Antitrust Alert: Federal Antitrust Agencies Impose Penalties for False Representations about Patent Infringement Settlements

Recent decisions by the Department of Justice Antitrust Division and Federal Trade Commission highlight the serious consequences, for individuals and companies alike, of making false representations in government antitrust investigations. And as so always in Washington, the "cover up" can create more problems than the underlying conduct.

On April 6, 2009, a former senior executive of Bristol-Myers Squibb (BMS), Andrew Bodnar, pleaded guilty in federal district court for his role in BMS' dishonest dealings with the FTC over a patent litigation settlement between BMS and Apotex. He now faces maximum penalties of a year in prison and a $100,000 fine. If the court accepts the government's Federal Sentencing Guidelines recommendation, Mr. Bodnar will serve from zero to six months in jail. His employer, BMS, agreed in 2007 to pay a criminal fine of $1 million for filing false statements with the FTC.

On March 31, 2009, the FTC announced that BMS will pay a $2.1 million civil fine for its failure to make required disclosures in connection with the patent settlement as required under an earlier FTC Order and the Medicare Modernization Act (MMA).

The BMS-Apotex patent deal involved a popular drug, Plavix, the most widely prescribed blood-thinning drug. The underlying patent (set to expire in 2011) for the active ingredient in Plavix is exclusively licensed to a BMS partnership. In 2001, Apotex filed an abbreviated New Drug Application ("ANDA”) with the FDA, seeking approval to sell a generic Plavix before expiration of the patent. BMS challenged Apotex's proposed generic as infringing the Plavix patent. In 2006 they settled the infringement litigation.

An FTC Order from previous, unrelated litigation required that BMS submit any patent settlements to the FTC for "advisory approval that the settlement did not contain anticompetitive provisions." Under this Order, BMS could not proceed with a settlement absent FTC approval. BMS separately is required by the MMA to give the FTC notice of any settlement agreement and related agreements, within ten days of execution. With notice, the FTC may decide whether to open an investigation.

In March 2006, BMS filed with the FTC the proposed settlement agreement with Apotex. The FTC objected to the provision in the agreement that prohibited BMS from launching its own generic version of the drug for six months – a period during which Apotex would be the exclusive seller of the generic version of Plavix. In May 2006, BMS submitted a revised settlement agreement to the FTC, having removed the provision.

Although aware of the FTC's objections, Mr. Bodnar, BMS' negotiator on the deal, verbally assured Apotex that BMS would not market its own generic Plavix, if Apotex agreed not to launch its Plavix generic until 2011. BMS did not inform the FTC of this verbal side agreement.

In June 2006, pursuant to the MMA, Apotex provided to the FTC its own notice of the revised settlement agreement, together with a letter disclosing their oral side agreements. The FTC then requested from BMS a written certification confirming that BMS "ha[d] not made any representation, commitment, or promise to Apotex, whether oral or written, that is not explicitly set forth in the [Revised Settlement] Agreement, including the representation that [BMS] would not launch an authorized generic version of Plavix during Apotex's period of exclusivity.” Mr. Bodnar executed the certification on behalf of BMS. Meanwhile, Apotex provided the FTC with declarations to support its disclosure of the side agreement.

Confronted with conflicting certified statements, the FTC alerted the DOJ, as the FTC lacks criminal jurisdiction. The DOJ opened a grand jury investigation, and now has succeeded in negotiating plea agreements with Mr. Bodnar, who faces the serious penalties, and a criminal fine from BMS.

The FTC itself pursued civil penalties against BMS, obtaining an agreement that BMS would pay $2.1 million in penalties for violating the earlier FTC order and MMA reporting requirements. The FTC alleged that BMS violated the MMA by failing to "reduce a material fact and information to writing, and filing an incomplete statement of the settlement." This marks the first time the FTC has filed a complaint against a party for violating the MMA.

As discussed in previous Jones Day publications, the FTC has focused considerable resources over the past several years to challenging patent infringement settlements it believes are anticompetitive.

This case demonstrates that the antitrust agencies will aggressively pursue knowing failure truthfully to comply with these reporting requirements. It is notable that the offenses challenged involved only the "cover up." To our knowledge, the putative underlying offense – a promise by a branded firm to a generic entrant not to introduce a generic version of its own product – has never been formally challenged by the FTC. (According to a May 2008 FTC study, there were 33 brand-generic settlement agreements filed in fiscal 2007. Of these, 14 included both compensation to the generic and a restriction on the generic's ability to market its product, and in 11 the compensation took the form of a commitment by the branded manufacturer not to compete with an authorized generic for some time after the entry of the generic company's product.)

The fact the FTC has not challenged prior patent infringement settlement agreements in which the consideration has been the branded manufacturer's promising to forego competing as a generic suggests that the FTC would not have challenged the BMS-Apotex agreement – if the FTC had not had the leverage to do so easily with the prior Order against BMS. This also suggest that the FTC does believe that infringement settlement agreements in which the branded manufacturer promises not to compete as a generic are anticompetitive, but has not (yet) found a case to challenge such an agreement on the merits.

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Ryan C. Thomas