Ever since the publication in July 2009 of the report on its antitrust inquiry into the pharmaceutical sector, the European Commission (EC) has been monitoring patent settlement agreements between originator and generic companies in the EU (plus Norway, Iceland and Liechtenstein, thus making up the European Economic Area or EEA). This monitoring was started because the inquiry identified settlements that limit generic entry and provide at the same time for a value transfer from the originator to the generic company (“pay-for-delay”) as potentially raising antitrust concerns in the EU/EEA. On 2 December 2015, the EC’s latest report, its sixth, covering calendar year 2014, was published. The headline finding in the report is that, as in previous years, the vast majority of pharmaceutical settlement agreements (some 88% this time) are prima facie unproblematic in antitrust law terms. The EC says this shows the industry’s increased awareness of potentially problematic practices and that companies do not feel hindered from concluding settlements in general. This is a comment made every year, but legal uncertainty continues to cause issues in this area. The origin of that legal uncertainty, including current cases before the EU General Court in Luxembourg, will be considered in a follow-on posting. What are problematic practices in the view of the EC? As set out in its latest report, the EC accepts that settlements (i.e., commercial agreements to settle patent-related disputes such as over questions of patent infringement or validity) are a legitimate way of ending private disagreements. However, certain types of settlement may prove to be problematic from an antitrust law perspective:
- “Of particular interest” are settlements that may lead to a delay of generic entry in return for a value transfer (e.g. a payment) by the originator company to the generic company. Other examples of possibly problematic agreements relate to settlements that contain restrictions beyond the exclusionary zone of the patent, meaning that they would reach beyond its geographic scope, its period of protection or its exclusionary scope. Such agreements, the EC considers, are not directly related to the intellectual property (IP) rights granted by the patents concerned; and
- Another example is settlement agreements on a patent, which the patent holder knows does not meet the patentability criteria (e.g., where the patent was granted following the provision of incorrect, misleading or incomplete information).Based on this, and as explained in the report, the EC divides patent settlements into Categories A and B. Category A covers cases where there is no limitation on generic entry and here there will generally be no antitrust concerns. Category B covers cases where there is a limitation and divides into B.I and B.II. B.I settlements (no value transfer) are generally fine (but may be problematic if the settlement is concluded outside the exclusionary zone of the patent and/or on a patent for which the patent holder knows that it does not meet the patentability criteria). B.II settlements (value transfer) are “likely to attract the highest degree of antitrust scrutiny” (in the EU). This may be clearer in tabular form:
Click here to view table.
The EC does accept that even in Category B.II not all agreements are incompatible with EU antitrust law; “This needs to be assessed on the basis of the circumstances of each individual case.” This is where it gets difficult (and litigious); see the follow-on posting. So what did the sixth report find in relation to B.II settlements? In the period investigated (2014), B.II agreements accounted for 12% (9 out of 76) of all agreements (hence 88% were not problematic). None of the B.II agreements included a payment to the generic company but the value transfers instead included different combinations of early entry and a license. Of the 9 identified, 5 (56%) enabled early entry without a license or a distribution agreement, 3 (33%) combined early entry with a license to the generic company, and 1 (11%) only included a license. The EC however points out that pure early entry (although technically a value transfer) is unlikely to be very problematic; “…an agreement which includes no other limitative provision than determining the date of the generic entry with the originator’s undertaking not to challenge such entry (a “pure early entry”) is not likely to attract the highest degree of antitrust scrutiny.” Removing the pure early entry examples, it can be seen that the EC found a very limited number of problematic settlements. It would not be surprising if this is the last report. The EC probably feels that its monitoring and continual discussion of the issue at conferences and the like has had the desired effect. Also, by the end of 2016, the generic company cases will likely have been handed down, so companies should have detailed guidance from the court on what is and what is not acceptable.