Antitrust Developments: Legislative Changes on the Horizon?

Matthew Blickensderfer
May 4, 2009 — 1,303 views  
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Consistent with the current pro-regulation tone in Washington, legislators in the U.S. Senate and House may try to reshape certain areas of federal antitrust law. Several bills recently introduced in the 111th Congress take aim at recent, pro-defendant judicial decisions and various antitrust immunities:

Reversal of the Supreme Court's relaxation of vertical price-fixing rules

Vertical price-fixing, or resale price maintenance, is a manufacturer's or supplier's attempt to control the price at which its customer (wholesaler or retailer) will resell a product or service. For nearly a century, Supreme Court authority held that vertical price-fixing was automatically illegal under the antitrust laws. In 2007, however, the Supreme Court overruled its long-standing precedent and held that vertical price-fixing was not automatically illegal but instead was to be subject to a balancing test based on all relevant circumstances. This decision had the practical effect of legalizing many (though not all) instances of vertical price-fixing.

The U.S. Senate has taken an active interest in this decision, and several Senators seem eager to reverse the 2007 decision and return to the traditional rule under which vertical price-fixing was automatically illegal. Senator Herb Kohl (D-Wisconsin) has introduced S. 148, the Discount Pricing Consumer Protection Act. The bill would amend the Sherman Act to make it illegal to enter an agreement establishing a minimum price at which a distributor or retailer could resell a product or service. The bill has been referred to the Senate Judiciary Committee.

Repeal of the Insurance Industry's Federal Antitrust Exemption

The McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., generally exempts "the business of insurance" from the reach of federal antitrust law. The result is that many cooperative activities among insurers, such as collective ratemaking and underwriting pools, are left solely to state regulation while enjoying federal antitrust immunity. Representative Peter DeFazio (D-Oregon) has introduced H.R. 1583, the Insurance Industry Competition Act of 2009. The bill would repeal the insurance industry's McCarran-Ferguson exemption and subject the insurance industry to federal antitrust law. The bill has been referred to the House Judiciary, Energy and Commerce, and Financial Services Committees.

Banning of the Pharmaceutical Industry "Reverse Payments" Settlements

One of the most controversial recent debates in antitrust law is the legality of so-called "reverse payment" settlements. In these situations (and simplifying considerably), a branded pharmaceutical manufacturer sues a generic manufacturer for infringement of the branded manufacturer's patent. Often the generic manufacturer defends by contending that the patent has not been infringed, or that the patent is somehow invalid, or both. A typical monetary settlement, of course, would involve a defendant (generic manufacturer) paying some sum to the plaintiff (branded manufacturer). In the "reverse payment" scenario, however, the plaintiff (branded manufacturer) pays money to the defendant (generic manufacturer) to stop producing the generic product for some period of time.

Critics of reverse payment settlements contend that they amount to an agreement not to compete – an offense that is automatically illegal under the antitrust laws – and a payment to keep generic drugs off the market. Supporters contend that these settlements are a reasonable way to resolve legitimate disputes over patent infringement. The federal courts are quite divided on the issue, with a number having upheld reverse payments settlements while others (including the federal court of appeals for Ohio, Kentucky, and Tennessee) have condemned them.

Representative Bobby Rush (D-Illinois) introduced H.R. 1706, the Protecting Consumer Access to Generic Drugs Act of 2009. In general terms, the bill would prohibit any settlement of a patent infringement claim in which (a) the generic manufacturer receives "anything of value," and (b) the generic manufacturer "agrees not to research, develop, manufacture, market, or sell, for any period of time" the drug at issue. The bill has been referred to the House Energy and Commerce Committee and the House Judiciary Committee.

For more information about these legislative developments or Frost Brown Todd's antitrust practice, please contact Matt Blickensderfer at (513) 651-6162 or [email protected].

Matthew Blickensderfer

Frost Brown Todd