A fight by the U.S. Federal Trade Commission to make public a Georgia pharmaceutical company’s confidential memo detailing a strategy to pay rival drug companies not to compete has become part of a larger antitrust battle that has now reached the U.S. Supreme Court.

The FTC’s fight to unseal the memo is playing out in the lower courts even though the high court agreed last month to hear its long-running antitrust case against Marietta-based Solvay Pharmaceuticals Inc.

The battle over the memo has pitted a district court judge in Atlanta who said public interest in the case outweighs corporate confidentiality against a judge at the Eleventh U.S. Circuit Court of Appeals who stayed Thrash’s order unsealing the memo in response to Solvay’s emergency appeal.

For more than six years, the FTC had fought to make public Solvay’s internal corporate memo outlining its strategy to pay off rival drug companies so it could maintain its monopoly on sales of AndroGel, the popular prescription testosterone booster. The FTC claims the memo—which it says documents profits so enomous that Solvay was willing to pay millions to its rivals to maintain its AndroGel monopoly—is at the heart of the underlying antitrust litigation.

But it was not until the high court granted the FTC’s petition for certiorari last month that U.S. District Judge Thomas Thrash of the Northern District of Georgia granted the FTC’s motion to unseal the Solvay memo. “There is a presumption that documents relevant to legal decisions are public,” Thrash said in a written order following his Dec. 19 oral ruling. “The public interest in making this record public outweighs the private interests of Solvay in its confidential information.”

Solvay’s lawyers immediately filed an emergency appeal with the Eleventh U.S. Circuit to keep the memo under wraps and quickly persuaded Judge Gerald Tjoflat to stay Thrash’s order to make the confidential memo public pending further order of the appellate court.

The fight over whether the Solvay monopoly memo—called the “Project Tulip Financial Analysis”—should be made public hows how high the stakes are in the FTC’s litigation against Solvay and three rival pharmaceutical companies that Solvay paid not to produce generic versions of AndroGel that would have diluted Solvay’s market share. The three competing firms are Watson Pharmaceuticals Inc., Par Pharmaceutical Companies Inc., and Paddock Laboratories Inc.

In court pleadings, FTC lawyers have said the Tulip analysis outlines an anticompetitive strategy by Solvay to delay production of lower-cost generic versions of AndroGel that would have saved consumers, health insurance companies and federal health benefit programs hundreds of millions of dollars.

But Solvay lawyers have battled successfully to keep the document out of the public domain, claiming that it would reveal trade secrets that would put the company at a competitive disadvantage.

Cindy Liebes, an FTC attorney in Atlanta, referred questions to the FTC in Washington.

David Rabin, an attorney at Morris Manning & Martin in Atlanta who is local counsel for defendant Watson Pharmaceuticals, said he couldn’t comment on the case. Watson is also being defended by attorneys with Skadden Arps Slate Meagher & Flom in Washington and New York.

Greenberg Traurig attorney Mark Trigg, who is local counsel for Par and Paddock, could not be reached for comment. The companies are also represented by Washington firm White & Case. Solvay’s local counsel—Teresa Bonder and Matthew Kent of Alston & Bird—could not be reached for comment. Solvay is also represented by attorneys with Mayer Brown in Washington and Munger, Tolles & Olson in San Francisco and Los Angeles.

Fight over generics

Until Thrash ordered the Tulip analysis unsealed last month, it had been shielded from public scrutiny by protective orders while the FTC sued the four pharmaceutical companies. The FTC argued that Solvay’s 2006 decision to pay its competitors not to manufacture or market generic versions of AndroGel—for which they had already secured federal approval—was a violation of federal antitrust laws. Solvay had cut the deal after suing the three companies for infringing the AndroGel patent.

Thrash dismissed the FTC complaint in 2010, and the Eleventh Circuit upheld the dismissal last year. The appeals court cited its own findings in previous patent cases involving generic drugs that, “absent sham litigation or fraud in obtaining the patent,” payoffs such as Solvay’s to end patent challenges by generic drug competitors are “immune from antitrust attack” as long as the anticompetitive effects of the deal do not artificially extend the company’s monopoly beyond the life of the underlying patent.

Now that the Supreme Court has decided to hear the case, the FTC is insisting that Solvay’s confidential Tulip analysis should be public because it is “a central part” of the record the high court will consider. “[T]he public has an even greater interest in understanding the basis for the FTC’s position that reverse-payment agreements settling patent litigation between branded and generic drug firms amount to ‘pay for delay’ deals that cost consumers and our health care system dearly,” the FTC wrote in its motion to unseal the Tulip analysis. “The public interest in accessing judicial records is particularly strong when they shed light on the operation of the courts and the decision-making of a federal agency.”

Attorneys for the pharmaceutical companies have countered that the FTC “has no particular public need for the Project Tulip document.”

“The point the FTC hopes to prove from the document—that innovator drug companies stand to lose hundreds of millions of dollars from generic entry, that [patent] settlements frequently include business deals providing value to the generic, that the companies model these effects—are all obvious and undisputed,” Solvay lawyers said.

Using bold italics to emphasize their point, they added, “The public does not need the actual or forecasted figures from the AndroGel business to understand these points.”

Solvay lawyers have also expressed concern that “making public the details of how the business analyzes potential settlements with generics would place the business at a critical negotiating disadvantage in any future settlement discussions, or even discussions about potential partnerships completely unrelated to settlement.”

Piecing together the Tulip

Although the Tulip analysis, for now, remains under seal, much of what it contains can be pieced together from years of FTC pleadings that have described its contents.

The FTC says the document sets out Solvay’s internal calculations on which it based negotiations to settle 2006 patent infringement cases Solvay had filed against Watson, Paddock and Par after those companies sought and secured approval from the U.S. Food and Drug Administration to produce a generic version of AndroGel.

For Solvay, the financial stakes were high. According to the FTC, Watson—which received final FDA approval for its AndroGel generic in early 2006—had projected that the price of generic AndroGel would plummet to just 15 percent of the price of branded AndroGel within a year, and that 90 percent of all AndroGel prescriptions would likely convert to the generic product.

At the time, according to the FTC, AndroGel was Solvay’s top-selling product, with sales over $400 million, or about one-third of Solvay’s total pharmaceutical sales. Solvay, the FTC said, wanted to hold off generic competition for nearly a decade, until 2015. “Solvay’s loss,” the FTC wrote, “would be consumers’ gain as they would save hundreds of millions of dollars by purchasing lower-cost generic alternative.”

The purpose of Solvay’s Tulip analysis “was to assess—by evaluating the generics’ expected return from continuing to litigate—whether, and under what circumstances, the generic companies would accept this delayed entry date,” the FTC complaint stated.

“From the Project Tulip Analysis, Solvay concluded that Watson and Par might agree to a settlement that somewhat deferred generic entry. But if Solvay wanted a settlement that delayed generic entry until 2015, it had to pay Watson and Par.”

According to the FTC, the Tulip analysis “also confirmed that Solvay could easily afford to buy Watson’s and Par’s agreement not to compete. By deferring competition, the parties would preserve monopoly profits that could be shared amongst them—at the expense of the consumer savings that would result from price competition. Thus, even after paying Watson and Par a share of its profits, Solvay still expected to make more in AndroGel profits by maintaining its monopoly until 2015 than by continuing to litigate.”

In its motion to unseal the Tulip analysis, the FTC offered more detail, saying that the document “shows with forecasted dollar amounts how Solvay and its generic rivals would all be better off by forestalling generic entry and sharing Solvay’s continued monopoly profits on AndroGel that would be preserved by an agreement not to compete. The analysis details how each additional year of avoided competition increases the amount of monopoly profits available for the three companies to split.”

In other pleadings, the FTC said the Tulip analysis also “shows that what economic theory predicts about the behavior of brand name and generic drug firms” and incentives the companies may have to exchange payments for agreements to delay generic production “is not merely abstract theory, but rather is reflected in the commercial realities of this case.”

The Tulip analysis “thus illustrated the core antitrust concern that distinguishes reverse-payment settlements from the vast majority of patent litigation settlements,” the FTC concluded. Based on the analysis, Solvay dropped litigation to defend its AndroGel patent, according to court pleadings. It negotiated a deal with Watson to pay the company $19 million the first year which annual payments increasing to over $30 million annually by 2015, according to the FTC.

In a separate deal, Solvay agreed to pay Par a total of $22 million a year for six years to stay out of the generic AndroGel market. It agreed to pay Paddock, which had joined forces with Par, $2 million a year, according to the FTC.

It was those settlement deals that the FTC’s suit had sought, so far unsuccessfully, to undo.

In its emergency appeal to the 11th Circuit to stop public dissemination of the Tulip analysis, Solvay claimed that unsealing what the company says is “proprietary information” would “cause serious and immediate harm” to its ongoing business operations, even though the analysis is now nearly seven years old.

Solvay also argued that when it originally surrendered the document to the FTC during an investigation before the agency decided to sue, it had done so only after assurances of confidentiality by the FTC.

“In ruling that the Project Tulip document should be unsealed, the district court gave no indication that it considered Solvay’s reliance on the FTC’s assurances of confidentiality—or on the protective order that treated as highly confidential all materials produced in light of those assurances,” Solvay attorneys argued. “The FTC’s suggestion that there could be no reliance because its assurances and obligations of confidentiality are worthless once litigation commences are alarming.”

Company attorneys also argued that Solvay “would not have voluntarily disclosed thousands of documents if it had any indication that the FTC might have been able to make public any one it wished by gratuitously attaching it to a pleading.”

Justices will test Eleventh Circuit

FTC pleadings argue that the Supreme Court case—which has already generated one brief on the FTC’s behalf by attorneys general in 31 states—will resolve a conflict among the appellate circuits as to whether agreements such as the one Solvay struck with its competitors—and the 11th Circuit has blessed— violate federal antitrust laws.

“The Supreme Court’s decision will establish a nationwide rule to govern antitrust law enforcement challenges to reverse payment agreements by pharmaceutical companies, an issue with substantial economic consequences of the public,” the FTC said.

That rule, according to the FTC, should be one that treats such agreements “as presumptively unlawful under the federal competition laws.”

Solvay concurred with the FTC that the Supreme Court should take the appeal but framed it as a question of “whether holders of some types of pharmaceutical patents have fewer rights to enforce their patents than do other patentees, merely because their patents cover new pharmaceuticals.”

But Solvay lawyers argued that if the Supreme Court does not agree with the 11th Circuit, “a large number of settlement agreements” involving reverse payments by drug patent holders to forestall generic sales may be at risk and subject to challenge by the FTC.

Such challenges, Solvay lawyers argued, “will include astronomical damages claims, in light of the antitrust laws’ provision for treble damages and the generally higher pricing of brand-name drugs that is necessary to recoup the billions of dollars invested in researching and developing them.”

Solvay lawyers said that in other suits that have followed the FTC’s action, “Direct purchasers of AndroGel claimed in the district court that they were entitled to billions of dollars on their federal antitrust claims.”

The claimed sums, Solvay argued, “dwarfs the cumulative profits Solvay has made on AndroGel since its launch, and far exceeds the combined 2011 profits” of itself or its three competitors.

“The companies,” Solvay concluded, “would be exposed to this massive liability for settling time-consuming, expensive, and difficult patent cases… .”

The Supreme Court case is Federal Trade Commission v. Watson Pharmaceuticals, No. 12-416. The case at the Eleventh Circuit is Federal Trade Commission v. Watson Pharmaceuticals No. 10-12729.