Antitrust Laws in U.S. Generic Drug Industry: Unfair Market Competition & Price Hikes - Essay Sample

Introduction

Market collusion eliminates fair competition among businesses and often leads to the formation of monopolies. As a result, many nations introduced antitrust laws to regulate how businesses operate in the market and protect consumers (Samuelson, 2012). The United States generic drugs industry has been faced with conspiracy challenges leading to unreasonable price increases on several pharmaceutical products. The purpose of generic drugs industry is to lower the cost of pharmaceuticals; however, conspiracies have hindered the achievement of the goal. Heritage Pharmaceuticals is an example of a company that has been extensively involved in the drug collusion cartel in the country in the past decade. The company alongside other firms faces legal lawsuits from different states for violating antitrust laws to increase its profits and reduce competition. Because ethical fading may have influenced Heritage Pharmaceutical to engage in a conspiracy to hike drug prices, the company violated act one of the Sherman Antitrust Law; however, the firm could have utilized the common-good ethical framework to avoid the scenario.

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Company Profile

Heritage Pharmaceutical is a pharmaceutical company based in Eatontown, New Jersey and was founded in 2006. It engages in marketing, licensing, development, acquisition, and sale of generic prescription drugs globally. Its product portfolio includes metabolic disease, cardiovascular, pain management, and anti-infective pharmaceuticals. Notably, it sells more than 65 prescription drugs in the country. In 2016, Heritage Pharmaceuticals was accused of market collusion to hike the price of antibiotic doxycycline and glyburide drugs in more than 20 states in the US. Noticeably, two of its former executives, Jeffrey Glazer and Jason Malek, pleaded guilty of the charges for price-fixing. However, the company sacked the two individuals and initiated legal lawsuits against them in a bid to distance itself from their actions.

Legal Issues and Regulatory Environment

Heritage Pharmaceutical has been accused by more than 20 states concerning market conspiracy, which is a violation of US antitrust law. Antitrust Laws are state and federal acts that focus on ensuring that businesses operate fairly and honestly (Sawyer, 2019). The primary objective is to level the playing ground to eliminate the monopolization of the market. Moreover, the laws prohibit companies from engaging in specific actions that can outperform competition and introduce deceptive trade. Predatory business activities prohibited by the laws include market allocation, bid-rigging, price-fixing, monopolies, and mergers and acquisitions. For instance, the generic pharmaceutical industry in the country thrives based on competition to lower the price of prescription drugs (Sawyer, 2019). Nevertheless, supplier collusion can lead to increased prices. The courts use the rule of reason to determine if specific activities are illegal or not.

Antitrust legislations in the country include the Sherman Anti-Trust Act, the Federal Trade Commission Act, and the Clayton Antitrust Act (Sawyer, 2019). The Sherman Act of 1890 was the first legislation to be passed by Congress to eliminate any collaboration, conspiracy, or attempt to monopolize the market with the aim of restraining trade (Samuelson, 2012). Notably, the law only prohibits those partnerships that the courts find unreasonable with the aim of maintaining healthy competition in the market. The Federal Trade Commission Act outlaws unfair means of competition or deceptive trade practices (Samuelson, 2012). The Clayton Antitrust Act prevents mergers and acquisitions that may create a monopoly in the market.

In this case, Heritage Pharmaceuticals violated the Sherman Act by conspiring with other firms in restraint of trade. The companies acknowledged that they were engaging in unlawful acts; thus, they did not put their dealings in writing. As a result, the price of common drugs hiked unreasonably, injuring the consumers and the healthcare industry extensively. Noticeably, the prosecutors need to gather adequate information to prove that the companies colluded to raise the price.

In the past, the courts have issued different verdicts concerning corporates who violate the antitrust laws. For example, in the United States v. Apple Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013), the New York District Court found Apple Inc. guilty of violating Act one of the Sherman Law. The company colluded with six publishers to raise the price of eBooks. The publisher would meet parties to discuss how they were going to increases their profits following Amazon's low prices. Apple got into an agreement with the companies to sell their eBooks at a high price after the launch of its iBookstore in 2010. The eBooks would sell at a minimum of $14.4 dollars the whole amazon was offering them for $9.99. In 2016, the Supreme Court upheld the decisions of the lower courts by ruling that Apple conspired to increase the price of eBooks and charged it to pay $450 million.

Ethical Dilemma and Frameworks

The firm presents an ethical dilemma where its decision to conspire with other companies violates the Sherman Law, while on the other hand, it leads to increased profits and reduced market competition.

Ethical Fading Framework

Heritage pharmaceutical's decision to engage in price-fixing may have been influenced by ethical fading. In this case, the company was faced with many factors that masked its ability to identify the ethical issues involved in its decision to conspire. According to Sezer, Gino, and Bazerman (2015), ethical fading happens when people are concerned more with other aspects of a decision such as winning or profits, which make them, overlook ethical dilemmas. Moreover, ethical fading is similar to moral disengagement, where people engage in unethical behavior while still believing that they are morally upright (Sezer et al., 2015).

In this case, the company may have faced pressure from other firms in the generic drugs industry making it miss the ethical implications of its actions. Price fixation is consumer exploitative and injures the healthcare industry by escalating the cost of basic prescriptions (Samuelson, 2012). On the other hand, given that the generic drug industry is concerned with the production of similar products that increase market competition, a company may be worried about its financial sustainability when the rivalry intensifies. Hence, the firm's executives may have decided to conspire with other pharmaceuticals to safeguard its market share and competitiveness with little regard to ethical consequences of their actions.

Moreover, other established pharmaceuticals in the country may have been engaging in the conspiracy long before Heritage Pharmaceuticals joined them. The situation may have given them an advantage in the market, which may have threatened the Heritage's ability to compete fairly in the industry. Left without any option, the firm executives may have decided to conspire with others to ascertain its sustainability in the industry. Therefore, Heritage Pharmaceutical's increased desire to increase profits and maintain a sizable share of the generic drug industry may have caused its managers to overlook the ethical dilemma generated by their actions.

The Common-Good Approach

The company could have considered the common-good approach while making its decisions concerning the market price of its products. The ethical framework assumes that individuals' actions are inextricably joined to the overall good of society. Therefore, people are linked to the pursuit of common goals and values. Fremeaux and Michelson (2017) note that the framework ensures that social systems, institutions, and social policies that a community depends on produce outcomes that are beneficial to all persons.

By using this approach, the firm would have identified that its actions were not beneficial to the society or communities that depended on its supplies. For instance, its decision to increases the price of glyburide by almost 3000% affected negatively people living diabetes. The added burden on healthcare management may have increased the mortality rate of the disorder. The ethical framework may have aided the managers to identify that their actions were causing more harm than good to society (Fremeaux, & Michelson, 2017). Instead, the organization could have devised alternative means to increases its profit margin and competitiveness without harming the community it serves.

Other Legal Frameworks

Patent Laws

Heritage Pharmaceuticals operates in an industry heavily governed by patent regulations. The generic pharmaceuticals manufacture drugs, which are similar to branded medicine after the patent of the latter expires. The United States Patent Act gives a corporation the right to enjoy economic benefits arising from its innovation or development (Samuelson, 2012). The law prohibits other organizations from manufacturing, selling, or inducing products with an active patent for a given period. However, if a company decides to develop or manufacture a drug with similar chemical structure, components, action, or processes similar to a patented one they violate the Patent Act (Taylor & Inman, 2017). One example is the Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 574 U.S. ___ (2015) case where the Supreme Court overruled the Federal Court Circuit's decision and granted upheld Teva's patent rights. Sandoz Inc. wanted to invalidate Teva's Copaxone drug patent claiming that it did not define molecular weight definitely. However, the Supreme Court granted Teva the patent preventing Sandoz from producing a generic version of the drug.

Defamation Law

Defamation statutes prevent individuals or companies from giving false statements about others, which may damage their reputation or cause injury. The defamation law applies to differentiate between freedom of speech and libel (Robinson, 2017). For corporates to win a defamation case, the statement must have caused injury, be based on falsehood, or published (Robinson, 2017). In the case of Heritage Pharmaceuticals, the firm might decide two sue its former executives if they testify against it based on falsehood. They can claim damages resulting from a damaged reputation.

Product Liability

Product liability laws hold manufacturers responsible for any injuries caused by defective products. The cases of product liability are present in the pharmaceutical industry where individuals may sue a company for injuries caused by specific drugs (Lybecker & Watkins, 2015). Product liability cases in the US can be tried under both state and federal laws (Samuelson, 2012). The laws stipulate three categories of defects, which include design, manufacturing, and warning problems, which can subject pharmaceuticals to liability. However, the plaintiff must prove beyond a reasonable doubt that a specific drug caused him or her the injury (Lybecker & Watkins, 2015). An example is the Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County, 582 U.S. ___ (2017) case, where the Supreme Court overturned California's Superior Court ruling that held Bristol-Myers Squibb responsible for product liability in the state. The non-resident plaintiffs had accused the company of misinterpreting its blood-thinning drug side effects. However, the Supreme Court ruled that the company was not responsible for marketing the drug in California; therefore, it was not liable for the damages.

General Recommendations

Business managers should conduct their activities in accordance with the law to avoid incurring losses through legal lawsuits. Most business decisions are faced with dilemmas where the managers are forced to break the law or miss various opportunities. In such a case, managers...