DOES THE FTC'S THEORY OF PRODUCT-HOPPING PROMOTE COMPETITION?

Abstract

This article evaluates the effect on competition of adopting the FTC's product hopping theory as an antitrust doctrine. Courts have disagreed on the merits of the theory. According to this theory, a pharmaceutical manufacturer of a brand name drug can violate the antitrust laws by introducing a new product that reduces demand for rival legacy generic therapies and offers consumers no significant incremental therapeutic benefits over these legacy products. Under these circumstances, generic manufacturers are harmed because they lose sales to the new product and consumers are also harmed, because while they gain no significant therapeutic benefits from the new product they must pay a higher price. The FTC has applied the theory to the pharmaceutical industry because, in the FTC's view, the purpose of product hopping is to evade aspects of the Hatch-Waxman Act which was designed to promote competition between generics and brand name drugs. Although the FTC so far has applied the theory only to pharmaceuticals, nothing in the theory limits its application only to the drug industry. The article explains that the theory is at best a misguided attempt to use antitrust law to fix a regulatory problem in the pharmaceutical industry associated with the Hatch-Waxman Act and is premised on the proposition that competition does not work. Using antitrust law to fix such a regulatory problem, assuming one indeed exists, will not only potentially make things worse in pharmaceutical markets, but also create an undesirable antitrust precedent for other industries.