- Background
Some of the most pernicious and welfare-inimical anticompetitive activity stems from the efforts of firms to use governmental regulation to raise rivals’ costs or totally exclude them from the market (see, for example, here). The surest cure to such economic harm is, of course, the elimination or reform of anticompetitive government laws and regulations, but that is hard to do, given the existence of well-entrenched interest groups who have an interest in lobbying to protect their special legally-bestowed privileges.
A somewhat different potential limitation on effective competition associated with government arises from the invocation of governmental processes – in particular, judicial and regulatory filings and petitions – to harm competitors and maintain a protected position in the marketplace. Dealing effectively with this problem presents its own set of difficulties. Protecting the right to seek governmental redress consistent with existing rules is a key part of our system of limited government and the rule of law. Indeed, the First Amendment to the U.S. Constitution specifically protects “the right of the people . . . to petition the Government for a redress of grievances”, indicating that government must tread carefully indeed before taking any action that could be deemed as a curtailment of such petitioning. This has particular salience for antitrust, as Scalia Law School Professor David Bernstein has explained in The Heritage Guide to the Constitution:
[T]he right to petition . . . continues to have some independent weight. Most importantly, under the Noerr-Pennington doctrine, an effort to influence the exercise of government power, even for the purpose of gaining an anticompetitive advantage, does not create liability under the antitrust laws. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc. (1961); United Mine Workers of America v. Pennington (1965). The Supreme Court initially adopted this doctrine under the guise of freedom of speech, but it more precisely finds its constitutional home in the right to petition. Unlike speech, which can often be punished in the antitrust context, as when corporate officers verbally agree to collude, the right to petition confers absolute immunity on efforts to influence government policy in a noncorrupt way.
The Noerr-Pennington doctrine does not, however, totally preclude antitrust enforcers from scrutinizing filings designed to undermine competition. If a private party is using petitioning as a mere “sham” to impose harm on competitors, without regard to the merits of its claims, Noerr immunity does not apply. In California Motor Transport v. Trucking Unlimited, 404 U.S. 508 (1972), the Supreme Court held that access to the courts and administrative agencies is an aspect of the right to petition, and hence Noerr’s protection generally extends to administrative and judicial proceedings, as well as to efforts to influence legislative and executive action. Nevertheless, in so holding, the California Motor Transport Court determined that Noerr did not shield defendants’ intervention in licensing proceedings involving their competitors, because the intervention did not stem from a good faith effort to enforce the law, but rather was solely aimed at imposing costs on and harassing the competitors. Subsequently, however, in Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49 (1993) (PRE), the Supreme Court clarified that a high hurdle must be surmounted to demonstrate that petitioning through litigation is a “sham,” namely that (1) the lawsuit in question is “objectively baseless” (“no reasonable litigant could realistically expect success on the merits”) and (2) the suit must reflect a subjective intent to use the governmental process – as opposed to the outcome of that process – as an anticompetitive weapon.
In 2006, the U.S. Federal Trade Commission (FTC) issued a staff report on how to maximize competition values embodied in the antitrust laws while fully respecting the core values identified in Noerr when analyzing three types of conduct: filings that seek only a ministerial government response, material misrepresentations, and repetitive petitioning. More specifically, the report recommended that the FTC seek appropriate opportunities, in litigation or amicus curiae filings, to: (1) clarify that conduct protected by Noerr does not extend to filings, outside of the political arena, that seek no more than a ministerial government act; (2) clarify that conduct protected by Noerr does not extend to misrepresentations, outside of the political arena, that involve material misrepresentations to government bodies in the regulatory context (such as government standard setting and drug approval proceedings, for example); and (3) clarify that conduct protected by Noerr does not extend to patterns of repetitive petitioning, outside of the political arena, filed without regard to merit that employ government processes, rather than the outcome of those processes, to harm competitors in an attempt to suppress competition.
Since the issuance of the 2006 staff report, however, the FTC has not aggressively pursued litigation to narrow the scope of the Noerr doctrine (perhaps reflecting at least in part the difficulties attending the bringing of good cases, in light of PRE’s requirements). Rather, the Commission’s efforts to curb antitrust immunity have centered primarily on constraining the reach of the “state action” doctrine (anticompetitive conduct flying under the color of state authority), an area in which it has achieved some notable successes (see, for example, here).
- The FTC’s February 2017 Shire Viropharma Injunctive Action
There is at least one indication, however, that the FTC may be turning anew to the problem of anticompetitive petitioning. On February 7, 2017, the Commission filed a complaint in federal district court charging Shire ViroPharma Inc. (ViroPharma) with violating the antitrust laws by abusing government processes to delay generic competition to its branded prescription drug, Vancocin HCl Capsules. The complaint alleges that because of ViroPharma’s actions, consumers and other purchasers paid hundreds of millions of dollars more for their medication.
Vancocin Capsules are used to treat C.difficile-associated diarrhea, or CDAD, a sometimes life-threatening bacterial infection. According to the complaint, Vancocin Capsules are not reasonably interchangeable with any other medications used to treat CDAD, and no other medication constrained ViroPharma’s pricing of Vancocin Capsules. After ViroPharma acquired the rights to Vancocin Capsules in 2004, it raised the price of the drug significantly and continued to do so through 2011.
The FTC alleges that to maintain its monopoly, ViroPharma waged a campaign of serial, repetitive, and unsupported filings with the U.S. Food and Drug Administration (FDA) and courts to delay the FDA’s approval of generic Vancocin Capsules, and exclude competition. According to the FTC, ViroPharma submitted 43 filings with the FDA and filed three lawsuits against the FDA between 2006 and 2012. The FTC asserts that the number and frequency of ViroPharma’s petitioning at the FDA are many multiples beyond that by any drug company related to any other drug. The FTC further claims that ViroPharma knew that it was the FDA’s practice to refrain from approving any generic applications until it resolved all pending relevant “citizen petition” filings. According to the FTC, Viropharma intended for its serial filings to delay the approval of generics, and thus forestall competition and price reductions.
The FTC seeks a court order permanently prohibiting ViroPharma from submitting repetitive and baseless filings with the FDA and the courts, and from similar and related conduct as well as any other necessary equitable relief, including restitution and disgorgement.
- Conclusion
Win or lose, the FTC is to be commended for seeking a federal court clarification of what constitutes “baseless” petitioning for purposes of Noerr. As numerous scholars have pointed out, the Noerr “petitioning” doctrine is riddled with confusion (see, for example, here), and Supreme Court attention to this topic may once again be ripe. The most cost-effective way to reduce the economic burden of anticompetitive petitioning, however, may be not through litigation, which is time-consuming and uncertain (although it may play a useful role), but rather through regulatory reform that reduces the opportunities for manipulating overly complex regulatory systems in an anticompetitive fashion. Stay tuned.