The European Commission (EC) recently presented preliminary findings from its ongoing inquiry into the pharmaceutical sector. The sector inquiry began in January 2008 with a series of unannounced dawn raid inspections of major European pharmaceutical companies. The EC launched its inquiry under Articles 81 and 82 of the EC Treaty to examine why fewer new medicines were being brought to market and why generic entry was often delayed.

The EC has focused on brand name manufacturers, finding that competition in the sector is not working as effectively as it should. Specifically, the EC has expressed concern that originator companies may be engaging in certain anti-competitive practices that delay or block market entry of generic and other companies. The report did not make any findings of anti-competitive conduct.

In its report, the EC identified a "tool box" that originator companies could use to block or delay generic entry that could raise competition concerns, including:

  • Creating multiple patent applications for the same medicine (also known as patent clusters) — The EC cited one example where 1,300 EU-wide patents were filed for a single medicine.
  • Initiating disputes and litigation — There have been almost 700 cases of reported patent litigation against generic companies, which last, on average, for nearly three years. Generic companies have won more than 60 per cent of these cases.
  • Negotiating patent settlements that constrain market entry of generics — Between 2000 and June 2008, more than 200 such settlements were concluded and over 10 per cent of these were so-called "reverse payment settlements" providing payments from the originator to the generic company with a restriction on generic entry.
  • Intervening during the regulatory approval process for generics — This has led to an average delay of four months for generic entry.

The EC suggests that these practices have reduced the incentive for innovation and resulted in significant additional costs for public health budgets, and, ultimately, for taxpayers and patients. The EC looked at a sample of drugs facing a loss of exclusivity in

17 member states between 2000 and 2007, and estimated that additional savings of $3 billion would have been possible had generics been able to enter the market without delay.

The EC report does not specifically state that any of the strategies infringe European competition law. Nor is the report intended to provide guidance to industry participants. But the EC has stated that it will not hesitate to commence cases where it appears that competition law has been breached. The EC expects to issue a final report in spring 2009, after receiving feedback from stakeholders on the preliminary findings.

McCarthy Tétrault Notes:

The EC has focused on practices that could affect or delay generic entry into the market. This is in contrast to the approach taken by the Canadian Competition Bureau, which found healthy competition among drug manufacturers and has instead chosen to focus on ensuring that the benefits of competition are passed on to consumers.

Some critics have contended that the EC should have also examined the competition and costs of generic drugs. It has been suggested that patent protection should not be the sole focus of the inquiry, as even the EC did not dispute that strong and valid patents are critical for the pro-competitive development of new drugs and innovation.

One of the EC’s recommendations is to decrease the time for generic market entry after patent expiry, from an average of seven months (four months for certain drugs) to almost no delay. Interestingly, the European Union previously challenged a "stockpiling" provision in Canada’s patent legislation that was intended to decrease delay of generic drug market entry. Specifically, the provision stipulated that making a patented medicine during the life of the patent (i.e., six months from the date of patent expiry) for the purpose of stockpiling it for sale after the patent expired does not constitute infringement. In 2001, the World Trade Organization held that the disputed provision contravened the Agreement on Trade-Related Aspects of Intellectual Property Rights, and Canada ended up revoking the provision.

The Canadian Competition Bureau’s Intellectual Property Enforcement Guidelines, released in 2000, identified some of the issues mentioned in the EC report. To date, however, there has been limited enforcement activity in this area in Canada. It remains to be seen whether the EC report will trigger any action by the bureau.