2009 has brought a more aggressive enforcement focus on antitrust law. The new chiefs of the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) have announced similar policies of increased enforcement.1 And Congress has followed suit by proposing new antitrust legislation, much of which reverses recent Supreme Court precedent and is consistent with recent FTC and DOJ enforcement policies.
Resale Price Maintenance
On July 30, a panel of the U.S. House of Representatives passed H.R. 3190, titled the “Discount Pricing Consumer Protection Act of 2009,” a bill designed to reverse the Supreme Court decision in Leegin Creative Leather Products Inc. v. PSKS Inc.2 In Leegin, the Supreme Court held that resale price maintenance agreements (“RPMs”) should be reviewed on a case-by-case basis, departing from longstanding precedent holding that RPMs were per se unlawful. H.R. 3190 provides that “[a]ny agreement setting a price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate section 1 of the Sherman Act [15 U.S.C. 1).”3 The bill was introduced by Representative Henry Johnson (D-Ga.), the chairman of the House Judiciary Committee’s Courts and Competition Policy subcommittee. A vote of the full Committee could come as soon as September 2009. This is not the first time members of Congress have tried to pass such a bill, however. On October 30, 2007, Senator Herbert Kohl (D-Wis.) introduced S. 2261, which died in committee. Senator Kohl re-introduced the bill as S. 148 on January 6, 2009, which was referred to the Committee on the Judiciary and is pending.4
Irrespective of whether H.R. 3190 or a similar bill becomes law, companies should be cautioned that notwithstanding the Leegin decision, a number of state antitrust statutes prohibit RPMs as per se unlawful.5
Federal Pleading Standard
On July 22, 2009, Senator Arlen Specter (D-Pa.) introduced S. 1504 (dubbed the “Notice Pleading Restoration Act of 2009”), a bill that would reverse the 2007 decision in Bell Atlantic Corp. v. Twombly,6 in which the Supreme Court overturned longstanding precedent governing the standard for notice pleading in Federal Rule of Civil Procedure 8(a)(2), as previously set forth in Conley v. Gibson.7
In Conley, Justice Black, writing for the Court, held that “[a] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitled him to relief.”8 Plaintiffs have cited this passage repeatedly in opposition to motions to dismiss. However, in a 7–2 decision, the Supreme Court stated in Twombly that the oft-cited “no set of facts” language in Conley “has earned its retirement.”9 Rather, the Court adopted a “plausibility” standard, holding that a complaint must allege enough facts—i.e., it must have “enough heft”—from which to infer that the plaintiff has a plausible claim for relief.10 S. 1504 incorporates the standard in Conley by express reference to that decision, providing:
Except as otherwise expressly provided by an Act of Congress or by an amendment to the Federal Rules of Civil Procedure which takes effect after the date of enactment of this Act, a federal court shall not dismiss a complaint under rule 12(b)(6) or (e)…, except under the standards set forth by the Supreme Court of the United States in Conley v. Gibson, 355 U.S. 41 (1957).11
Twombly has been criticized by commentators as setting too high a standard at the initial pleading stage, thereby thwarting potentially legitimate claims with respect to which the defendants hold the evidence. On the other hand, numerous proponents of Twombly note that the Conley standard is too liberal, thereby “holding up” innocent defendants who face expensive and drawn out discovery. It remains to be seen whether, and if so when, S. 1504 will pass. If it passes, there likely will be an increase in private antitrust litigation, as private plaintiffs become emboldened by the more aggressive enforcement policy of the FTC and DOJ.12
Reverse Payment Settlements
On June 3, 2009, Representative Bobby Rush (D-Ill.) introduced H.R. 1706, referred to as “Protecting Consumer Access to Generic Drugs Act of 2009.”13 The purpose of the bill is “[t]o prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market, and for other purposes.”14 Such compensation is commonly referred to as “reverse payments.” On July 31, 2009, the House Energy and Commerce committee passed the bill as an amendment to the health care reform bill.
Agreements incorporating reverse payments have been a hot button issue in patent litigation for a number of years. The FTC has vigorously challenged such agreements, but the Second, Eleventh and Federal Circuits have upheld them;15 only the Sixth Circuit has held that such agreements are per se illegal.16 The challenged agreements are entered into between brand drug companies and generic drug companies in connection with patent infringement litigation that is triggered by a generic drug company’s application to the Food and Drug Administration (“FDA”) for approval of a generic drug under what commonly is known as the Hatch-Waxman Act.17 On July 6, 2009, the DOJ, Antitrust Division, filed a brief in the Second Circuit at the Court’s invitation, taking the view that such agreements should be reviewed under the rule of reason, but should be considered presumptively unlawful—a presumption that may be rebutted by a showing, inter alia, that the reverse payment is in an amount that corresponds to litigation costs and costs of business disruption that the defendant would avoid by settling the patent infringement lawsuit.18
H.R. 1706 is not the first bill introduced in Congress that is designed to prohibit reverse payment agreements; similar bills have been introduced (and died) since early 2007, two times in the House of Representatives and three times in the Senate.19