FEDERAL TRADE COMMISSION, Appellant v. SHIRE VIROPHARMA, INC.
No. 18-1807
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
February 25, 2019
PRECEDENTIAL
Argued December 11, 2018
On Appeal from the United States District Court for the District of Delaware
District Court No. 1-17-cv-00131
District Judge: The Honorable Richard G. Andrews
Before: SMITH, Chief Judge, McKEE, and FISHER, Circuit Judges
Bradley S. Albert
Meredyth Andrus
Thomas J. Dillickrath
Matthew M. Hoffman [ARGUED]
June Im
Nicholas Leefer
Joel R. Marcus
Joseph Mathias
James H. Weingarten
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Counsel for Appellant
J. Clayton Everett, Jr.
Scott A. Stempel
Morgan Lewis & Bockius
1111 Pennsylvania Avenue, N.W.
Suite 800 North
Washington, DC 20004
Noah J. Kaufman
Morgan Lewis & Bockius
One Federal Street
Boston, MA 02110
Steven A. Reed [ARGUED]
Jessica J. Taticchi
Morgan Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellee
George P. Slover
Consumers Union
1101 17th Street, N.W.
Suite 500
Washington, DC 20036
Counsel for Amicus Appellant
Richard A. Samp
Washington Legal Foundation
2009 Massachusetts Avenue, N.W.
Washington, DC 20036
Counsel for Amicus Appellee
SMITH, Chief Judge.
Shire ViroPharma, Inc. (“Shire“),1 manufactured and marketed the lucrative drug Vancocin, which is indicated to treat a life-threatening gastrointestinal infection. After Shire got wind that manufacturers were considering making generic equivalents to Vancocin, it inundated the United States Food and Drug Administration (“FDA“) with allegedly meritless filings to delay approval of those generics. The FDA eventually rejected Shire‘s filings and approved generic equivalents to Vancocin, but the filings nonetheless resulted in a high cost to consumers—Shire had delayed generic entry for years and reaped hundreds of millions of dollars in profits.
Nearly five years later—and after Shire had divested itself of Vancocin—the Federal Trade Commission (“FTC“) filed suit against Shire in the United States District Court for the District of Delaware under Section 13(b) of the Federal Trade Commission Act,
On appeal, the FTC urges us to adopt a more expansive view of Section 13(b). According to the FTC, the phrase “is violating, or is about to violate” in Section 13(b) is satisfied by showing a past violation and a reasonable likelihood of recurrent future conduct. We reject the FTC‘s invitation to stretch Section 13(b) beyond its clear text. The FTC admits that Shire is not currently violating the law. And the complaint fails to allege that Shire is about to violate the law. We will therefore affirm the District Court‘s judgment.
I.2
A.
A company that wishes to manufacture and market a new drug in the United States must submit to the FDA a New Drug Application (“NDA“) demonstrating the safety and efficacy of the product.3 Usually, the NDA filer demonstrates safety and efficacy by using expensive in vivo clinical endpoint studies, where researchers provide sick patients with either the proposed drug or a placebo to compare the safety and efficacy of the drug with the placebo. See Fed. Trade Comm‘n v. Actavis, Inc., 570 U.S. 136, 142 (2013) (describing the “long, comprehensive, and costly testing process” underlying an NDA). After FDA approval, the manufacturer must seek approval through a supplemental NDA if it wishes to change the drug or its label.
A generic drug manufacturer need not file an NDA because it is essentially copying the approved branded drug. The generic manufacturer must instead file an Abbreviated New Drug Application (“ANDA“), which relies on the approved drug‘s profile for safety and efficacy. See id. (“The Hatch-Waxman process, by allowing the generic to piggy-back on the pioneer‘s approval efforts, speeds the introduction of low-cost generic drugs to market, thereby furthering drug competition.” (internal alteration, quotation marks, and citation omitted)). The generic manufacturer must demonstrate, inter alia, that the proposed generic drug is bioequivalent to the referenced branded drug.4 See
Shire develops, manufactures, and markets branded drugs. Until Shire divested itself of the product in 2014, this included Vancocin capsules.5 Vancocin capsules are an oral antibiotic used to treat Clostridium-difficile associated diarrhea, which is a serious, potentially life-threatening gastrointestinal infection. When Vancocin capsules were developed, the NDA did not include in vivo clinical endpoint studies because the capsules were an alternative delivery system to Vancocin oral solution, which the FDA already knew to be safe and effective. Instead, the NDA included in vitro dissolution data (which measures how quickly the capsules dissolve) and in vivo pharmacokinetic data (which compares the absorption of the drug in capsule form versus oral solution form).
In April 1986, the FDA approved Vancocin capsules. Shire acquired Vancocin capsules in November 2004. From then until 2011, Vancocin capsules were Shire‘s largest revenue-generating product. Vancocin capsules accounted for all of Shire‘s net revenue until 2009 and up to 53% of its net revenue in 2011. United States sales for Vancocin capsules grew from $40 million in 2003 to almost $300 million in 2011.
Generic manufacturers, attracted by Vancocin‘s financial success, wanted to enter the market. Vancocin was vulnerable to generic competition because it lacked both patent protection and regulatory exclusivity. One primary barrier to generic entry remained—the FDA‘s recommendation that generic manufacturers seeking to demonstrate bioequivalence conduct in vivo clinical endpoint studies. Ironically, these tests were more expensive and onerous than the in vitro dissolution testing and in vivo pharmacokinetic studies that had been used to gain approval of Vancocin capsules in the first place. The FDA apparently realized this inconsistency; in October 2004 it convened a public meeting of the Advisory Committee for Pharmaceutical Science (the “Advisory Committee“)6 to reassess bioequivalence testing for locally-acting gastrointestinal drugs like Vancocin.
Shire became increasingly concerned that the FDA might allow generic manufacturers to demonstrate bioequivalence using in vitro data. Shire thus hired a bioequivalence consultant to advise it on the FDA‘s likely course of action. In November 2005, the consultant confirmed Shire‘s suspicions, advising Shire that the FDA would likely allow generic manufacturers to submit in vitro dissolution data to establish bioequivalence to Vancocin capsules. The consultant counseled Shire to submit a citizen petition “sooner than later” but warned that without supporting clinical data, Shire “could not convince the FDA of its position against use of in vitro dissolution testing.” Compl. ¶ 45.
Shire‘s fear came to pass: the FDA indeed changed its position on bioequivalence testing for Vancocin capsules. In February 2006, the FDA advised a generic manufacturer that bioequivalence for Vancocin capsules could be demonstrated by in vitro dissolution testing. The FDA also shared this guidance with other generic manufacturers that inquired. In March
C.
Not surprisingly, Shire wanted to protect its monopoly on the Vancocin market. Among its options was a citizen petition. The First Amendment guarantees individuals the right to petition the government.
The filing of a citizen petition can substantially delay approval of a generic drug. During the time period at issue here, the FDA automatically suspended ANDA approval if a branded manufacturer filed a citizen petition.7 The FDA is obligated to respond to every citizen petition within 180 days.8
From March 2006 to April 2012, Shire submitted a total of forty-three filings to the FDA and instituted three federal court proceedings—all allegedly to delay the approval of generic Vancocin capsules by convincing the FDA to require ANDA applicants to conduct in vivo clinical endpoint studies. Shire‘s filings ranged from a citizen petition and amendments thereto to public comments on other manufacturers’ ANDAs. Many of these filings were around the same time Shire suspected the FDA was nearing approval of generic equivalents to Vancocin.
On April 9, 2012, the FDA rejected Shire‘s citizen petition.9 The FDA concluded that Shire‘s scientific challenges to the bioequivalence recommendation “lack[ed] merit” and “were unsupported.” Compl. ¶ 104 (internal quotation marks omitted); App. 77–95. On that same day the FDA approved three ANDAs for generic
Vancocin capsules. Shire lost almost 70% of its unit sales for Vancocin capsules within three months.
D.
Nearly five years later, on February 7, 2017, the FTC sued Shire, seeking a permanent injunction and equitable monetary relief under Section 13(b) of the FTC Act. The FTC claimed that Shire‘s conduct—submitting serial, meritless filings—had harmed consumers and competition because it enabled Shire to maintain and extend its monopoly by delaying the FDA‘s approval of generic alternatives to Vancocin capsules. See
Shire moved to dismiss the complaint, arguing that the FTC had failed to plead sufficient facts to invoke its authority under Section 13(b). Shire also contended that its petitioning activity was immune from antitrust challenge pursuant to the Noerr-Pennington doctrine. See E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 136 (1961); United Mine Workers of Am. v. Pennington, 381 U.S. 657, 670 (1965). The FTC responded that Section 13(b) authorized its lawsuit and that Shire had engaged in sham petitioning, which is not protected by Noerr-Pennington.
The District Court granted Shire‘s motion to dismiss, ruling that the FTC had failed to plead sufficient facts to show that Shire “is violating, or is about to violate” the law.10 The Court flatly rejected the FTC‘s contention that Shire was about to violate the law merely because it had the incentive and opportunity to engage in similar conduct in the future.
The FTC filed this timely appeal.
II.
We begin by addressing whether Section 13(b)‘s requirements are jurisdictional. The FTC contends that Section 13(b) is not jurisdictional while Shire argues the opposite. The District Court appears to have assumed—without expressly analyzing the issue—that Section 13(b) does not impose a jurisdictional requirement.11
The Supreme Court of the United States has instructed us to assume that statutory limitations are nonjurisdictional unless Congress provides otherwise. In Arbaugh v. Y&H Corp., 546 U.S. 500, 503 (2006), the Court addressed whether Title VII‘s definition of “employer” (which only includes those having fifteen or more employees) “affects federal-court subject-matter jurisdiction or, instead, delineates a substantive ingredient of a Title VII claim for relief.” The Court held that it was the latter, cautioning courts against “drive-by jurisdictional rulings”
that fail to actually assess “whether the federal court had authority to adjudicate the claim in suit.” Id. at 511 (citation omitted).
The Supreme Court reiterated that a plaintiff obtains the “basic statutory
Under the standard announced in Arbaugh, Section 13(b)‘s “is” or “is about to violate” requirement is nonjurisdictional. Section 13(b) provides, in relevant part:
Whenever the [FTC] has reason to believe—
- that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC,] and
- that the enjoining thereof pending the issuance of a complaint by the [FTC] and until such complaint is dismissed by the [FTC] or set aside by the court on review, or until the order of the [FTC] made thereon has become final, would be in the interest of the public—
the [FTC] . . . may bring suit in a district court of the United States to enjoin any such act or practice.
The FTC‘s claim arises under a law of the United States—
Section 13(b) includes no indicia that Congress intended to “rank a statutory limitation . . . as jurisdictional“; as such, we must follow the Supreme Court‘s “readily administrable bright line” rule and treat the statutory language as nonjurisdictional. Arbaugh, 546 U.S. at 516. Whether a person “is violating, or is about to
violate” the law relates to the merits of a Section 13(b) claim, and does not indicate that Congress intended to strip district courts of their authority to resolve the FTC‘s claim. Because “nothing in [Section 13(b)] displays any intent to withdraw federal jurisdiction . . . we will not presume that the statute means what it neither says nor fairly implies.” Verizon Md. Inc. v. Pub. Serv. Comm‘n of Md., 535 U.S. 635, 644 (2002).
We conclude that the District Court had jurisdiction pursuant to
III.12
A.
The FTC Act declares “[u]nfair methods of competition in or affecting
Section 5(b), the FTC‘s administrative remedy, is its traditional enforcement tool. See
proceedings to remedy unfair methods of competition. Federal Trade Commission Act § 5, 38 Stat. 719 (1914) (current version at
In addition to cease and desist orders, Section 5 provides for limited monetary remedies. If a respondent violates a cease and desist order, the FTC may seek a civil penalty of no more than $10,000 per violation.
rules “respecting unfair or deceptive acts or practices.” Id.
Section 13 authorizes the FTC—in certain circumstances—to file suit in federal district court. Unlike Section 5, Section 13 was not part of the original FTC Act. Rather, Section 13(b) was added later in an effort to solve one of the main problems of the FTC‘s relatively slow-moving administrative regime—the need to quickly enjoin ongoing or imminent illegal conduct. In Section 5 proceedings, the FTC must prevail to obtain a cease and desist order. See id.
B.
The crux of the FTC‘s claim is that it is entitled to pursue immediate relief in the District Court under Section 13(b), rather than via the administrative remedy set forth in Section 5. We begin with the text of the FTC Act. See Murphy v. Millennium Radio Grp. LLC, 650 F.3d 295, 302 (3d Cir. 2011) (“When the statute‘s language is plain, the sole function of the courts—at least where the disposition required by the [text] is not absurd—is to enforce it according to its terms.” (internal quotation marks omitted)). Section 13(b) provides, in relevant part,
Whenever the [FTC] has reason to believe—
- that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by [the FTC,] and
- that the enjoining thereof pending the issuance of a complaint by the [FTC] and until such complaint is dismissed by the [FTC] or set aside by the court on review, or until the order of the [FTC] made thereon has become final, would be in the interest of the public—
the [FTC] by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the [FTC]‘s likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, however, That if a complaint is not filed within such period (not exceeding 20 days) as may be specified by the court after issuance of the temporary restraining order or preliminary injunction, the order or injunction shall be dissolved by the court and be of no further force and effect: Provided further, That in proper cases the [FTC] may seek, and after proper proof, the court may issue, a permanent injunction.
Section 13(b) requires that the FTC have reason to believe a wrongdoer “is violating” or “is about to violate” the law. Id.
The plain language of Section 13(b) is reinforced by its history. “Generally, where the text of a statute is unambiguous, the statute should be enforced as written and only the most extraordinary showing of contrary intentions in the legislative history will justify a departure from that language.” Millennium Radio Grp. LLC, 650 F.3d at 302 (internal quotation marks omitted). When Congress added Section 13(b), the provision was expected to be used for obtaining injunctions against illegal conduct pending completion of FTC administrative hearings. See S. Rep. No. 93-151, at 30 (1973) (“The purpose of [Section 13(b)] is to permit the [FTC] to bring an immediate halt to unfair or deceptive acts or practices when . . . [a]t the present time such practices might continue for several years until agency action is completed.“). The provision was not designed to address hypothetical conduct or the mere suspicion that such conduct may yet occur. Cf. id. (explaining that Section 13(b) is meant to “bring an immediate halt to unfair or deceptive acts or practices. . . .“). Nor was it meant to duplicate Section 5, which already prohibits past conduct.
C.
The FTC‘s arguments to the contrary are unconvincing. The FTC contends that relief under Section 13(b) is appropriate when it shows a reasonable likelihood that past violations will recur. In other words,
The FTC borrows its “likelihood of recurrence” standard from the common law standard for an award of injunctive relief. A party can generally obtain injunctive relief for past conduct that is likely to recur; the wrongdoer cannot avoid an injunction by voluntarily ceasing its illegal conduct. W.T. Grant Co., 345 U.S. at 632. Although injunctive relief can survive discontinuance of the illegal conduct, “the moving party must satisfy the court that relief is needed. The necessary determination is that there exists some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive.” Id. at 633.
The FTC insists that other courts have “consistently” applied the likelihood of recurrence standard in Section 13(b) cases. Br. of Appellant 21–22. This is true, and unsurprising, given that Section 13(b) explicitly authorizes the FTC to obtain injunctions. But none of the cases cited by the FTC considers the issue presented here—the meaning of Section 13(b)‘s threshold requirement that a party “is” violating or “is about to” violate the law.
The FTC relies heavily on Federal Trade Commission v. Evans Products Co., 775 F.2d 1084, 1087 (9th Cir. 1985). There, the United States Court of Appeals for the Ninth Circuit upheld the denial of an injunction under Section 13(b), ruling that “an injunction will issue only if the wrongs are ongoing or likely to recur.” Id. The FTC sued a home seller at least two years after it had stopped making allegedly illegal misrepresentations. Id. at 1085–88. The district court denied the FTC‘s motion for an injunction; the Ninth Circuit affirmed, ruling that the seller‘s conduct had completely ceased and was not likely to recur.14 Id.
In another case cited by the FTC, Federal Trade Commission v. Accusearch Inc., the United States Court of Appeals for the Tenth Circuit upheld a Section 13(b) injunction prohibiting the operator of a website that sold illegally-acquired personal data from engaging in future misconduct. 570 F.3d 1187, 1191 (10th Cir. 2009). The Tenth Circuit did not even quote—let alone analyze—Section 13(b)‘s “about to violate” language because it was clear that the website operator had the capacity and motivation to engage in similar conduct in the future. See id. at 1202. The Tenth Circuit did not address whether the FTC had properly filed suit under Section 13(b).
The FTC next protests that our interpretation of “is about to violate” would make it harder to get in the courthouse door than to win injunctive relief.15 The
which is applied right out of the gate—is not inconsistent with the likelihood of recurrence standard, which a court uses to determine the FTC‘s entitlement to an injunction.
The FTC also places much weight on cases interpreting the Securities Act of 1933 and the Securities Exchange Act of 1934. These Acts permit the Securities Exchange Commission to seek injunctive relief in federal court when a defendant “is engaged” or is “about to engage” in a violation of securities laws.
Finally, the FTC trots out the old adage that a remedial statute like the FTC Act should be construed broadly. Because Section 13(b)‘s “is” or “is about to” requirement allegedly conflicts with the remedial purpose of the FTC Act, the FTC says we should disregard the plain meaning of that language. Of course, none of the authority the FTC cites stands for the broad proposition that we can ignore clear statutory language if it does not promote a remedial interpretation. See Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979) (explaining that “generalized references” to “remedial purposes” of a statute will “not justify reading a provision more broadly than its language and the statutory scheme reasonably permit” (internal quotation marks omitted)).
The FTC points to a parade of horribles that it predicts will result if we uphold the District Court‘s decision.16 See, e.g., Br. of
evade Congress’ purposes in creating the regime. As soon as a potential defendant got wind that the FTC was investigating its activities, it could simply stop those activities and render itself immune from suit in federal court unless the FTC could allege and prove an imminent re-violation.“). But there is no reason to believe that our decision today unnecessarily restricts the FTC‘s ability to address wrongdoing. Section 5 authorizes administrative proceedings based on past violations. And, of course, if the FTC believes that a wrongdoer is “about to violate” the law during the pendency of an administrative proceeding, it could then come to court and obtain an injunction under Section 13(b).
The FTC‘s understandable preference for litigating under Section 13(b), rather than in an administrative proceeding, does not justify its expansion of the statutory language. If the FTC wants to recover for a past violation—where an entity “has been” violating the law—it must use Section 5(b).
In short, we reject the FTC‘s contention that Section 13(b)‘s “is violating” or “is about to violate” language can be satisfied by showing a violation in the distant past and a vague and generalized likelihood of recurrent conduct.17 Instead, “is” or “about to violate” means what it says—the FTC must make a showing that a defendant is violating or is about to violate the law.
D.
Here, the FTC never initiated Section 5 proceedings against Shire.18 Instead, the FTC waited until five years after Shire had stopped its allegedly illegal conduct before seeking an injunction under Section 13(b). Viewed under the correct standard, the FTC‘s complaint fails to allege that
Instead, the FTC relies on Section 13(b)‘s “is about to violate” language. The few factual allegations in the FTC‘s forty-five page complaint that suggest Shire “is about to violate” the law are woefully inadequate to state a claim under Section 13(b). The FTC alleges generally that Shire “is engaged in the business of, among other things, developing, manufacturing, and marketing branded drug products, including inter alia, Cinryze.” Compl. ¶ 8. As to the likelihood that Shire will engage in illegal
behavior, the FTC alleges, “[a]bsent an injunction, there is a cognizable danger that [Shire] will engage in similar conduct causing future harm to competition and consumers. [Shire] knowingly carried out its anticompetitive and meritless petitioning campaign to preserve its monopoly profits. It did so conscious of the fact that this conduct would greatly enrich it at the expense of consumers.” Id. ¶ 150. Without mentioning Cinryze by name, the FTC alleges that Shire “has the incentive and opportunity to continue to engage in similar conduct in the future. At all relevant times, [Shire] marketed and developed drug products for commercial sale in the United States, and it could do so in the future. Consequently, [Shire] has the incentive to obstruct or delay competition to these or other products.” Id. ¶ 151.
The District Court concluded that these vague allegations failed to “plausibly suggest [Shire] is ‘about to violate’ any law enforced by the FTC, particularly when the alleged misconduct ceased almost five years before filing of the complaint.” Op. 12. We agree. Taking the factual allegations in the complaint as true, Shire stopped its sham petitioning campaign in 2012 when the FDA approved generic equivalents to Vancocin. The complaint contains no allegations that Shire engaged in sham petitioning in the five-year gap between the 2012 cessation in petitioning and the 2017 lawsuit. The complaint also lacks specific allegations that Shire is “about to violate”
the law by petitioning as to Cinryze, the only other drug mentioned.
At oral argument in the District Court, the FTC provided more support for its argument that Shire “is about to violate” the law. The FTC explained that Shire is “perfectly positioned” to commit violations in the future because it is already marketing a “blockbuster drug” that is in the pipeline. Id. at 11. That drug, Cinryze, is not ripe for generic entry but has “the same type of significance as Vancocin. . . .” Id. We need not consider whether these allegations might satisfy the pleading standard. None of these facts—other than that Shire markets Cinryze—are pleaded in the complaint, which the FTC chose not to amend. Based upon the pleading before us, we conclude that the FTC has failed to plead that Shire is “about to violate” any law.
In this case, given the paucity of allegations in the complaint, the FTC fails to state a claim under any reasonable definition of “about to violate.” Whatever the outer reach of “about to violate” may be, the facts in this case do not approach it.19 We therefore leave for another
day the exact confines of Section 13(b)‘s “about to violate” language.
Under Section 13(b) of the FTC Act, the FTC must plead that Shire “is” violating or “is about to” violate the law. But Shire indisputably is not currently violating the law, nor is it alleged to be poised to do so anytime in the foreseeable future. The FTC thus fails to state a claim upon which relief can be granted. We will affirm the District Court‘s judgment.
The FTC‘s improper use of Section 13(b) to pursue long-past petitioning has the potential to discourage lawful petitioning activity by interested citizens—activity that is protected by the First Amendment. Because we affirm the District Court‘s judgment dismissing the complaint, we need not address the issue further but suggest that the FTC be mindful of such First Amendment concerns.