The European Commission's first pay-for-delay anti-trust infringement decision

by K&L Gates LLP
Contact

I. Introduction

In June 2013, two important decisions regarding 'pay-for-delay' arrangements in the pharmaceuticals industry were made in the EU and US. Generally speaking, 'pay-for-delay' or 'reverse-payment settlements' involve a type of patent settlement through which a payment is made by a patent holder, in this case a pharmaceutical company, to its competitors. In return, those competitors keep generics off the market. Such arrangements are usually used to avoid the time and costs involved if the parties were to enter into a patent dispute in the courts. However, patent settlements have recently been receiving increased scrutiny from anti-trust authorities across the globe, raising legal uncertainty in this area.

As outlined in our recent K&L Gates alert[1], the US Supreme Court has applied a rule of reason assessment when reviewing an anti-trust challenge to a pharmaceutical reverse-payment patent settlement. The court concluded that reverse-payment settlements in the US were neither per se unlawful nor per se lawful, but must be assessed under a traditional 'rule of reason' analysis in terms of their effect on competition and potential justifications.

Following on, this alert considers the effect of the European Commission's (the 'Commission') recent infringement decision against Danish pharmaceutical company Lundbeck and a number of generic manufacturers for delaying the market entry of generic medicines. This is the first time that the Commission has imposed a fine in respect of a patent settlement case, amounting to €93.9 million (US$122.3 million) in respect of Lundbeck and €52.2 million (US$68 million) for the generic manufacturers. This decision is related to the Commission's earlier competition inquiry into the pharmaceutical sector which concluded in 2009, and other follow on pay-for-delay cases are currently being investigated at an EU level.

II. Lundbeck - the background

The product and the patent
Lundbeck's branded blockbuster antidepressant 'Citalopram' was Lundbeck's best-selling product. Lundbeck held various patents for the product, both in relation to the basic patent for the substance itself (i.e. the substance molecule) and in relation to related manufacturing processes, which provided a more limited protection. However, the basic patent for the substance molecule expired prior to the other patents held by Lundbeck.

The agreement
The Commission found that when Citalopram was nearing the end of its life-cycle, i.e. when the basic patent for the substance held by Lundbeck had lapsed, generic versions of the same drug had the possibility to enter the market, despite the continued existence of manufacturing process patents. In fact, one generic manufacturer had started selling its own generic version of the drug, and others were actively preparing to do the same.

However, in 2002, Lundbeck entered into discussions with the generic manufacturers regarding potential infringement of its patents for manufacturing processes of Citalopram. As a result, it was agreed with four generic manufacturers that Lundbeck would:

  • Pay the generic manufacturers substantial amounts and other inducements amounting to tens of millions of Euros not to enter the market; 
  • Purchase generic stock from the generic manufacturers with the purpose of destroying it; and 
  • Offer the generic manufacturers guaranteed profits in a distribution agreement.

The Commission also discovered incriminating documentation referring to a 'club' being formed and 'a pile of $$$' to be shared among the participants. These agreements were viewed as giving certainty to Lundbeck that the generic manufacturers would stay out of the market for the agreed period (without any assurance of generic entry after the agreements had expired).

III. The European Commission's infringement decision

The Commission's enquiry into the pharmaceutical sector, mentioned above, indicated a number of structural issues and problems in pharmaceutical companies' practices which have the ability to delay the entry of cheaper medicines, and emphasised the importance of stronger competition law enforcement.

The Commission concluded that Lundbeck's arrangement with several generic manufacturers violated Article 101 of the Treaty on the Functioning of the European Union, and imposed fines on Lundbeck (€93.9 million/US$122.3 million) and on the generic manufacturers (€52.2 million/US$68 million).

While the infringement decision itself has not yet been released, the Commission commented in its press release regarding the fine that the agreements in question were not comparable with other legitimate patent dispute settlements where generic companies are "not simply paid off to stay out of the market". Recognising the unacceptable object of the agreement, Competition Commissioner Almunia is quoted as stating that it is "unacceptable that a company pays off its competitors to stay out of its market and delay the entry of cheaper medicines. Agreements of this type directly harm patients and national health systems […]".

Furthermore, in his speech Almunia highlighted that "Lundbeck did not prevent market entry by successfully enforcing its patent rights; rather, it simply paid other companies so that they would not compete, giving them the equivalent of what they would have earned if they had entered the market. This means they shared monopoly rents among themselves […]". The Commission found that prices of the generic equivalent in the UK were on average 90% of the price of Ciralopram once wide-spread generic market entry occurred following the discontinuation of the agreements.

In a public announcement that it intends to appeal the Commission's infringement decision, Lundbeck has asserted the validity of the patents on manufacturing processes, and claims that over 600 analyses of generic Citalopram demonstrated that they were all produced with patent-infringing processes.

IV. Legality of pay-for-delay following Lundbeck

The Commission has been monitoring patent settlements with a view to detecting "those settlements which could be potentially problematic from an anti-trust perspective - namely those that limit generic entry against a value transfer from an originator to a generic company".

The Commission's Third Report on Patent Settlement Monitoring, published in July 2012, illustrates that levels of potentially problematic settlements have stabilised at 11% (defined in the report as 'settlements limiting generic market entry showing a value transfer from originator to generic company'). The Commission commented in its Lundbeck press release that this shows that the vast majority of patent settlements are unproblematic from a competition perspective (defined in the report as 'settlements without limitation of generic market entry' and 'settlements limiting generic market entry, but without value transfer from originator to generic company'). Moreover, there has apparently been a significant rise in the number of patent settlements since the Commission's pharmaceutical sector enquiry.

While the Commission interprets this as a sign that its actions have not hindered pharmaceutical companies from concluding legitimate settlements, the continued existence of potentially problematic settlements means it will nevertheless remain vigilant. Competition Commissioner Almunia referred in his speech to the US Supreme Court's recent ruling, welcoming its similar position that "such 'pay-for-delay' deals should be subject to anti-trust scrutiny".

However, the difference between 'legitimate' and 'problematic' settlement agreements under EU competition law is one of significant importance for pharmaceutical companies, which will now be looking to increase certainty that such arrangements are indeed legitimate in view of Lundbeck. The disadvantage for patent owners and generic companies is a potential return to resolving more patent disputes in the courtroom if parties are forced to adopt a more cautious approach.

Other ongoing 'pay-for-delay' Commission investigations will be closely followed, and Commissioner Almunia has indicted more decisions are likely before the end of his mandate next year, which will hopefully clarify the position further.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.