Will FTC Chairman Leibowitz’s Departure Change The Enforcement Landscape?

by Pepper Hamilton LLP

After three years at the helm of the Federal Trade Commission (FTC), Chairman Jon Leibowitz stepped down. Without a doubt Chairman Leibowitz has been a visible and relentless advocate for restricting pay-for-day or reverse payment generic pharmaceutical patent dispute settlements and for expanding the reach of Section 5 of the Federal Trade Commission Act, 15 U.S.C. §45.

FTC v. Watson, which is set for oral argument on March 25, 2013 before the U.S. Supreme Court, should decide the antitrust standard applicable to reverse payment settlements. There, the FTC is arguing that reverse payment agreements should be treated as presumptively unlawful because, according to the FTC’s brief in the Supreme Court, they closely resemble the sort of horizontal agreements that have previously been condemned under the antitrust laws. The standard applied in most circuits is the "scope of the patent" test—reverse payment settlements are lawful as long as the settlement does not exceed the exclusionary scope of the patent and the patent owner’s claim is not a sham or procured by fraud on the Patent and Trademark Office. The minority of circuits presume reverse payment settlements are illegal or treat them as illegal per se.

In early February the U.S. Senate began again to consider the Preserve Access to Affordable Generics Act, which is intended to expand the FTC’s oversight of such settlements and to establish a more stringent standard for reverse payment settlements than is now applied by the majority of the circuits. There is no similar legislation pending in the U.S. House of Representatives. If the FTC does not succeed in the Supreme Court, the pressure for a legislative solution will increase. The FTC’s push to end reverse payment settlements, however, began more than 10 years ago, before Chairman Leibowitz’s arrival. Thus, it is unlikely that the FTC’s priorities in this area will change significantly because of his departure.

In a speech early in his tenure he explained why the FTC should use Section 5 of the FTC Act to reach conduct that courts would not deem illegal under the antitrust laws, stating that "antitrust law is far more restrictive than it was thirty years ago and if we want to accomplish our mission of protecting consumers in an age of judicial conservatism, we need to use every tool in our arsenal." http://www.ftc.gov/speeches/leibowitz/090924fordhamspeech.pdf. True to his word, under his leadership the FTC pursued Section 5 cases in a variety of industries, including cases against Intel; IDEXX Laboratories; Motorola/Google; Robert Bosch; U-Haul; Transitions Optical; Pool Corp.; and several manufacturers of ductile iron pipe fittings, among others.

The White House announced on February 28, 2013 that President Barack Obama will name FTC Commissioner Edith Ramirez as the FTC’s new chairwoman. Ramirez was sworn in as a commissioner in April 2010 and her appointment as chairwoman will not require Senate confirmation. Commissioner Ramirez supports the FTC’s use of Section 5 and has authored the FTC’s statement on several Section 5 matters as well as the summary judgment opinion in the iron pipe fitting case. In the FTC’s January 3, 2013 Google statement, however, while agreeing with Chairman Leibowitz and Commissioner Julie Brill that Google’s alleged violation of its fair, reasonable and non-discriminatory (FRAND) licensing commitment violated Section 5’s prohibition on unfair methods of competition , Commissioner Ramirez did not agree that Google’s alleged conduct fell within Section 5’s prohibition on unfair acts and practices.

Commissioner Ramirez takes a keen interest in intellectual property matters and has made clear that the FTC should "be vigilant in protecting the integrity of the standard-setting process." http://www.ftc.gov/speeches/ramirez/130103googlemmistmt.pdf. In addition, Commissioner Ramirez recently made a statement to the Senate Judiciary Committee, which while respectful of the International Trade Commission (ITC), sought to limit the ITC’s use of exclusion orders in matters where the patent holder made a FRAND commitment on a patent at issue, particularly where that patent holder would be unlikely to win injunctive relief in federal court. http://www.ftc.gov/speeches/ramirez/120711septestimony.pdf.

Predictions of the FTC’s future enforcement priorities may be premature. Based on the track records of the two Democratic appointees, one thing is clear — Commissioner Ramirez is the more moderate choice. Historically, however, the FTC has not undergone tectonic shifts with changes in leadership because of its bipartisan composition. The FTC acts only when a majority of the commissioners agree to act and therefore there is a need to seek consensus. Given the FTC’s long-standing commitment to the crackdown on delayed entry of generic drugs, its successful Section 5 track record, and its bipartisan composition, it is unlikely that there will be a dramatic change in direction or focus. If the FTC is unsuccessful in the Supreme Court and the Preserve Access to Affordable Generics Act does not become law, the FTC may be forced to focus less on reverse payment settlements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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