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Friday, December 21, 2012, 11:36 AM

FTC Releases 2012 Green Guides

Authored by: Jason Hicks
The Federal Trade Commission has released the final version of its revised Guides for the Use of Environmental Marketing Claims, commonly known as the Green Guides.  The first Green Guides were issued in 1992, and the updated 2012 Green Guides were finalized in October, nearly two years after they were first proposed by the FTC.  The new Green Guides provide additional clarification regarding claims that a product is "environmentally friendly," "biodegradable," or "recyclable." 

The 2012 Green Guides also contain a new section on environmental "seals" and "certifications."  The FTC concluded that seals and certifications that use broad, general environmental terms can falsely imply far-reaching environmental benefits.  Therefore, the Green Guides provide that seals should convey, through their names, the specific environmental benefits that are being certified, or, contain a disclosure of the basis of the certification. 

The new Green Guides also address the following environmental claims:
  • that a product is "free of" certain materials or "non-toxic";
  • life cycle assessments;
  • carbon offsets; and
  • "renewable energy" and "renewable materials."
The 2012 Green Guides, however, did not provide any guidance on two common terms used in environmental claims: "sustainable" and "natural."  The FTC concluded that the term "sustainable" had different meanings outside of the environmental context -- including a claim that a product was "strong," "durable," or "long-lasting."  Similarly, the FTC concluded that the term "natural" had different meanings depending on the context and therefore declined to provide general guidance.  However, there are several pending lawsuits challenging use of the term "natural," and the outcome of those cases could provide guidance in the absence of any statement from the FTC.

The text of the 2012 Green Guides can be found here.

Friday, December 14, 2012, 2:21 PM

NC Supreme Court Upholds Law Banning Video Sweepstakes

Authored by: Jason Hicks
On December 14, 2012, the North Carolina Supreme Court issued an opinion upholding a North Carolina law outlawing video sweepstakes games, thus reversing prior rulings from the North Carolina Court of Appeals and Superior Court that had held the law violated the First Amendment. 

The statute at issue, Chapter 103 of the 2010 Session Laws codified at N.C.G.S. 14-306.4, makes it unlawful to "operate, or place into operation, an electronic machine or device" to "conduct a sweepstakes through the use of an entertaining display."  An "entertaining display" was defined as "visual information, capable of being seen by a sweepstakes entrant, that takes the form of actual game play, or simulated game play."  One example of an "entertaining display" is a game that simulates "video poker" or "video bingo" as well as "any other video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes."

The NC Court of Appeals had previously ruled that the law was overbroad and violated the First Amendment because video games are protected speech and the definition of "entertaining display" was virtually unlimited.  See Hest Techns, Inc. v. State ex rel. Perdue, 725 S.E. 2d 10, 12-14 (2012).

The NC Supreme Court, however, reversed the Court of Appeals and upheld the law.  The NC Supreme Court concluded that the statute "primarily regulates noncommunicative conduct rather than protected speech" and imposes "only incidental burdens on associated speech."

The News & Observer reports that Senate President Pro Tem Phil Berger applauded the Supreme Court's ruling, stating:  "Now that the question is settled, I expect our law enforcement officials will begin enforcing the law."

Since the Court's decision involves issues of federal constitutional law, however, the ruling could be appealed to the United States Supreme Court.

Wednesday, December 12, 2012, 1:29 PM

Supreme Court to Decide "Pay for Delay" Antitrust Case Involving Generic Drugs

Authored by: Jason Hicks
What is the connection between a turducken and generic prescription testosterone replacement drugs?  Antitrust law, of course!  At least according to Judge Carnes' opinion in  FTC v. Watson Pharmaceuticals, 677 F.3d 1298 (11th Cir. 2012), an Eleventh Circuit case affirming the dismissal of the FTC's challenge to a "reverse payment" patent settlement agreement.

On December 7, 2012, the Supreme Court granted certiorari in Watson, making it the first "pay for delay" or "reverse payment" settlement case that the Supreme Court has agreed to hear.  The Courts of Appeal are currently divided on the issue.  The Third Circuit has accepted the FTC's argument that "pay for delay" patent settlement agreements are presumptively anticompetive.  See In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012).  The Eleventh, Second and Federal Circuits, however, have held that such agreements are lawful so long as the exclusion in the settlement agreement is not beyond the potential "scope of the patent."  See Watson, supra; In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008).

These cases arise when a pharmaceutical patent holder sues a generic manufacturer, who is about to enter the market, for patent infringement.  Instead of litigating the validity of the patent to conclusion, however, the parties enter into a settlement agreement in which the patent holder pays the generic manufacturer not to enter the market until sometime shortly before the expiration of the patent.  The FTC estimates that reverse payment settlements cost consumers $3.5 billion per year in the form of higher drug prices.  The FTC claims that such "reverse payments" or "pay for delay" settlement agreements are presumptively anticompetitive, especially when, as alleged in Watson, the patent holder was "unlikely to prevail" in the patent litigation.  Absent the protection of the patent, the "pay for delay" settlement agreement would be a naked restraint on trade.  Thus, the FTC has urged courts to look into the merits of the underlying patent litigation to determine how likely it was that the patent would have been upheld.

In Watson, the Eleventh Circuit rejected the FTC's argument, characterizing it as the "predict-the-likely-outcome-that-never-came approach."  Instead, the Eleventh Circuit reaffirmed its prior holding "that, absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent."  In other words, the Court would not conduct an after-the-fact examination of the likely success of the underlying patent litigation so long as the litigation was not objectively unreasonable (i.e. a sham).

In rejecting the FTC's argument, Judge Carnes coined a delicious new phrase:

... it is worth emphasizing that what the FTC proposes is that we attempt to decide how some other court in some other case at some other time was likely to have resolved some other claim if it had been pursued to judgment. If we did that we would be deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task.
(What are the chances that Justice Scalia will come up with another roasted meat metaphor in the Supreme Court's decision?)

Judge Carnes' opinion contains a very good summary and description of the incentives at issue in these "pay for delay" settlements, and I highly recommend it to anyone interested in this issue. 

The Supreme Court's decision will have a huge impact on the pharmaceutical industry, as noted in this Bloomberg article.  More than 100 reverse payment settlement agreements have been reached since 2005, involving some of the most popular (and profitable) blockbuster drugs.  As noted by the President of the Generic Pharmaceutical Association: "This case could determine how an entire industry does business because it would dramatically affect the economics of each decision to introduce a generic drug." 

We will be following the developments in this case and will be posting more information about this issue in the near future.
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