Ed's Blog

Competition laws also important to protect markets and consumers

By Ed Mierzwinski
Senior Director, Federal Consumer Program

In addition to our work directly protecting consumers when companies engage in unfair or predatory practices, we also find it important to enforce the laws that ensure markets work fairly. When companies use illegal practices to keep prices high or limit entry of innovative or lower-cost competitors, everyone loses. We've long been active in using the antitrust and competition laws to protect consumers by giving them more innovative and lower cost choices in the marketplace by stopping anti-competitive behavior. This week, two important court actions occurred.  First, this week we joined other leading groups in a court filing supporting the New York Attorney General's efforts to prevent a prescription drug company from using an illegal scheme to prevent lower-cost generic entry into the market. Second, the payment card company American Express lost its lawsuit to the U.S. Government, which had challenged AmEx rules preventing merchants from urging customers to select lower-cost forms of payment. We've been active in related cases against Visa and Mastercard.

In December, a U.S. judge upheld New York Attorney General Eric Schneiderman's request for an injunction requiring the powerful prescription drug company Actavis to continue marketing an older version of its Alzheimer's drug Namenda, instead of using an illegal "product-hopping" scheme to move consumers to a newer but virtually identical version that would enjoy monopoly protection until 2029, making it unlikely that lower-cost generic alternatives could successfully enter the market. The New York Times has more here. We joined other leading groups, including Consumers Union and Public Citizen, in a friend-of-the-court or "amicus" brief to the U.S. Second Circuit Court of Appeals supporting General Schneiderman's defense against Actavis in its appeal. Here is an excerpt from our brief:

In order to get more affordable alternatives in the face of rising drug prices, payors and consumers rely upon access to generic versions of brand name drugs. When offered, generic alternatives cost 80 to 85 percent less than their brand name counterparts. In 2013 alone, usage of generic pharmaceuticals saved Americans $239 billion. [...] Brand name manufacturers have created elaborate strategies to circumvent the purpose and intent of both the Hatch-Waxman Act and state substitution laws in order to eliminate generic competition and maintain monopoly profits. Such actions are the antithetical to Congress’s intent under the Hatch-Waxman Act: “Congress sought to get generic drugs into the hands of patients at reasonable prices—fast.” [...] An anticompetitive strategy known as “product hopping” is now affecting Alzheimer’s patients. Alzheimer’s is a progressive brain disease that slowly eliminates an individual’s memory, thinking skills, and his or her ability to perform everyday task. Currently, five million Americans suffer from this debilitating disease, and experts anticipate that as many as 16 million people will have Alzheimer’s by 2050. [...]

The brief then continues to explain the "product-hopping" scheme:

The first step of product hopping occurs when a brand name drug manufacturer makes a minor change in a drug, such as a change in dosage amount, and creates a “new” version of the brand name drug so that a generic substitute of the old drug is no longer therapeutically equivalent to the new drug. As a result, pharmacists can no longer offer patients who are prescribed the “new” version of the drug a generic substitute unless the patient’s doctor changes the prescription to the old version. For this reason, generic manufacturers cannot meaningfully enter a market where product hopping has occurred. The second step involves the brand manufacturer impeding consumer access to the initial product, forcing patients to purchase the “new” drug.

Product-hopping is just one of many illegal schemes used by the brand name prescription drug industry known collectively as "Big Pharma." We have also fought, in the courts and on Capitol Hill, Big Pharma's so-called "pay-for-delay" practice of paying off potential generic competitors not to enter the market right away. The antitrust enforcers at the U.S. Federal Trade Commission have played an important role in these fights.

Unfair and anti-competitive practices abound in many sectors of the economy. We've worked for many years to challenge the payment card acceptance practices of the credit card networks. Their market power allows them to force merchants to pay onerous, non-negotiable "swipe fees" for accepting debit and credit cards. This effectively requires merchants to raise their prices for all consumers, including generally lower-income cash customers, resulting in a reverse subsidy from lower-income consumers to credit card customers. While our efforts have primarily been against the largest networks, Visa and Mastercard, which have long been held by the courts to hold illegal "market power," which allows them to set prices higher than a free market would allow, this week a U.S. judge ruled that the smaller American Express had also demonstrated market power over merchants in a similar case. You can read the decision by U.S. District Court Judge Nicholas Garaufis of the Eastern District of New York here. While the government is not seeking money damages, when the judge later issues his ordered remedies, AmEx will likely be forced to change its contractual terms that harm merchants, and perhaps lower its own swipe fees. While we want American Express, and the even smaller Discover, to succeed in the payment card network space as alternatives to the massive Visa and Mastercard, we don't want anyone to cheat to get ahead.

U.S. PIRG, joined by Consumers Union, along with virtually all merchant associations, continues to object to a 2012 preliminary settlement between merchants and Visa and Mastercard over swipe fees (In re Payment Card Interchange Fee and Merchant Discount Litigation, 05-MD-1720). Our objection is largely based on the preliminary settlement's sweeping release from any future lawsuits, even if Visa and Mastercard engage in illegal behavior on new and unknown future payment platforms. As I warned in a previous blog:

Does not end bad behavior: The settlement prohibits merchants, including both objecting merchants and any future merchants, from bringing any similar cases in the future, including cases alleging violations in new payment technologies not yet being used, such as future mobile payment technologies. This effectively immunizes Visa and Mastercard from any future claims, no matter what new unfair schemes they roll out. (One warning sign of illegal practices is that prices continue to go up even when technology lowers costs. In the U.S., unlike the rest of the world, swipe fees have continued to increase even as new, better payment technologies have rolled out.)

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