The federal district court judge before whom the Ovcon antitrust litigation is pending has refused to apply the per se rule to the challenged agreements between Warner Chilcott and Barr Pharmaceuticals relating to the sale of Ovcon. The decision confirms that agreements between branded and generic manufacturers that have the potential to result in efficiencies will not be summarily condemned (i.e., without an inquiry into actual market conditions) merely because those agreements also may result in less generic competition. See Meijer, Inc. v. Barr Pharmaceuticals, Inc.
The Ovcon antitrust litigation arises out of an exclusive supply arrangement entered into between Warner Chilcott and Barr relating to Warner Chilcott’s branded oral contraceptive Ovcon. Barr was developing a generic form of Ovcon, which is not subject to patent protection. Pursuant to the agreement, in return for $1 million, Barr granted Warner Chilcott an option to purchase exclusive rights to all of Barr’s supply of generic Ovcon for an additional $19 million. Warner Chilcott subsequently exercised the option, which also had the effect of preventing Barr from marketing its planned generic Ovcon product. This transaction was challenged by the Federal Trade Commission (FTC), numerous state attorneys general, and private plaintiffs, all of whom have already settled with Warner Chilcott. Barr has settled with the FTC and state attorneys general, but not with the private plaintiffs.
The case was before the court on motions for summary judgment filed by both sides. The court first considered whether the agreements in question were to be judged under the per se rule or the rule of reason. The plaintiffs characterized the transaction as nothing more than a horizontal agreement not to compete – which is typically judged under the per se rule. Plaintiffs also analogized the agreement in question to that in In re Cardizem CD Antitrust Litig., 332 F.3d 896, 907-909 (6th Cir. 2003), in which the Sixth Circuit applied the per se rule to an agreement by a generic manufacturer not to enter the market during the pendency of patent litigation in return for a so-called “reverse payment.”
Barr, on the other hand, emphasized the vertical aspects of the agreement. Barr noted that there had been evidence produced in the case that Warner Chilcott was dissatisfied with the supply of Ovcon that it was receiving from Bristol-Myers Squibb, and was interested in obtaining the product from another source. Barr pointed out that exclusive supply agreements are typically analyzed under the rule of reason because of their potential to result in efficiencies, and noted potential efficiencies arising out of this agreement – such as a more stable and reliable supply of Ovcon to Warner Chilcott’s customers.
The court agreed with Barr, noting that the transaction was more than simply a horizontal agreement not to compete, and stated that “the law does not allow a party to simply isolate one particular provision or restraint within an overall agreement and argue, in isolation, that the restraint is subject to per se condemnation.” The court stated that this was not the type of arrangement that could be evaluated without a more detailed analysis of the economic effects. In particular, the court noted that the economic impact of the transaction depended greatly on a proper understanding of the relevant market. If the “market” was limited to Ovcon itself (and possible generic Ovcon) – as plaintiffs alleged – that would make it more likely that the transaction had anticompetitive effects. But if the “market” included the over 80 branded and general oral contraceptive products that Barr alleged were included in the market, then the impact of the transaction on competition was less clear. Because the court could not determine the appropriate market definition at this stage, it found that the case needed to proceed to trial.