Consiglio di Stato reinstates Pfizer €10.7 million Xalatan fine

The Consiglio di Stato, Italy’s highest administrative court, has upheld the finding by the Italian Competition Authority (ICA) that Pfizer abused its dominance in relation to conduct concerning its glaucoma medicine, Xalatan.  This ruling annuls the decision by the lower Italian Administrative Tribunal to overturn the ICA’s finding and makes the ICA’s €10.7 million fine binding.  Details of the ICA’s finding and the Tribunal’s ruling were reported in previous articles (see here and here).

The ICA had criticised Pfizer for using a “complex strategy” involving an application for a divisional patent on which to base an application for an SPC (in circumstances where it had appeared that no SPC would be granted) and the initiation of litigation against potential infringers, both in order to delay generics from entering the market.  The ICA’s decision was heavily criticised on the basis that Pfizer was using legitimate tools to protect its IP, and that the ICA did not clearly show how this amounted to an abuse of dominance.  In overturning the decision, the Tribunal had said that evidence of a “clear exclusionary intent” and other anti-competitive elements must be present before an abuse could be found.

The Consiglio di Stato’s reasoning in this ‘final’ ruling will not be available for several months, but it will not be welcomed by pharma innovators.  Its reasoning must have focussed on Pfizer’s intention, or inferred intention, in securing the additional rights which affected the ability of generic companies to enter the market.  It appears that great flexibility is again being given to the concept of the special responsibility of dominant companies to compete only on the merits, and that even proper applications for additional patent protection can attract censure.

Undoubtedly, we’ll have a few more words to say when the Consiglio di Stato’s reasoning is made available (in English…).

Sophie Lawrance and Osman Zafar

Elevated liability for cartelists?

On 30 January 2014 Advocate-General Kolkott delivered her opinion in Kone AG and Others (C-557/12).  The case concerns the question of whether a cartelist can be liable to compensate third parties for damage caused by the so-called “umbrella effect” i.e. where a party that is not a member of the cartel, benefiting from the protection of the cartel’s practices, knowingly or unknowingly sets their own prices higher than they would have been able under competitive conditions.

In this case the Claimant was Austria’s rail network, and the Defendants were a group of elevator manufacturers.  The Defendants argued that claims for damages based on the “umbrella effect” were precluded by Austrian law.  The AG disagreed, opining that such national laws are not in line with EU law and are thus impermissible.  Although in principle this means that cartelists are liable for damages brought about by the “umbrella effect”, the AG noted that there would need to be a “comprehensive assessment” as to whether the “umbrella effect” was actually in play and that there were “high hurdles in terms of the burden of proof”, particularly in the establishment of a causal link between the cartel and the umbrella pricing.  As such she cautioned would-be Claimants to weigh up the pros and cons of any such action.  This caveat may have been made with a view to allaying the concerns of a number of national governments who had suggested that allowing such claims might overwhelm the Courts.

It will be interesting to see what, if any, impact the Advocate General’s opinion will have on the ongoing debate between EU institutions concerning the text for a Directive on Damages actions and in particular the proposed cap on the liability of cartel whistleblowers.  As it currently stands, there appears to be unanimity on the general position that competition law infringers should be jointly and severally liable for damage caused, subject to the caveat that cartel whistleblowers should only be liable to the extent that full compensation cannot be recovered from other joint infringers.  However, there is some disagreement about whether or not the liability of whistleblowers should be capped.  The Commission had initially proposed that whistleblowers’ liability should be limited to the amount of harm caused to its own direct and indirect purchasers.  The Council has subsequently proposed that this cap on liability be removed (for more on the Directive see here).

In the absence of such a cap and assuming that the Advocate General’s opinion is followed by the CJEU, a cartel whistleblower could arguably become liable in all EU Member States for damage caused not only to downstream purchasers within its own supply chain, but also for loss caused to victims of the so-called “umbrella effect”, some of which may have been difficult to foresee at the time that the leniency application was made.  Despite the Advocate General’s suggestion that such claims will be the exception rather than the rule, this possibility may need to be factored into the decision-making processes of would-be leniency applicants.

Rosemary Choueka and Steven Willis

“Les génériques dangereuses”: denigration and other recent pharma sector competition issues in France

Last year the French Competition Authority (FCA) issued a decision fining Sanofi-Aventis for abusing a dominant position in relation to its Plavix product.  Sanofi-Aventis was found to have denigrated generic competitors of Plavix in its communications with doctors and pharmacists, and was fined €40.6M.

December 2013 and January 2014 saw further activity by the FCA in the pharma sector.  First, in December the FCA published the results of its 10-month sector inquiry concerning the distribution of medicines, as well as fining Schering-Plough €15.3 for its conduct in relation to Subutex (buprenorphine), a drug used to treat opioid addiction, again for denigration tactics vis-à-vis generic competitors.  If there was any doubt about the importance that the FCA attributes to the marketing of branded drugs and the effect it believes it can have on generic uptake/public expenditure, the launch in January of a further inquiry into denigration by Janssens-Cilag (in relation to its Durogesic product) laid that to rest.

The results of the sector inquiry were published on 19 December.  The inquiry related specifically to the distribution of medicines “en ville”, i.e. the equivalent of the UK's primary care channel.  Rather than seeking a radical reorganisation of the distribution chain, the FCA’s opinion suggests that the sector should undergo a “progressive and limited adaptation” to align itself with “new methods of commercialisation and consumers’ expectations in terms of price and service levels”.  This adaptation should take place throughout the distribution chain with the aim of stimulating both upstream innovation and downstream price competition (in part by relaxing laws as to where certain ‘over-the counter’ products can be sold), as well as the buyer power of intermediaries vis-à-vis pharmaceutical companies.  The beneficial downward pricing pressure created by inward parallel trade was also noted.

The FCA opinion is open about the impact of constraints upon health budgets, and the price benefit of generics and, potentially biosimilars.  It does, however, seek to allay concerns that its intervention represents yet another attack on the innovative industry.  For example, in answer to the criticism that excessive concern about reducing the drug budget now could damage future innovation, the opinion suggests – not entirely convincingly – that in saving money now, more can be made available for funding new innovative products.  The opinion also recognises the right of pharmaceutical companies to defend their IP rights and to “defend the quality of the reference product compared with generics”.  Nevertheless, it acknowledges that there is a narrow line between legitimate defence of products, and potentially unlawful attacks against competing generics.  Stepping over this line represents, according to the FCA, an attack on innovation throughout the distribution channel.

Schering-Plough, like Sanofi-Aventis before it, was held to have stepped over the wrong side of this line.  The FCA held that Schering-Plough had disparaged Arrow’s generic drug in its sales pitches, as well as granting pharmacists unjustified discounts to prompt them to stock up on Subutex instead of generic alternatives.  Schering-Plough (together with head licensor Reckitt Benckiser – among other things, the case is a salutary reminder about the possibility of licensor-licensee collusion) was held to have developed a plan to raise a number of health-related concerns about Arrow’s generic product.  This included questioning its bioequivalence, the safety of the excipients used, and even suggesting that the product was more liable to be trafficked than the originators.  The plan developed by Schering-Plough also involved the saturation of pharmacists prior to generic entry with its own product, achieved by the offer of discounts for bulk purchases, as well as beneficial credit terms.

Denigration cases of the type seen in France are probably less likely to be brought in the UK – indeed, the FCA opinion following the sector inquiry notes that they are a particularly French phenomenon. Higher levels of generic substitution in the UK, achieved through methods such as ScriptSwitch, mean that the impact of negative promotion is likely to be limited. Indeed, it is common for product promotion to cease when generics enter, unless the company has a related second generation product.  However, as has been seen from the UK’s Gaviscon case (in relation to which follow-on damages actions are currently ongoing), activities undertaken prior to generic entry which are designed to eliminate or significantly slow generic penetration are liable to be held to be anti-competitive.

Post-AstraZeneca (which is specifically invoked in the FCA’s sector inquiry opinion), innovators must continue to be more careful than ever when interacting with others in the supply chain in the EU.  National competition authorities appear ready to stretch the concept of ‘abuse’ to remedy a number of perceived problems in the pharma supply chain, however they arise and whether or not they fall within the limits of the existing case law.  As well as the recent activity in France, it is understood that the OFT is currently looking at an issue involving the supply of medicines in the UK.  No details are yet in the public domain, but the interest of competition authorities across Europe in the pharmaceutical sector appears likely to continue for some time.

Sophie Lawrance

Smart tactics in the smartphone war?

Google bought Motorola in 2012 and paid an astounding $12.5 billion.  At the time of sale, Motorola had $3 billion of cash on its balance sheet – so in reality, Google only(!) paid $9.5 billion for the company.

At the end of 2012, Google sold Motorola’s cable TV set-top box business for $2.35 billion.  And yesterday it was announced that the Lenovo Group agreed to buy the Motorola handset division for $2.91 billion from Google – and only a few (well, about 2000 it appears!) of the Motorola patents are to be transferred to Lenovo as part of this deal, leaving Google with around 15,000 of the Motorola patents.

This means using-back-of-the-envelope-type-maths, Google has paid $4.24 billion for sole ownership of a standard essential patent portfolio containing around 15,000 UMTS and LTE patents.  Put in context, the Rockstar consortium paid $4.5 billion in 2011 for shared-ownership between 5 different companies for just 6,000 LTE and UMTS patents.

That’s a pretty smart move from Google.

Kate Shires

Actavis leaves scope for dissent

I noted with interest that the long-standing differences of opinion between US District Courts about the antitrust law treatment of patent settlement agreements (so-called ‘pay-for-delay’) have not gone away post-Actavis.  The latest dissent relates to the treatment of non-monetary benefits accorded to generic challengers in the context of patent settlements.

Last October saw the Judge Young, in the District Court of Massachusetts, rejecting a Motion to Dismiss in the In re Nexium litigation (available here), on the basis that “Nowhere in Actavis did the Supreme Court explicitly require some sort of monetary transaction to take place for an agreement between a brand and generic manufacturer to constitute a reverse payment”.  The non-monetary compensation at issue in the case included a promise by the originator not to launch an authorised generic and forgiveness of contingent liabilities on the part of the generic following an at-risk entry.

But last week (January 24), Judge Walls, in the District Court of New Jersey, again ruling on a Motion to Dismiss brought by the brand-owner in the In re Lamictal dispute, reached the diametrically opposite conclusion (here), stating: “this Court will not extend the holding of Actavis to the non-monetary facts before it”.  Judge Walls noted the In re Nexium precedent, but elected to diverge from it, as he found the reasoning unpersuasive.  However, leaving aside Actavis, he did not exclude that other similar cases without monetary payment might nevertheless give rise to antitrust concerns.

I am not a US lawyer, but Judge Walls’ analysis of the Actavis opinion appears robust.  Actavis specifically called for scrutiny of “large and unjustified” reverse payments and the dissenting opinions questioned the majority’s differential treatment between monetary and non-monetary payments.  Rather, it is the In re Nexium judgment which seems to be the outlier, at least as an interpretation of Actavis.  It cannot be excluded that this is an issue which will again have to be reviewed at the highest level in the US.

In the EU, it seems that non-monetary compensation is subject to competition law scrutiny.  The European Commission clearly signals its view in the 4th Pharmaceutical Patent Monitoring Report (December 2013, here) which mentions “side-deals” such as distribution, licence or non-assertion agreements (I blogged on this previously here).  The concession that a “pure early entry” agreement (which would necessarily involve some kind of licence) “is not likely to attract the highest degree of antitrust scrutiny” offers scant comfort, and contrasts with the position of the majority in Actavis that early entry agreements were pro-competitive. 

The draft Technology Transfer Guidelines (here - surely the final version which is due to come into force in just 3 months’ time has to be published soon?) contain a similarly nebulous threat that “Scrutiny is necessary in particular if the licensor provides an inducement, financially or otherwise” (para. 223).  This smacks of anti-avoidance - whatever creativity litigating companies use to structure a mutually acceptable settlement, the competition authorities will match their creativity in finding an infringement of the competition rules.

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Note: For those new to this subject, Actavis was an opinion of the US Supreme Court issued last year which went some way towards resolving diverging Court of Appeals opinions about the treatment of reverse payment patent settlement agreements, where the generic challenger receives a benefit from the patentee.  The Supreme Court rejected the so-called ‘scope of patent’ test, which treated agreements as exempt from the application of antitrust law unless they imposed restrictions going beyond those resulting from the patent itself.  Instead, such agreements are not immune from the application of the antitrust rules, although an effects-based ‘rule of reason’ analysis is to be used, rather than the ‘quick look’ approach the FTC had advocated.

Sophie Lawrance

Litigation update

Companies in sectors where IP and innovation are important often find themselves embroiled in litigation – and sometimes that litigation even involves competition law!  A current example is the litigation in the UK against Reckitt Benckiser following the OFT’s investigation into the marketing of Gaviscon (see brief comment on current position here). It is always worth keeping an eye on how the litigation environment is shaping up and a couple of recent developments may be of interest which we summarise below.

‘Sharpening the CAT’s claws’

The UK government is significantly reforming competition law private actions with a view to making it easier for consumers and businesses to obtain redress where there has been a competition law infringement.  The reforms are contained in the Consumer Rights Bill which was introduced into the House of Commons on 23 January and is currently passing through the legislative process.  Related to this, the government consulted last year on reforms aimed at streamlining competition appeals.

To see a full copy of an article on the reforms, please click here.

‘The Commission’s Draft Directive on Damages: an end in sight?’

Following the Commission’s proposal for a draft Directive on damages actions for breaches of EU competition law published in June 2013, EU institutions and Member States have been seeking to refine the text of the Directive and reach consensus on a number of key issues.  It remains to be seen whether Commissioner Almunia’s target of reaching agreement on its text before the end of the current term of Parliament will be met.  To read more about the main issues to be addressed by the Directive and the provisions that appear to be most controversial (as evidenced by the current divergence of opinion between the Commission and the Council), please click here.

It is not yet clear how much of a direct impact the Directive will have on standalone competition actions (where both liability and quantum are addressed),  or where competition issues arise in the context of other disputes such as IP litigation where a ‘competition defence’ is pleaded.  The reforms to the powers of the CAT may be of more direct interest to those active in the IP/competition arena.

Helen Hopson

National IP rights: a thorn in the EU’s side

If we ever doubted that the European Commission has a gripe with national IP systems, Almunia was pretty explicit about this in his latest speech, which also focused on the creation of the Single Market.

“As to online markets, they are clearly underdeveloped in the EU compared to other parts of the world. It is not logical that in 21st-century Europe online transactions between EU Member States are still hampered by poor online payment systems and national copyright systems.”

It’s almost welcoming to see a little honesty.  Quite how the Commission seeks to go about dismantling the systems of national IP rights is another matter altogether…

Osman Zafar

Reckitt Benckiser still suffering competition law heartache in the UK

In 2010, the OFT fined Reckitt Benckiser £10.2 million for abusing a dominant position, following an investigation which was originally sparked by a ‘whistleblower’ providing information to BBC’s Newsnight programme (see below*).

Now Reckitt Benckiser’s rivals (Teva, Sandoz and Pinewood Laboratories) and some of its largest customers (the UK’s health authorities) are pursuing it for damages in follow-on cases in the UK High Court.  At a case management conference (CMC) that began in the High Court today, the parties put forward arguments over how the litigation should be managed, including whether or not aspects of it should be dealt with ahead of the trial, which is expected in early 2015.  One of these aspects is whether generic rivals would have entered the market to challenge Reckitt Benckiser.  This is important because one of the key issues for the case will be the concept of potential competition and the relevance of whether and when other generic competitors would have been able to come to market and effectively remove the consequences of Reckitt Benckiser’s actions.  Similar complex issues around the ‘but-for’ world or ‘counterfactual’ arise in 'pay-for-delay' cases under Article 101.

In pay-for-delay cases, competition authorities need to show that the settling generics would have been able to enter the market in the absence of the agreement.

In Reckitt Benckiser, the claimants need to argue that competitors would have entered and driven down prices. If they can prove this, the damages to which Reckitt Benckiser will be exposed may be much higher.  It is worth thinking about the issue of damages a little further, as this will be far from straightforward.  The first major uncertainty is of course the amount of the award, i.e. the size of the ‘damages pie’ – this uncertainty is part and parcel of all litigation therefore is not unique to follow on actions such as these.

More interesting is the second source of uncertainty: the apportionment of the damages amongst the claimants in follow on cases in this sector.  The ‘damages pie’ will be differently divided between the generics and the public health agencies, and between the generics amongst themselves, depending on: (i) who would have entered; (ii) when they would have entered; and (iii) the effect of such entry on reimbursement price.  So, if a significant number of generics would have entered, let’s say at around the same time, the lower the price that each of them would have been able to command due to competition from each other – the portion of the ‘damages pie’ available to the generics in any award would be smaller than if only one or two would have entered.  Conversely, if a significant number of generics would have entered, at the same time, driving prices lower, then the higher the loss suffered by the public health authorities – the portion of the ‘damages pie’ for the public purse would therefore be greater than if only one or two generics would have entered.

Figure: potential uncertainties around the awards of damages in Reckitt Benckiser

The permutations are thus many and complex and will depend heavily upon the facts and evidence presented to the Court.  So much for the supposed ‘simplicity of follow on actions.

In both pay-for-delay cases and in this case, there is also the question of principle about whether the effects of the agreement/conduct is considered purely: (i) ex antei.e. in this case looking at the likelihood that generics would enter at the time when Reckitt Benckiser took steps to prevent generic prescription; or (ii) ex posti.e. looking at what happened in fact in the period after the conduct.  The debate and the need for a 2 day (or more?!) CMC demonstrates that ‘follow-on’ actions, supposedly more straightforward than ‘standalone’ competition law actions, are riddled with complexities.  We gather that other issues dealt with at the hearing included delays to the publication of drug details, and of course the crucial issue of disclosure.

The CMC comes at a time when private actions in competition law are generally in the spotlight, with the UK Government in the process of making significant reforms with the aim of making it easier for consumers and businesses to obtain compensation (see article).  Undoubtedly, it would like to see many more such actions in the future, especially as some of the damages in actions such as these might end up in the public purse.  If such cases result in significant awards, this will add further pressure on pharma innovators, many of whom are still reeling from the intrusive European Commission’s Pharmaceutical Sector Inquiry, as well as the Commission ‘pay-for-delay’ cases, such as those which we have reported on elsewhere (see here and here).

* In 2010, Reckitt Benckiser admitted that it had manipulated the prescription/dispensing process for its well-known heartburn treatment, Gaviscon.  In the UK, when a drug’s patent has expired, a ‘generic name’ is assigned to it.  In general, General Practitioners (GPs) in the UK are encouraged to write open prescriptions using a drug’s generic name, thereby allowing the pharmacist to dispense the branded or cheaper generic version.  If a branded medicine is prescribed, pharmacists are committed to dispensing that specific treatment.  In 2005, when the patent for Gaviscon Original Liquid had expired, Reckitt Benckiser withdrew it from the NHS prescription channel. This withdrawal took place before a ‘generic name’ had been assigned to it and meant that GPs prescribing Gaviscon had to prescribe Reckitt Benckiser’s newer patented medicine, Gaviscon Advance Liquid, for which there was no generic version.

The OFT found that this behaviour had hindered pharmacy choice and competition from generic medicines.  The investigation is just one of many examples where national competition authorities have pursued practices in recent years which are otherwise entirely permitted by the layers of regulation that innovators must comply with.  These investigations follow on from the controversial AstraZeneca case in Europe: in this case the European Commission held, and the European Courts agreed, that an abuse of a dominant position could include misleading regulators and misusing regulatory procedures.  See also an earlier article.

Sophie Lawrance and Osman Zafar

Developments in the CC’s private healthcare market investigation in the UK

The Competition Commission (CC) today published its provisional decision on remedies to address features of the private healthcare market that it has found to give rise to concern.  The CC’s ‘market investigation’, which began in April 2012, has identified structural flaws in the market which the CC believes to have ultimately lead to higher prices for certain patients.  In short, the CC has proposed that:

  • 9 hospitals should be divested (seven by BMI and two by HCA);
  • the OFT/CMA should review agreements for the operation of private patient units at NHS hospitals;
  • certain consultant incentive schemes should be prohibited or restricted;
  • performance-related information on both hospitals and consultants should be published; and
  • consultants should provide fee information to both out-patients and inpatients.

Interested parties can comment by 6 February.

The CC’s procedure has already been called into question: the Competition Appeal Tribunal (CAT) today also handed down its judgment in a case which concerned BMI’s application for costs following its successful challenge to the way in which the CC operated its disclosure room in the investigation.  Interestingly, the CAT held that while a successful party would ordinarily obtain a costs award in its favour, BMI’s costs of almost £300,000 were disproportionate given the complexity of the case.  Furthermore, BMI was only successful on one of the two grounds it raised.  As a result, the CAT awarded BMI only £125,000, having taken as its starting point the CC’s modest expenditure of £35,000.  Clearly, we are getting value for money from our competition authorities!

Rosemary Choueka

The OFT tackles restrictions on the online availability of medical devices

In August 2013, the OFT issued its decision in the Roma-branded Mobility Scooters case.  This arose from an OFT investigation into arrangements between Roma and its distributors that were designed to restrict the availability of certain Roma mobility scooters online.  The classification of mobility scooters as ‘medical devices’ makes this decision relevant to all manufacturers and distributors of medical devices.

Agreements restricting competition

Agreements that affect trade in the UK and have as their ‘object’ or ‘effect’ the restriction of competition within the UK are prohibited under competition law. Unless a company is dominant, an ’agreement’ is required for competition law to bite.

The ‘agreements’ in this case arose from Roma communications to its retailers stating that certain models of mobility scooter should be sold “in-store only”.  A number of retailers expressly agreed to Roma’s request.  Roma had a policy of threatening to withdraw/actually withdrawing supply from retailers who did not comply. The OFT inferred that any retailers which did not sell online had acquiesced and had therefore entered into an ‘agreement’ for competition law purposes.  A number of retailers had attempted to “cheat” the restrictions, but even this did not prevent the OFT from finding that an ‘agreement’ was in place between Roma and those retailers.

The specific restrictions of competition related to prohibitions of online sales and online advertising.

The ‘object’ of the restrictions

Restrictions that are by their very nature detrimental to competition are seen as anticompetitive by ‘object’.  Such restrictions are prohibited without any need to show that they have an anti-competitive ‘effect’.  The OFT took the view the online sales prohibition would obviously restrict competition between retailers and therefore fell into the anticompetitive by ‘object’ category.

In a confusing section, the OFT then considered the subjective ‘objects’ /aims of the parties (and to some extent the effects of the conduct).  Roma argued that its primary aim had been to protect consumers, highlighting that mobility scooters are classified as medical devices by the MHRA.  As such, consumers needed to receive an “assessment” prior to buying a mobility scooter and this could not be carried out if the sale was made online.

The OFT found that contemporaneous documents did not suggest that the restrictions imposed (or rather ’agreed‘) were motivated by the products’ characteristics. It found that they were instead designed to incentivise bricks and mortar retailers to stock and sell Roma products on the understanding that they would not face ‘intra-brand’ competition from online Roma retailers.  The OFT emphasised that the relevant medical devices regulations imposed requirements only on the way that the scooters were manufactured, constructed and packaged, and not the way in which they were distributed, sold or advertised.  As a result, there was certainly no requirement for a manufacturer to ban online sales or online price advertising to meet regulatory obligations.

Comment

From a competition law perspective, the low threshold used by the OFT to identify an ‘agreement‘ is certainly noteworthy. This remains an area of the law that needs further clarification.  The OFT’s readiness to find that the prohibition of online sales was an ‘object’ type restriction also reflects the increasing tendency of competition authorities to categorise restrictions in this way. The practical consequence of doing so is to remove any requirement to demonstrate anticompetitive effects before finding that the conduct is in breach of the law.

It is interesting to note that when considering consumer harm and industry developments, the OFT emphasised the fact that consumers with limited mobility may find it difficult to visit more than one bricks and mortar store, particularly in light of Roma’s selective distribution system (with a limited number of distributors).  Making the products available online would make it easier to compare prices and to involve friends and family in the purchase more easily.  Manufacturers and distributors of medical devices should take note: it seems that the OFT may employ a higher standard for devices where the vulnerability of consumers is directly relevant to the devices in question.

Finally, it is important for manufacturers and distributors of medical devices to be aware that restrictions on the availability of products online that are not required by a regulatory obligation could give rise to competition concern.  Competition law is inherently sceptical of any arrangements that restrict the use of the internet to distribute products.  In its 2013-14 Annual Plan the OFT has reiterated that it will focus on protecting online channels.  Given this (which is reflected in the position of competition authorities elsewhere in Europe), any restriction on the online distribution of any goods, including medical devices, should be carefully considered. 

Osman Zafar and Steven Willis