Consumer Law & Policy Blog

Pay-for-delay patent settlements: FTC v. Actavis and its implications

We've covered pay-for-delay patent settlements extensively (go here, here, here, and here) and reported on the Supreme Court's June 17, 2013 decision in FTC v. Actavis. In a pay-for-delay settlement, a brand-name drug company pays a generic company that has challenged the brand-name company's patent to stay out of the market. Some early antitrust challenges to these settlements succeeded, but most later court of appeals' rulings gave them a green light. The FTC's view was that these settlements were virtually per se invalid under the antitrust laws, while settlement proponents (and the majority of lower courts) said that they were valid as long as the settlement was within the scope of the patent. The Supreme Court took a middle ground position (still a big win for the challengers) that pay-for-delay settlements are subject to "rule of reason" analysis under the antitrust laws (though not virtually per se invalid).

Now, law professor Herbert Hovenkamp has penned this article, which analyzes Actavis in detail and explains why, in his view, Actavis has broad implications beyond pay-for-delay settlements. Perhaps the most interesting part of the article is Hovekamp's claim that Actavis requires only a truncated "rule of reason" showing for attacks on pay-for-delay settlements. Here is the abstract:

In FTC v. Actavis the Supreme Court held that settlement of a patent infringement suit in which the patentee of a branded pharmaceutical drug pays a generic infringer to stay out of the market could be illegal under the antitrust laws. Justice Breyer's majority opinion was surprisingly broad, in two critical senses. First, he spoke with a generality that reached far beyond the pharmaceutical generic drug disputes that have provoked numerous pay-for-delay settlements.

Second was the aggressive approach that the Court chose. The obvious alternatives were the rule that prevailed in most Circuits, that any settlement is immune from antitrust attack if it is facially "within the scope of the patent." Under this approach the court may not second guess the settlement by inquiring into the validity of the patent; the settlement itself shields this query from the court. A second alternative concludes that a very large settlement payment is a sign that something is wrong with the patent, inviting the court to look more closely at the underlying patent to determine whether the settlement is really a good faith attempt to manage litigation and business risk. A third approach is that a large settlement exclusion payment disproportionate to litigation risk can be unlawful under antitrust's rule of reason, without inquiry into whether the patent is actually invalid, and even if the settlement agreement does not go "beyond the scope" of the patent's nominal coverage. Finally, the court might apply a "quick look," or truncated, antitrust analysis in which the plaintiff can enjoy presumptions about market power or anticompetitive effect. The Supreme Court chose the third, or rule of reason, option, but it made clear that the plaintiff need not make a long form rule of reason showing and suggested important shortcuts.

Payments whose size correlates with risk are essential to entrepreneurial decision making, but entrepreneurial risk is usually private in the sense that the firm risks the resources of its own shareholders. In the pharmaceutical pay-for-delay setting, however, what is being placed at risk is both the investment of the pioneer and the welfare of consumers, interests that pull in opposite directions. Consumers represent an important externality. They are not participants in this dispute, but they stand to lose the benefits of competition that would otherwise have occurred.

While the Court did not discuss private consumer challenges, its substantial revision of the law applies equally to private actions and it is reasonable to expect that several will emerge. Purchasers seeking antitrust overcharge damages from an anticompetitive pay-for-delay settlement should be able to proceed without proving patent invalidity, although they would be subject to the same rule-of-reason constraints that the Court created for the FTC.

Finally, the breadth of the Activis opinion makes it relevant for many situations outside of the Hatch-Waxman context. For example, the Court's dicta severely limited its 1926 GE decision permitting price fixing among a patent and its licensees, and implicitly overruled decisions such as Bement, which permitted product price fixing among the members of a patent pool. A central question was whether the Patent Act, either explicitly or by reasonable implication, authorized the challenged conduct. If the answer is no, ordinary antitrust analysis can proceed.

Progress in the effort to curb childhood obesity?

History shows that public education and other efforts to combat entrenched but potentially deadly behavior harmful to health -- such as tobacco use -- must be sustained, well-funded, and flexible. Efforts to deal with childhood obesity begun in just the past decade may be beginning to pay dividends, as explained in this article by Lydia DePillis.

A Comment on the CFPB's Debt Collection Bulletin

by Jeff Sovern

As Deepak pointed out last week, a lot has been going on in debt collection, and one item is that the CFPB has issued a bulletin stating that people subject to its jurisdiction may not commit unfair, deceptive, or abusive practices in collecting debts.  The Fair Debt Collection Practices Act generally does not apply to creditors collecting their own debts, but the Bureau is clearly willing to use its UDAAP power to, in effect, apply some of the FDCPA's provisions to creditors.  This is terrific news for consumers who are being hounded by creditors as opposed to independent debt collectors, but it still provides more limited protection than the FDCPA itself for two main reasons.

First, there is no private claim under the Dodd-Frank Act to enforce the Bureau's UDAAP powers.  By contrast, the FDCPA provides for a private claim with statutory damages of up to $1,000 and attorney's fees to prevaliing plaintiffs.  Because the Bureau's resources are finite, it will surely not have the funding to pursue every possible UDAAP claim.  Consumers who can persuade the Bureau to pursue their complaints will undoubtedly find the Bureau's intervention helpful, but only so many will be able to take advantage of that opportunity. 

It may be that some consumers will be able to convince courts to find conduct that the Bureau has labeled unfair, abusive, or deceptive a violation of state UDAP statutes.  States often follow FTC interpretations in construing their UDAP statutes; perhaps they will find CFPB interpretations equally persuasive.  State UDAP statutes are sometimes called "little FTC Acts;" one of my co-authors has observed that they may come to be known as little FTC/CFPB Acts as well.  But such a strategy may not work in every state.  Many state statutes explicitly provide that FTC interpretations are relevant in construing their statutes; I'm not aware of any state that has bestowed a similar status on CFPB interpretations.  And many state statutes do not mention unfair conduct, much less abusive. On the other hand, other statutes refer to illegal conduct, and since the Bureau has labeled the conduct in question illegal, that should go a long way to supporting a UDAP claim in such states.

Now I turn to the second reason.  The Bureau Bulletin listed specific behaviors that could be unfair, abusive or deceptive (though it says "could" rather than "are," I would not be so brave as to suggest that the Bureau will not view the listed conduct as unlawful).  The Bulletin carefully noted that the list was not exhaustive and consisted just of examples.  Still, the list consisted largely of examples of misrepresentations (e.g., claiming that something is from an attorney or the government when it wasn't) or unfair conduct (e.g., telling co-workers of the debt). But the FDCPA goes beyond these protections. For instance, in section 1692g, it requires collectors to tell consumers that they have the right to seek validation of the debt and in 1692e(11), that the collector is attempting to collect a debt. Section 1692c(c) largely bars collectors from further communications with the consumer once the consumer has made a written request that the collector stop such communications.  If creditors fail to live up to these other FDCPA provisions, are they committing a UDAAP violation? My guess is not as to the disclosure requirements, but I'm not sure.  I believe the Bureau has the power to define UDAAP as including these protections, just as the FTC has--and has used--its UDAP power to require door-to-door sellers to give certain notices to consumers.  But I think the Bureau would be clearer if it intended creditors to provide these protections, and perhaps some day it will be. On the other hand, if I represented creditors, I would recommend that they cease communicating with a consumer if the consumer so demanded. That's because the Bulletin mentions that telling employers or co-workers about the debt would be a UDAAP violation.  If the Bureau thinks one privacy invasion barred by the FDCPA is a UDAAP violation, why not another? 

Don't get me wrong: the Bureau has provided consumer-debtors significant protections in its Bulletin.  It is a major step forward.  But it's not quite the same as the FDCPA protections.

 

Ed Mierzwinski: Banks, Not CFPB, Spy on Consumers

Ed's excellent post is here.  Those who purport to be so concerned about the privacy of bank customers should seek to amend the Gramm-Leach-Bliley privacy provisions to bar banks from selling consumer information unless their customers affirmatively opt-in to the sale of that information. But that would mean supporting consumer protection, precisely what the CFPB opponents do not want. 

Private racketeering class action alleges that Bank of America deliberately denied HAMP mortgage modifications

Read this Charlotte observer story on the suit. Here's an excerpt:

A lawsuit in federal court in Colorado accuses Charlotte-based Bank of America of racketeering, in what amounts to more fallout for the bank stemming from a federal mortgage-modification program. The suit, filed Wednesday, claims violations of the federal Racketeer Influenced and Corrupt Organizations Act, also known as RICO. It cites statements that former Bank of America employees made last month in a separate, ongoing federal lawsuit in Massachusetts. Those former employees, including at least one who worked in Charlotte, claim the bank awarded cash and gift cards to them if they denied mortgage modifications to homeowners through the Home Affordable Modification Program.

Read more here: http://www.charlotteobserver.com/2013/07/11/4159493/bank-of-america-accused-of-racketeering.html#storylink=cpy

Times Report: Novel-Length Contracts Online and What They Say

Here.  The article is about the problem of boilerplate more generally than the headline suggests and is definitely worth a read.  Here's my favorite quote:

“I’m not someone who wags his finger and says you should read [online contracts],” said Douglas G. Baird, a professor of law at the University of Chicago. “If you read them, you don’t have a very interesting or productive life.”

New online privacy bill in Congress

In an era in which privacy is under attack on many fronts, it's welcome news whenever members of Congress introduce bills to protect consumer privacy. One such effort is that of Rep. John Duncan of Tennessee, who this week proposed legislation to protect minors against misappropriation of their likenesses for advertising. (See here for further discussion.) This issue is the subject of several pending lawsuits against Facebook; in one of them, we at Public Citizen are representing objectors to a proposed settlement that offers insufficient protection for minors' privacy.

Amy Schmitz Paper on Cramming

Amy Schmitz of Colorado has written Ensuring Remedies to Cure Cramming, 14 Cardozo J. of Conflict Resolution 877 (2013).  Here's the abstract:

The unauthorized addition of third party charges to telecommunications bills ("cramming") is a growing problem that has caught the attention of federal regulators and state attorney generals.  This Article therefore discusses the problems associated with cramming, and highlights consumers’ uphill battles in seeking remedies with respect to cramming claims.  Indeed, it is  imperative for policymakers, researchers, consumer advocates, and industry groups to collaborate in developing means for resolving these claims.   Accordingly, this Article offers a proposal for resolving cramming disputes in order to advance this collaboration, and inspire development of a functioning online dispute resolution ("ODR") process to handle these claims.  This process is designed to provide consumers a quick and easy-to-understand option for reporting and resolving cramming cases.

Sens. Warren and McCain seek return to Glass-Steagall bank regulation

Senators Warren and McCain have introduced legislation to prevent banks from engaging in certain financial speculation. Its explained in this article by Peter Eavis. Here's a brief excerpt:

Senator Elizabeth Warren on Thursday introduced an aggressive piece of legislation that intends to take the financial industry back to an era when there was a strict divide between traditional banking and speculative activities. The bill, which is also sponsored by Senator John McCain, Republican of Arizona, and two other senators, is named the 21st Century Glass-Steagall Act. Its intention is to create a modern version of the seminal Glass-Steagall legislation from the 1930s, which placed firm limits on what regulated banks could do. It was fully repealed in 1999, laying the groundwork for the mergers that created some of the biggest banks of today. If passed, it could force many of those banks to let go of their trading operations.

Even more on student loan deal in Senate

Following up on Allison's post about a tentative deal in the Senate on student-loan interest rates, this Bloomberg story spells it out. Here are the basics, including a description of what has already been passed in the House:

The House-passed plan, H.R. 1911, would charge students 2.5 percentage points more than the yield of the last 10-year Treasury note auction before June 1 and would cap rates at 8.5 percent. Under the tentative deal reached last night [among Senators], the interest rate for all Stafford undergraduate loans, subsidized and unsubsidized, would be set annually at 1.8 percentage points above the yield of the last 10-year Treasury-note auction before June 1. The rate for undergraduate Stafford loans would be capped at 8.25 percent.... This year, the yield of the last 10-year Treasury auction before June 1 was was 1.81 percent; if the bill’s provisions were effective now, 11 million students taking out undergraduate Stafford loans this year would be charged an interest rate of 3.61 percent.... Under th[e deal] ..., there would be larger markups for graduate student loans, which would be capped at 9.25 percent. Borrowers of PLUS loans -- who include graduate students and parents of undergraduates -- would be charged a 4.5-percentage-point markup from the yield of the last 10-year Treasury auction before June 1.... Those borrowers currently pay 7.9 percent interest; according to [Senate] aides, they would pay 6.31 percent under the Senate compromise.

A Washington Post story explains that "[a]ll of these numbers are tentative and could likely change when senators receive an analysis from the Congressional Budget Office, which is expected on Thursday, according to four aides with knowledge of the negotiations. A deal has not yet been finalized, but if it is, a vote could come next week."

The New York Times also has a story here.