In the aftermath of its pharmaceutical sector inquiry in 2008 and 2009 and the subsequent monitoring of patent settlements in the European Union, the European Commission (“Commission”) has in recent years investigated a number of attempts by brand name pharmaceutical companies (“originators”) to delay the introduction of generic versions or of new drugs that may compete with their products already on the market. The Commission has focused in particular on settlements of patent infringement suits that may restrict generic market entry in exchange for payments from originators to generics producers sued for patent infringement (so-called reverse payment or "pay-for-delay" agreements).

To date there are three Commission decisions regarding “pay-for-delay” agreements, in which the Commission has in total imposed fines against originators and generics producers in excess of EUR 580 million. Two of these three decisions have been appealed. The General Court’s (“GC”) decision in Lundbeck is the first EU judgment, confirming the Commission’s assessment that pay-for-delay agreements between originators and generics producers are incompatible with EU competition rules. Particularly, the GC stressed that “by concluding such agreements, [originators could] maintain higher prices for their products, to the detriment of consumers and the healthcare budgets of States”.

The Lundbeck Decision

Lundbeck A/S of Denmark was the holder of a patent for citalopram, an antidepressant, since 1977. Lundbeck further refined the production process of citalopram and applied for and often obtained patents in several Member States of the European Economic Area (“EEA”) as well as from the World Intellectual Property Organization and the European Patent Office. In 2002 Lundbeck concluded six “patent settlement agreements” regarding citalopram with four generics producers, namely Merck, Alphapharma, Arrow and Ranbaxy. In each agreement Lundbeck undertook to pay the respective generic producer a certain amount, in consideration whereof the generic producer undertook to delay the distribution of the generic pharmaceutical product for a period of time. The territorial scope of four of the agreements extended to the entire EEA, excluding the UK; the remaining two covered the UK. At the time the agreements were concluded, Lundbeck’s original patent had already expired.

On June 19, 2013, Commissiom imposed fines of EUR 93 million on Lundbeck. As to the generics producers, it assessed fines of EUR 21.4 million on Merck, EUR 10 million on Arrow, EUR 10.5 million on Alphapharma, and EUR 10.3 million on Ranbaxy.

The Commission considered that the agreements at issue constituted restrictions of competition “by object” and therefore violated Art. 101 TFEU. Under EU competition law, there is a distinction to be made between restrictions ‘by object’ and restrictions ‘by effect’, which is roughly comparable to the per-se rule / rule-of reason distinction under US antitrust law. Thus, when the Commission finds a ‘by object’ restriction of competition, it does not have to show anti-competitive effects in order to establish an infringement of EU competition law.

Lundbeck appealed the Commission decision to the GC, and raised several points of law.

The General Court’s Judgment

The GC dismissed Lundbeck’s appeal in its entirety. While the majority of the judgment concerns the correct assessment of the facts underlying the case, the judgment also touches upon some particular salient issues of law.

1. Potential competition.

A patent is a government-granted monopoly, the very purpose of which is to eliminate actual competition. However, a violation of EU antitrust law requires a restriction of competition, which in turn can only happen if there is or could be competition in the first place. Given that due to Lundbeck’s patent, the generics producers were (mostly) not yet active in the citalopram market, the question arose whether they were at least potential competitors. According to the General Court, the mere existence of a potential new-entrant may amount to potential competition.

Referring to settled case law, the GC ruled that the relevant test for determining potential competition is whether, given the structure of the market and the economic and legal context, there are concrete possibilities for the undertakings involved to compete among themselves, or for a new competitor to enter the relevant market and compete with established companies. In short, the question to be answered is whether market entry would be an economically viable strategy.

Pursuant to the GC, the mere theoretical possibility of market entry does not suffice to prove potential competition. To establish the existence of potential competition between the generics producers and Lundbeck in the present case, the Commission had taken several factors into consideration, such as the significant investments and efforts already made by the generics producers in order to prepare their market entry, the fact that Lundbeck had acknowledged that there were a certain number of processes available to produce citalopram without infringing its patents, the fact that, when the agreements were concluded, no court had found the generic products to be infringing, and the fact that there was a non-negligible possibility that some of Lundbeck’s patents might be declared invalid. In addition, one generics producer even had succeeded in entering the market before and during the term of the agreements at issue. Lastly, the fact that Lundbeck decided to pay significant amounts to the generics producers in order to keep them out of the market during the period of the agreements indicated that there was potential competition.

Against this factual background, the GC rejected Lundbeck’s argument that its patents would constitute insurmountable market entry barriers. It pointed out that Lundbeck’s original patent would not have rendered market entry impossible because, at the time the agreements were concluded, it had already expired. Further, the court noted that the very fact that Lundbeck had concluded agreements with generics producers in order to delay their entry to the market was the strongest evidence for potential competition, regardless of what the subjective intentions of the parties involved might have been.

2. Reverse payments.

The GC stated that, in principle, the existence of a payment from an originator to a generics producer in the context of a patent settlement is not always problematic, particularly when (i) that payment is linked to the strength of the patent, as perceived by each of the parties, (ii) it is necessary in order to find an acceptable and legitimate solution in the eyes of the two parties and (iii) it is not accompanied by restrictions that unduly delay the market entry of generics. Yet, in the case at issue, the GC did not find these conditions to be met. Rather, the GC confirmed the Commission’s view that when a reverse payment is combined with the exclusion of competitors from the market or a limitation of their incentives to seek market entry, such a payment constitutes the buying-off of competition. Further, the GC clarified that the amount of the payment may indicate the strength or weakness of a patent. Referring to the US Supreme Court’s Actavis decision (Federal Trade Commission v. Actavis, 570 U.S. (2013)), the GC commented that the mere fact of a significant payment in a settlement agreement can provide a surrogate for the weakness of a patent, without having to carry out a detailed analysis of the validity of that patent. Therefore, the GC confirmed the Commission’s view that the disproportionate nature of “payments, combined with several other factors — such as the fact that the amounts of those payments seemed to correspond at least to the profit anticipated by the generic undertakings if they had entered the market, the absence of provisions allowing the generic undertakings to launch their product on the market upon the expiry of the agreement without having to fear infringement actions brought by Lundbeck, rightly led to the conclusion that the agreements where anticompetitive in nature”

3. Restriction by object.

The GC confirmed the Commission’s assessment that the agreements constituted ‘by object’ restrictions under EU competition law. In particular, the GC ruled that the Commission was right in treating the agreement equivalent to market sharing agreements. In line with the relevant case law (Case C-67/13 P Cartes Bancaires v Commission), according to which certain particularly harmful forms of multilateral conduct are by their very nature restrictive of competition (e.g. price fixing and customer allocation), the GC concluded that the agreements in question were akin to market exclusion agreements. It stressed that the complete elimination of competition is ‘by its very nature’ restrictive of competition and therefore a restriction ‘by object.’

The court rejected Lundbeck’s argument that the restrictions were objectively necessary to protect its intellectual property rights. If Lundbeck were of the opinion that its patents were infringed, it could have brought actions before the competent courts. Accordingly, and similar to the per se rule in US antitrust law, the Commission was not required to prove that the agreements in fact had caused anti-competitive effects. The GC thus went further than the US Supreme Court in Actavis, in which the Court had ruled that the rule of reason test applies to “pay-for-delay” agreements.

Outlook

Apart from the Lundbeck case, the Commission has imposed fines in two other pay-for-delay investigations. One concerned fentanyl, a pain-killer, and the other perindopril, a cardiovascular medicine. While the Fentanyl decision was not appealed, several appeals against the perindopril decision are still pending before the GC. In addition, there are cases pending at the EU Member State level (in particular in the United Kingdom). It is to be expected that health insurance companies and public health care authorities will now increasingly start to claim compensation from originators and generics producers for damages incurred by the delayed entry of generics. For instance, before the UK High Court English health care authorities are suing Servier for damages in the wake of the Commission’s perindopril decision.