FTC did not abuse power in Watson brouhaha, judge opines

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A judge magistrate said that federal antitrust officials did not overstep or share confidential information while probing whether Cephalon illegally settled patent disputes with Watson Pharmaceuticals and others, but he disagreed with the way antitrust officials conducted the investigation.

A subpoena of Watson CEO Paul Bisaro, issued by the FTC as part of its probe, can go forward, the judge said, despite opposition by Watson. The company has the right to appeal. Watson declined to comment on the case, which a company representative told MM&M is still “a matter of ongoing litigation.”

Judge Alan Kay has said that Watson attorneys made two seemingly valid claims—first, that the Federal Trade Commission abused its power in pressuring Watson to give its exclusivity to market a generic copy of Cephalon flagship sleep disorder drug, Provigil, to rival generics maker Apotex and in subpoenaing Bisaro, and second, that the agency shared confidential information with Apotex.

According to court papers filed today, Watson subsequently failed to prove those allegations: “It has not been shown that the subpoena itself was issued to harass Mr. Bisaro or that the investigation has been conducted for an improper purpose,” judge Kay wrote. “Nor do the facts establish that the FTC shared confidential information about Watson with unauthorized third parties.”

However, noted the judge's 14-page Report and Recommendation, he disproved of the way the FTC went about the investigation, in particular agency attempts “‘to use its investigative power to pressure a company to waive statutory rights it had legitimately acquired or to enter into a business deal with a competitor.'”

The FTC's tactics in the case have drawn judge Kay's ire before. In court filings, he wrote that, by pushing for the Apotex deal, the FTC sought to place Watson “between a rock and a hard place” and that there was a “strong possibility” that FTC divulged Watson's confidential information to Apotex regarding its first-filer status on a patent.

As expected, the FTC claimed a victory at this stage. “We are gratified that the Magistrate has ruled in our favor," said Richard Feinstein, director of the FTC Bureau of Competition. "We have said all along that the FTC's investigation is proper, that we had a legitimate basis to ask for Mr. Bisaro's testimony and that his allegations were merely efforts to delay our inquiry into whether there is an agreement to keep generic drugs off the market and out of the hands of consumers.”

As judge Kay noted, the burden of proof on Watson was high and required proving that enforcement of the subpoena would amount to an abuse of the court's process. "However, these circumstances are rarely found, and, despite allegations of an improper purpose, courts will often enforce an agency subpoena so long as a proper purpose also exists."

Jerry Pappert, EVP and general counsel at Cephalon, against which the FTC filed suit in 2008, told MM&M that the judge's recommendation is "hardly a ringing endorsement of the FTC's conduct, and we certainly agree with the magistrate that the agency's conduct was questionable. It bears looking into by the congress, and we hope that there is a further examination of the FTC's tactics."

FTC Commissioner Jon Leibowitz has opposed reverse-payment payment settlements, also called pay-for-delay deals, in the courts but has met with mixed results. His support for legislation banning the agreements has not been successful thus far.

But the Senate Appropriations Committee recently voted to include a measure that would give the FTC the power to restrict the deals, inserting it in an appropriations bill for fiscal 2011 by a narrow 15-15 vote. The measure is modeled closely on S. 369 (the Preserve Access to Affordable Generics Act), an earlier bill sponsored by Sen. Herb Kohl (D-WI). The House also passed a measure that would restrict the settlements.

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