versions of the drug’, the brand ‘is a participant in the generic drug market’ (In the matter of Mylan Inc, Agila Specialties Global Pte Limited, Analysis of Agreement Containing Consent Orders to Aid Public Comment, FTC File No. 131-0112,

The Antitrust Agencies generally define the relevant geographic market in a pharmaceutical merger to be the United States because of the country’s regulatory scheme for drug approvals and sales.

Addressing competition concerns

Is it possible to invoke before the authorities the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?

US courts and Antitrust Agencies generally do not take into account industrial policy arguments when considering whether a merger or conduct violates the antitrust laws. Evidence that a merger or other challenged conduct will create efficiencies that result in lower costs, improved quality, or increased innovation, however, is typically relevant to the antitrust inquiry. Evidence of the pro-competitive benefits of the challenged conduct will weigh in favour of a finding of lawfulness.

Horizontal mergers

Under which circumstances will a horizontal merger of companies currently active in the same product and geographical market be considered problematic?

Under the agencies’ 2010 Horizontal Merger Review Guidelines, the focus of a merger analysis is whether the merger will ‘encourage one or more firms to raise prices, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives’. In reviewing a merger, the US Antitrust Agencies generally follow the 2010 Horizontal Merger Review Guidelines, which identify two types of potential anticompetitive effects - unilateral and coordinated.

Unilateral effects result from the elimination of competition between the two merging firms that allows the merged firm to unilaterally raise prices. The analysis hinges on the degree to which the products of the merging firms are reasonable substitutes for each other, and the agencies use a variety of indicia to assess their substitutability. Views of physicians, evidence of switching by physicians or patients in response to price or other factors and other evidence of head-to-head competition, such as competition for favourable placement on a payer’s formulary, may be relevant to the analysis. The more closely the products of the merging companies compete, the more likely it is that the merged firm will be able to profitably raise prices above competitive levels because sales lost because of a price increase will more likely flow to the merger partner. The agencies also rely heavily on the merging parties’ ordinary course documents for evidence of an anticompetitive rationale for a transaction.

Under a coordinated effects analysis, a merger may be anticompetitive if it facilitates coordination among competitors. A market is susceptible to coordinated conduct when a number of characteristics are present, including a small number of firms, observable actions of competitor firms, the possibility of quick responses by rivals to a firm’s competitive actions, a history of collusion, small and frequent sales in the market and inelastic demand.

In Grifols/Talecris, the FTC alleged both unilateral and coordinated effects, stating that the combined company would be able to unilaterally increase prices without experiencing a reduction in demand. The FTC also alleged that the transaction would facilitate coordinated interaction between the combined company and other market participants because of the characteristics of the industry and the fact that there had been prior allegations of collusion in the industry (In the Matter of Grifols SA and Talecris Biotherapeutics Holdings Corp, FTC File No. 101-0153,

In reviewing a merger of two firms, the Antitrust Agencies will evaluate all of the products marketed by both firms to determine if there is an overlap, as well as the pipeline portfolio of each firm to determine whether the firms are developing any potentially competitive products. The agencies will consider problematic any merger that is likely to enable the merged firm to raise prices unilaterally in one or more relevant market or to facilitate coordination among the merged firm and remaining competitors in one or more relevant market.

Product overlap

When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?

An overlap between a currently marketed product and one in development can raise concerns where there are few substitute products either on the market or being developed by other firms, the product in development appears likely to receive FDA approval and the products are close substitutes for one another. For example, the FTC has challenged mergers where neither firm currently competes in a market, but both firms are viewed as future entrants (eg, In the Matter of Lupin Ltd, Gavis Pharmaceuticals Inc and Novel Laboratories Inc, FTC File No. 151-0202,; acquisition alleged to eliminate future competition in the market for a generic extended release capsule used to treat colitis where Gavis and Lupin were two of a limited number of suppliers capable of entering the market). Both actual and potential competition are analysed using the framework of the Merger Guidelines.


Which remedies will typically be required to resolve any issues that have been identified?

The Antitrust Agencies have stated a strong preference for structural remedies (ie, divestitures) over conduct remedies that require monitoring. In the event that a divestiture is required, the agencies will seek to ensure that the purchaser of the divested asset has everything needed to become an effective competitor. As a result, the divestiture of a complete business unit is generally preferred, and the agencies may require that the merging parties divest both tangible assets, such as manufacturing facilities, and intangible assets, such as research and development or intellectual property. The agencies also have mandated licensing arrangements in connection with a divestiture. For example, the FTC’s consent order in Grifols/Talecris mandated a combination of divestitures and a licensing arrangement to Kedrion, an Italian company (In the Matter of Grifols, SA and Talecris Biotherapeutics Holdings Corp, FTC File No. 101-0153,; requiring the divestiture of a fractionation facility, a haemophilia treatment business and a seven-year manufacturing agreement with the purchaser of the divested assets).

Patents and licences

Would the acquisition of one or more patents or licences be subject to merger reporting requirements? If so, when would that be the case?

The acquisition of a patent or exclusive licence may be subject to the HSR Act reporting requirements if the value of the patent or exclusive licence meets the threshold requirements for premerger notification, and the transaction is not otherwise exempt.

The HSR thresholds include both a size-of-transaction and size-of-persons test. Under the size-of-transaction test, the threshold is met when a buyer acquires, or will hold as a result of an acquisition, voting securities, assets or non-corporate interests valued in excess of US$84.4 million. If the value of the transaction is greater than US$337.6 million, the transaction is reportable even where the size-of-persons test is not satisfied. Under the size-of-persons test, the threshold is met if one party to the transaction has at least US$168.8 million in annual sales or total assets and the other has at least US$16.9 million in annual sales or total assets. (These dollar values are for 2018; the dollar value of these thresholds is revised annually based on changes in the US gross national product.)

In 2013, the FTC implemented a new HSR rule that clarifies when the transfer of rights to a patent in the pharmaceutical sector is reportable under the HSR Act as an asset transfer and expands the application of the HSR Act to certain exclusive licences in the pharmaceutical sector. Specifically, the rule targets licensing agreements that transfer the exclusive use and sale of a patent, but allow the licensor to retain manufacturing rights for that patent. Under the new rule, a transfer of ‘all commercially significant rights’ to a pharmaceutical patent is reportable if it otherwise meets the HSR Act’s size-of-transaction and size-of-person thresholds. ‘All commercially significant rights’ is defined as ‘the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area)’. Such a transfer now occurs even if the patent holder retains the right to manufacture solely for the recipient (licensee) or retains the right to assist the recipient in developing and commercialising products covered by the patent.

This patent transfer reporting rule applies only to the pharmaceutical sector, distinguishing it from other industries in the treatment of the transfer of exclusive licences where the transferor retains a right to manufacture. The new rule was upheld by the United States Court of Appeals for the District of Columbia in 2015 (Pharmaceutical Research and Manufacturers of America v FTC, No. 1:13-cv-01974 (DC Circuit 9 June 2015)).

Anticompetitive agreements

Assessment framework

What is the general framework for assessing whether an agreement or practice can be considered anticompetitive?

Under section 1 of the Sherman Act, agreements that unreasonably restrict trade are prohibited, with agreements among competitors receiving the closest scrutiny. Certain ‘horizontal’ agreements (eg, price fixing or market allocation) are considered illegal per se, meaning that the plaintiff need not define the affected relevant market or prove anticompetitive effects, and the defendant does not have the opportunity to put forward justifications for the agreement. Horizontal agreements that are reasonably necessary to achieve efficiencies are judged under the ‘rule of reason’, where the agreement’s pro-competitive benefits are weighed against its anticompetitive effects within the relevant product and geographic markets.

Vertical agreements, such as those between suppliers and customers, are more likely to have legitimate business justifications and less likely to have anticompetitive effects than horizontal arrangements, and therefore generally are judged under the more lenient rule of reason. In the pharmaceutical industry, antitrust enforcers have applied close antitrust scrutiny to agreements that have the effect of restricting or delaying generic competition. These ‘pay-for-delay’ cases are discussed in greater detail in question 23.

Section 2 of the Sherman Act also prohibits exclusionary or predatory conduct by firms with monopoly power or a dangerous probability of achieving a monopoly. Pharmaceutical companies are at particular risk of challenges under section 2 because they may be accused of having a monopoly position in a narrowly defined product market, perhaps limited to a single product (see question 27 et seq).

Technology licensing agreements

To what extent are technology licensing agreements considered anticompetitive?

Technology licensing agreements are generally analysed under the rule of reason, in which the agreement’s pro-competitive benefits are weighed against its potential anticompetitive effects. If, however, a court or agency concludes that a licensing agreement is merely a means towards accomplishing a per se illegal objective (eg, a market allocation scheme), then the per se rule might be applied. In 1995, the Antitrust Agencies published Antitrust Guidelines for the Licensing of Intellectual Property (the IP Guidelines), which set forth the Antitrust Agencies’ analytical approach. For licensing agreements that are not subject to per se condemnation, the IP Guidelines provide for a safe harbour where the parties involved have no more than a 20 per cent share of each market affected by the licensing arrangement.

Restrictions in licensing agreements can create antitrust risk. Exclusivity provisions, for example, may be challenged if they foreclose competition unreasonably. Courts assessing the foreclosure effect of such agreements examine the term and scope of the exclusivity, the market share of the parties, the business justifications for the exclusivity and the availability of less restrictive alternatives. A requirement that the licensee acquire other products or licences from the licensor as a condition for obtaining the licence can also raise antitrust issues.

Co-promotion and co-marketing agreements

To what extent are co-promotion and co-marketing agreements considered anticompetitive?

Co-promotion and co-marketing agreements, like other joint ventures or competitor collaborations, are analysed under the rule of reason. The Antitrust Agencies’ Antitrust Guidelines for Collaboration Among Competitors explain how they evaluate these types of agreements. To determine whether an agreement is a legitimate competitor collaboration entitled to rule of reason treatment, an agency or court will look first to whether the agreement integrates the resources of the companies to develop potential efficiencies. For example, a joint marketing or promotion agreement might result in the combination of complementary assets that permits the participants to commercialise products faster or more efficiently. These types of arrangements are likely to be considered lawful under a rule-of-reason analysis as long as the pro-competitive benefits outweigh the likely anticompetitive effects. If, however, the arrangement will merely make it easier for the participants to exercise market power or increase prices, or if the potentially anticompetitive effects outweigh the efficiency-enhancing aspects of the arrangement, then the arrangement may violate antitrust laws.

In addition, the FTC has challenged co-promotion and co-marketing agreements between brand name and generic pharmaceutical companies in connection with patent settlements.

Other agreements

What other forms of agreement with a competitor are likely to be an issue? Can these issues be resolved by appropriate confidentiality provisions?

Joint ventures among competitors carry possible antitrust risks. The Antitrust Agencies have investigated research joint ventures, production joint ventures and joint-purchasing arrangements, among others. All of these types of agreements raise more significant antitrust risks when the participants have a high combined market share. Courts and agencies are especially concerned about restrictions in collaboration agreements that may impact competition outside the scope of the collaboration and are not reasonably necessary to achieve the arrangement’s pro-competitive effects.

Even if there is no direct agreement to reduce competition outside of the collaboration, information obtained by the participants as a result of the collaboration sometimes can have ‘spillover effects’ that reduce competition between the participants. In some cases, these spillover effects can outweigh the pro-competitive effects of the collaboration. Companies entering into competitor collaborations can reduce antitrust risk by limiting the participants’ access to competitively sensitive information from the other party or the joint venture.

Issues with vertical agreements

Which aspects of vertical agreements are most likely to raise antitrust concerns?

Vertical agreements are generally evaluated under the rule of reason and typically raise antitrust issues when they have the effect of foreclosing competitors from a significant portion of the market. For example, if a dominant seller enters into an exclusive arrangement with customers or suppliers that accounts for more than 30 per cent of the relevant market, it may become more difficult for competitors of the seller to compete. ‘Loyalty discounts’ that condition a customer’s receipt of discounts on purchasing most or virtually all of its volume from the seller can have similar foreclosure effects and have been challenged.

Tying arrangements can raise similar antitrust issues and are one of the few vertical restrictions that are at least technically considered illegal per se. Tying occurs where a seller requires a purchaser of one product or service (the tying product) to also purchase a second product or service (the tied product). Where the seller has market power in the tying product, such an arrangement can foreclose competition from rivals selling products that compete with the tied product.

Bundled discounts may have similar effects where they require a customer that purchases one product to purchase a bundle of products in order to obtain a discount on the product that the customer wants. Bundled discounts, however, are a highly unsettled area of US antitrust law, with courts applying different standards to determine when a bundled discount is unreasonably exclusionary (compare Cascade Health Solutions v PeaceHealth, 515 F3d 883 (Ninth Circuit 2008) - conduct is exclusionary where bundled discounts result in prices below an appropriate measure of the defendant’s costs; LePage’s Inc v 3M Co, 324 F3d 141 (Third Circuit 2003) (en banc) - allowing a monopolisation claim to proceed based solely on potential for exclusion, without requiring evidence of below-cost pricing; and Ortho Diagnostics Sys Inc v Abbott Lab Inc, 920 F Supp 455 (SDNY 1996) - requiring evidence that bundled discounts led to prices below the defendant’s average variable costs and that the plaintiff was at least as efficient a producer of the competitive product). Moreover, although the FTC has relied on the Ninth Circuit’s approach in pursuing an enforcement action, it has stated that it retains the right to pursue claims against any alleged monopolist based on a different legal standard, including the Third Circuit’s approach that requires no evidence of below cost pricing (In the Matter of Intel Corporation, FTC File No. 061-0247,

Patent dispute settlements

To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

Settlements of patent litigation between brand-name and generic pharmaceutical companies may create antitrust risk where the agreement has two elements: the generic company agrees to wait until a certain date to enter the market and a payment of some form is made by the brand-name manufacturer to the generic manufacturer. These types of arrangements have been referred to as ‘pay-for-delay’ or ‘reverse payment’ patent settlements and the FTC has taken the position that they result in a payment to the generic manufacturer in exchange for an agreement to delay entry.

Joint communications and lobbying

To what extent can joint communications or lobbying actions be anticompetitive?

Otherwise anticompetitive conduct is not immunised from antitrust scrutiny because the conduct took place at the meeting of a trade association. Because trade associations bring competitors together, they can provide an opportunity to engage in illegal conduct such as the exchange of competitively sensitive information or an agreement among trade association members to fix prices. In addition, when a trade association engages in standard setting, such as setting minimum safety standards, it raises the possibility of anticompetitive behaviour, particularly where members involved in the standard setting activities have the opportunity to disadvantage their competitors through the standard-setting process (see American Institute of Intradermal Cosmetics v Society of Permanent Cosmetic Professionals, 2013 US District LEXIS 58138, at *22 (CD Cal 2013) (denying the defendant’s motion to dismiss where the plaintiff sufficiently pled that a cosmetics professionals trade association had allegedly established pretextual standards that were not based on objective criteria and selectively enforced by the trade association in order to stifle competition)).

Lobbying actions, where competitors seek to petition some agency of the government to take an action that has the effect of restraining competition, may be immunised from antitrust scrutiny under the Noerr-Pennington doctrine. Noerr-Pennington immunity encompasses a range of conduct intended to induce any of the three branches of the US government to take a particular action, even if the result of that governmental action would be anticompetitive in a particular market.

Public communications

To what extent may public communications constitute an infringement?

A firm could use a public communication to engage in price signalling with a competitor. Under US law, the mere receipt of such pricing information from a competitor will not lead to liability. Under section 1 of the Sherman Act, there must be a meeting of the minds to conspire. Although price signalling via public communications might be evidence of a commitment to act in concert with a competitor, on its own it is not enough. For example, a decision to increase prices in response to similar actions of a competitor would be lawful if it was conscious parallelism (ie, parallel conduct or pricing) rather than a decision to conspire with a competitor to fix prices. In addition, US courts recognise that signalling future prices can be lawful if it serves a pro-competitive purpose. Finally, US courts also recognise that under the theory of interdependence, parallel pricing is likely to be a feature of oligopolistic markets, where a single firm’s changes in price or output will necessarily impact the market and its rivals.

Exchange of information

Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

There is natural tension in pharmaceutical merger discussions that may create a greater possibility of anticompetitive information exchanges. Unlike other sectors, where current product offerings represent the bulk of the value of a company, much of the real or perceived value of a pharmaceutical company is in its pipeline of future products. The importance of the pipeline creates a situation where potential buyers have a real business need to determine the value of a target’s pipeline, while also needing to be mindful of anticompetitive exchanges of the target’s most competitively sensitive information.

Anticompetitive unilateral conduct

Abuse of dominance

In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

Exclusionary or predatory conduct carried out by a firm with monopoly or market power may be unlawful under section 2 of the Sherman Act, which prohibits monopolisation, attempts to monopolise and conspiracies to monopolise. Vertical restrictions that limit competitors’ access to supplies or customers, such as exclusive dealing, tying, or loyalty or bundled discounts, may violate the Act. Other types of conduct that have been deemed predatory or exclusionary include predatory (below-cost) pricing, engaging in baseless litigation for an anticompetitive purpose, abusing an industry standard-setting process (eg, by influencing an association to adopt a standard that is designed to suppress competition) and, in rare cases, a refusal to deal with a competitor. Section 2 does not prohibit the mere possession of monopoly or market power or the acquisition of such power through lawful competition on the merits.

In January 2017, Mallinckrodt ARD Inc (Mallinckrodt) and its parent company, Mallinckrodt plc, agreed to pay US$100 million to settle charges by the FTC and five states that Mallinckrodt illegally maintained its monopoly of Acthar, a specialty drug used to treat a rare seizure disorder affecting infants. According to the FTC, Mallinckrodt violated US antitrust laws when its Questcor division illegally acquired the US rights to develop Synacthen Depot (Synacthen), a drug that threatened Mallinckrodt’s existing monopoly in the US market for adrenocorticotropic hormone (ACTH) drugs used to treat infantile seizures. The FTC charged that Mallinckrodt had taken advantage of its monopoly in the market for ACTH drugs by raising the price from US$40 per vial in 2001 to more than US$34,000 per vial today. According to the complaint, Mallinckrodt felt threatened that a competitor would obtain the US rights to Synacthen, a competing drug used in Europe and Canada to treat infantile seizures. In order to maintain its monopoly, Mallinckrodt allegedly outbid several competitors to obtain the US rights to Synacthen from Novartis AG. In addition to the US$100 million fine, Mallinckrodt agreed to grant a licence to develop Synacthen to a licensee approved by the FTC (In the Matter of Mallinckrodt ARD Inc, Complaint for Injunctive and Other Equitable Relief, FTC File No. 131-0172,

De minimis thresholds

Is there any de minimis threshold for a conduct to be found abusive?

US law does not recognise a claim for abuse of a dominant position like that of article 102 of the Treaty on the Functioning of the European Union (TFEU). Unlike the EU, however, US law does prohibit actual and attempted monopolisation under section 2 of the Sherman Act, which is described further in question 29.

Establishing dominance

When is a party likely to be considered dominant or jointly dominant?

A party is likely to be considered dominant - that is, to have monopoly power - when it has the ability to control or exclude competition in a ‘relevant market’. Courts frequently use a party’s market share in a relevant market as a proxy for assessing whether that party has market power. No bright line rules exist for what constitutes monopoly power under US law, but most successful monopolisation claims involve market shares of at least 70 per cent. To succeed on a claim for ‘attempted monopolisation’, the plaintiff must show that the defendant has a ‘dangerous probability’ of obtaining monopoly power, which generally requires a market share of at least 50 per cent. US antitrust law does not recognise joint dominance of a market in section 2 cases.

Market share is not, however, the sole determinant of whether a firm has monopoly power. A firm with a high market share may not have monopoly power if there are no or weak barriers to entry and the threat of such entry prevents the firm from acting anticompetitively. Additionally, market power may be proved by direct evidence in the absence of proof that the defendant has a high market share.

Can a patent holder be dominant simply on account of the patent that it holds?

Generally, no. In Illinois Tool Works Inc v Independent Ink Inc, 547 US 28 (2006), the US Supreme Court ruled that a patent holder is not presumed to have market power simply because it holds a patent.

Patent grant and enforcement

When would life-cycle management strategies expose a patent owner to antitrust liability?

Manufacturers whose branded products are coming off-patent often seek to improve their products, patent the improvement and move their customers to the improved products. There have been several antitrust challenges to this type of conduct, sometimes referred to as product hopping, where it has been alleged that the new drug did not reflect any real improvements and was solely used as an effort to thwart generic competition. In 2015, the Second Circuit became the first circuit court to address product hopping when it affirmed a preliminary injunction against Actavis plc (formerly Forest Laboratories). The Second Circuit held that Actavis’ withdrawal of Namenda IR, a twice-daily drug for the treatment of Alzheimer’s disease, and subsequent introduction of extended release Namenda XR violated the antitrust laws because Actavis effectively engaged in a scheme to coerce patients to switch from the old product to the newer one. The court also indicated, however, that it likely would have been lawful for Actavis to keep the original product on the market while working to persuade customers to switch to the new extended release version (New York v Actavis plc, No. 14-4624 (Second Circuit 22 May 2015)).

Patent owners also may be subject to antitrust scrutiny for improperly listing patents in the Orange Book as a means to extend exclusivity and thereby impede generic competition (eg, In the Matter of Bristol-Myers Squibb Co, Docket No. C-4076 (2003), Similarly, drug manufacturers can be subject to antitrust liability for filing a citizen petition with the FDA that is intended solely to delay or prevent competition with the drug and is not based on a reasonable chance of success (see FTC v Shire ViroPharma, Inc, D Del, No. 17-131, filed 2 July 2017, and ‘Update and trends’).

To what extent can an application for the grant or enforcement of a patent expose the patent owner to liability for an antitrust violation?

Application for the grant of a patent does not, by itself, expose the patent owner to antitrust liability. Enforcement of a fraudulently obtained patent, however, may violate section 2 of the Sherman Act if used to exclude lawful competition from the market (Walker Process Equipment Inc v Food Machinery & Chemical Corp, 382 US 172 (1965)).

In addition to enforcement of a fraudulently obtained patent, a patent owner can be liable for an antitrust violation if it pursues patent litigation with no reasonable chance of success, solely to cause direct harm to the competitor’s business as a result of the litigation process. The FTC has also taken the position that the refusal of brand-name pharmaceutical companies to sell samples of their products to generic companies for bioequivalence studies in situations where FDA-imposed distribution restrictions have prevented the generic company from making use of alternative channels to acquire such samples can constitute exclusionary conduct (see FTC’s brief as amicus curiae in Mylan Pharmaceuticals Inc v Celgene Corporation, Case No. 2:14-CV-2094 (DNJ 2014), available at In its brief, the FTC argued that Celgene’s choice as to with whom it does business was not absolutely shielded from claims like Mylan’s. Generic manufacturers often seek these samples from brand-name pharmaceutical companies because they may be necessary to obtain regulatory approval for a generic product. In February 2015, the Third Circuit declined to reverse the district court decision allowing the case to proceed (Mylan Pharmaceuticals Inc v Celgene Corporation, No. 2-14-cv-02094 (Third Circuit 27 February 2015)).


Can communications or recommendations aimed at the public or HCPs trigger antitrust liability?

As noted in question 28, the mere receipt of a ‘signal’ from a competitor cannot result in liability under the US antitrust laws without more. Whether that signal was sent through public communications or communications aimed at HCPs would not be relevant. Instead, under section 1 of the Sherman Act, there must be a meeting of the minds to conspire.

In addition, such communications as a general rule would not give rise to antitrust liability in the US. Truthful and non-misleading commercial speech is likely be protected under the First Amendment. Where claims about a competitor’s product are false or misleading, however, it is possible that such claims could lead to antitrust liability. In ongoing antitrust litigation in the single-serve coffee pod market, plaintiffs claim that Keurig Green Mountain Inc (Keurig) discouraged customers from buying its competitors’ coffee pods by falsely claiming that the competitors’ pods would cause Keurig machines to fail.

Importantly, plaintiffs claim that Keurig’s alleged false statements are just one component of an anticompetitive scheme code-named ‘Project Squid’. In addition to the alleged false statements, plaintiffs claim that Keurig forced distributors to enter into exclusive agreements and filed baseless patent infringement lawsuits against competitors. It is not clear whether the false statements claim alone would be enough to lead to antitrust liability. A district court judge rejected Keurig’s motion to dismiss in December 2017 (see In re Keurig Green Mountain Single-Serve Coffee Antitrust Litigation, No. 1:14-md-02542 (SDNY, filed 5 June 2014).

Authorised generics

May a patent holder market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

Although US law grants 180 days of exclusivity to the first generic drug to reach the market through a patent challenge, that exclusivity does not preclude a brand-name manufacturer from launching an authorised generic during the 180-day exclusivity period. As noted in question 23, the FTC views a promise by the brand-name manufacturer not to launch an authorised generic to constitute an unlawful reverse payment if included as part of a patent settlement that delays generic entry. In June 2015, the Third Circuit adopted the FTC’s position that a commitment not to launch an authorised generic may be a reverse payment under Actavis (In re Lamictal, No. 14-1243.) In November 2016, the Supreme Court declined to hear the defendants’ appeal of the Third Circuit’s ruling (King Drug Co of Florence, Inc v SmithKline Beecham Corp, 791 F3d 388 (Third Circuit 26 June 2015)) - cert denied, 137 Supreme Court 446 (2016).

Restrictions on off-label use

Can actions taken by a patent holder to limit off-label use trigger antitrust liability?

The Federal Food, Drug, and Cosmetic Act, which provides the framework for US pharmaceutical regulation, does not explicitly prohibit off-label promotion but permits the FDA to regulate manufacturers’ marketing and branding of drugs and prohibit the introduction of new, unapproved drugs. The FDA traditionally has used this regulatory authority to prohibit off-label promotion, although the scope of the FDA’s authority to do so has been challenged under the First Amendment.

Using an FDA-approved drug for an off-label use is not unlawful under US law; nor is it unlawful for an HCP to prescribe a drug for off-label use. In 2017, Arizona passed a law allowing drug makers to promote their products for off-label use, as long as the information provided is truthful. Legislators in Colorado, Mississippi and Missouri have introduced similar bills for 2018. Misleading or false statements made by pharmaceutical companies regarding off-label or any other use, however, could potentially give rise to antitrust liability.


When does pricing conduct raise antitrust risks? Can high prices be abusive?

US antitrust law does not recognise a claim of abuse of dominance through ‘excessive’ pricing and high prices alone do not create antitrust risk under the federal law. As discussed further in ‘Update and trends’, however, several states have recently passed laws to increase pharmaceutical pricing ‘transparency’ and at least one state has passed a law that would give its Attorney General the power to investigate and penalise price gouging.

Pricing conduct can give rise to antitrust liability if a firm agrees with a competitor to raise, lower, stabilise or otherwise fix prices in violation of section 1 of the Sherman Act or when a monopolist engages in predatory pricing.

Sector-specific issues

To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

Except in the case of a per se unlawful agreement between competitors (eg, price fixing or market allocation), courts evaluating antitrust claims typically place significant weight on a defendant’s pro-competitive justifications for its conduct. Thus, conduct that increases the safety or efficacy of drugs, or makes it easier for patients to comply with drug regimens, is likely to be viewed favourably by the Antitrust Agencies and courts. Such justifications, however, will be weighed against possible anticompetitive effects and the existence of less restrictive alternatives. Additionally, when analysing antitrust issues, US courts keep in mind the regulated nature of the pharmaceutical sector and the economic importance of patent protection and generic substitution.

Has national enforcement activity in relation to life-cycle management and settlement agreements with generics increased following the EU Sector Inquiry?

Not applicable.

Update and trends

Current trends and developments

Are there in your jurisdiction any emerging trends or hot topics regarding antitrust regulation and enforcement in the pharmaceutical sector?

Competition authorities in the UK and the EU have made headlines in the last 18 months with eye-popping fines and blockbuster investigations related to ‘excessive pricing’. In December 2016, the UK’s Competition and Markets Authority (CMA) fined pharmaceutical manufacturer Pfizer and distributor Flynn Pharma a combined £90 million for alleged excessive pricing of anti-epilepsy drugs sold to the National Health Service. Until 2012, Pfizer manufactured branded phenytoin sodium capsules in the UK under the brand name Epanutin. As a branded pharmaceutical, Epanutin was subject to price controls in the UK. In September 2012, Pfizer sold the UK distribution rights to Flynn. Shortly thereafter, Flynn de-branded or genericised the drug. As a generic, the anti-epilepsy drugs were no longer subject to UK price controls. (See United Kingdom Chapter, ‘Update and trends’.)

According to the CMA, the companies exploited the de-branding and raised prices by 780 and 1,600 per cent. Although pharmaceutical companies are generally free to set prices as they see fit in the UK, the CMA stated that companies that hold a dominant position should not abuse that position by setting prices that are excessive and unfair.

Just seven months later, the European Commission (EC) launched an unprecedented excessive pricing investigation in the pharmaceutical sector. The focus of the ongoing inquiry is on Aspen Pharma’s pricing of five cancer drugs and whether Aspen abused a dominant position by imposing a significant price increase of five cancer drugs in violation of article 102 TFEU. Although the legal authority to challenge excessive pricing as an abuse of dominance under article 102 is not new, the EC had not initiated an excessive pricing investigation in the pharmaceutical sector until last year. (See United Kingdom Chapter, ‘Update and trends’.)

In the US, pharmaceutical prices can be the subject of heated public debate, Congressional and State Attorney General investigations and media scrutiny. Despite this high profile, however, US antitrust law does not have anything comparable to article 102 and there is no US equivalent to a claim of excessive pricing; nor does the federal government impose other types of price controls on the pricing of pharmaceutical products in the US, although there have been recent efforts by states to institute pharmaceutical pricing transparency regulations that have become the subject of litigation.

Nevertheless, high pharmaceutical prices can still attract the attention of US regulators and therefore create the potential for legal risk. Just last year, the FTC filed a complaint in federal district court charging Shire ViroPharma Inc (ViroPharma) with violating the antitrust laws by abusing government process to delay generic competition to ViroPharma’s branded Vancocin HCl Capsules in order to maintain allegedly inflated prices.

According to the FTC, ViroPharma raised the price of Vancocin Capsules significantly after acquiring its rights in 2004 and continued to do so until 2011. The FTC alleged that ViroPharma took advantage of the FDA’s citizen petition practice to defer the approval of a generic application until it had resolved any pending petition filings. According to the complaint, ViroPharma’s goal was to use this government process to delay the approval of competition from generic competitors, thereby delaying increased competition and allowing ViroPharma to maintain its allegedly inflated prices. The litigation in the ViroPharma matter is ongoing. Although there may be no risk of an excessive pricing investigation by US regulators, pharmaceutical companies should nevertheless be proactive in considering antitrust risk in conjunction with their US pricing programmes.