October 18

Terra, D.O.P. and the Lanham Act

San Marzano tomatoes are often praised as the best tomatoes in the world. But not every San Marzano tomato is a tomato grown in San Marzano sul Sarno in the Campania region of Italy because the label “San Marzano” refers to both a type of tomato and a location. And some producers are growing San Marzano style tomatoes in the United States, are calling them “pomodoros,” which is, of course, Italian for tomato, and may be giving Italian producers of authentic D.O.P. San Marzano tomatoes agida. Why? Because the American producer is relying on the good reputation of the San Marzano brand to sell its product that is not held to the strict guidelines imposed by Italian law.

Do the tomatoes grown in California taste the same as the ones grown in San Marzano sul Sarno, Italy? An American consumer, who has never tasted authentic, San Marzano tomatoes may never know. The purveyor of true San Marzano tomatoes not only loses out on the initial sale, but may lose future sales either because the consumer is underwhelmed by the inauthentic product or because the consumer is satisfied with it. In either case, the consumer is unlikely to reach for the more expensive, true San Marzano tomatoes the next time he/she is in the market. Thus, it looks like the tomatoes may be ripe for litigation.

Does terra matter under the law? The short answer is, yes, the producer of authentic San Marzano tomatoes might be able to obtain damages under U.S. law. Although there are no D.O.P.( Denominazione d’Origine Protetta), A.O.C. (Appellation d’Origine Contrôlée), or similar origin designation under U.S. law, the courts have made clear that a misrepresentation of product origin or even a label that is misleading about product origin can violate the Lanham Act, which protects against false affiliation and false advertising. And a competitor who can show injury can bring a civil action even if the FDCA takes no issue with the food label. Relief may include injunctive relief, lost profits, disgorgement of profits gained as a result of the false advertising, amounts necessary for corrective advertising, and, in the exceptional case, attorneys’ fees. The Lanham Act permits courts to increase damages to no more than three times the actual damages proved.

At Felicello Law, we are fascinated by food and the law. Contact us at info@felicellolaw.com or on Twitter @rfelicello if you are interested in continuing the discussion.


January 31


The Department of Justice thinks so. It filed suit today (Jan. 31, 2013) to prevent consummation of the planned merger, which was announced June 29, 2012.

The D.O.J. argues that Anheuser-Busch’s acquisition of the remaining 50% share of Modelo that it does not currently own would “substantially lessen competition” and would have “anticompetitive effects” in violation of the Clayton Act § 7, 15 U.S.C. § 18.

October 25

“Pay-for-delay” Deals – Anticompetitive or Appropriate & Reasonable Settlements?

This morning the FTC released a staff report that purports to assess the number of “pay-for-delay” deals entered into by brand and generic drug companies during the fiscal year 2011 (October 1, 2010 to September 30, 2011). The press release that accompanies the report concludes that business deals made between brand and generic companies continue an “anticompetitive trend” and delay consumers’ access to lower-cost generic drugs. But the staff report and the accompanying press release lack the analysis to support this conclusion.

In fact, there is little basis for this sweeping conclusion.

The so-called “pay-for-delay” deals referenced by the FTC are settlement agreements entered into by brand and generic pharmaceutical drug companies to resolve patent disputes between the companies.  According to the FTC, out of 156 patent dispute settlements, 28 (18%) contain compensation to the generic manufacturer and a restriction on the generic manufacturer’s ability to market its product. The majority of the settlements (100 or 64%) contain some restriction on the generic manufacturer’s ability to market its product but contain no explicit compensation. Twenty-eight of the settlements have no restrictions on entry.

The FTC staff report provides no further analysis of these settlements.  It does not say whether any of the generic drugs at issue did violate the brand company’s patent, in which case a settlement preventing the generic from coming to market during the life of the patent would seem to be entirely reasonable and appropriate. It does not say if the restriction on entry is during the life of the patent at issue (a timespan that may be reasonable and appropriate) or if the restriction on entry extends longer than the life of the patent at issue (a timespan that may be anticompetitive). The report does not say how long any of the restrictions are for and whether some of the restrictions may allow the generic to come to market before the life of the patent has run. In short, the FTC staff report does not provide any basis to determine whether these agreements are, in fact, anticompetitive.

Merely labeling all settlements between a brand and a generic drug company that places any restrictions on market entry of the generic drug as “anticompetive” is simply posturing and name-calling. It also shows little understanding for this nation’s patent laws, drug development or jurisprudence.

Role of patent law in drug development

Patent rights spur innovation. Brand pharmaceutical companies invest hundreds of millions of dollars in research and development in drug development based on the assurance that if they develop a new, safe and effective drug, they will be able to recoup the costs of that investment plus a healthy profit. If brand pharmaceutical companies are not allowed to protect their patent rights, they will have much less incentive to invest in research and development of new drugs.

Generic drug companies have much lower research and development costs. They are allowed to reverse engineer the brand pharmaceutical’s products and come to market with very similar products. They are allowed, and are encouraged, to ride the coattails of the brand companies’ research and marketing initiatives.

Without brand pharmaceutical companies, there would be no new drug treatments on the market. The generic drug companies merely follow the brand.

Because of their business model, generic drug companies are able to provide their products at a substantially decreased cost than brand drug companies. But the generic companies still make healthy profits on their drug products.

Patent Infringement Suits

The Hatch-Waxman Act provides a framework to encourage generic drug companies to bring their similar products to market before the expiration of the brand company’s patent. The generic company is allowed to reverse engineer the brand company’s drug product and attempt to develop a product that does not infringe on the brand company’s product.

Under the Act, the generic company must provide the brand company with notice of its new product and the brand company is allowed to challenge whether the generic product infringes on the brand drug. The courts then determine whether there is patent infringement.

So-called “pay for delay” settlements

The settlements discussed by the FTC staff report are settlements of these patent infringement suits. The settlements are a natural consequence of the litigation framework set out in the Hatch-Waxman Act. To avoid the uncertainty of a court decision, which might find infringement, the parties must have reached a compromise and have settled their claims.

It makes sense that some of these settlements should include better terms for the brand product and some should include better terms for the generic product. The relative strength of the parties’ claims are likely different in each case.

To know whether any one of these settlements is anticompetitive, one would need to know whether the proposed generic infringed the brand’s patent. If the generic drug would be infringing on the brand’s patent, then it could not come to market any sooner than the running of the patent. In some cases, the settlement may allow the generic to come to market sooner than it would have if the patent had been upheld.

The fact that some compensation has been provided to the generic company in some of the settlements is not a red-flag of anticompetitive conduct; it is a red-herring. Again, the FTC report does not say how long the generic has been kept off of the market (for a period greater than, less than or equal to the life of the patent) or provide any analysis of the relative strength of the parties’ positions. Settlement of a lawsuit that allows a brand company to protect its patent rights should not be considered wrong simply because generic companies provide drugs at lower costs. But that seems to be the argument that FTC Chairman Jon Leibowitz is making.

Cost to consumers?

The supposed lower costs of generics needs to be considered in light of the benefits that brand companies provide. I’m not an economist but I suspect that some of the costs of promoting generic drug companies at the expense of brand drug companies are not always counted.

For instance, the FTC press release includes a chart showing that the “pay for delay” settlements are projected to cost Americans $35 billion over the next 10 years. Really? $35 billion? What is the basis for this number? The FTC staff report does not say.

But there are at least a few reasons to question the calculation.  First, it is likely that a court would have found in favor of the brand companies on the patent infringement claims at least some of the time. Second, in calculating the cost of the delay, one must consider how long the generic is being kept off of the market that is greater than it would have been under the existing patent laws. Third, the consequence of no “pay for delay” settlements would not necessarily be faster access to generic drugs.  If drug companies are not allowed to enter these types of settlements, they are more likely to continue their fight in the courtroom.

September 9

The Risky Business of Product Innovation

If you develop a drug product, patent it, and bring it to market, are you required to continue to make it available for sale even if you have developed a better product to fill the same need? It depends on your reasons for bringing the new drug to market, your reasons for pulling the old drug from the market, and your means of converting the market to the new drug product. If you pull the drug from the market aggressively or even if you simply stop manufacturing it, you may be open to charges of anticompetitive conduct under the Sherman Antitrust Act. This is a result of the incongruous interplay between patent law, the federal laws related to pharmaceutical products, and state drug substitution laws.

Anti-competitive conduct & a monopolist’s duty to deal

Although the general rule of business in the United States is that a corporation (like a live person) may choose to do business with whatever other entities or people that it chooses, subject to specific regulations and discrimination laws, an entity that possesses monopoly power may have a duty to deal with its competition in certain instances. For example, the Supreme Court has ruled that a large ski lift operator in Aspen had a duty to continue to aid its rival ski lift operator by continuing to offer an all-Aspen ski pass because there the large operator had monopoly power and there was no consumer benefit or anticompetitive justification not to continue to offer the all-Aspen pass. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).

Hatch-Waxman and state drug substitution laws

The Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), codified at 21 U.S.C. §§ 355, 360cc and 35 U.S.C. §§ 156 [**8], 271, 282, provides the legal framework for the interaction of branded and generic drug manufacturers. To encourage generic drug companies to enter the market and drive the costs of drugs down, the Hatch-Waxman Act simplifies the FDA submission process for generic manufacturers, essentially allowing them to piggyback on the branded drugs application for FDA approval.

The generic drug manufacturer asks the FDA to rate its product “AB” to an existing branded product. An AB rating is given when the generic drug is bioequivalent to the branded product and also has the same form, dosage and strength. State drug substitution laws provide that AB-rated drugs may be automatically substituted for the branded drug product at the pharmacy unless the patient’s physician indicates that no substitution may occur.

Branded drug products as monopolies

In the realm of branded drug products and generic substitution laws, advocates for generic drug companies argue that branded drugs with patent protection are monopolies. Once they are labeled as monopolies, they may have a duty to deal with their rivals unless they can offer a valid business justification for refusing to deal. In the pharmaceutical context, the duty to deal may include the duty to keep your branded drug on the market so that the generic drug has a reference for automatic substitution. It means, essentially, handing your market over to your rivals.

Foreclosing the preferred generic business model as anticompetitive behavior

In Abbott Labs. V. Teva Pharms., the Delaware district court held that under a rule of reason analysis the court should weigh the benefits provided by the new product with the anticompetitive harm imposed by removing the prior formulation from the market. Abbott Labs. et al. v. Teva Pharmaceuticals USA, Inc. et al., 432 F. Supp. 2d 408, 422 (D. Del. 2006). But the court assumed away the alleged benefits of the product improvement. Instead, the court held that because the cost-efficient means of competing in the pharmaceutical drug market for generic drug companies is to provide generic substitutes to the original branded product, Abbott’s act of preventing that substitution by introducing a new product “is sufficient to support an antitrust claim.” Id. at 423. The District of Columbia has adopted a similar rule of reason analysis. United States v. Microsoft, 253 F.3d 34, 59, 346 U.S. App. D.C. 330 (D.C. Cir. 2001).

In contrast, the test applied most recently in district court in California is merely whether the new technology or product provides “sufficiently legitimate innovation” over the previous generation product. Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group L.P., 2008 U.S. Dist. LEXIS 112002, at *42, CV 05-06420 MRP (AJWx),Master Case, (C.D. Cal. July 9, 2008). If so, it cannot be the basis for an antitrust violation. Id.

Taken together, the case law suggests that the only risk-free approach for a branded drug manufacturer is to never remove an old version of its product from the market in the face of potential generic entry, even if the company has developed an improved version of this product. But this solution is not particularly appealing for branded companies or their investors because selling and marketing two separate versions of the same drug product leads to inefficiencies and potential market cannibalization. Thus, the incentives are skewed so that risk-adverse companies may choose not to develop improved versions of their drug products because they may be forced to compete with their own old product if they do so.

There is another, riskier option. Branded drug companies with an appetite for some risk of litigation may choose to slowly remove the old version of the branded drug product from the market after the market shows a preference for the new version. If a branded drug company decides to take this option, it should be careful to establish that the new version of the drug product offers a bona-fide improvement (not merely a window-dressing change), that there are business justifications for removing the old product from the market other than maintaining the ability to charge a monopoly price (i.e. risk of consumer confusion, consumer preference for the new product, etc.), and that the decision to remove the old version of the product from the market is not simply a reaction to the threat of generic entry.