An intriguing court battle on which we have posted frequently reached a disappointing apex yesterday, as Magistrate Judge Alan Kay recommended enforcement of a subpoena the Federal Trade Commission (FTC) issued to Watson Pharmaceutical’s CEO. This ruling comes on the heels of an earlier Judge Kay ruling which required FTC officials to respond to Watson’s interrogatories. For more background on this case, see our June 30 post.
Allowing interrogatories, a rare occurrence in a subpoena enforcement action, was as far as the magistrate was willing to go, however. Despite some good rhetorical knuckle-rapping of FTC for its “questionable” actions, Judge Kay ruled that FTC issued the subpoena for “a proper purpose,” and Mr. Bisaro now has 14 days to submit objections to U.S. District Judge Colleen Kollar-Kotelly. The subpoena enforcement won’t become binding until so ordered by Judge Kollar-Kotelly.
Some thoughts on the Magistrate Judge’s recommendation:
1. Judge Kay wrote FTC only had to demonstrate that there is a proper purpose for issuing the subpoena. In the Bisaro case, the court definitively determined that FTC initiated an investigation – which included the Bisaro subpoena – only after Watson declined to follow FTC’s “suggestion” to sell its exclusive drug production rights to competitor Apotex. How can something so improper as FTC’s use of its “investigative power to pressure a company to waive its statutory rights,” as Judge Kay wrote in his interrogatories order, be so casually set aside? No doubt, Mr. Bisaro will object that Judge Kay failed to correctly apply the improper purpose standard. The larger problem here, though, is the ease with which federal regulators like FTC can meet this standard. Perhaps Watson will pursue this issue far enough to allow a higher court to reconsider the weak standard of “improper purpose.”
2. It’s hard to understand how Judge Kay could find that the facts didn’t prove “FTC shared confidential information about Watson with unauthorized third parties.” That third-party, competitor Apotex, would have had no reason to pursue a deal with Watson unless Watson held the exclusive right to release a generic version of Provigil. Apotex obviously knew this, and from whom would they have learned it other than FTC? Even Watson was unaware of whether it was the “first filer” and thus merited exclusivity.
3. Judge Kay wrote that his venue wasn’t the correct one for “exhaustive inquisitions into the practices of regulatory agencies,” and that such a task is “more appropriately left to the legislature.” Combined with Judge Kay’s strong words of disapproval of FTC’s conduct in the Bisaro case, this looks like an invitation to Congress to examine what happened here. Some Members of Congress have already asked FTC’s Chairman Jon Leibowitz about this case. Given FTC’s strong opinions on so-called “pay-for-delay” generic patent settlements, it’s fair to ask just how far the Commission will go in pursuit of its agenda.
There are plenty of questions Congress, or perhaps even FTC’s Inspector General, could ask regarding FTC’s conduct:
- Did FTC receive confidential information from FDA regarding Watson’s status as a “first-filer” of an application to copy Provigil, and did it share that information with Apotex?
- Where in FTC’s statutory mandate does it authorize the Commission to act as matchmaker between two private businesses? Has the Commission engaged in such activity in other cases?
- Did any FTC Commissioner have a role in or knowledge of this effort to bring Watson and Apotex together?
- What was the content of FTC officials’ numerous conversations with Apotex?
- Did the Assistant Director of FTC’s Bureau of Competition threaten a Commission investigation if Watson failed to sell its exclusive rights, and if so, was this threat made at the direction of his superiors?