Pay-for-delay focus on steroids

At the end of last week, the CMA sent a formal statement of objections to Actavis UK and Concordia alleging that they had entered into illegal ‘pay-for-delay’ patent settlement agreements.
For a number of years Actavis was the sole supplier of hydrocortisone tablets used to treat conditions such as Addison’s disease that result in insufficient amounts of natural steroid hormones. Concordia was the first potential competitor to obtain a market authorisation for a generic version of the drug. The CMA alleges that Actavis incentivised Concordia not to enter the market with its generic version of the drug by agreeing a fixed supply of its drug to Concordia at a very low price for resale to customers in the UK. As a result Actavis remained the sole supplier of the drug for most of the duration of the agreements (January 2013 to June 2016), during which time the cost of the drug to the NHS rose substantially from £49 to £88 per pack. 
The CMA has provisionally found that the pharma companies have breached competition law by entering into anti-competitive agreements.  It has also provisionally found that Actavis abused its dominant position by inducing Concordia to delay its independent entry into the market. This case is separate from the CMA’s other continuing investigation into Actavis UK, which it announced at the end of last year.  That investigation is looking at whether Actavis UK has abused a dominant position by charging excessive prices to the NHS for the drug following a 12,000% price rise over the course of several years.  A substantial portion of that price rise took place in the period before the start of the agreements in issue in this investigation.
This latest development comes amidst a number of appeals regarding the application of competition law to pay-for-delay patent settlement agreements in the pharma sector.  In particular, the General Court of the EU recently upheld the European Commission’s decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements (see here and here). That decision is now on appeal to the EU Court of Justice – the grounds of appeal are available here.  Separately, the CAT is currently hearing the appeal of the CMA’s infringement decision against GSK and a number of generic companies for pay-for-delay agreements (see here and here) – this hearing is listed for five weeks, continuing until the end of this month.
In both of these appeals a key issue is whether the competition authorities applied the correct test in finding that the pay-for-delay agreements restricted competition ‘by object’, meaning that the effects of the agreements did not need to be considered. The appellants argue that, following the EU Court of Justice’s decision in Cartes Bancaires, ‘by object’ restrictions should be interpreted restrictively.   The Lundbeck appeal to the EU Court of Justice also raises the critical issue of how the General Court dealt with the existence of Lundbeck’s patents. With this in mind, we will be keeping a close eye on the CMA’s investigation into Actavis/Concordia, particularly the legal basis for any final finding of infringement…  

Francion Brooks

Breaking news – General Court confirms Lundbeck decision and fine

The General Court of the EU has upheld the European Commission decision fining Lundbeck and a number of generic companies in relation to patent settlement agreements.  At the time of writing, the full text of the decisions has not been published.

What we do know

  • The Commission’s Lundbeck decision found a restriction of competition by object only.  The recent trend towards a more restrictive interpretation of the ‘object’ category (which we discussed in the context of patent settlements here) has not prevented this novel finding being upheld by the General Court.
  • Would-be generic entrants are therefore held to be potential competitors of the patentee (Lundbeck), despite the existence of patent protection held by Lundbeck.  The fact that they had possibilities for entering the market, including through an at-risk launch, is regarded as a form of potential competition.  (Having been brought up to respect the blocking power of patents, this is something I expect to find troubling for some time to come…)
  • The fine has been upheld in full – no credit has been given for the novelty of the decision.
It is still unclear how closely the General Court has followed the Commission’s reasoning – to judge by the press release, it appears likely that the legal analysis is closely aligned.  (See our discussion of the decision itself here.)  Other than for the parties themselves, the judgment will be of immediate interest for the parties to the Paroxetine litigation in the UK: as reported here, an appeal of the CMA’s decision in that matter is due to take place before the Competition Appeal Tribunal early next year.  This decision is likely to be welcome news to the CMA… Meanwhile, companies entering into agreements settling patent litigation will need to continue to pay very careful heed to the competition rules when deciding on the terms of market access for generic products.

The General Court’s press release is available here.

Sophie Lawrance

This summer’s (not so) light reading – the CMA’s published Paroxetine decision (GSK/generics)

Some 6 months after issuing its infringement decision against GSK and a number of generic companies, the CMA has released a non-confidential version.  This comes in at a weighty 717 pages.  

Other than the grounds of appeal (on which we reported in the final paragraphs of this post), this is the first chance for companies and their advisors who weren’t involved in the proceedings to see the approach the CMA has taken, and to compare it with the current Commission approach.  First impressions are that the CMA has closely aligned itself with the Commission’s patent settlement decisions, such as Lundbeck**. The CMA and the parties will therefore be particularly keen to see the General Court’s forthcoming judgment in that case – indeed, the case management directions set down by the Competition Appeal Tribunal in the appeal proceedings against the CMA’s decision require the parties to prepare submissions on the relevance of the GC’s judgment to the case.

For those who aren’t keen on such weighty holiday reading, but can’t stand the suspense, below are a few pointers to the parts of the CMA’s legal reasoning which may be worth dipping into:

  • Paragraphs 1.3  1.20: A high level summary of the decision for those who only have an appetite for some light reading.
  • Paragraphs 3.65 – 3.84: The CMA’s view of patents, expanded upon at paragraphs 6.19-6.22.  The Windsurfing case law on the ‘public interest’ in removing ‘invalid patents’ is key: patents are treated as ‘probabilistic’ (although the term isn’t used) and are not guaranteed to be valid. Like the Commission, the CMA treats legal challenges to patent validity as part of the competitive process, and argues that the market is ‘in principle’ open to generic entry after expiry of patent protection over an API.  
  • Paragraphs 4.17 – 4.26: Overview of the market definition section which finds that, while other antidepressants may be substitutable for paroxetine, consumption patterns suggest that the actual competitive constraint is limited.  For market definition geeks, the full analysis is at paragraphs 4.29 – 4.97.  It is notable that paroxetine’s position within the ATC features only briefly, with the focus being on actual competitive constraints, including a ‘natural events’ analysis to look at the relative impact of generic entry in relation to the candidate competitor molecules (such as citalopram – the subject of the Lundbeck decision), and entry by generics of paroxetine itself (see para 4.73 in particular).
  • Once the narrow market definition is established, there isn’t much suspense as to the dénouement of the dominance ‘chapter’ (paragraphs 4.98 – 4.127).  In this context, the section on why the PPRS does not constrain pharmaceutical companies’ dominance is again unsurprising, but perhaps worth a read (paragraphs 4.124 – 4.126).
  • Paragraphs 6.1 – 6.9 and 6.204 – 6.206 contain a summary and the conclusion of the ‘object assessment’ under Article 101/Chapter I: while generally Lundbeck-esque, the reference to “the effective transfer from GSK [to GUK/Alpharma] of profit margins” strikes me as a novel way of expressing an old idea.
  • Paragraphs 7.1 – 7.3, 7.61 – 7.62 and 7.114 – 7.115 contain the summary and conclusions of the effects assessment under Article 101/Chapter I.  Even though the agreements were actually operated in the market, the CMA has confined itself to looking at their ‘likely’ effects – presumably to try to account for the fact that the outcome of the discontinued litigation is unknowable. It also concludes that the agreements assisted GSK to “preserve its market power” (paragraphs 7.63 – 7.64 and 7.116 – 7.117).
  • Leading on from that conclusion, paragraphs 8.1 – 8.3 summarise the case on abuse of a dominant position.  Central to the abuse case is the concept of inducement by GSK.  The allegations span not only the agreements in respect of which fines are issued under Article 101, but also an agreement with IVAX (for those with time on their hands, Annex M seeks to explain the discrepancy). GSK raised a number of objective justification arguments, notably around its right legitimately to defend its patent rights and to defend the company’s commercial position.  Paragraphs 8.61 – 8.67 reject these arguments, in particular on the basis that the conduct was not ‘competition on the merits’ (as per AstraZeneca) and that the conduct “went beyond the legitimate exercise of its patent rights to oppose alleged infringements”.  
  • Finally, and again for the more technically minded, at paragraphs 10.43 – 10.53, the relevance of the Vertical Agreements Block Exemption is dismissed, on the basis that the agreements were between potential competitors rather than being true ‘vertical’ arrangements.  At paragraphs 10.54 – 10.97, the parties’ Article 101(3) exemption arguments are also dismissed (spoiler alert: the exemption criteria are not found to have been fulfilled).  One curiosity is the lack of an infringement decision in relation to the agreement between GSK and IVAX.  This was held to benefit from the (now repealed) UK-specific Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000 (now repealed).  In other words, that agreement is treated as vertical, unlike those between GSK and each of the other generic companies, even though the decision recites that IVAX did have plans to launch its own paroxetine generic.  The difference appears to be based on the context in which the agreements were reached: whereas the agreements with GUK and Alpharma related to the settlement (deferral) of litigation, that was not the case for the supply deal agreed with IVAX.  This is addressed at paragraphs 10.36 – 10.47 and in Annex M.
The paragraphs listed above focus on the legal analysis.  Those who prefer their reading less dry will want to look also at the descriptions of the agreements, and will note in particular that the ‘settlements’ considered in the decision did not finally resolve the litigation, but rather deferred it for the duration of the agreements entered into by GSK and the generic companies. Those who like tales of retribution will wish to read about the calculation of fines in section 11 – note that GSK received separate fines in relation to each of the agreements and the abuse of dominance.

The appeal hearing before the CAT is due to start next February, and to last for around a month.  By that time, the General Court will have issued its rulings in the various appeals against the Commission’s Lundbeck decision – which will doubtless be another weighty 
read for the Autumn.

** For more on Lundbeck, please see here (the abridged version) or here (the full analysis).  

The CMA still has pharma and medical devices in its sights

The CMA has been slowly but surely opening a raft of new investigations in the pharma and medical devices industries.  

It announced last week that it is investigating suspected anti-competitive conduct in the medical equipment sector under Chapter II CA 98 and Article 102 TFEU.  An initial 6-month timetable is set down, with the CMA hoping to be in a position to decide whether to take the investigation into the Statement of Objections phase by around October.

Last week also saw the CMA announce that it is investigating anti-competitive arrangements in the pharmaceutical sector under Chapter I CA and Article 102. This will follow the same timetable. 

Just a few weeks earlier, the CMA announced another separate investigation into suspected abuses of a dominant position in the pharma sector.

The CMA recently closed a possible market investigation into possible anti-competitive causes of medicines shortages and it is possible that at least some of these investigations will be shelved before more public information is made available.  However, at least two other longer-standing pharma-industry-focused investigations remain on foot, including:

  • The investigation into possible excessive prices charged by Pfizer for phenytoin sodium, which we have been following here on The CLIP Board: a formal Statement of Objections has been sent in this case, and an oral hearing held; last week Pfizer was fined £10,000 for a procedural infringement in connection with a failure to provide information, a salutary reminder for those involved in CMA investigations in any industry, as the CMA itself points out (“The imposition of an administrative penalty [on Pfizer] […] is critical to achieve deterrence, ie to impress both on the party under investigation, and more widely, the seriousness of a failure to comply with a statutory deadline, without a reasonable excuse.”…).  A decision is due in around August 2016.
  • An investigation into possible abusive discounts which is coming towards the end of its initial phase, and should be the subject of a decision to close or proceed next month.
One case which was not shelved was the Paroxetine patent settlements case (see our earlier post here).  Following the CMA’s imposition in February of £45 million of fines, it has been confirmed that GSK and all of the generics have appealed to the CAT.  The full text of the infringement decision has still not been published by the CMA, but the notices of appeal against the CMA’s decision have appeared on the website of the Competition Appeal Tribunal.  

GSK’s appeal encompasses eight separate grounds, six of which are on issues of substantive law (with two subsidiary grounds on the fining decision).  It is evident from GSK’s appeal that the CMA has followed the Commission in proceeding on the basis of both object and effect analyses in their Article 101/Chapter I infringement decisions, as well as in claiming an abuse of dominance arising from the set of facts.  GSK is unsurprisingly appealing the finding of dominance, which arose from the identification of a relevant market limited to a single molecule.
The CMA is clearly keeping a close eye on the pharmaceutical and medical industries – and we will continue to keep a close eye on the CMA’s activities in this area.

CMA’s mood boosted over fines for anti-depressant

The CMA has fined a number of pharmaceutical companies, including GSK, for anti-competitive conduct and agreements in relation to the supply of anti-depressant drug paroxetine (albeit not as quickly as it originally intended to do, as we reported in our blog post here).

GSK had settled litigation with several generic drug companies following allegations that the generic products would infringe GSK’s patents. The settlement terms included cash payments as well as an effective transfer of profit margins by permitting the supply of limited volumes of product to the market in place of GSK. The CMA found that these terms prevented the generic companies from entering the paroxetine market and deprived the NHS of price falls averaging 70%.

This is the first UK decision to consider the application of competition law to patent settlement agreements, and only the second such decision (following Servier) to include an abuse of dominance allegation alongside the Article 101/Chapter I infringement.  The timing is noteworthy – appeals in Lundbeck, the first Commission patent settlement decision, were heard a few months back, and the judgment must be due later this year. Having taken considerably longer than anticipated to reach the decision, the CMA has been left with a difficult choice of waiting for the General Court decision, knowing it would mean further delay but a possibly more robust legal basis for their own infringement finding, or pressing ahead, with the risk that any significant set-back for the Commission at European level could have an impact on how appeal-proof the CMA’s own decision is.

As yet, the text of the CMA’s decision has not been issued, but we may perhaps expect an approach which is somewhat different to the Commission’s, to hedge against these uncertainties.

The total fine by the CMA was just shy of £50 million, which included a fine of £37.6 million against GSK alone. The CMA clearly remains intent upon tackling abuses of competition law which impact the public purse.  More significant for GSK and the other pharmaceutical companies involved is likely to be the potential level of follow-on damages.  The Department of Health is highly likely to make a claim, and other generic companies may well also follow the pattern established with the claims that followed the OFT’s abuse finding in relation to Reckitt Benckiser’s withdrawal of Gaviscon (see here).

Sophie Lawrance and Robert Fett

6th Report on the Monitoring of Patents Settlements – déjà vu?

Last week the Commission published its 6th report on the monitoring of patent settlements, exploring the use of such agreements in the pharma sector in the EU during 2014.  The report triumphantly declares that the number of agreements which limit access to the market and contain a value transfer, attracting the highest degree of antitrust scrutiny, has “stabilised at a low level”.  It also claims that an increase in the total number of settlements (compared with the period before the pharmaceutical sector inquiry) demonstrates that companies have not been deterred from concluding settlements in general. 

Unfortunately the Commission’s conclusions are based upon a shaky foundation – the same criticisms made of the 5th report last year can be made again here.  This report similarly contains a fairly limited review of the impact of the Commission’s overall policy. 

First, the report  fails to consider a number of other reasons that may have contributed to or caused the number of patent settlements to increase in recent years compared with the period before 2008 (e.g. number of medicines losing patent protection, general increase in litigation, greater readiness of parties to settle and the introduction of new legislation).  The report doesn’t explain how, if at all, it has allowed for these variables in reaching its conclusions.  The report also overlooks the reduction in the number of patent settlements concluded each year since 2012.  It is therefore difficult to say with any certainty how the Commission’s enforcement activities in this area have affected the willingness of companies to engage in or to settle their patent disputes more generally. 

Second, the categorisation of patent settlements is flawed: settlements which involve a genuine compromise (as opposed to one party or the other just giving up) would most likely involve some form of limitation on access to the market and potentially some form of value transfer (as defined by the Commission).  It does not therefore follow that a decrease in the number of settlements of this type is necessarily a measure of effective antitrust enforcement or indeed that it enhances consumer welfare.  Given the uncertainty that faces parties in the pharma sector who may be contemplating settlement it is no surprise that they may be cautious in concluding agreements of this kind.  

Drawing reliable conclusions about the effect of the Commission’s enforcement activities on the settlement proclivities of the pharma sector would require something much less superficial than this annual scanning of the horizon.  This applies with even greater force to any attempt to draw conclusions about the overall effect of Commission competition policy on the sector; its impact on the speed and effectiveness of generic entry; and whether the Commission’s focus on that issue has indeed incentivised pharma companies to invest more in developing innovative products or fundamental R&D – an original rationale for the sector enquiry and all that flowed from it.

Competition law developments in the pharma sector

Last night we had the pleasure of giving a seminar at our offices on competition law developments in the pharma sector. We looked at investigations into patent settlements, and in particular the ‘pay for delay’ cases. We also reflected at how the recently published Lundbeck and Servier decisions may impact upon other important areas for pharmaceutical companies, such as licensing transactions. We concluded by drawing some ‘bright lines’ to try to assist in navigating what can sometimes appear to be a very grey area, providing practical guidance where we could. After a thorough review of a complex, and sometimes daunting, area of competition law we enjoyed a well deserved drink with many familiar faces, and some new ones too...

For those of you who couldn’t make the seminar a webinar version is available here and the slides here.

Interested in competition law developments in the pharma sector…?

If you are interested in competition law developments in the pharma sector, it’s still not too late to register for a seminar that a couple of us will be giving on Wednesday 30 September.  We will be looking in some detail at the latest patent settlement cases, with a view to trying to find some much-needed legal certainty.  We will also be talking about how the Commission’s conclusions in its Lundbeck and Servier decisions may apply to other areas such as licensing transactions, as well as considering the impact of the competition authorities’ increasingly narrow approach to market definition.

Registration is via Bristows’ main website – here.

A podcast of the seminar, together with the slides, will be available after the event

Pat Treacy and Sophie Lawrance

A sympathetic Australian approach to life cycle management and recent CMA guidance on Pharma sector rebates

Our new CLIP of the month comes from one of the antitrust blogs recommended on our sidebar.  A guest contributor on ‘Chillin Competition’ has blogged on a recent Australian judgment which eschews the EU/US trend towards infringement findings in cases concerning life cycle management strategies in the pharma sector.  
In a ACCC v. Pfizer Australia, handed down earlier this year, Judge Flick of the Federal Court of Australia (FCA) held that Pfizer’s adoption in 2011 of a ‘direct-to-pharmacy’ (“D2P”) sales model, along with a rebate accrual scheme, for atorvastatin (Lipitor) in the period immediately preceding patent expiry did not contravene the applicable competition rules.  Attentive readers will recall that Pfizer had introduced a D2P model a few years earlier in the UK, and successfully resisted an application for mandatory interim relief brought by a group of wholesalers including AAH and Phoenix.  The fact that the OFT was already considering Pfizer’s new scheme weighed heavily in the English Court’s unwillingness to grant the relief sought (query whether this would still be the outcome if the case were heard today, given the renewed focus on private actions and the increasing willingness of the courts to grant mandatory interim relief, a topic to which we hope to return soon).  Ultimately, the OFT determined in its Medicines Distribution market study report that it would, broadly, “keep an eye” on things – and there have been no infringement findings on D2P or other forms of limited distribution, which have subsequently seen widespread adoption.
Indeed, just a few weeks ago, the CMA announced that it was closing an investigation into the distribution practices of an unnamed pharmaceutical company.  This case also involved the grant of rebates, and the CMA has given guidance on its approach to this issue (although it is expressed in rather general terms, without any indication as to the features of the particular scheme which raised initial concerns).
Returning to the Australian Pfizer case, it is notable that the case was decided not on the merits of whether Pfizer’s conduct amounted to a breach of the rules, but rather on the basis that Pfizer did not have the requisite market power in the relevant period, due to imminent generic entry.  This approach both accords with recent European Commission patent settlement decisions in Lundbeck and Servier (newly published this week) which find that generic companies represent a source of potential competition even before patent expiry for the purposes of Article 101, and contrasts with the approach to dominance in Servier, which takes no real account of such imminent entry. The FCA’s remarkably sympathetic approach to Pfizer’s life cycle management strategies (“There can be no doubt that Pfizer had to take some steps to combat the competition which it would confront when the atorvastatin patent expired in May 2012”) has – unsurprisingly – been appealed by the ACCC.

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.

***DON’T FORGET... If you have enjoyed reading this post, don’t forget that you can subscribe to future CLIP Board posts – just select the ‘Subscribe’ button above!***