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Acting in its role as a court, the Federal Trade Commission held a rare hearing Tuesday on whether an administrative law judge properly dismissed antitrust charges against Schering-Plough Corp. and Upsher-Smith Laboratories. The hearing pits the two drug companies against the FTC’s bureau of competition, which prosecutes antitrust cases. In dispute is the delayed introduction of a generic version of K-Dur 20, a popular potassium chloride supplement given to patients with low levels of potassium in their blood. But the outcome has significance beyond the government’s effort to encourage the introduction of generic drugs. In reaching his verdict the administrative law judge set a very high standard of proof that the FTC staff must meet in defining a market to enforce antitrust law. If this standard stands, then the agency will have a tougher time blocking mergers. Bureau of competition staff in March 2001 filed a complaint against the companies alleging that Schering-Plough improperly paid Upsher-Smith $60 million to delay the introduction of a K-Dur 20 generic. The companies argued the payment and delayed commercial release of the product were part of a patent dispute settlement and not an effort to stifle competition. Administrative Law Judge D. Michael Chappell sided with the drugmakers, ruling in June that the regulators failed to prove the relevant market for analysis consisted of 20 milli-equivalent extended-release potassium chloride supplements. The judge said the FTC failed to show that this product has peculiar characteristics that separate it from other types of potassium supplements. He also said that in a larger market that includes other types of potassium supplements, there is no evidence of anticompetitive harm from the patent settlement. During the two-hour hearing before the five FTC commissioners, agency staff lawyer Michael Kades argued that the case boils down to Schering’s payment to Upsher to allegedly deter competition. That conduct is illegal, he said. “These are agreements that had the likely effect to harm competition,” Kades said. “[Schering-Plough] found a way to turn its enemies into allies.” Kades did not directly address the argument over the scope of the potassium chloride market, instead contending that the agency needed to show only that the payment was intended to delay introduction of a rival product and to reduce competition. By delaying entry, Schering got to enjoy monopoly profits for a longer period of time, according to this view. To continue getting monopoly profits, it was willing to share some money with Upsher, Kades said. “They figured out how much their competitor could make and paid them that money,” he said. “This has nothing to do with patent litigation.” Upsher attorney Mark Gidley, a partner at White & Case in Washington, D.C., said the $60 million was to end a dispute over six licenses his client owned. He denied it was to cover any money Upsher would lose by delaying entry into the market. Gidley also said the settlement with Schering also spurred competition by reducing the duration of a drug patent held by Schering by five years. He also said there is no evidence that Upsher could have entered the market earlier, citing the need to start distribution with enough production to grab significant market share. That is necessary because brand-name drugs typically rise in price when a generic is introduced because the patent-owner knows that it will lose sales. Without a large enough supply of a given generic drug to meet demand, some consumers would be forced to stick with the higher-priced brand-name drug, he said. Gidley also slammed the FTC staff for bringing the appeal. “The ALJ listened to the record evidence and they don’t like the result,” he said. The five FTC commissioners asked numerous questions during the argument, but gave little indication of how they will vote. Thomas B. Leary questioned why the $60 million payment constituted an antitrust violation while other types of compensation, such as reducing royalty rates, would not be illegal. Kades said the key is whether the settlement is intended to diminish competition. “Our position has always been that in making the payment what [Schering-Plough was] paying for was delaying entry” of Upsher-Smith’s product, he said. The commissioners adjourned the hearing after arguments to meet behind closed doors. The members are scheduled to complete drafts of their opinions in about four months, which will be distributed internally for discussion. A final opinion is expected in eight months. Copyright �2003 TDD, LLC. All rights reserved.

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