FTC Alleges Companies Were Asleep At the Wheel When They Failed to Report Settlement Agreements on AMBIEN CR; Commission Uses the Opportunity to Provide Industry Guidance – And a Warning

May 15, 2011

By Kurt R. Karst –      

Last week, the Federal Trade Commission (“FTC”) announced that the Commission’s Bureau of Competition (“Bureau”) sent letters (here, here, and here) to Sanofi-Aventis U.S. LLC, Watson Pharmaceuticals, Inc., and Synthon Holding B.V. notifying them that the Bureau believes the companies violated federal law by failing to inform antitrust authorities about patent agreements involving Sanofi’s insomnia drug AMBIEN CR (zolpidem tartrate) Tablets, but that instead of recommending that the FTC take enforcement action, it would issue advisory letters.  Why?  Because, according to the letters, “[t]he failure to file does not appear to have been a deliberate effort to evade the requirements of the Act, no party appears to have benefitted from the failure to file, and guidance to the industry in the form of this letter may serve an enforcement purpose of its own.”  The announcement comes on the heels of the Commission’s publication of its annual summary of agreements filed with the Commission during Fiscal Year 2010 (see our previous post here).

The “Act” referred to above is the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), and specifically Sections 1111 through 1118.  In particular, MMA § 1112 requires that certain types of agreements executed on or after January 7, 2004 between a brand name drug company and a generic drug applicant be filed with the FTC and the Assistant Attorney General, MMA § 1113 states that “[a]ny filing required under Section 1112 shall be filed with the Assistant Attorney General and the [FTC] not later than 10 business days after the date the agreements are executed,” and MMA § 1115 provides that the failure to timely file applicable agreements may result in a civil penalty of $11,000 for each day that a required filing has not been made.

The agreements at the center of the Bureau’s letters are: (1) a joint stipulation that Sanofi and Watson submitted to a court when seeking dismissal of a pending Hatch-Waxman patent infringement case concerning an ANDA for a generic version of AMBIEN CR;  and (2) a joint motion and stipulated order seeking a stay of Sanofi’s Hatch-Waxman patent infringement suit against Synthon during the pendency of the PTO’s  reexamination of an AMBIEN CR patent.

According to the FTC, the joint stipulation says that Watson converted its Paragraph IV certification to a Paragraph III certification, and further, that if Watson converts its Paragraph III certification back to Paragraph IV, it will notify Sanofi and, if there is a timely filed patent infringement lawsuit, that Sanofi is entitled to a new 30-month stay of ANDA approval.  

Based on this, the Bureau states in its letter that “[o]n its face, the joint stipulation falls within the MMA’s filing requirement,” because “(1) it is an agreement between a brand name drug company and a generic applicant that has submitted a Paragraph IV ANDA; and (2) the agreement concerns the marketing of the ANDA product.”  The Bureau then takes the opportunity to provide guidance on the MMA’s patent settlement agreement filing provisions. 

  • “Section 1112 applies where the generic ‘has submitted’ an ANDA containing a Paragraph IV certification. Unlike other provisions in the MMA, Section 1112 does not require that the generic applicant maintain an active Paragraph IV ANDA.  The language of the statute and its use of the present perfect tense, ‘has submitted,’ does not limit Section 1112’s application to generic applicants that maintain their Paragraph IV certification.”
  • “[N]othing in the statute requires that the elements of a legally binding contract must be satisfied to trigger the filing requirement. Congress used the term ‘contract’ in other parts of the MMA, but used the term ‘agreement’ in Section 1112, a word whose customary meaning is merely something that two parties consent to. Thus, the language ofthe Act forecloses an argument that a joint stipulation need not be filed absent an exchange of consideration.”
  • “[T]he joint stipulation is an agreement ‘regarding the manufacture, marketing, or sale of the generic drug for which the ANDA was submitted.’  MMA §  1112(a)(2)(B).  That is the case notwithstanding that the stipulation was filed pursuant to Federal Rule of Civil Procedure 41(a) to secure a dismissal. . . .  [W]here a joint stipulation is required to secure the action the parties desire, that fact does not preclude the existence of an agreement between the litigants concerning the sale of an ANDA product (which triggers a filing obligation under the MMA).”

With respect to the stipulated order, under which, according to the FTC, “Synthon agreed that during the pendency of the stay it would provide Sanofi with 120-days notice of its intention to begin marketing a generic Ambien CR,” the Bureau says in its letter that:

Here too, the joint stipulation is an “agreement” within the meaning of the MMA, regardless of whether its terms had binding effect without court action and regardless of whether there was an exchange of consideration.  The parties agreed on the terms to propose to the court.  Nothing in the MMA suggests that such an agreement is exempt from the statute.

Moreover, according to the Bureau, “the MMA required the filing of the joint stipulation even if the prior notice obligation had no actual effect on Synthon’s ability to market its ANDA product.”  Why?  Well, according to the Bureau, the statute “makes it clear that the MMA filing requirement is triggered by an agreement ‘regarding’ the manufacture, marketing, or sale of the ANDA product.  The requirement is not limited to agreements that actually restrict such marketing.  Nor does the MMA exempt agreements that the parties believe will have no effect on the sale of the generic drug.”

The Bureau concludes the advisory letters with some general observations and guidance – namely that “companies should look to the language of the statute first and foremost,”  that “Congress did not exempt public agreements from the MMA’s filing requirement, ” and that “[i]n case of doubt about whether filing is required, companies can contact Commission staff for guidance” – and seems to say that this is the shot across the bow when it states: “The Commission is placing this letter on the public record, in part, to serve as a reminder to industry members of their filing obligations under the MMA. We will consider enforcement recommendations, including appropriate penalties, in the future when the MMA filing requirements have not been met.”