On February 12, 2016, the United Kingdom (UK) Competition and Markets Authority (CMA), the UK’s antitrust regulator, handed out a huge fine for a pay-for-delay antitrust law infringement in the UK. Although the CMA has been investigating this case for a while, it was announced at a very convenient moment for the CMA, just days after the body was criticized by the UK National Audit Office for not taking enough antitrust infringement decisions or handing out high enough fines (see here). The fines amount to GBP 45 million for illegal pay-for-delay agreements entered into between originator GlaxoSmithKline plc (GSK) and several generic companies in the UK, see here.
This has been a slow burn investigation to say the least; the European Commission (EC) in Brussels, which is responsible for antitrust law policy and enforcement EU-wide,handed the case to the Office of Fair Trading (OFT, the CMA’s predecessor antitrust regulator in the UK) back in 2010. It also relates to old conduct and agreements between 2001 and 2004. Nevertheless, the pay-for-delay issue remains very live in the EU, including the UK, with the EC still reporting annually on the position (see my previous blog here) and European court appeals against previous EC decisions on the issue currently being heard (see my previous blog here).
In this case, the CMA found that originator GSK, the supplier of branded paroxetine (an anti-depressant medicine), agreed to make payments and other value transfers totaling over £50 million to suppliers of generic versions of paroxetine. The CMA considered that these payments and other value transfers were aimed at delaying the potential entry of generic competitors into the UK market for paroxetine.
Back in 2001, generic competitors were taking steps to enter the UK market for paroxetine. GSK’s own branded version of paroxetine, Seroxat®, was a “blockbuster” product in the UK with 4.2 million prescriptions issued in 2000 and sales exceeding £90 million in 2001. At the time, GSK held certain patents in relation to paroxetine.
GSK challenged generic entry, alleging that the proposed products would infringe its patents, and commenced patent litigation proceedings against the generic companies. Before those litigations went to trial, however, GSK entered into settlement agreements with the generic companies, and the agreements included terms prohibiting their independent entry into the UK paroxetine market. These arrangements were found to be anti-competitive agreements and an abuse of GSK’s0 dominant position. As does the EC in similar cases, the CMA effectively categorized the agreements as a cartel, commenting:
[The generics] accepted value transfers from [the originator] as compensation for their agreement to delay their efforts to enter the market independently of [the originator]. Those value transfers included cash payments, and the effective transfer from [the originator] of profit margins by means of agreements permitting the supply of limited volumes of product to the market in place of [the originator]. The appointment of [the generics] as distributors of [the originator’s] paroxetine provided a means of transferring value from [the originator] to these companies, with no meaningful increase in the level of competition facing [the originator].
Only limited facts are available in the public domain, but this case does seem to fall squarely within the territory that the EC consistently considers as problematic and giving rise to an “object” or automatic infringement of EU and EU national competition law. In other words, what the EC refers to as a Category B.II settlement (limitation on generic entry and a value transfer from the originator to the generic), which is likely to attract the highest degree of antitrust scrutiny. This is because (a) the generic and originator companies are at least potential competitors (here the generic companies were apparently preparing to enter) and (b) the generic companies did commit to stay out of the market (for a period) and (c) there was a transfer which (the CMA presumably considers) substantially reduced their incentives to enter (cash payments and distribution agreements for limited volumes).
It will be interesting and important to see the CMA’s analysis when the decision itself is published. For example, did GSK consider the level of likely profits of the generic companies? Did the agreement to delay go beyond the patent (out of scope)? What will happen after the delay–is the underlying litigation sorted out?
Overall, the question the CMA presumably asked and answered positively was, would the value transfers related to potential profits convince the generic companies to stay out of the market? That would be an “explained” value transfer, but in a negative way. Those are the types of issues that the EC looked at in the Lundbeck case discussed in my previous blog here.
The CMA’s fines suggest that originator and generic companies will need to think carefully about the legality of patent settlement agreements under EU antitrust law.