On 19 June 2013, the European Commission (“Commission”) fined Lundbeck and several producers of generic medicines - including Alpharma, Merck KGaA/Generics UK, Arrow and Ranbaxy - EUR 146 million for infringing EU competition law. The Commission found that Lundbeck and the generic companies had concluded anti-competitive agreements aimed at delaying the market entry of competing generic versions of Lundbeck’s best-selling medicine Citalopram, an anti-depressant drug. This case is the first Commission decision dealing with so-called “pay for delay” or “reverse payment” agreements. Lundbeck and Ranbaxy have already stated that they intend to appeal the Commission’s decision.

Lundbeck’s Agreements with Generic Companies

According to the Commission, in 2002, Citalopram, which was Lundbeck's best-selling medicine, was nearing the end of its life-cycle; the patent protection for the molecule had lapsed and the remaining patent protection was limited to certain manufacturing processes. At that point, the Commission considered that it became possible for competitors to enter the market with generic versions of Citalopram and one of them started to sell generic Citalopram while others were preparing to launch their own versions of the product.

In its decision, which comes over three years after the opening of formal proceedings, the Commission found that Lundbeck had infringed Article 101 of the Treaty on the Functioning of the European Union by:

  • Paying generic producers significant lump sums not to enter the market;
  • Purchasing generic producers’ stock for the sole purpose of destroying it; and
  • Offering generic producers guaranteed profits in distribution agreements.

Through its agreements with generic competitors, the Commission maintained that Lundbeck was able to keep producers of cheaper, generic versions of Citalopram out of the market.

The Commission considered this case different from other cases involving settlements of patent disputes where "generic companies are not simply paid off to stay out of the market”. Commission Vice-President Almunia explained in his statement that: “Lundbeck did not prevent market entry by successfully enforcing its patent rights; rather, it simply paid other companies so that they would not compete […] they shared the monopoly rents among themselves” The Commission stated that it had discovered internal documents referring to a “club” being formed as well as to a “pile of $$$” to be shared among the participants.

The Commission fined Lundbeck EUR 93.8 million and the generic companies a total of EUR 52.2 million for infringing EU competition rules.

In its statement confirming its intention to appeal the Commission’s decision, Lundbeck asserts that its Citalopram process patents were valid and that all analyses of the production of competing generic versions show that they were produced with infringing processes.

Conclusion

There are elements to this case which may well distinguish it from other patent settlement cases under investigation and it remains to be seen whether all of the Commission’s findings - including the level of the fine - will be upheld on appeal. However, in the meantime, Commission Vice-President Almunia is sending a very strong message to the industry:

"Paying competitors to stay out of the market at the expense of European citizens has nothing to do with the legitimate protection of intellectual property: it is an illegal practice and the Commission will fight against it."

He is taking comfort in his approach from the recent decision of the Supreme Court of the United States in FTC v. Actavis, Inc. However, in that case, while the Supreme Court found that so-called “reverse payments” can breach antitrust rules based upon the particular facts of a case, it did not agree with the US Federal Trade Commission’s view that such agreements are presumptively illegal. The Supreme Court’s decision opens up a traditional rule of reason approach in assessing these types of settlements, allowing a court to weigh up all the facts and circumstances in a particular case in determining whether, on balance, the agreement is reasonable. The Commission’s rhetoric on the other hand, is pointing to a stricter approach where such agreements are presumed to infringe EU antitrust rules.

It now remains to be seen what approach the Commission will take vis-à-vis Laboratoires Servier, Cephalon, Inc. and Johnson & Johnson which are all being investigated - together with a number of generic companies - for potentially delaying generic entry through inter alia patent settlement agreements. According to Commission Vice-President Almunia, we can expect further decisions in this field before the end of his mandate in 2014.