By Jeffrey May, J.D.
The foreign nature of Biocad JSC’s alleged injuries placed its claims against makers of cancer treatment drugs beyond the reach of U.S. antitrust laws. The FTAIA import exclusion applied only to conduct by a defendant that had a direct or immediate effect on import commerce.
The Foreign Trade Antitrust Improvements Act (FTAIA) barred claims brought by a Russian pharmaceutical company whose entry into the U.S. market for monoclonal antibodies (mAbs)—laboratory-produced molecules that mimic naturally produced antibodies and are used in cancer treatment—was purportedly thwarted by a conspiracy involving manufacturers of cancer treatment drugs to protect Roche’s patent-based monopolies for certain mAbs. The challenged conduct fell within the FTAIA because it involved"trade or commerce... with foreign nations," as Biocad complained principally of actions by foreign entities in a foreign country. Moreover, neither the import exclusion nor the domestic effects exception to the general bar on the application of the Sherman Act to foreign commerce could save the claims. Biocad did not press its theory of injury under the domestic effects exception, and the import exclusion applied only when a defendant’s actions immediately impact the U.S. import market and not merely when a defendant subjectively intends to affect the U.S. import market in the future (Biocad JSC V. F. Hoffmann-La Roche, November 5, 2019, Chin, D.).
The U.S. Court of Appeals in New York City affirmed dismissal on FTAIA grounds. Therefore, the majority did not reach the reach the issue of antitrust standing, which also was considered by the district court. However, in a concurring opinion, Judge Robert Katzmann, while agreeing that dismissal could be affirmed without reaching the issue of standing, explained that he would have parted company with the district court on the standing issue had it been reached.
Exceptions to FTAIA. While the FTAIA generally excludes from the Sherman Act’s reach much anticompetitive conduct that causes only foreign injury, there are exceptions to this general rule: (1) the import exclusion, which applies to”conduct involving ... import trade or import commerce”; and (2) the domestic effects exception, which applies to other foreign conduct that has a direct, substantial, and reasonably foreseeable effect on import or domestic commerce and that gives rise to a Sherman Act claim. Biocad waived its reliance on the domestic effects exception at the district court level by expressly arguing that it was not relevant to the case. Although the appellate court had the discretion, as a prudential matter, to consider the argument for the first time on appeal, it limited its discussion to whether the defendants’ conduct fell within the import exclusion.
Import exclusion. Biocad argued that the conduct at issue fell with the import exclusion of the FTAIA because it was"directed at import commerce and was intended to (and did) have a substantial effect in the United States" in that it was intended to prevent or delay Biocad "from entering the U.S. import market for pharmaceuticals." Thus, the appellate court explained that the case turned on whether foreign conduct involves import trade or commerce for purposes of the FTAIA where there is no actual current effect on U.S. markets, but where the defendant intends to impact import commerce in the future. Based on the language, structure, and purpose of the FTAIA, the court ruled that the import exclusion applies when a defendant’s actions immediately impact the U.S. import market and not merely when a defendant subjectively intends to affect the United States import market in the future. It also adopted an effects-based rather than an intent-based analysis, which was advocated by Biocad. The appellate court refused to read the statute so broadly as to encompass conduct that was undertaken with the subjective hope or desire to have a domestic impact at some point in the future.
Applying the effects-based analysis, the appellate court held that Biocad had not plausibly alleged that the defendants’ purportedly anticompetitive conduct in Russia fell within the exception for conduct involving import commerce. "Even assuming the ‘sole purpose’ of Defendants’ actions was to delay Biocad’s entry into the United States market, Biocad has not alleged that Defendants engaged in any conduct that otherwise immediately or directly affected import trade or commerce," the court explained.
Antitrust standing. The concurring opinion took issue with the district court's "rigid" requirement that a potential entrant to a pharmaceutical market must show at the motion-to-dismiss stage that Food and Drug Administration (FDA) approval of its products was probable to plead antitrust injury. Judge Katzmann wrote separately to explain why the probability of FDA approval should be considered as a significant, but not dispositive, factor in a broader preparedness inquiry at the motion-to-dismiss stage. He suggested that the Second Circuit should join other circuits and adopt the four-factor standard of market-entry preparedness: (1) the plaintiff’s background and experience in the prospective business; (2) the ability to finance entry, and particularly to finance facilities and equipment; (3) the consummation of contracts related to the potential entry; and (4) other affirmative action by the plaintiff to engage in the proposed business or new market.
This case is No. 17-3486.
Attorneys: David C. Frederick (Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C) and Albert Feinstein (Feinstein & Partners, P.L.L.C.) for Biocad JSC. Paul Spagnoletti (Davis Polk & Wardell LLP) for F. Hoffmann-La Roche Ltd. and Roche Holding AG. Caitlin J. Halligan (Gibson, Dunn & Crutcher LLP) for R-Pharm JSC. Daniel M. Wall (Latham & Watkins LLP) for Genentech, Inc.
Companies: Biocad JSC; F. Hoffmann-La Roche Ltd.; Roche Holding AG; R-Pharm JSC; Genentech, Inc.
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