On March 21, 2014, the European Commission adopted a revised version of its guidelines on the antitrust assessment of technology transfer agreements (Guidelines).1 The revisions discuss the antitrust assessment of patent settlement agreements, which are particularly prevalent in the pharmaceutical sector. With multiple antitrust cases regarding patent settlement agreements in the pharmaceutical sector still pending before the Commission and the EU Courts, and with no clear guidance having emerged as yet, the (albeit limited) indications in the Guidelines as to how the Commission might assess such agreements are of particular interest.
Guidance on so-called “pay-for-delay” agreements
Although the Guidelines specifically mention what the Commission terms “‘pay-for-restriction’ or ‘pay-for-delay’ type settlement agreements”, they offer little real guidance on how the Commission will assess such agreements. This is unsurprising: the area is simply too complex and controversial for the Commission to set out a clear overall position when key cases are still pending before the Commission and the EU Courts. Instead, the Commission limits this aspect of the Guidelines to the relatively uncontroversial observation that: “If the parties to […] a settlement agreement [involving the grant of a license and a delay or other limitation on entry] are actual or potential competitors and there was a significant value transfer from the licensor to the licensee, the Commission will be particularly attentive to the risk of market allocation/market sharing.” Given the Commission’s multiple prior comments to this effect (including in the context of the Commission’s 2008-2009 Pharmaceutical Sector Inquiry) there is little new here. Indeed, this section of the Guidelines is perhaps more interesting for what it omits, rather than what it includes.
In the 2013 draft version of the Guidelines, the Commission had stated that antitrust scrutiny of patent settlement agreements involving licensing arrangements was necessary:“in particular if the licensor provides an inducement, financially or otherwise, for the licensee to accept more restrictive settlement terms than would otherwise have been accepted based on the merits of the licensor’s technology.” (Emphasis added). Stakeholders commenting on the 2013 draft version of the Guidelines had observed that the Commission’s language in this section appeared to suggest that, in the context of an antitrust investigation, the Commission would look to conduct a detailed assessment of the ‘merits’ of the technology at issue, a task for which the antitrust lawyers and economists at the Commission’s Directorate General for Competition seemed ill-equipped.
The decision to drop this language – in its entirety – from the final version of the Guidelines may suggest that the Commission ultimately agreed with stakeholders that it should not become involved in attempting to assess the technical merits of a complex patent dispute. Equally, however, the decision to drop the language may simply be reflective of a Commission desire to avoid for the time being what is clearly a controversial issue.
Guidance on when settlement agreements are unlikely to raise antitrust concerns
The Guidelines also contain new language that is very helpful for pharmaceutical companies considering entering into patent settlement agreements.
At paragraph 235, the Guidelines explain that: “Settlement agreements in the context of technology disputes are, as in many other areas of commercial disputes, in principle a legitimate way to find a mutually acceptable compromise to a bona fide legal disagreement.” The Guidelines also explain that parties to a dispute: “may prefer to discontinue the dispute […] because it proves to be too costly, time-consuming and/or uncertain as regards its outcome.” All of this serves as helpful confirmation that settlement agreements are a perfectly legitimate business tool that, in the vast majority of cases, should not raise antitrust issues. The Guidelines even explain that settlements: “can also save courts and/or competent administrative bodies effort in deciding on the matter and can therefore give rise to welfare enhancing benefits.”
The Commission has yet to publish details of any of its recent, or ongoing, antitrust investigations into patent settlement agreements. Likewise, the EU Courts have yet to rule in this highly complex and controversial area. For the now, therefore, innovative pharmaceutical companies looking to settle disputes with fellow innovators or generics will need to continue examining documents such as the Commission’s Guidelines for the slightest hint as to how the applicable antitrust rules will be applied to patent settlement agreements.