Earlier this month, the Department of Justice (DOJ) announced yet another case filed in the Eastern District of Pennsylvania against a former pharmaceutical executive for allegedly conspiring to fix prices for generic drugs. U.S. Attorney William McSwain touted the enforcement action as the third of its kind within the last year, following similar antitrust cases filed against Rising Pharmaceuticals and Heritage Pharmaceuticals. The action and statements from DOJ officials serve as notice to the generic pharmaceutical industry and its participants that the ongoing criminal investigation—which reportedly dates back to 2014 and has spawned a number of collateral civil suits—will continue to target conduct within the pharmaceutical industry that it alleges violates antitrust laws. The indictment also demonstrates the DOJ will seek to hold senior executives individually accountable for conduct the government believes violates the antitrust laws.
The three-count indictment returned by the grand jury and filed earlier this week by federal prosecutors in Philadelphia charges Ara Aprahamian, the former VP of Sales and Marketing at “Company A” (reported elsewhere to be Taro Pharmaceuticals USA), with violations of Section 1 of the Sherman Act and making false statements to the FBI. The alleged Sherman Act violations include conspiracies alleged to have taken place over a two year period with two different companies (each providing the basis for a separate offense) whereby Mr. Aprahamian and his co-conspirators purportedly “knowingly entered into and engaged in a conspiracy to suppress and eliminate competition by agreeing to allocate customers and rig bids for, and stabilize, maintain, and fix prices of, generic drugs sold in the United States.”
Section 1 of the Sherman Act prohibits agreements or conspiracies in restraint of trade, with price fixing being the quintessential violation. Once a plaintiff proves the fact of an agreement or conspiracy to maintain or otherwise fix prices, such conduct is conclusively presumed to be unlawful and the defendant(s) have no ability to escape liability by offering justifications for the conduct (so-called per se liability). Statutory penalties for Section 1 violations reach $100 million for businesses and $1 million and 10 years imprisonment for individuals. Penalties may be even higher where twice the amount of ill-gotten gains or losses suffered by victims exceeds the statutory maximum.
The latest indictment, along with the charging documents in the Rising and Heritage cases from December and May of 2019, respectively, set forth the means and methods of the alleged conspiracies that should serve as guidance for industry participants. Common across the alleged antitrust conspiracies is the following behavior that the government believes constitutes per se Section 1 liability:
- Participating in meetings, conversations, and communications with competitors to discuss the (i) sale of a generic drug(s), (ii) allocation of customers related to the sale of the generic drug(s), and/or (iii) timing of anticipated price increases;
- Agreeing, during such meetings, on pricing strategies, prices, and/or allocation of markets or customers, and exchanging competitively sensitive information to accomplish price maintenance and/or market allocation;
- Submitting pricing proposals and issuing price increase announcements in accordance with the agreement(s) reached;
- Declining to submit pricing proposals from potential customers in accordance with the agreement(s) reached; and
- Selling and accepting payment for generic drugs at collusive and noncompetitive prices.
Industry participants should not agree (explicitly or tacitly) on prices, to divide markets, or to deal or not deal with other competitors, upstream suppliers, or downstream purchasers. While not all communication with competitors or potential competitors is unlawful, exchanging competitively sensitive information can give rise to antitrust liability. What constitutes competitively sensitive information varies to a degree by industry but may include current or future contract prices, contract bids and rates, material terms or conditions for contracts, prices, margins, or costs for products or services, and strategic plans including but not limited to anticipated product launches. Think twice before sharing information with competitors that is not publicly available, and when in doubt consult experienced antitrust counsel.
DOJ’s ongoing investigation into individuals and companies involved in the generic pharmaceutical industry underscores the need for companies to implement effective corporate compliance programs. Not only can such programs prevent criminal conduct before it occurs, but they can also serve to limit a company’s criminal liability if and when employees violate the antitrust laws. On July 11, 2019, the Antitrust Division announced that it would consider the strength of a company’s compliance program when making charging decisions. Guidance issued by the Antitrust Division states that the Division would consider—as the DOJ does in all investigations of business organizations—“the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of the charging decision.” See Justice Manual § 9-28.800. Companies with antitrust compliance programs that bear the hallmarks of effectiveness set forth by the DOJ stand a better chance of avoiding criminal antitrust liability.
Buchanan’s antitrust team offers guidance to help clients avoid Section 1 and other antitrust liability, and has experience representing the accused as well as aggrieved parties in antitrust litigation.