On 30 January 2020, the Court of Justice of the European Union (the CJEU or the Court) published its judgment in relation to pay-for-delay settlement agreements1. While other judgments in similar cases are expected soon (for example, in the Servier and Lundbeck appeals2), the Court's decision shows that the CJEU reflects a global trend of legislative and judicial pressure on IP exclusivities in the pharma sector.
Pay-for-delay settlement agreements are agreements under which the originator manufacturer (patent holder) of a pharmaceutical product transfers a sum of money or other benefit to a generic manufacturer (usually a claimed patent infringer) in exchange for that company delaying its entry into the market.
The case follows a reference for a preliminary ruling to the CJEU by the UK Competition Appeals Tribunal (CAT). In 2011, the UK's Competition and Market Authority's (CMA) predecessor, the Office of Fair Trading, launched an investigation into several patent dispute settlement agreements between GlaxoSmithKline (GSK) and generic manufacturers of the anti-depressant drug paroxetine. In 2016 the CMA found that the agreements were a breach of competition law.
In the context of a patent dispute brought up by the originator regarding breach of its secondary patents, GSK agreed with potential suppliers of the generic version of the drug to make payments and provide other benefits to delay their entry into the UK paroxetine market (for the time of duration of the patents in dispute).
All the companies were fined a total of £44.99m. The decision was appealed to the CAT and while it rejected a number of grounds of appeal, in 2018 it referred several questions to the CJEU for clarification.
This judgment of the CJEU shows that the parties to IP settlement agreements in pharma have to proceed with caution and be highly careful about potential competition implications.
There are three key points in the judgment:
- whether an originator manufacturer and a generic manufacturer may be considered potential competitors
- when a patent settlement is a breach of competition law
- when a dominant company abuses its dominant position in this context.
When an originator manufacturer and a generic manufacturer that has not yet entered the market may be considered potential competitors
In order to find an infringement of the competition rules, the parties to an agreement must be actual or potential competitors. The generic manufacturers in the case in question had not yet entered the market so the question the CJEU had to address was whether they could be considered at least potential competitors.
The Court determined that the manufacturer of the originator medicine and the manufacturer of generic medicines who are preparing to enter the market are potential competitors if:
- the manufacturer of generic medicines has a firm intention and an inherent ability to enter the market, and has taken sufficient preparatory steps (such as the necessary regulatory steps, manufacturing sufficient stocks etc), and
- barriers to entry in the market are not insurmountable; the existence of a patent cannot be considered an insurmountable barrier as it can be contested and it is not up to the competition authority to assess the strength of the patent.
Infringement under Article 101 of the Treaty for the Functioning of the European Union (TFEU)
In competition law, if an agreement in itself displays a sufficient degree of harm to competition, it is not necessary for competition authorities to establish that there were also anti-competitive effects when reaching the conclusion that the agreement infringes competition law (so called "restriction by object"). If the agreement does not reveal such harm, a competition authority then has to examine the effects of the practice before finding an infringement (so called "restriction by effect").
In the GSK judgment, the Court stated that a patent settlement where the generic manufacture agrees not to enter the market in return for money or other is not by itself a restriction by object as the agreement might be necessary having regard to the legitimate objectives of the parties. An infringement by object can however be found when the transfer of value can have no other explanation than the interest of the parties not to engage in competition on merits unless the settlement has pro-competitive effects.
The CJEU also concluded that settlement agreements, when they are not a restriction by object, should be examined by their effects on the market and those effects should be examined in the context of the actual case.
The patent holder might be in a dominant position
The Court considered that a dominant company may abuse its dominant position if the set of patent settlement agreements were part of an overall strategy to keep potential competitors out and had the effect of delaying the market entry of generic manufacturers.
Why the judgment is important
Patent dispute settlements are a common practice. In this complex and highly regulated industry, there are multiple factors to consider when entering into agreements (such as different national reimbursement systems and different patent regimes).
The Court's broad definition of what is a restriction by object in this context brings further uncertainty to the industry. The parties should consider carefully if their patent settlement raises competition issues.