Federal Trade Commission et al v. Watson Pharmaceuticals, Inc. et al

Filing 357

OPINION AND ORDER denying (333) Motion to Compel in case 1:09-cv-00955-TWT; denying (1031) Motion to Compel in case 1:09-md-02084-TWT. Signed by Judge Thomas W. Thrash, Jr on 5/11/15. Associated Cases: 1:09-md-02084-TWT, 1:09-cv-00955-TWT(dr)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ANDROGEL ANTITRUST
LITIGATION (NO. II)

MDL DOCKET NO. 2084
ALL CASES
1:09-MD-2084-TWT

FEDERAL TRADE COMMISSION,
Plaintiff,
v.

CIVIL ACTION FILE
NO. 1:09-CV-955-TWT

ACTAVIS, INC., et al.,
Defendants.

OPINION AND ORDER

The Federal Trade Commission brought this antitrust action against the
Defendants Solvay Pharmaceuticals, Inc., Watson Pharmaceuticals, Inc., Paddock
Laboratories, Inc., and Par Pharmaceutical Companies, Inc. The FTC claims that the
Defendants, in underlying patent lawsuits, entered into unlawful, anti-competitive
“reverse-payment settlement agreements.” Both prior to and after the filing of this
suit, the FTC produced a number of general studies concerning patent lawsuits and
settlement agreements between brand-name and generic drug manufacturers. Although
the studies themselves are public, certain information underlying the studies is not.
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The Defendants’ Motion asks the Court to decide whether the Defendants may obtain
this underlying information through discovery. The Court concludes that they may
not. Accordingly, the Defendants’ Motion to Compel [Doc. 333] is DENIED.
I. Background
The facts of this case have already been laid out in detail on multiple
occasions.1 Thus, the Court will provide only a brief summary. Besins Healthcare,
S.A. – a Belgian pharmaceutical company – developed the formulation for a
testosterone replacement drug called AndroGel.2 In August of 1995, the Defendant
Solvay Pharmaceuticals, Inc. licensed, from Besins, the U.S. rights to the AndroGel
formula.3 Then, in August of 2000, Solvay and Besins applied for a U.S. patent
relating to AndroGel,4 and a patent was issued on January 7, 2003.5
In May of 2003, the Defendants Watson Pharmaceuticals, Inc. and Paddock
Laboratories, Inc. each filed an application with the Food and Drug Administration

1

See, e.g., In re AndroGel Antitrust Litig. (No. II), 888 F. Supp. 2d 1336
(N.D. Ga. 2012); F.T.C. v. Watson Pharm., Inc., 677 F.3d 1298 (11th Cir. 2012) rev’d
sub nom. F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013).
2

Second Am. Compl. ¶¶ 1, 32.

3

Second Am. Compl. ¶ 32.

4

Second Am. Compl. ¶ 39.

5

Second Am. Compl. ¶ 42.

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to market a generic version of AndroGel.6 The Defendant Par Pharmaceutical
Companies, Inc. reached a deal with Paddock in which “Par agreed to share litigation
costs with Paddock, market Paddock’s generic [alternative to AndroGel] following
launch, and share in the resulting profits.”7 In August of 2003, Solvay and Besins each
filed a patent infringement lawsuit against Watson and Paddock.8
In late January of 2006, Watson received final FDA approval for its generic
version of AndroGel.9 At this point, both Watson and Par/Paddock started preparing
to launch their respective AndroGel generics.10 This continued until Solvay, Watson,
and Par reached settlement agreements in the patent suits whereby Watson and Par
agreed to delay the market entry date of their AndroGel generics until August of
2015.11 In return, Watson received roughly $19 million during the first year of the
agreement, “rising to over $30 million annually by the end of the deal.”12 As part of

6

Second Am. Compl. ¶ 44.

7

Second Am. Compl. ¶ 46.

8

Second Am. Compl. ¶ 47.

9

Second Am. Compl. ¶ 52.

10

Second Am. Compl. ¶ 55.

11

Second Am. Compl. ¶ 65.

12

Second Am. Compl. ¶ 66.

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its deal with Solvay, Watson agreed to promote AndroGel.13 Par – which negotiated
with Solvay on behalf of Paddock – reached an agreement with Solvay whereby “Par
would co-promote AndroGel to doctors and receive $10 million annually, and
Paddock would serve as a back-up manufacturer for AndroGel and receive $2 million
annually.”14
The FTC then brought this lawsuit. It claims that the settlement agreements
were a means by which Solvay, using its monopoly profits, bought off its competition
– all to the detriment of the consumers. According to the FTC, if the patent
infringement suits had proceeded, Watson and Par/Paddock likely would have
prevailed, and their AndroGel generics would have hit the market well before the
expiration of the AndroGel patent. Had this occurred, consumers would have been
able to purchase the AndroGel generics at a price far below that of the brand-name
AndroGel product. According to the FTC, Solvay conducted an analysis where it
determined that, given the value of its AndroGel monopoly, it was economically
profitable to simply pay Watson and Par/Paddock to settle the lawsuits and delay the
entry date for their Androgel generics.

13

Second Am. Compl. ¶ 66.

14

Second Am. Compl. ¶ 74.

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The Motion to Compel currently before the Court concerns certain studies
produced and published by the FTC relating to reverse payments in patent
infringement settlements. In particular, the FTC has conducted a number of studies
concerning patent lawsuits and settlements involving brand name and generic
pharmaceutical manufacturers. At least two of these studies were referenced in the
FTC’s Second Amended Complaint. First, the FTC referred to a “study of all patent
litigation initiated between 1992 and 2000 between brand-name drug manufacturers
and . . . generic applicants” which indicated that “when cases were litigated to a
decision on the merits, the generics prevailed in cases involving 73 percent of the
challenged drug products.”15 In addition, to show that reverse-payment settlements are
not an organic part of pharmaceutical patent litigation, the FTC referred to another
study which stated that “in fiscal year 2004, following FTC enforcement actions
challenging exclusion payments, 14 pharmaceutical patent settlements were filed with
the FTC . . . and none involved an exclusion payment.”16
In discovery, the Defendants requested the FTC studies on which the FTC
planned to rely during the litigation, as well as the “drafts, underlying data, notes or
communications” relating to these studies (the “underlying information”). In response,

15

Second Am. Compl. ¶ 30.

16

Second Am. Compl. ¶ 101.

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the FTC provided a list of twenty-seven studies. However, the FTC did not produce
any non-public information underlying the studies. The Defendants, dissatisfied with
the FTC’s response, eventually filed this Motion to Compel.
In their respective Briefs, the parties disagree on the role that these studies –
and the underlying information – will play in this litigation. According to the FTC,
these studies will be tangentially related to its claims – if at all. It points out that the
studies were initially used to resolve a purely legal issue: the applicable legal standard
for antitrust claims arising from reverse payment settlements. Additionally, the FTC
contends that its experts will be familiar with the relevant literature base, which will
include its studies. Thus, these studies may form a part of the experts’ background
knowledge which they may draw from in forming their opinions. However, the FTC
has stated that its experts will not be given the information on which the studies are
based. Furthermore, the FTC has indicated that it will not refer to the studies or the
underlying information to establish any element of its specific claims. The
Defendants, however, claim that the FTC is downplaying the significance of these
studies. In addition to pointing out that the studies made an appearance in the FTC’s
Second Amended Complaint, the Defendants argue that the FTC’s refusal to forego
reliance on them suggests that even the FTC acknowledges their relevance. And if the
studies are relevant, the Defendants argue, then they will need the information upon

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which the studies are based in order to test and rebut them. The Court must resolve
two questions. First, is the non-public information underlying the FTC studies at issue
“relevant” to any claim or defense? Second, if the information is relevant, do the
burdens of producing the requested information outweigh any benefit the information
may provide?
II. Discussion
A. Relevance
The Defendants argue that they are entitled to the requested information under
Federal Rule of Civil Procedure 26(b)(1). Under this Rule, parties “may obtain
discovery regarding any nonprivileged matter that is relevant to any party’s claim or
defense.”17 In assessing relevance, the Court must “focus on the specific claim or
defense alleged in the pleadings.”18 The “party seeking the discovery has the burden
of showing that the requested material is relevant.”19
Here, the Defendants have failed to establish that the information underlying
the FTC studies at issue is relevant to the specific claims in this case. This information
concerns other lawsuits and other settlement agreements between other parties.
17

Fed. R. Civ. P. 26(b)(1) (emphasis added).

18

System Fuels, Inc. v. United States, 73 Fed. Cl. 206, 215 (2006) (internal
quotation marks omitted) (emphasis added).
19

Carnes v. Crete Carrier Corp., 244 F.R.D. 694, 696 (N.D. Ga. 2007).

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Indeed, the Defendants provide no plausible scenario for how this information could
establish the “presence of significant unjustified anticompetitive consequences”20 to
the Defendants’ settlement agreements.21 To be sure, in another case, the Defendants
suggested the opposite. In FTC v. Cephalon, Inc.,22 – before the Eastern District of
Pennsylvania – the Defendants and thirty-three other pharmaceutical companies
intervened and sought a protective order when Cephalon filed a similar motion to
compel.23 The Defendants argued:
The materials at issue here . . . have nothing to do with the . . .
agreements, or the patents or product markets at issue here. The only
reason these materials are requested by Cephalon is that the FTC and
private plaintiffs apparently intend to refer to certain conclusions from
the FTC Studies, which in turn were based (at least in part) on the [the
intervenors’] confidential materials.
The FTC’s general views about patent settlements and patent litigation
in the pharmaceutical industry, as expressed in the studies, have no
20

F.T.C. v. Actavis, Inc., 133 S. Ct. 2223, 2238 (2013).

21

At oral argument, the Defendants attempted to provide an example. They
referenced an FTC study which indicates that settlement agreements that provide for
compensation to the generic manufacturer prohibit generic entry for roughly seventeen
months longer than agreements that do not provide compensation. The Defendants
hypothesized that the FTC could use this as evidence to show that the settlement
agreements in this case resulted in a delay of generic entry. But the FTC has explicitly
said, multiple times, that it will not use the studies in this manner. See, e.g., Pl.’s Resp.
Br., at 1, 12.
22

No. 2:08-cv-2141, 2015 WL 1724597 (E.D. Pa. April 15, 2015).

23

Pl.’s Resp. Br., Ex. 2.

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relevance to any issue in this litigation. The FTC’s studies do not tend to
show that the specific . . . agreements at issue here are unlawful. Nor do
they help prove the likely outcome of Cephalon’s patent claims or that
[the generic] would have entered the market sooner absent the
agreements. Nor do they address the specific agreements at issue in this
litigation or the specific competitive issues raised by these agreements.24
Nevertheless, to support their position here, the Defendants make multiple arguments.
First, the Defendants point out that at least two studies were cited in the FTC’s Second
Amended Complaint.25 But this alone does not mean that the studies, or the underlying
information, are relevant to the specific claims here. A review of the two cited
paragraphs demonstrates this point. The Defendants first cite to paragraph 30:
There are many . . . examples of successful patent challenges by generic
drug companies. Indeed, empirical studies have shown that when
pharmaceutical patent infringement claims are tested in the courts, the
alleged infringer prevails in the majority of cases. An analysis of Federal
Circuit decisions from 2002 through 2004 in which the court made a
final ruling on the merits of a pharmaceutical patent claim (validity,
infringement, or enforceability) found that the alleged infringers had a
success rate of 70 percent. An FTC study of all patent litigation initiated
between 1992 and 2000 between brand-name drug manufacturers and
Paragraph IV generic applicants found similar results: when cases were
litigated to a decision on the merits, the generics prevailed in cases
involving 73 percent of the challenged drug products.26

24

Pl.’s Resp. Br., Ex. 5 at 14-15.

25

Defs.’ Mot. to Compel, at 9.

26

Second Am. Compl. ¶ 30.

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This paragraph simply provides general background information concerning the
success rate of challenges brought by generic manufacturers against the brand-name
manufacturers’ patents. Nothing in it speaks to the specific facts of this case. The
Defendants also cite to paragraph 101:
Exclusion payments are not a natural by-product of incentives created by
the Hatch-Waxman Act. Rather, pharmaceutical patent litigation can be,
and often is, resolved without exclusion payments from branded
companies to generic companies. For instance, in fiscal year 2004,
following FTC enforcement actions challenging exclusion payments, 14
pharmaceutical patent settlements were filed with the FTC under the
Medicare Modernization Act and none involved an exclusion payment.27
Again, this paragraph says nothing about the settlement agreements at issue here. As
noted earlier, the purpose of this paragraph was simply to demonstrate that reverse
payment settlements are not a practical necessity in pharmaceutical patent litigation.
The Defendants then argue that the underlying information is relevant because
the FTC’s experts may rely on its studies.28 This argument also fails. To begin, it is
currently unclear whether and how the experts will utilize these studies in forming
their opinions. In addition, it is equally unclear how expert reliance upon these
general studies may render them relevant to the specific claims at issue here. True, the
experts may be familiar with the FTC studies, and so those studies may form part of

27

Second Am. Compl. ¶ 101.

28

Defs.’ Mot. to Compel, at 9.

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the backdrop against which the experts perform their analysis. But such indirect
reliance cannot be enough to render the studies “relevant,” as that term is used in Fed.
R. Civ. P. 26(b)(1). If it were enough, then all literature which may have colored an
experts’ opinion on a matter would ipso facto be relevant.
The Defendants also assert that the underlying information must be relevant
because the FTC refuses to forego reliance on the studies at issue.29 According to the
Defendants, this suggests that even the FTC finds the underlying information to be
relevant. This observation, however, does not constitute an affirmative showing that
the information is relevant. Additionally, although the FTC refused to forego reliance
on the studies altogether, it has stated that neither the studies nor the underlying
information will be used as evidence to establish the elements of its claims.30
Finally, the Defendants appeal to the policies behind our broad discovery rules.
They point out that discovery is meant to facilitate the search for truth, and that
allowing discovery of the requested documents would result in a more thorough

29

Defs.’ Mot. to Compel, at 9.

30

To be clear, the FTC refused to forego reliance on the studies because its
experts may refer to them before analyzing the facts of this case. But the FTC
certainly did not concede that the studies, and the underlying information, are relevant
to any claim or defense in this litigation.
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analysis, and thus a more just resolution of the issues. However, although the
discovery rules are broad, they are not limitless. As the U.S. Supreme Court stated:
[D]iscovery rules are to be accorded a broad and liberal treatment to
effect their purpose of adequately informing the litigants in civil trials.
. . . But the discovery provisions, like all of the Federal Rules of Civil
Procedure, are subject to the injunction of Rule 1 that they “be construed
to secure the just, speedy, and inexpensive determination of every
action.” . . . To this end, the requirement of Rule 26(b)(1) that the
material sought in discovery be “relevant” should be firmly applied . . .
With this authority at hand, judges should not hesitate to exercise
appropriate control over the discovery process.31
The Defendants have failed to satisfy their burden of showing that the information
underlying the twenty-seven FTC studies at issue is relevant to the specific claims in
this action.
B. Burdens of Production
The FTC argues that, even if the underlying information is relevant, the Court
should limit its discovery under Federal Rule of Civil Procedure 26(b)(2)(C). Under
this rule, “the court must limit the frequency or extent of discovery otherwise allowed
by [the Federal Rules of Civil Procedure] . . . if it determines that . . . the burden or
expense of the proposed discovery outweighs its likely benefit, considering the needs
of the case . . . the importance of the issues at stake in the action, and the importance

31

Herbert v. Lando, 441 U.S. 153, 177 (1979).

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of the discovery in resolving the issues.”32 When determining whether to limit
discovery, “a district court is allowed a range of choice.”33
Here, a significant burden would be placed on the FTC if it had to comply with
the Defendants’ discovery requests. For example, the studies deal with settlement
agreements that pharmaceutical companies were required to file with the FTC under
the Medicare Modernization Act (“MMA”). As of the end of fiscal year 2013, nearly
eight hundred final brand-generic settlement agreements had been filed with the
FTC.34 The confidentiality of these submissions, as well as the information contained
therein, is protected by both statute and regulation.35 Thus, in order to comply with the
Defendants’ request, the FTC would have to redact an extraordinary number of
documents. And even more, the Defendants want the FTC to justify each redaction by
providing a statement “(1) identifying the type of information that it has withheld and
the legal basis for the FTC’s position that this information is protected by statute, and
(2) explaining why the redactions will not deprive Defendants of a fair opportunity to

32

Fed. R. Civ. P. 26(b)(2)(C).

33

Smith v. BP Am., Inc., 522 Fed. Appx. 859, 863 (11th Cir. 2013).

34

See Pl.’s Resp. Br., Ex. 12.

35

See 15 U.S.C. § 57b-2(c)(1); 16 C.F.R. § 4.10.

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rebut the studies.”36 The parties may disagree as to whether certain excluded
information is truly “confidential,” or whether the redaction deprives the Defendants
of a “fair opportunity to rebut the studies,” and so the Court may become entangled
in a series of further discovery disputes.37 This burden outweighs any minimal benefit
to be gained from disclosure. At this point, it is unclear whether the FTC’s experts will
use the studies, and even more unclear how they would use them. The Court is
reluctant to place a significant burden on the FTC in order to ensure the production
of information whose relevance to this litigation is questionable, at best.
III. Conclusion
For these reasons, the Court DENIES the Defendants’ Motion to Compel [Doc.
333].
SO ORDERED, this 11 day of May, 2015.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

36

[Doc. 336].

37

[Doc. 336] (“The parties shall in good faith meet and confer in an attempt
to resolve the dispute; however, if the parties are unable to resolve the dispute,
Defendants may apply to the Court for further relief.”).
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