The European Commission’s Directorate for Competition (the Commission) has published the preliminary findings from its ongoing inquiry into the pharmaceutical sector. The report is intended to be a factual analysis of the Commission’s findings so far. The Commission is keen to emphasise that it has not yet reached any conclusions on whether companies have been involved in competition law infringements or even if any action on its part will be necessary. However, the report itself and the Commission’s presentation of the report in a public hearing held in Brussels on November 28, 2008 suggest that the Commission will pursue further action against individual companies for suspected antitrust infringements which the Commission considers are delaying the entry of generics on to the EU market.  

‘Tool-Box’ of Instruments used by Originator Companies to Delay Generic Entry?  

The report points out that originator companies have changed their patent strategies in recent years and use a variety of strategies to extend the commercial life of their medicines for as long as possible. The Commission identifies a “tool-box” of instruments used by originator companies which the Commission believes may contribute to delaying the entry of generic products on to the market. The Commission also indicates that based on its findings so far, some or all of these instruments are used by certain originator companies with the sole or primary objective of blocking or delaying generic entry, quoting from documents found in the course of its inquiry which the Commission believes confirms the originator companies’ intent.  

The “tool-box” described by the Commission includes:  

  •  the use of “patent clusters” (filing numerous patents (including sometimes allegedly weak patents) around the same medicine, which can lead to uncertainty for generic companies on whether and when they can start to develop a generic medicine without infringing one of the many (new) patents);  
  • engaging in out of court disputes and litigation with generic companies (the Commission points to some 700 cases of litigation reported in relation to the medicines investigated and indicates that the majority of court cases were initiated by originator companies and that generic companies won 62 percent of cases where final judgement was given);
  • the conclusion of settlement agreements with generic companies (the Commission points out that in more than half of the settlements reported, the originator company did not impose any restrictions on generic entry but in 48 percent of the cases relating to the EU, the generic company’s market entry was restricted including some cases where direct payments were made to the generic company as part of the settlement); and
  • intervening in regulatory approval procedures for generic medicines (the Commission referred to originator companies intervening when generic companies applied for marketing authorisation and pricing/reimbursement status for their medicines, claiming that generic products were less safe, less effective and/or of inferior quality and also arguing that marketing authorisations or obtaining pricing or reimbursement status could violate their patent rights).  

Competition Between Originator Companies Restricting Development of New Medicines? The report also looks at competition between originator companies, including defensive patents which the Commission considered may infringe antitrust rules when used for the sole purpose of blocking the development of a new competing medicine. It also looked at patent-related exchanges and litigation between originator companies pointing to its findings on how issues were resolved where there were overlaps in originators’ R&D poles (licensing, litigation and settlements).  

Regulatory Framework  

The report summarises comments from industry regarding the functioning (or mal-functioning) of the EU regulatory framework, particularly the patent system, marketing authorisation procedures, and national pricing and reimbursement procedures. The Commission supports the adoption of a Community patent, but beyond this, does not advocate any other policy initiatives to improve the existing system. Perhaps, more importantly the Commission states that the sector inquiry confirmed that generic entry often occurs “later than expected” but it did not examine the extent to which the existing regulatory framework contributed to this delay. It stated rather that, as this was a competition inquiry, it focused on the behaviour of companies, rather than on the regulatory framework.  

Follow-up  

We expect that the Commission’s report will be followed by the launch of further antitrust investigations against individual companies for some of the practices identified and by litigation at national level between generic and originator companies. In pursuing individual investigations, the Commission in some cases will be treading a fine line between permitting legitimate protection of IP rights and antitrust enforcement.  

Many of the ‘questionable’ practices outlined in the Commission’s report result, not from an agreement, but from the unilateral actions of originator companies (obviously excluding settlement agreements). In this context, the Commission has to proceed under Article 82 of the EC Treaty (abuse of a dominant position) and therefore will first need to establish that the originator company holds a dominant position in the EU market before it can find an antitrust infringement for unilateral conduct. The discussion on dominance in the pharmaceutical industry falls outside the scope of the Commission’s report but no doubt this question will be hotly disputed in subsequent Commission investigations.  

In the case of investigations of alleged abusive litigation, there is a precedent in another sector which sets a high bar for the Commission to succeed in finding that an originator company has abused its dominant position through patent litigation. In the ITT Promedia case,1 the CFI concluded that litigation would only be found to be abusive in “wholly exceptional circumstances.” In order for litigation to be found to be abusive, according to the CFI, it must be shown not only that it was conceived as part of a plan to eliminate competitors from the market but also that the action is “manifestly unfounded”. It remains to be seen whether the Commission will eventually establish what it currently seems to perceive as widespread abuse based on this test.  

Ultimately, Commission decisions finding antitrust infringements can be challenged before the European Courts. The final outcome of such challenges would determine whether any Commission findings of anti-competitive conduct by originator companies are legally sound. However, given the lengthy nature of proceedings before the European Courts, it will take many years to resolve these questions.  

The Commission has invited comments on its preliminary report from industry stakeholders, companies and interested third parties. It will be important for companies to submit comments, not only to the Commission’s Directorate for Competition but also to the Directorate for Enterprise and Industry, which has a broader role in assessing the potential impact of the final report on the industry. Once the consultation process ends on January 31, 2009, the Commission intends to publish its final report in Spring 2009.  

The report is available at:  

http://ec.europa.eu/comm/competition/sectors/pharmaceuticals/inquiry/preliminary_report.pdf