It does not take much these days to notice that law enforcement has gone global. The transnational nature of prosecutions, enforcement actions, and regulatory proceedings can be seen in a host of recent cases. The prosecution of the FIFA scandal, for example, involves not just the U.S. Department of Justice but also the active participation of the Swiss authorities, and the governments of Costa Rica and Colombia have recently announced their own independent investigations. Similarly, the alleged manipulation of interbank lending rates has led to prosecutions by the United Kingdom’s Serious Fraud Office and the U.S. Department of Justice, as well as actions by a less well-known enforcement agency, Japan’s Financial Services Agency. And as this blog noted over two years ago, the Chinese Ministry of Public Security led an investigation into Glaxo Smith Kline’s alleged bribing of officials and doctors to utilize the company’s drugs, which ultimately resulted in a $500 million corporate fine and a suspended sentence for a Glaxo executive who otherwise would have been relegated to a Chinese prison.
In light of these actions, the news that emerged just last week, of a foreign regulatory agency yet again imposing multi-million dollar penalties on an international company, hardly constitutes a surprise. Yet what is notable is the identity of the agency involved, and the relatively belated nature of the sanction it imposed.
On February 12, 2016, the United Kingdom’s “Competition and Markets Authority” (CMA) – the rough equivalent of the Federal Trade Commission in the United States – fined three pharmaceutical companies a total of nearly £45 million ($65 million) for having engaged in so-called “pay-to-delay” agreements relating to the sale of a generic antidepressant. According to the CMA’s press release, in 2001, several pharmaceutical companies were taking steps to release to British consumers the generic drug paroxetine, for which Glaxo already had on the market a branded version known in the U.K. as Seroxat (and, in the United States, as Paxil). Allegedly acting to protect its market share for such a “blockbuster” drug, Glaxo initiated patent infringement actions against the generic manufacturers, and two of them – Generics (UK) Limited, and Alphapharma Limited – settled the lawsuits with Glaxo pursuant to agreements that delayed the release generic Seroxat. Finding that these settlements “infringed the competition law on anti-competitive agreements,” and that GSK in particular “infringed the competition law prohibition on abuse of a dominant position,” the CMA imposed fines of over £37 million on GSK, nearly £6 million on Generics (UK) and its former parent, and approximately £1.5 million on Alphapharma and related entities. Moreover, in its press release, the CMA’s Executive Director touted his agency’s action, describing it as showing the CMA’s willingness to “tackle illegal behaviour that is designed to stifle competition at the expense of customers.”
There can be little doubt, in light of this recent enforcement action, that the United Kingdom’s Competition and Markets Authority does indeed intend to “tackle” behavior that it perceives as anti-competitive, including in the pharma industry. Yet what else can one take away from the most recent massive penalty that a law enforcement agency has imposed on big pharma and its generic competitors? The first is that, when it comes to enforcement actions, and particularly those that relate to health care, there is simply no shortage of international agencies that are eager and willing to join the fray. Indeed, less than three years ago the CMA didn’t even exist, and conduct deemed anti-competitive in the United Kingdom was pursued either by the Office of Fair Trading (OFT) or the so-called Competition Commission. However, pursuant to the Enterprise and Regulatory Reform Act that passed the British Parliament in April 2013, the OFT and the Competition Commission were merged into the CMA, and the new agency now assesses the impact of mergers, enforces consumer protection legislation, and can bring criminal proceedings against those who commit “cartel offences” (i.e., bid rigging, price fixing, or market allocation). As the recent fines reflect, the CMA can also pursue what it perceives an anti-competitive conduct that affects health care consumers in the U.K., and international pharmaceutical companies should view the CMA as yet another agency that can impose massive penalties relating to drug pricing and market control. Indeed, given the CMA’s preliminary finding in August 2015 that Pfizer inflated the cost of an epilepsy drug that it distributed in the U.K., one can reasonably expect that the Glaxo-related fines are just the first show of muscle by a new enforcer in the health care arena.
A second take-away from the CMA’s fines relating to Glaxo’s alleged “pay-to-delay” settlements is the extent to which regulators are willing to pursue penalties in the health care industry even when allegations relate to arguably stale conduct, and even when the challenged practices appear to be significantly on the decline. Regarding the first of these points, the CMA’s press release describing the fines against Glaxo, Generic (UK) and Alphapharma candidly states in its first paragraph that the “CMA’s decision relates to conduct and agreements between 2001 and 2004.” In other words, for conduct that allegedly took place between ten and fifteen years ago (and which, according to Glaxo, had been reviewed by European Union regulators twice before, without action), Glaxo and the companies with whom it allegedly entered into so-called pay-to-delay settlements must now pay belated fines of significant proportions. Additionally, authorities in both the European Union and the United States have found in recent years a notable decline in pay-to-delay deals between brand name and generic pharmaceutical companies. In December 2013, for example, a report from the European Commission’s “Directorate-General for Competition” noted that whereas pay-for-delay settlements made up 22% of the settlements reached by original patent holders and generic manufacturers between 2000 and the first half of 2008, the percentage of pay-to-delay deals dropped to only 7% of the settlements reached in 2012. Similarly, in January 2016, the FTC issued a notable report that assessed the number of pay-to-delay settlements since the Supreme Court issued its decision in FTC v. Activis, Inc., in which the Court agreed with the FTC’s position that pay-for-delay agreements between brand name and generic manufacturers are not immune from antitrust scrutiny. According to this recent FTC study, in the first full year since the Activis decision, there has been a “substantial decrease” in the number of pay-to-delay settlements as compared to the prior year, as well as a “sizable reduction” in the number of such settlements when compared to other recent years.
Of course, as is too often the case, we are left with more questions than answers. Are pay-to-delay settlements truly on the wane, such that penalties of the sort recently imposed by the U.K.’s CMA will be increasingly rare? And will the CMA truly take a place at the table with the other enforcement agencies and regulators that operate in the health care sphere? The long-term answers are unclear. But for now, the CMA has clearly made its mark, and pharma companies, their counsel, and all lawyers involved in government’s investigations would do well to add the CMA to the growing list of international law enforcement agencies worth watching.
From The Insider Blog: White Collar Defense & Securities Enforcement.