In July 2009, the European Commission published its final report in its pharmaceutical sector inquiry, which was launched in January 2008. The report will be a tool for focusing the Commission’s investigative priorities in specific cases in the pharmaceutical sector. However the report goes considerably further than assessing antitrust issues, and reports on a number of issues in relation to the patent system and regulatory issues, regarding delays in obtaining marketing authorisations and pricing and reimbursement authorisations in particular. This scope of the inquiry and report is perhaps an inevitable consequence of the regulatory framework of the sector.

The report confirms the Commission’s concerns in relation to delays in generic market entry and apparently low levels of innovation. The Commission attributes these largely to the behaviour of the companies on the market, and in particular actions taken by originating companies against generic companies to block or delay generic competition, and also practices of originator companies to block or delay the development of competing originator products. The Commission selected 43 originator companies and 27 generic companies (representing 80% of the relevant EU turnover) for in-depth analysis, and took a sample of 219 substances (accounting for 50% of the overall prescription medicines turnover in the EU in 2007) for in-depth investigation.

The starting point for the inquiry and report is the cost saving to health systems that can be achieved through generic market entry, and consequently the financial burdens that result from delays in generic market entry. The report states that the prices at which generic companies enter the market are on average 25% lower than the price of the originator medicines prior to the expiry of data exclusivity, that two years after entry, prices of generic medicines are on average 40% below the former originator price, and that in markets where generic medicines become available, average savings to the health system are almost 20% one year after generic entry. However, it is stated that savings due to generic entry could have been 20% higher if entry had taken place immediately following the loss of data exclusivity.

Competition issues as between originator and generic companies

The Commission draws attention in particular to defensive patenting strategies that focus mainly on excluding competitors without pursuing innovative efforts, together with refusals to grant a licence on unused patents, as issues requiring scrutiny. On the basis that individual medicines can be protected by “patent clusters” up to 1300 patents (and/or pending patent applications) across the Member States, a generic company challenger may need to be prepared to take action in respect of a large number of the patents and patent applications in those Member States that it wishes to enter. As a minimum, this is stated to lead to uncertainty for generic competitors even though some of the relevant patents might not be strong.

The report also draws attention to originator companies’ strategy of launching a second generation medicine with the aim of switching a substantial number of patients to the new product prior to the entry of the generic version of the first generation product, thus inhibiting a generic competitor from gaining any significant share of the available market.

The report refers to patent litigation as a means of excluding generic competition, insofar as patent litigation can be used as a means of creating obstacles for generic companies and thus be a strategy chosen by an originator company not on its merits but rather as a signal to deter generic entrants.

Amongst other practices affecting generic product entry, the report refers to interventions by originating companies in market authorisation and/or pricing and reimbursement assessment procedures based on arguments that the generic product would be less safe, less effective and/or of inferior quality as compared with the originator product, and in some cases arguing that the marketing authorisation or grant of reimbursement status would violate the originator company’s patent rights. However, the report states that patent issues are outside the scope of the regulatory body’s assessment. Most such interventions have a low success record but lead to delays to generic market entry, typically of around four months. The Commission states that in cases where submissions to a marketing authorisation body were clearly primarily made to delay market entry, affected parties should complain to the relevant competition authority.

The Commission states that it will particularly focus on monitoring settlement agreements in the context of patent litigation, especially those involving value payments by an originator company, especially where the motive is the sharing of profits via payments from originator to generic companies to the detriment of patients and public health budgets. Such value transfers can be either in the form of a direct payment or in the form of a licence or distribution agreement or other commercial deal. Further, the report draws attention to exclusive sale or distribution agreements in respect of generic medicines which have the effect of prolonging contractually the exclusivity under the data exclusivity rules by typically more than two years.

Competition issues as between originator companies

The Commission’s report indicates that originator companies use a variety of tactics to exclude or limit competition from other originator companies, many of which tactics are similar to those found to be deployed against generic companies. They include defensive patent strategies, divisional patent applications, patent-related litigation and settlement agreements on terms relatively favourable to the claimant. In addition, they include commercialisation agreements involving exclusive supply, exclusive sourcing or exclusive licensing obligations and/or a non-compete application. Typically the average duration of such exclusivity or non-compete obligations was found to be eight years.

Establishment of the Community Patent and of a unified litigation system

The report records strong support from stakeholders for the creation of a single Community Patent and also a unified and specialised patent litigation system. The inquiry showed that these would create significant efficiency improvements by reducing the costs associated with multiple filings, and by eliminating potentially parallel court cases.

Streamlining marketing authorisation processes

Whilst in-depth analysis of the regulatory framework is outside the scope of the report, the report records stakeholders’ concerns about shortcomings in implementation leading to delays and administrative burdens for companies. The Commission calls upon Member States and national agencies to make better use of the mutual recognition procedure in respect of marketing authorisations by reducing administrative burdens and enabling full mutual recognition without additional requirements.

The report draws attention to the fact that third party submissions against the grant of an authorisation, which as mentioned above is a tactic identified on the part of originator companies, is not envisaged in Community pharmaceutical legislation. The report calls upon Member States and regulatory agencies to ensure that any third party submission is well documented, made transparent to the applicant and that all necessary efforts should be taken to ensure that the intervention does not lead to delays.

Pricing and reimbursement systems

The report draws attention to delays with respect to pricing and reimbursement decisions as a result of the imposition of additional requirements concerning the bio-equivalence between the originator and generic products, which can provide a tool to originator companies to intervene and prolong the process. The report specifically states that the pricing and reimbursement authorities are not competent to assess patent, bio-equivalence or safety issues, and that Member States should therefore disregard third party submissions raising such issues. The report also calls on Member States to ensure that where such submissions cannot be disregarded, they be well documented and made transparent towards the applicant, and that all necessary efforts be taken to avoid unnecessary delays for the applicant.

The Commission urges all stakeholders to ensure that the time limits of three or six months established by the Transparency Directives 89/105 are respected.


The Commission’s final report contains more detailed analysis and more specific recommendations on changes to the regulatory framework than its interim report of November 2008, whilst the antitrust concerns are essentially unchanged as between the interim and final report. The Commission is perhaps inevitably drawn into making recommendations about the scope and application of the regulatory framework, both as regards marketing authorisations and pricing and reimbursement approvals, due to the regulatory context in which competition in pharmaceuticals must be assessed. However, how quickly the proposed regulatory initiatives are taken forward will depend on the will of the Commission as a whole and not just the Competition Directorate-General, and more importantly on the support and priority given to such recommendations by the EU Member States.

Insofar as the Commission’s Competition Directorate-General wishes to invoke competition law, in particular the rules on abusive dominant position, against alleged misuses of the regulatory system, this will in many cases involve breaking new ground, even after the AstraZeneca case. Moreover, the use of competition law against originator companies deploying patent litigation strategies for allegedly anti-competitive purposes will likewise be challenging.

The Commission would need to show an abuse of dominant position contrary to Article 82 EC, for which purpose the Commission will first have to show that the company in question is dominant in a relevant market, which will in turn depend on the market definition. Such actions will follow the cases of AstraZeneca (appeal pending before the European Court of First Instance, Case T321/05) in which the Commission found abuses in the form of misuse of the patent system (concerning supplementary protection certificates) and misuse of the marketing authorisation system, and also the Commission’s current investigation of Boehringer Ingelheim for alleged misuse of the patent system.

It will be challenging for the Commission to prove abuse of dominant position through patent clusters, or litigation actions as a deterrent strategy against generic entry, as there would be a heavy evidential burden on proving an anti-competitive strategy as the motivation and reason for the action as distinct from the substantive merits of the applications or actions. Such types of practices that concern the Commission can be characterised as legal or illegal depending on the intent of the company, including the creation and also the enforcement of intellectual property rights. There is limited precedent regarding this type of abuse, and there is no actual finding as yet on an abuse of this nature, though the possibility of abuse of dominant position through vexatious litigation has been confirmed in principle by the European Court of First Instance in a case outside the pharmaceuticals sector but concerning intellectual property enforcement, ITT Promedia v Commission (Case T-111/96). However, recent developments suggest that the Commission may be more inclined to initiate actions of this nature in the future.

Even as regards settlement agreements which on one level may involve more conventional infringements of competition law, and so may be more obvious targets for Commission scrutiny, such action may at another level be more controversial. The question of whether value payments by an originator company should be treated as a payment to exclude the recipient from competing in the market or should be regarded as a logical compensation payment based on an assessment of the different possible outcomes of the litigation (and of the commercial possibilities in the absence of successful enforcement action), remains an open question, and one which needs to be assessed on the facts of each individual case.


European Commission Pharmaceutical Sector Inquiry Final Report, 8 July 2009