Namenda IR is a drug used to treat Alzheimer’s disease (a devastating form of dementia). “IR” stands for “instant release,” meaning the drug has to be taken twice a day. Because Actavis had the patent on Namenda, it had the exclusive right to sell the drug for 20 years. As the end of the patent term neared, other companies developed generic alternatives. Actavis expected that, once these generics entered the market, it would keep only 30% of its annual $1.5 billion in sales. To protect its market, Actavis introduced a more convenient once-a-day pill, called Namenda XR (“extended release”). 

Once XR became available, the company adopted a “soft switch” strategy to convert patients to the newer pill: While cutting all advertising for IR, it marked XR extensively, and charged a lower price for XR than IR.

But, determined to maintain its market share, Actavis moved to a “hard switch” strategy. A year before the generic IR became available, Actavis completely withdrew Namenda IR from the market, thereby forcing Alzheimer’s patients to switch to XR. The nature of Alzheimer’s disease makes patients especially vulnerable to change sin routine, which means that doctors and caregivers are reluctant to change a patient’s medication. As a result, many patients would never switch back to IR even after the generic version became available.

Under most state laws, a pharmacist can substitute a generic pill for a name brand, if the two are exactly the same. But pharmacists would not have the right to supply the generic pill in place of XR because IR and XR were different. Actavis estimated that the hard switch would enable it to keep 80 to 100 percent of the drug market. 

The state of New York filed suit seeking an injunction against Actavis, for violating §§1 and 2 of the Sherman Act. The trial court granted an injunction and Actavis appealed.

Questions:

1. Did Actavis violate the Sherman Act?

2. Did the Defendant have monopoly power?

3. Knowing its patent was about to expire, what actions did Actavis take?

4. what did the court mean by “soft switch” and “hard switch?” 

5. Were these actions designed to retain as large a market share as possible?