Late last month, we noted a highly unusual decision by U.S. Magistrate Judge Alan Kay in the District of Columbia to order the Federal Trade Commission to respond to interrogatories about a subpoena it had issued to Paul Bisaro, the CEO of Watson Pharmaceuticals, in a generic-drug investigation.
Normally, that sort of inquiry into the motivations behind an FTC subpoena is off limits. The only exception, which is rarely invoked, is that limited discovery can be ordered to ensure that enforcement of the subpoena would not amount to an abuse of process.
Kay’s inquiry seems to have found nothing terribly amiss in the FTC’s motivations for the subpoena, as he has just recommended to U.S. District Judge Colleen Kollar-Kotelly that the subpoena to Bisaro should be enforced. ip info Judge Kollar-Kotelly had referred the dispute to Kay, and his findings can now be appealed to Judge Kollar-Kotelly.
Kay said that the case law requires that the court enforce the subpoena, as long as the FTC could show a proper purpose for it, even though there were allegations that the subpoena also had an improper purpose.
Watson had contended that the FTC was using its investigative powers improperly. The commission says it is looking into whether there was a possibly anti-competitive agreement that could have kept a generic form of a sleep disorder drug off the market for a substantial period of time, thus harming consumers.
Watson and Bisaro had asserted that the FTC was using its investigative tools to try to pressure Watson, a generic-drug company, to enter into a deal with a third party and to relinquish its statutory rights to exclusivity for the drug.
However, Kay wrote in his August 17, 2010, report to Judge Kollar-Kotelly that Bisaro may still have information that would be relevant to a legitimate inquiry by the FTC and that “enforcement of a subpoena is called for as long as a proper purpose does exist.”
Kay did call the FTC’s approach “questionable” but said it is the business of the legislature, not the judiciary, to look into the practices of regulatory agencies.
It appears that a direct challenge to the FTC’s practices has been averted. However, the commission may feel chastened by the fact that a federal magistrate chose to order interrogatories to flesh out the purpose behind a subpoena.
Watson might have done better to try to resolve the issue with the FTC after the first, favorable ruling, rather than letting the matter go back to Magistrate Kay for another ruling, especially after he too knew that a legitimate enforcement purpose existed.
For further thoughts on this matter, see the Washington Legal Foundation’s Legal Pulse commentary on this case.
When a U.S. magistrate judge in the District of Columbia issued his ruling in Federal Trade Commission v. Bisaro on July 13, 2010, permitting limited discovery of certain FTC officials regarding an agency subpoena, it had been more than three decades since the D.C. Circuit had found that “extraordinary circumstances” were present that warranted discovery in a subpoena enforcement action.
Subpoena enforcement proceedings are typically “summary procedures.” However, upon a finding that extraordinary circumstances exist, the court may order limited discovery to ensure that enforcement of the subpoena would not amount to an abuse of process.
In opposing the FTC’s petition to enforce a subpoena requiring him to testify under oath, Paul M. Bisaro, CEO of Watson Pharmaceuticals, moved to compel limited discovery on whether the FTC was acting with an improper purpose in issuing the subpoena. Bisaro argued that the FTC had acted outside the scope of its regulatory and enforcement authority by using the subpoena to pressure Watson to enter a deal with another generic pharmaceutical company.
U.S. Magistrate Judge Alan Kay found the facts in Bisaro “extraordinary enough to grant very limited discovery.”
In a finding that will no doubt be embarrassing to the Commission, Kay found that the FTC may have exceeded its authority by using its investigative power to pressure Watson to enter into a business deal that the FTC considers desirable. Citing the U.S. Supreme Court’s 1964 decision in United States v. Powell, Kay said it is an abuse of process to enforce an agency summons that “had been issued for an improper purpose, such as to harass the [recipient] or to put pressure on him to settle a collateral dispute.” Kay ordered the FTC to answer interrogatories but stopped short of requiring a key agency official, Markus Meier, to sit for a deposition.
The case will likely fuel the debate as to just how far the FTC will go to achieve a ban on so-called reverse-payment patent settlements between generic and branded drug firms. Bisaro argued that Meier, the assistant director of the FTC’s Bureau of Competition’s Health Care Division, expressly warned Watson’s counsel that failure to pursue the FTC’s suggested course would likely cause the FTC “Front Office” to initiate an investigation.
Kay found this credible and noted that the FTC had admitted, “If Watson had just agreed to [do what the FTC wanted] it never would have pursued this investigation.”
Kay rejected the FTC’s argument that “an administrative subpoena must be enforced whenever a valid purpose appears, even if an otherwise improper purpose also appeared.”
Prior to the Bisaro decision, the D.C. Circuit had only found one instance where extraordinary circumstances existed to warrant discovery. See United States v. Fensterwald, 553 F.2d 231, 232 (D.C. Cir. 1977) (finding limited discovery into IRS audit selection procedure appropriate where lawyer who headed a committee investigating the IRS was then selected for special audit).