FTC’s Drug Settlement a Win for the Lawyers

Teva Pharmaceuticals CFO Eyal Desheh, second left, Chairman Dr. Phillip Frost, third left, and CEO Jeremy Levin, fourth left, applaud during opening bell ceremonies of the New York Stock Exchange Wednesday, May 30, 2012. The Israeli company said last week it expects weaker sales of generic drugs, which bring in most of its revenue, and of brand-name products, which has become a priority for Teva in recent years and drove its recent $6.8 billion acquisition of Cephalon Inc. (AP Photo/Richard Drew)
Teva Pharmaceuticals CFO Eyal Desheh, second left, Chairman Dr. Phillip Frost, third left, and CEO Jeremy Levin, fourth left, applaud during opening bell ceremonies of the New York Stock Exchange Wednesday, May 30, 2012. The Israeli company said last week it expects weaker sales of generic drugs, which bring in most of its revenue, and of brand-name products, which has become a priority for Teva in recent years and drove its recent $6.8 billion acquisition of Cephalon Inc. (AP Photo/Richard Drew)
Teva Pharmaceuticals CFO Eyal Desheh, second left, Chairman Dr. Phillip Frost, third left, and CEO Jeremy Levin, fourth left, applaud during opening bell ceremonies of the New York Stock Exchange Wednesday, May 30, 2012. (AP Photo/Richard Drew)

 

(Bloomberg Review) – Is Thursday’s $1.2 billion antitrust settlement between the Federal Trade Commission and Teva Pharmaceutical Industries a victory for consumers? Or is it a sign of government enforcement run amok?

The answer to that question, it turns out, goes back to a 2013 U.S. Supreme Court case, FTC v. Actavis, in which five justices allowed the FTC to pursue a new kind of antitrust litigation. And the issue at the heart of that case was fascinating: What happens when the good kind of monopoly created by a patent runs headlong into the bad kind of monopoly created by collusion between merchants?

To hear the FTC tell the story, the facts that gave rise to Thursday’s settlement are pretty upsetting from the standpoint of consumers. Cephalon, a company that was acquired by Teva in 2011, was the maker of an anti-sleep drug known as Provigil. Competitors of Cephalon began producing generic drugs to compete with Provigil.

In response, Cephalon sued the makers of the generic drugs, charging them with patent infringement. The generic makers countersued, insisting they had not infringed on Cephalon’s patent. So far, the proceedings were following the familiar script of patent suits and countersuits that are part of the everyday business model of big pharma.

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