Avoiding Antitrust Issues - - BioPharm International


Avoiding Antitrust Issues

BioPharm International
Volume 1, Issue 8

The penalties for violating the antitrust laws can be severe. Violations of Sections 1 and 2 of the Sherman Act can be prosecuted as felonies, punishable by large fines and imprisonment. However, the majority of cases prosecuted criminally under the Sherman Act have involved allegations of per se violations of Section 1, including horizontal price-fixing, bid rigging, and market allocation.7(pp729-731) Private parties also may enforce Sections 1 and 2 of the Sherman Act, as well as the Clayton and Robinson-Patman Acts, and if successful, may recover treble damages, as well as reasonable attorneys' fees and costs. Furthermore, many states have adopted supplementary antitrust legislation. Consequently, complying with the complex regulatory thicket of antitrust legislation is critical to a biopharmaceutical company's long-term economic health.

The Patent Laws

A patent is a grant from the US government assuring an inventor the sole right to make, use, and sell an invention for a limited number of years. The primary purpose of patents is to encourage inventors by rewarding their heavy expenditures of time, money, and energy. Shortly before he became President, Abraham Lincoln opined that patent laws were among the most valuable new inventions and discoveries in the history of the world "on account of their great efficiency in facilitating all other inventions and discoveries."9 Several of America's key constitutional framers, including Thomas Jefferson and James Madison, believed that protecting inventions would spur scientific discovery. For example, James Madison contended in The Federalist that strong patent laws would enhance "the public good."10 With the average research and development costs for a new Food and Drug Administration (FDA) approved pharmaceutical continuing to spike above $800 million, biopharm companies must be able to recoup their substantial investments through patents without undue interference from the antitrust laws.11

Reconciling Intellectual Property and the Antitrust Laws

Courts and commentators have questioned at times whether the temporal and limited "monopolies" bestowed by America's patent laws are consistent with the antitrust laws.12,13 The ineluctable conclusion is that they are. By spurring innovation and new developments, the patent laws catalyze enhanced competition, which ultimately results in increased output and consumer choice, as well as greater efficiencies and lower prices to consumers. Biopharm companies must therefore be permitted to maximize the values of their intellectual property portfolios (in 2002 "pharmaceutical companies derived an average 20 percent of their total sales from in-licensed products"),14 without crossing the antitrust laws' boundaries. The good news is that with careful and ongoing antitrust counseling, biopharm companies can enjoy the fruits of their discoveries without violating the antitrust laws.

Antitrust Issues in Acquiring, Listing, and Enforcing Biopharmaceutical Intellectual Property Rights

Obtaining Pharmaceutical Patents

In rare circumstances, obtaining a pharmaceutical patent by a grant to the inventor may potentially create antitrust liability. According to the ABA, citing Automatic Radio Mfg. Co. v Hazeltine Research, Inc., "In the context of the challenge to acquisition by grant, the Supreme Court has stated that 'mere accumulation of patents, no matter how many, is not in and of itself illegal.'"7(p1035),15 However, such liability may only be imposed if the patent is obtained by fraud, and the patent holder attempts to enforce it with knowledge that the patent is invalid.

Allegations such as those involved in Walker Process v Food Machinery and Chemical Corp., and Nobelpharma AB v Implant Innovations, Inc.,16, 17 formed the basis of an antitrust suit under Section 1 of the Sherman Act by the US against Ciba-Geigy in 1969, based on alleged misrepresentations to obtain a patent for hydrochlorothiazide, "a very useful diuretic and antihypertensive agent." The government contended that Ciba presented affidavits to the United States Patent and Trademark Office (PTO) containing material omissions. Holding for Ciba, the US District Court ruled, "The government ha[d] not demonstrated by clear and convincing evidence that Ciba omitted the allegedly misleading facts intentionally and in bad faith. Furthermore, the omitted facts were immaterial to the issuance of the patent."18

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