One of the biggest con games these days is the Republican attack on the courts. You know the rap: "activist judges" who exceed their authority, ignore the plain language of statute and the Constitution and run roughshod over the elected branches of government.
These days, however, it is the supposedly conservative, Republican judges who are the power-grabbing, results-driven activists. And there is no better illustration than a dunderhead decision recently handed down by the U.S. Court of Appeals in Atlanta that disregards the express intent of Congress, ignores the extensive fact-finding of the Federal Trade Commission and is sure to cost consumers and taxpayers billions of dollars a year in unnecessary drug costs.
The case involves a major drug company, Schering-Plough Corp., and K-Dur, a drug the company developed to treat patients with low potassium. The drug is set to go off patent in September 2006. Exactly 10 years ago, Upsher-Smith Laboratories Inc., a generic drugmaker, asked the Food and Drug Administration for permission to market a generic version of K-Dur and launched a challenge to Schering-Plough's patents. Schering-Plough responded by suing Upsher for patent infringement under the 1984 Hatch-Waxman Act, triggering a 30-month delay in FDA consideration of Upsher's application.
The various patent claims would have gone to trial in June 1997. But on the eve of the trial, after extensive negotiations, the two sides settled. Upsher agreed not to market its drug before September 2001, three years later than it had hoped; it also agreed to grant Schering-Plough a license to market several Upsher drugs, which in the end came to naught. In return, Schering-Plough paid Upsher $60 million.
Anyone who hasn't just fallen off a turnip truck will recognize this arrangement for what it is: collusion between two companies that would rather divide up monopoly profits than compete. With K-Dur sales expected to fall 75 percent once the generic hit the market, simply delaying competition for several years could generate $130 million in extra sales -- more than enough to cover the $60 million payment and leaving both companies better off than if they had gone head to head.
In short, a good deal for everyone except consumers and taxpayers, who were denied access for a time to cheaper generic drugs. Sen. Orrin Hatch called the deal "appalling," while Rep. Henry Waxman said it turned a law meant to encourage generic competition "on its head." After extensive hearings, the FTC found it was exactly the kind of restraint of trade prohibited by the antitrust laws, and declared it illegal. Schering-Plough and Upsher then decided to challenge the FTC order in court.
Not just any court, mind you. Although Schering-Plough is headquartered in New Jersey and Upsher in Minnesota, they filed their case with the conservative appeals court in Atlanta -- a blatant example of forum shopping for which plaintiffs' lawyers are often criticized. As it happened, they were lucky enough to draw an all-Republican panel of judges headed by Peter T. Fay, a Nixon appointee and one of the three judges who authorized Ken Starr to continue his witch hunt against Bill Clinton even after the Senate impeachment trial.
In his opinion, issued this spring, Fay summarily rejected every one of the key factual findings of the FTC, to which he is supposed to pay deference, including the crucial one: that the cross-licensing arrangements between the firms were merely a sham designed to provide legal cover for the $60 million non-compete payment. And Fay's idea of striking a "delicate balance" between patent and antitrust law was to decree that drug companies are free to engage in any anticompetitive behavior they like until their patents expire.
In a final, tortured bit of legal logic, Fay even argued that non-compete arrangements actually increase competition by creating an environment of "legal certainty" that encourages investment -- a loony proposition for which he offered no evidence, and which was explicitly contradicted by an FTC staff study.
You might expect that the Bush administration would be chomping at the bit to appeal this intellectually shoddy bit of activist jurisprudence. But you'd be wrong. For so uninterested is the administration in enforcement of the antitrust laws, and so beholden to the drug companies, that the solicitor general has decided not to appeal the decision to the Supreme Court, leaving the FTC to go it alone.
If the Supreme Court refuses to take the FTC's appeal -- a likely outcome -- you can bet your last Lipitor that in the future big pharmaceutical companies routinely will extend the effective life of their patents by buying off generic competitors. And for that you can thank a new breed of Republican judges as quick to impose their political values on the country as the liberal "activists" they have long condemned.
Steven Pearlstein will host an online discussion at 11 a.m. today at washingtonpost.com. He can be reached at firstname.lastname@example.org.