Fast track CAT injunctions - have your say on the draft rules

6 February saw a new consultation on a draft set of new rules of procedure for the Competition Appeal Tribunal ('CAT').  

One potentially very significant aspect of the proposed changes is the proposal to empower the CAT to grant injunctions and set up a 'SME-friendly' fast track procedure.  The fast track is intended to give smaller companies a swift, cheap and cost-capped route to obtain injunctive relief for breaches of competition law.  These proposals could affect IP-heavy industries as there is often scope to argue that the 'legal monopoly' afforded by copyright, patent, SPC (etc.) has been 'leveraged' to the detriment of competition.  At present, the cost of bringing such claims before the High Court is prohibitive for small parties without third party funding and cases rarely reach trial.  Given the claimant-friendly nature of the fast track, this could all change soon.

As I noted when I previously blogged on the earlier incarnation of these proposals, a key battleground will be the first case management conference ('CMC') where the CAT decides whether or not to fast track a case.  This CMC will take place after the close of pleadings (potentially within three months of the claim being filed) and the claimant should have already specified at the same time as lodging its claim the reasons why it believes the claim should be fast tracked (in compliance with draft rule 30(4)(c)).  

Importantly, under draft rule 57(1)(a) a case must come to trial "as soon as practicable and in any event within six months" of the CAT ordering the fast track procedure. This might mean a substantive hearing within 9 months of the claim being filed.  Under draft rule 57(3)(b) it must be possible to determine the issues within a trial of three days or less.  

Draft rule 57(3) contains other factors relevant in deciding whether the case is suitable for fast tracking, including: (a) the novelty or complexity of the case; (b) the scope of documentary disclosure required; and (c) the evidence (factual and expert) needed at trial. Of course these factors could be thought of as largely subsidiary to the first two elements mentioned earlier: it's not going to be possible to try in just three sitting days a complex, novel case requiring extensive disclosure and heavy fact and expert evidence within a six month timetable.

The government hopes that the fast track will learn from the highly successful Intellectual Property Enterprise Court ('IPEC').  However, at this stage the differences seem almost as great as the similarities. For a start, there is no obligation for an IPEC case to reach trial  within six months "in any event". Although a quick trial is a sensible aspiration, draft rule 57(1)(a) seems overly rigid and might lead to unnecessary costs. Second, the proposed 'cost-capping' regime is much less transparent than in IPEC.  Recoverable costs for larger IPEC cases are capped at £50,000 for liability issues and £25,000 for quantum disputes on a blanket basis.  The proposed fast track allows the CAT flexibility to set a cap (which is to be welcomed) but whether a cap will apply, and the level of the cap, is not determined until the first CMC. This means a claimant may incur significant costs (and adverse costs exposure) before it even knows whether the case will be fast tracked.  The government originally proposed that a claimant should have an option to 'walk away' without costs exposure to the defendant if the cap were set at a level it was not prepared to accept (see para 4.25 of this paper) but this appears to have been dropped.  Finally, there is no capping on the amount of recoverable damages in the fast track in contrast to the IPEC where damages for larger cases are capped at £500,000.  The system therefore lacks a natural cut off between fast track and ordinary CAT cases which may mean too many claimants try to squeeze into the fast track.

The consultation closes on Friday, 3 April.  Be sure to have your say if you might be affected by these proposals.  My article in the Competition Law Journal might be of interest to those who like to see a more detailed commentary on this topic.

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The published Lundbeck decision - first impressions (with some facts, a little law and three remarkable points)

Over a year and a half after it was decided (a delay which this blog has bemoaned in the past), the Commission last month published the full (non-confidential) text of the decision on the patent settlement agreements entered into by Lundbeck and a number of generic companies.

This is a long and dense decision. There is much to consider.  It is clear that, for patentees and alleged infringers in the pharmaceutical sector who wish to settle (or suspend) litigation, there are many mantraps for the future.  Those mantraps could even have a collateral impact on those in other sectors, or engaged in other activities, where IP or settlements, are concerned. 

Were it not for the risk of boring our readers, we could doubtless write a number of articles about this decision, which is one of the most important recent Commission decisions on the IP / competition interface.  But in this first post, I will stick to an important point on the facts, a summary of the legal test that is applied to patent settlement agreements, and to some discussion of three points of particular interest.

A point on the facts

Before looking at the legal test, it is worth noting that the agreements considered in the Lundbeck decision are not ‘classical’ settlement agreements.  Instead of constituting a full and final settlement of the litigation, each of the infringing agreements simply suspended the litigation, and the generic’s entry, for a fixed period of time.  

Based on this decision alone, it cannot therefore be excluded that a different approach would, or should, be taken to settlements which conclusively dispose of a dispute.  Indeed, the decision notes briefly that certain other settlement agreements entered into by Lundbeck were not challenged by the Commission.  It would have been helpful to have more detail about what distinguished these (apparently) non-infringing agreements from the infringing agreements identified in the decision.  The limited information which is provided suggests that these agreements closely matched the criteria in the Patent Settlement Monitoring reports (we discussed the latest report here) - i.e., they represented a complete capitulation by one of the parties (in this case, Lundbeck), and/or didn’t involve any ‘pay-for-delay’ element.

Summary of the legal test

The agreements entered into by Lundbeck and the would-be generic entrants are treated as object infringements.  The Commission notes that such infringements are serious, but not necessarily obvious.  Bearing in mind the recent CJEU Cartes Bancaires judgment which arguably reined in the scope for novel object infringements to be found, we expect this to be a key focus of the appeals. (Details of the grounds on which Lundbeck is appealing are available here - a plea based on inappropriate use of the object category is indeed included.)

The Commission’s analysis of the agreements is structured as follows:
  • The analysis is predicated in each case on the idea that Lundbeck and the would-be generic entrants are potential competitors (a particularly significant aspect of the case, which is discussed further below).
  • Restrictions upon the generic company’s conduct are identified in each of the agreements - these sometimes, but not always, include a ‘non-infringement’ provision, which the Commission describes as a ‘non-compete’.
  • A ‘value transfer’ in favour of the generic company is identified (the decision sets out to demonstrate that the value of such transfers corresponds roughly to what the generic expected to make on the market, but this does not appear to be a necessary element of the infringement).
  • The decision seeks to demonstrate that the value transfer in each case "induced" the generic to abandon independent efforts to enter.
A couple of further elements are briefly discussed in connection with the legal test.  These are worth noting, but appear to carry less weight than the elements mentioned above:
  • The question of whether the settlement exceeds the exclusionary scope of the patent in suit is not determinative of whether there has been an infringement - however, if an agreement does exceed the scope, the restrictions on competition are “all the more clear”.
  • The parties’ intentions are investigated but are said not to be probative: on a cynical view, this suggests that evidence intention is relevant where it supports the Commission’s interpretation of the agreements, whereas exculpatory intentions (in particular where they concern the maintenance of an IP right) are liable to be downplayed.
  • In connection with ‘inducement’, the decision sets out to demonstrate that the generic obtained at least around the same, in financial terms, as it would have made on the market - however, this does not seem to be an essential ingredient.  
The central legal test applied by the Commission is actually reasonably clear (which is to be welcomed, after a long period without such detailed guidance) - but it remains highly fact-specific.  Even though the agreements entered into by Lundbeck were considered to be anti-competitive ‘by object’, the decision notes that:
  • patent settlements which limit the commercial freedom of one of the parties do not "necessarily" infringe Art 101; 
  • similarly , it is "not necessarily" the case that all patent settlements containing a payment will be problematic - although the higher the payment, the more likely that it "may" constitute an exclusion payment. 
Finding the bright lines will be a challenge for companies wishing to settle patent litigation in cases where the parties seek a genuine compromise, as opposed to a wholesale capitulation by one of the parties.

Three remarkable points

1. Look no patents!

By far the most remarkable point for anyone who spends time with patents (or patent lawyers!) is the almost complete absence of patents from the legal test.  While the factual background sections of the decision look at what the parties thought the outcome of litigation might be, the legal assessment treats the agreements purely as contracts to delay one party’s entry (and the analogy with cartel agreements is explicitly made).  No consideration is given to the relative merits of the case or the outcome of the litigation on either an ex ante or an ex post basis.  

This case is made on the basis that it is an object infringement, without any alternative basis upon effects. Query how effects could be identified without taking a position what the ultimate outcome of the patent litigation would have been, if it had persisted.

2. Everyone’s a competitor 

Secondly, the position on potential competition is radical, compared to the case law in the pharmaceutical sector and beyond (cf., for example, the approach taken in a relatively recent pharma merger case which considered the question of potential competition by reference to the concept of whether entry was sustainable). 

Lundbeck shares with Samsung and Motorola a stated assumption of patent validity.  In the standard essential patent cases, this was a credible position, and one which was reflected in the legal analysis.  In this case, however, credibility is strained by the finding that Lundbeck and the would-be generic entrants are potential competitors, i.e. the generic entrants had real and concrete possibilities to enter and remain on the market.  While it cannot be excluded that generics will attempt to enter ‘at risk’, a legal theory which considers only this possibility is irremediably one-sided, since it necessarily assumes that the patent in question would ultimately have been invalidated**.   This surely contradicts the stated assumption of patent validity - and has the potential to have significant spill-over effects, e.g., in relation to the Commission’s policy on licensing agreements where it may now be more difficult to argue that any given agreement should be reviewed under the standard applicable to non-competitors.

3. A question of policy - but which policy and whose?

This decision is rich in statements which betray something of the Commission’s views on patent policy.  It is hard to pick out just one such statement, but perhaps the following (from recital 67) is among the most interesting:

“During the period of patent exclusivity, from the moment the patent holder […] has obtained a marketing authorisation for a medicinal product until the expiry of the SPC (or of the patent if no SPC was granted), corresponding in practice to a maximum period of fifteen years, the patent holder may be able to charge a price for the medicine resulting from the invention that is higher, often far higher, than its marginal cost of production. This allows the originator company to recoup the significant investment it makes in research and development of new medicines (not just the particular product that is being successfully marketed, but also numerous projects that never reach the marketing stage). The end of this period reflects the assessment by the legislator that this is the point in time where the cost to society of continued patent protection, in the form of extra profits to the originator company from its exclusive position, starts exceeding the benefits to society.”

The patents which were the subject of Lundbeck’s settlement agreements were not the patent covering the original pharmaceutical compound, which had expired, but rather a series of different ‘process’ patents covering manufacturing methods.  The key concern alluded to in this paragraph is that the patents claimed by Lundbeck did not protect a new product. Yet this is not part of the legal test for patent protection. 

The Commission argues that the legislature only intended to accord medicines a standard period of patent protection, as extended by SPCs. But this ignores the fact that the legislature has made patent protection available to other, 'secondary' inventions: indeed, incremental innovation makes up the vast bulk of patent applications.  Such innovations are likely to become all the more important as fewer new compounds are developed, and there is greater reliance on the development of combination products and second medical uses for existing drugs (an issue on which we commented recently).  

Leaving aside the wider policy implications, this aspect of the Commission’s policy suggests that parties settling litigation on an original compound patent may be less likely to encounter competition law obstacles than those seeking to enforce ‘secondary’ patents in a way which defers (even theoretical) generic entry.  Only time will tell how accurate this assumption will prove to be - but for now,  a cautionary note to finish – even if the Commission observes the primary/secondary patent distinction, it cannot be guaranteed that all NCAs will adopt a similar course.

** Of course, the patent might alternatively have been held to be non-infringed.  The decision does not attempt to assess which of these outcomes was more likely.  Rather, it relies on the idea that, post-expiry of the compound patent, the market is ‘in principle’ open to generic competition.  Statistics drawn from the sector inquiry report about the high rate of invalidity of ‘process’ patents appears to have played into this conclusion.

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Companies ShrIEEEk at new SSO bylaws

BOLD FRAND statements seem to be the order of the year.  The IEEE Board of Governors has just approved its new standards policy relating to patents.  The IEEE is the US standards body responsible, for the creation of, among other things (the Wi-Fi standard and the 802.11 WLAN standard). 

Its new policy is not dissimilar in some respects to the position in the recent Chinese MIIT paper (see our blog here) in that they both: 
  • remove the availability of injunctive relief in situations where the licensee has been willing to abide by the outcome of an independent adjudication to determine certain issues for example what a reasonable royalty would be; and 
  • make a FRAND commitment binding on assignees and transferees of SEPs.
Both papers are also fairly BOLD in approaching the thorny and much debated issue of how a reasonable royalty is to be assessed:
  • Both suggest that a reasonable royalty should be calculated and paid by reference, among other things, to the value that the functionality of the invention contributes to the value of the “smallest saleable patent compliant unit” rather than the whole market value of the product in which the particular technology is included.
  • Both the MIIT and the IEEE propose to have regard to the total aggregate royalties that may apply if other essential patent holders require similar terms.
  • Both policies expressly exclude from the assessment of reasonableness any value resulting from the inclusion of the relevant technology in the standard.  According to the IEEE, the calculation should not reflect the “cost or inability of implementers to switch from the Essential Patent Claim’s technology included in the standard.”  See IEEE FAQs here.
The IEEE’s adoption of its new patent policy has been cleared by the United States Department of Justice in a business review letter.  Notably, however, the DOJ was careful not to take a view on whether the IEEE’s policy choices meet the IEEE’s requirements.  The DOJ commented that there is unlikely to be a one size fits all policy for all standard setting organisations and  that variation may be beneficial.  In approving the IEEE policy the DOJ noted that:
  • clarifying the meaning of the RAND commitment before completion of the standard, should give participants in the standard-setting process greater knowledge of their obligations and rights, which may promote ex ante competition for inclusion in the standard; 
  • this up-front approach could aid ex ante and ex post licensing negotiations assuring patent holders that they should be compensated for the value of the technology, otherwise they may become reluctant to contribute to standards or invest in future R&D; and
  • clarifying the RAND commitment may also help to reduce the instances of hold-up, help ensure access to the relevant technology comprised in the standard and remove some anti-competitive practices.
The DOJ agreed that SEP holders would be less likely to engage in patent “hold-up” –if injunctions were not available against “willing licensees.  This was not surprising given previous DOJ remarks and US judicial comment which has in recent years supported the view that it is difficult for a SEP holder who has made a FRAND commitment to obtain an injunction. 

Critics complain that the willing licensee test is too pro - licensee as licensees can delay paying royalties while awaiting the outcome of an independent adjudication.  It is argued that this problem is acute where the patentee holder has a portfolio of patents, each of which may be subject to the same hold-out.  The DOJ suggests that courts might reduce this concern by requiring potential licensees to place some money in escrow pending determination of any dispute.

Inevitably, efforts to adopt a new policy dealing with such a commercially sensitive and heated topic have led to significant disagreements within the IEEE.  The outcome has seen much comment (both positive and negative) from elsewhere.  Claims of bias within the IEEE have been made and concerns raised that the committee responsible for the proposals underlying the new policy had included only companies holding a narrow range of opinions.  If correct and if this were an EU standards setting organisation then this could potentially give rise to competition law concerns (see the European Commission’s horizontal guidelines here).  However, the DOJ rejected these claims, saying that there were ample opportunities to consider the views of all parties.  

Views are deeply divided as to the merits of the new policy.  While Cisco hails the policy a victory for licensees, the same policy has met with trenchant criticism and opposition by numerous prominent commercial entities.  Orange has openly expressed its disappointment with the change in policy, Qualcomm is said to be “reconsidering its participation” in IEEE standards development and Ericsson and the Innovation Alliance have all been outspoken in their disagreement with the approach.  Those who have been following similar debates in ETSI will be unsurprised by the degree of upset and the issues that are said to be of concern.

In sum, the IEEE policy espouses a more transparent up-front approach.  It reflects to some extent views from overseas such as the MIIT in China, and yet has met with wariness from the European Commission.  The European standards setting organisation ETSI has for some time been reviewing its own policy.  History suggests that ETSI will not follow the IEEE in seeking to  identify the best approach to the nirvana of a reasonable royalty rate, choosing the less contentious course,  as has been the general trend by competition authorities in the EU, of deferring such questions to the determination of a court or arbitrator on a case by case basis.

Warner-Lambert/Actavis – Competition Law Insights

Competition lawyers could be forgiven for raising a quizzical eyebrow at the judgment handed down by the Arnold J in Warner-Lambert/Actavis on 21 January 2015. His final words, in a judgment which otherwise dealt with a claim for interim relief on a second medical use patent, were as follows:  “...had I concluded both that there was a serious issue to be tried and that the balance of the risk of injustice otherwise favoured the grant of the relief sought by Warner-Lambert, I would not have refused such relief on competition law grounds” [138]. 
By this statement Arnold J suggests that competition law would not have been a bar to the award of injunctive relief for Warner-Lambert (WL) against Actavis and that it may therefore not be an abuse of dominance for a dominant company to impose the relief sought on a potential infringer in the circumstances of the case. 

This leaves us guessing whether the relief would not have been refused: i) either because WL was not dominant or, ii) if WL were considered dominant, whether WL’s behaviour would not have been classed as an abuse, or iii) if WL were considered to have abused its dominance, whether such abuse was actually objectively justified.
This was an application by WL for interim relief against Actavis, a producer of a generic form of the molecule pregabalin for which WL until recently held a patent. This gave WL exclusivity in relation to all three different therapeutic indications: i) pain relief, ii) epilepsy and iii) generalised anxiety disorder (GAD).  However the patent expired in 2013 and a supplementary protection certificate lapsed for non-payment of fees, leaving W-L with only a second medical use patent (in the “Swiss-type”) which provides exclusivity for the use of pregabalin only for the treatment of pain relief (under the Trade Mark “Lyrica”). The interim relief sought by WL would have required Actavis to place additional labelling on its product, and to take a number of further steps, to ensure that it was not prescribed for the treatment of pain relief in the period before the trial at which the validity of WL’s second medical use patent will be considered.
WL claimed that Actavis’ drug would be likely to infringe its patent as pharmacists rarely know what therapeutic use the prescription is for and may therefore end up dispensing Actavis’ drug “Lecaent” for pain relief.  This is because: 

  • the vast majority of doctor’s prescriptions do not state the therapeutic indication for which the drug has been prescribed;
  • prescription software usually searches for generic versions of the originally patented drug to save costs and GPs are encouraged to prescribe using the generic name of the drug rather than a particular brand name;
  • the generic version of the drug is cheaper than the patentee’s product, so pharmacists have an incentive to prescribe the generic drug where they receive generic prescriptions (which account for the bulk of prescriptions), and some of these will end up being prescribed for pain relief; 
  • there is also a high level of off-label prescribing (this occurs where the doctor knows that although a compound should be used for the therapeutic indication on the box, it can also be used for other therapeutic indications and prescribes this drug for this second use even if prescribing it might infringe the patent).
WL therefore sought an injunction to prevent this happening. 

Leaving aside the questions of market definition, dominance and abuse, the key point to note about this judgment from a competition perspective is that we can surmise that Arnold J considered that even if WL was dominant and had abused that dominance, it was objectively justified in its actions to assert its intellectual property rights against Actavis.  After all, it is arguably a fundamental right of pharmaceutical companies to be able to defend their intellectual property rights.  However, it is also common ground that when assertion of these rights goes beyond competition on the merits, where the exclusion of competition (and particularly the exclusion of new entry by generic brands) goes too far, then such behaviour will be likely to be viewed as anticompetitive. 

Of course, the normal weighing of factors involved in whether interim relief should be granted also takes into account considerations such as the proportionality of the relief sought, which is perhaps not so different a consideration from the competition issue referred to here.  In this case, Arnold J rejected the claim for interim relief on the implicit basis that it would be disproportionate to do so:

[137] “In my judgment, granting the relief sought by Warner-Lambert would create a greater risk of injustice than refusing it. In my view, wrongly granting the relief is more likely to cause Actavis substantial unquantifiable harm than wrongly refusing it is likely to cause Warner-Lambert substantial unquantifiable harm. Taking into account the other factors considered above, including the likely efficacy of the measure, I consider that the balance is firmly tipped against ordering Actavis to put a notice on its packaging. In the case of the contractual terms, I consider that the balance is more evenly weighted, but still comes down in favour of refusing relief.

What Arnold J may therefore have been saying was that whether or not WL was dominant or had abused his dominance was immaterial because, on the facts of this case, WL had a right to assert its patent rights and had its assertion of those rights been proportionate to its aim, Arnold J would have helped WL achieve this by imposing the relief sought on Actavis.  

Perhaps the most interesting part of the judgment is not so much the ruling on the interim relief, but Arnold J’s comments on the possible scope of any final relief, if the patent were upheld.  Arnold J noted that even if WL were successful at trial, it would be “very unlikely” [121] to obtain any relief which would wholly exclude the prescription of pregabalin for pain relief.  This is in stark contrast to the recent judgment in Novartis AG and Sun Pharmaceutical Industries BV in which the Hague Court of Appeal granted an interim injunction sought by the holder of a secondary use Swiss style patent against a generic manufacturer wishing to market a drug for a use not covered by the Swiss-style patent.

Warner-Lambert/Actavis is not the first case in which competition law arguments have been raised in the second medical use context (we are aware of at least one in the UK, although there has been no ruling on this subject to date).   The competition concern is the risk of spill-over effects from the grant of an injunction, compliance with which may be impossible except by also stopping lawful activities.  The approach of Arnold J suggests that the standard relief of a final injunction may not in fact be available in the second medical use context – which in turn suggests that there is no breach left by patent law for competition law to fill.  However, it may be a while before we competition lawyers can be sure that we can leave this arena for good!

Sophie Lawrance and Elisabetta Rotondo